DukeEmployees.com - Duke Energy Employee Advocate
Duke - Page 7 - 2002
Duke’s Rating LoweredDow Jones – by Mark Golden – July 3, 2002
(6/28/02) - NEW YORK (Dow Jones) -- Negative investor sentiment is spreading from a handful of merchant-energy companies to a raft of large utilities with unregulated operations. That diversified model was held up as the ideal for power and gas companies just a month ago.
But on Friday morning Merrill Lynch slashed its 2002 earnings expectations for Allegheny Energy Inc. to $2.90 a share from $3.55. In response, Allegheny's stock price fell 11% to under $26 a share by mid-afternoon. Similarly, Merrill lowered its rating on Duke Energy Corp. almost three weeks ago.
As wholesale power prices plunged, investor enthusiasm moved from growing merchant companies to less risky integrated energy companies. Not surprisingly, it turns out that if a company gets something like half its income from deregulated power, its earnings still will take a hit. A long list of large electric utilities invested significant capital in independent power plants and trading operations. To name just a few: American Electric Power Corp., Constellation Energy Group, FPL Group Inc., PPL Corp., TXU Corp., in addition to Duke and Allegheny.
"These aren't your grandfather's utilities anymore. A lot of them have considerably more investment in unregulated activities, which provides opportunities as well as considerable downside risk. These names have gotten more risky," said independent energy analyst Paul Patterson.
Only a few large utilities see substantially all of their profits determined by state public utility commissions based on a return on capital, Patterson said. He cited Consolidated Edison , FirstEnergy Corp. and Southern Co. as the exceptions.
"And they're already trading at a premium," Patterson said.
Industry Accounting Conference Highlights Concerns
Looking to control the damage, energy company controllers and risk officers met Thursday with fund managers and Wall Street analysts to explain what the industry is doing to standardize how they control, account for and report on their energy trading operations. Investors got to ask a lot of questions and tell the companies what they would like to see change before they resume any enthusiasm for the power industry.
The major U.S. utility association, the Edison Electric Institute, is working with a few coordinated ad hoc groups, the Securities and Exchange Commission and the Financial Accounting Standards Board. EEI expects to have established accounting and reporting standards for power and gas trading by this summer.
By fall, when critical third-quarter earnings reports are posted, investors should be able to compare more easily the performance of merchant energy operations. Many companies plan to start measuring their risks in trading, future earnings and cash flow in the same way, and then they will tell investors what those risks are. They also may say more about the future price assumptions they used when declaring non-cash, mark-to-market gains starting with the third quarter.
Discussions on Thursday were technical, while the talk outside the conference hall during breaks was often alarming.
Ratings companies such as Fitch Ratings ignore mark-to-market earnings when assessing a company's ability to make debt payments. They look at cash from operations, Fitch's managing director Ellen Lapson told the crowd, but even that isn't clear. Dynegy Inc.'s Project Alpha and Enron Corp.'s Mahonia transaction were designed to make loans appear as operating income.
Off stage, one utility accountant, who had been working with PriceWaterhouseCoopers until recently, said he saw many such deals get done for energy companies, though they haven't been publicly disclosed.
On stage, head of investor relations for Duke Energy Corp., Sue Becht, said the industry has to start policing itself.
"We do monitor other companies' disclosures. We could never unravel Enron's numbers, where they were making their money," said Becht. "There's no question that the industry has to stand up for itself and against other participants if necessary. This industry can't withstand any more bombs falling out of the sky."
Of course, it's easy to knock Enron now. When asked later what companies' numbers don't make sense to Duke now, Becht declined to name names. The confrontations will come, she said, in executive-level, private conversations well above the hearing range of the public.
On stage, investors told the companies to tell the truth, but keep it simple.
"The only thing I know about value-at-risk is the smaller the better. But when a company says it has $20 billion in business but only $10 million in value-at-risk, something doesn't add up," said beleaguered portfolio manager, John Kellenyi, of JK Utility Advisory.
Off stage, a stock analyst with one Wall Street company said his group, using current power market forward prices, can't figure out how any of the pure merchant-energy companies will be able to meet their enormous debt obligations over the next few years.
Headlines about wash trades, Death Star and off-balance sheet vehicles aside, maybe things are simple in the world of energy. Maybe too much information on things like cash-flow-at-risk metrics will just obfuscate reality, as too little basic information has done to date, several speakers said.
Some of these problems are really just manifestations of the fact that producing power for sale in the wholesale market is a low-margin business, said Standard & Poor's credit analyst Peter Rigby.
"Energy trading is a very valuable aspect of the business, but it's probably not nearly as profitable as some people lead us to believe," Rigby added.
The assumptions that merchant power companies make about future power prices are consistently richer than what S&P uses. And, said Rigby, actual cash earnings reported lately have been in line with S&P's estimates, not those of the merchants.
Once power producers and energy traders deduct the high cost of capital needed for their business, there isn't a lot of profit left, but there is a lot of risk, Rigby said.
As the merchant-energy bug spreads to large utilities with substantial unregulated divisions, the industry is trying to head off any more surprises. But if the truth is as bad as some observers say, can any of these companies afford to tell the truth in plain English?
Duke Plant Opposed in VirginiaThe Roanoke Times – by Lois Caliri – July 3, 2002
(6/27/02) - RICHMOND, Va. - Campers relaxing at Foster Falls State Park or people driving along Interstate 77 could, one day, look up and see a glow in the sky, especially on a humid night. That light could come from Duke Energy North America's gas-fired power plant in Foster Falls, near the Wythe-Carroll county line.
Landowners argued this week at a public hearing before the State Corporation Commission that the plant would harm the environment, including the New River.
Opponents also carried their message to Sen. George Allen, R-Va., by demonstrating in front of his Richmond office, holding signs that denounced the plant and Duke Energy's proposal to build a natural gas pipeline that would stretch through Tennessee, Virginia and North Carolina, ending in Rockingham County, N.C. Allen supports both projects.
What makes this case unique is that Duke would withdraw 7 million gallons of water a day from an abandoned mine beneath the Austinville and Ivanhoe communities in eastern Wythe County. The water would be used to cool the plant's towers, and Duke said it would return up to 1 million gallons a day to the mine.
Duke officials said they know of no other plant in the country that draws water from a mine. Originally, Duke wanted to draw about 6 million gallons of water a day from the New River. Withdrawing water from the mine will have "minimum impact" on flow in the New River, said Arthur Dailey , a consulting engineer for Duke Energy.
Wythe County officials endorsed the plant because it would generate about $1.5 million a year in taxes, said Wythe County Administrator Cellell Dalton.
Opponents were not impressed.
"I would love to enhance the tax base, but they should not be willing to sacrifice the one million-plus visitors to Foster Falls State Park and campground and the New River Trail," said Owen Gallimore of Austinville. "They should also realize they will be polluting the air for neighboring Carroll County residents."
"I am opposed to the building of the Foster Falls power plant," said David Carroll of Austinville. "In my view, it would be a crime to allow such an industry to locate on the back step of one of Virginia's finest state parks. What sense does it make for the state to work for the last 15 years to develop the New River Trail State Park if they aren't going to protect it?"
Of particular concern to opponents, the SCC's lawyers and the SCC's hearing examiner, Michael Thomas, were the water-quality issues relating to the mine and the New River.
The New Jersey Zinc Co. mine was closed and flooded in 1981.
The Austinville mine operated as a lead and zinc mine from the 1700s to the early 1980s. It contains 1.8 billion gallons of water, and the maximum rate of flow into the mine is 10,900 gallons a minute, or 15.7 million gallons a day.
The water, however, contains lead, zinc and cadmium. The levels of each metal exceed state and federal water safety standards. These contaminants would be concentrated fivefold as the water cooled the towers at the power plant. Duke says the water would be treated to reduce the contaminants to their original levels before it is returned to the mine.
The state Department of Environmental Quality determined that Duke does not need a water withdrawal permit because the water would come from a mine and that falls under the auspices of the U.S.
Environmental Protection Agency.
Jeffrey Scott, executive director of the National Committee for the New River, raised several issues, including the lack of scientific data to prove that the plant would not harm surrounding groundwater and the New River.
"Of most concern are the toxic levels of concentrated lead and cadmium that will be discharged back into the mine, potentially contaminating the underground source of drinking water to an estimated 1,000 local citizens," he said.
Exposure to cadmium can cause kidney damage, Scott said. Exposure to lead can cause delays in physical or mental development in infants and children and can cause kidney problems and high blood pressure in adults, Scott said.
A 1980 study done by engineering firm Hayes, Seay, Mattern & Mattern said that 83 percent of the water in the mine was groundwater and 17 percent came from the New River.
Duke's analysis of the study estimated that 10 percent of the water in the mine would come from the New River because of a sealed bulkhead door in the mine. The report also said a bulkhead door in the mine is "reported to leak like Niagara Falls when closed."
Scott asked, "Are the bulkhead doors in the mine sealed watertight or are they leaking like Niagara Falls?" Of the 20-plus bulkhead doors installed in the mine, three are known to have been shut before or during the mine closure in December 1981, Dailey said.
SEC to Hold Some Officers AccountableThe Securities and Exchange Commission – Press Release– June 30, 2002
largest SEC-registered publicly traded companies
FOR IMMEDIATE RELEASE
Washington, D.C., June 28, 2002-The Securities and Exchange Commission today published a list of 945 companies whose chief executive and chief financial officers are now required to personally certify-in writing, under oath, and for publication-that their most recent reports filed with Commission are both complete and accurate. Officers who make false certifications will face personal liability.
"This is an unprecedented step to help restore investor confidence,' said SEC Chairman Harvey L. Pitt. "We are demanding that CEOs and CFOs swear that the numbers they've reported in their financial reports are correct and that they've left nothing important out."
The order is intended to assure the investing public and the SEC that the corporate disclosure in reports already filed this year with the Commission is in compliance with federal securities laws, or, provide information quickly about those companies where that is not the case. The Commission's order applies to companies with reported annual revenues in excess of $1.2 billion.
The order requires the principal executive and financial officers of SEC-registered companies to each file with the Commission a sworn written statement in which the officer must personally attest that the company's most recent periodic reports are materially truthful and complete or explain why such a statement would be incorrect.
The officers are required to file their written statements with the Commission no later than the close of business on the first date that their company is required to file a Form 10-K or Form 10-Q with the Commission on or after Aug. 14, 2002. The SEC intends to make the certifications available to the public on the SEC Web site. The certifications will apply to:
Employee Advocate: Duke Energy Corporation is on the list.
Duke Energy to Sell Canadian 88 StakeReuters – June 24, 2002
(6/3/02) - CALGARY, Alberta (Reuters) - Duke Energy Corp. said on Monday it was selling its 19 percent stake in gas producer Canadian 88 Energy Corp. for C$72.2 million ($47.2 million), less than two weeks after Canadian 88 installed an oil patch veteran as its chief executive.
Duke, the big U.S. energy marketing, pipeline and utility company, said it was selling its nearly 26 million shares in the small gas producer to a group of Canadian underwriters for C$2.80 each.
Duke bought the interest in March 2000 for about C$50 million, and immediately replaced Canadian 88's founder, maverick oil man Greg Noval, with one of its own executives as CEO. The company had been struggling with high debt and poor gas price hedges.
Noval went on to lead Canadian Superior Energy, which one year later launched what proved to be an unsuccessful hostile takeover of Canadian 88.
Last week, Canadian 88 appointed former Canadian Hunter Exploration boss Steve Savidant as its CEO, replacing former Duke executive Joseph Pritchett III. Burlington Resources Inc. bought Canadian Hunter for C$3.3 billion last year.
The underwriters in the sale of Duke's Canadian 88 interest, led by CIBC World Markets and TD Securities, will sell the stock in a secondary offering, Duke said.
Duke spokeswoman Deborah Witmer said her company bought the interest to gain knowledge of the Canadian energy market, and never considered it to be a core holding.
The Charlotte, North Carolina-based company made a far bigger splash north of the border this year by acquiring pipeline and utility firm Westcoast Energy for $8.5 billion.
"We just simply determined that it wasn't strategic to our interest to remain in (Canadian 88)," Witmer said.
Shares in Canadian 88 closed off 10 Canadian cents at C$2.90 in Toronto on Monday. They had climbed as high as C$3.13 in the wake of Savidant's appointment.
Canadian 88 has long generated ink befitting a much larger company. After Duke bought its interest and Noval left, it wrote down its gas reserves then put itself up for sale.
It jettisoned a major property to Dallas-based Hunt Oil, but the only bid made public was Canadian Superior's unwanted advance. The two sides sued each other, but last summer called a truce.
Canadian 88 Energy’s Huge Writedownwww.Canoe.ca – June 24, 2002
Duke Energy owned a controlling portion of Canadian 88, then sold it – 2001 article
(11/27/01) - CALGARY (CP) -- With a $245-million writedown after reassessing its oil and gas assets, Canadian 88 Energy Corp. is reporting a $174-million loss for the third quarter.
That amounts to a loss of $1.30 a share and compares with a loss of $5.2 million or four cents per share a year earlier..
For the first nine months of fiscal 2001, the loss is $154.7 million, compared with $11.9 million the year before.
"Natural gas price levels at the end of the third quarter enabled the company to make a reasonable and timely adjustment to the book value of its asset base," chief financial officer Don Gardner said Tuesday in a release.
"We believe this decision reflects our commitment to conservative reporting and should position us for sustainable profitability in the future."
During a quarter of weak natural gas prices, Canadian 88 said it tripled its cash flow while continuing on track to achieve a year over year increase in production and reserves. Cash flow for the nine months increased 391 per cent.
In August, Canadian 88, Canadian Superior Energy and Greg Noval announced that all issues and lawsuits among them had been settled.
Noval, Superior's CEO and former chief of Canadian 88, had spearheaded Superior's $700-million bid to reclaim Canadian 88 earlier this year but abandoned the bid in June.
Canadian 88 discontinued a $150-million lawsuit against Noval, who it said had breached his fiduciary duties by trying to take back the company while sitting as a Canadian 88 director.
Canadian 88 Shareholders’ Meeting PostponedCanadian Superior Energy – Press Release – June 24, 2002
Duke Energy owned a controlling portion of Canadian 88, then sold it - 2001 article
June 8, 2001
CANADIAN SUPERIOR RESPONDS TO CANADIAN 88'S DECISION TO POSTPONE ITS SPECIAL SHAREHOLDERS' MEETING
Canadian Superior Energy Inc. of Calgary, Alberta commented today on the decision of the Duke Energy controlled board of directors of Canadian 88 to arbitrarily postpone the special shareholders' meeting at which all shareholders of Canadian 88 will be able to vote on the plan of arrangement proposed by Canadian Superior. While imposing this unnecessary delay on its own shareholders, Canadian 88 management continues to fail to provide shareholders with an alternative transaction, or even to indicate a going forward strategy for the company.
"We interpret this delay to mean that the Canadian 88 board and Duke continue to be unable to develop any proposal that can compete with Canadian Superior's offer, and have elected to buy still more time", said Richard Watkins, Canadian Superior's Vice President of Corporate Development. "Canadian Superior originally requested that consideration of our proposal be scheduled for Canadian 88's annual meeting on June 20th, to avoid imposing the cost of two meetings on the shareholders. The Canadian 88 board instead scheduled a meeting three weeks later, on July 12th, which they have now decided to further postpone. No matter how long Canadian 88 delays, we are confident that ultimately shareholders will see our proposal as the best option available."
The Canadian 88 press release states that not having received necessary information from Canadian Superior is the basis for having postponed the meeting. "In our view, this explanation lacks credibility", said Mr. Watkins. "Canadian 88's own filings with securities commissions indicate that they did not plan to mail the circular for the special meeting before June 15th. No deadline for providing this information was communicated by Canadian 88 before the postponement, nor were we given any indication that the information would be required before the end of this week. The Canadian 88 board just hopes that if they continue to delay, some alternative to the Canadian Superior proposal will turn up. We intend to continue to vigorously pursue our merger proposal with Canadian 88, which we believe to be in the best interests of all shareholders, and to ensure that all shareholders have an opportunity to decide between our proposal and the lack of direction provided by the current board and Duke Energy."
Canadian 88 announced a sales process to maximize shareholder value on October 10, 2000 with the support of its largest shareholder, Duke Energy Corporation. Eight months later, the process has not produced any tangible proposal for the Canadian 88 shareholders other than Canadian Superior's proposal to exchange 2.75 shares of Canadian Superior for each share of Canadian 88 which, based on today's closing price, is equivalent to $4.65 per Canadian 88 share…
Superior, Canadian 88 Battle Gets PersonalGlobeTechnology.com – by Brent Jang – June 24, 2002
Duke Energy owned a controlling portion of Canadian 88, then sold it - 2001 article
Friday, May 25, 2001
CALGARY -- The takeover battle between Greg Noval's Canadian Superior Energy and Joseph Pritchett's Canadian 88 Energy is getting a whole lot nastier.
As oil patch squabbles go, this one is more convoluted than most. It features deep-rooted hostilities both on a corporate and personal level. Among the subplots is the prospect of Mr. Noval getting kicked off the board of his former company.
Canadian 88's management has nominated nine directors -- with Mr. Noval's name conspicuous by its absence -- for election at the company's annual meeting on June 20. Three of the nominees are effectively representatives of Charlotte, N.C.-based Duke Energy, which acquired about 19.3 per cent of Canadian 88 last year.
One of those nominees is Mr. Pritchett, a former Duke vice-president who became Canadian 88's chief executive officer after Mr. Noval handed over the reins in March of 2000. But Mr. Noval has stayed on Calgary-based Canadian 88's board since then, even though he's now leading the charge by Superior to acquire the company he founded in 1988.
Montreal investment banker James Raymond is Canadian 88's chairman -- a position he has held for most of the past nine years. Mr. Raymond briefly stepped aside in 1998, when flamboyant Texas oil man J.P. Bryan, a hunting buddy of Mr. Noval's, put in a 10-week stint as chairman before quitting.
Mr. Raymond, who stepped down as Superior's chairman last September, won't be nominated for election to Superior's board when it holds its annual meeting on June 19 -- the day before Canadian 88's gathering.
Simply put, Superior doesn't want Mr. Raymond back on the board, and Canadian 88 wants to give Mr. Noval the boot.
Mr. Noval has his loyal followers. Three of Superior's top officials and advisers were instrumental in helping build Canadian 88 into a mid-sized natural gas producer: Robert Pilling, William Dyment and Daniel MacDonald.
But friends of Canadian 88 have become opponents of Superior's bid. Soheil Asgarpour, Cameron Taylor, Donald Gardner and Leigh Bilton all joined Canadian 88 during Mr. Noval's tenure, but those key Canadian 88 executives have stuck with Mr. Pritchett rather than jump to Superior to join their old boss.
When Calgary-based Superior announced its hostile takeover bid on April 26, it did a little name-dropping by proposing to add Gerald Maier as one of the new directors in a revamped, eight-person Canadian 88 board. Mr. Maier is a former chairman and CEO of TransCanada PipeLines.
Canadian 88 shot back this week by disclosing in its management information circular that it has nominated George Watson to be one of its nine directors.
History lesson: A retiring Mr. Maier relinquished his TransCanada CEO title in 1994 to his hand-picked successor -- Mr. Watson. Mr. Maier served as TransCanada chairman until the company took over Nova's pipeline assets in mid-1998. And Mr. Watson, who resigned from TransCanada in 1999, is now executive chairman of VerticalBuilder.com, a technology firm that's involved in e-commerce.
With Mr. Maier on one side and Mr. Watson on the other, you get a glimpse into the intricate clashes as tiny Superior attempts an all-stock takeover of Canadian 88. The transaction could be worth roughly $585-million, based on yesterday's share values. ,p> Superior used to be known as Prize Energy until last June. Under Mr. Noval, Canadian 88 owned 45.3 per cent of Prize at one point, but that interest was distributed as a dividend to Canadian 88 shareholders early last year.
Opponents of Mr. Noval, an unabashed rebel in the oil patch, have learned to never underestimate his determination.
Mr. Noval was entitled to three times his annual salary and various benefits when he left as Canadian 88's CEO. According to this week's circular, he received $1.77-million in remuneration last year, including $1.53-million in "all other compensation" primarily consisting of "severance payments."
Even if Superior's so-called plan of arrangement to merge with Canadian 88 gets voted down by Canadian 88 shareholders at a special meeting set for July 12, there's always the possibility of a white knight for Canadian 88 surfacing later.
A lot of personal wealth is at stake. Mr. Noval controls up to 7.3 million Canadian 88 shares and almost three million Superior shares, while Mr. Raymond owns 961,000 Canadian 88 shares and recently held nearly 180,000 Superior shares.
Mr. Noval, who stands to benefit from any richer bid for Canadian 88, could conceivably see Superior lose the proxy battle but he could still win the war.
Noval Slams Duke EnergyNationalPost.com – June 24, 2002
Duke Energy owned a controlling portion of Canadian 88, then sold it - 2001 article
(May, 2001) - CALGARY – Greg Noval defended himself yesterday from charges he made mistakes as leader of Canadian 88 Energy Corp., the company from which he departed last year and which his new company is attempting to take back with a $700-million hostile takeover bid.
Instead, Mr. Noval slammed Duke Energy Corp., the biggest U.S. utility owner, for lack of leadership and direction since it took over management, causing the stock of Canadian 88 to languish, while the stock of his new firm, Canadian Superior Energy Inc., nearly quadrupled.
One caller on a conference call held by Canadian Superior to explain its proposed deal asked why investors
should support Mr. Noval after experiencing a roller-coaster ride as shareholders of Canadian 88 while it was under his control. "How do we have any faith in Greg Noval and his operation when he screwed up the last 15 years at work with [Canadian 88?]" the caller asked
Canadian Superior, a junior company with assets offshore Nova Scotia, launched a surprise all-stock bid to take over the much larger Canadian 88, including the assumption of $200-million in debt, late Thursday. Canadian 88 said yesterday it did not seek and does not support the unsolicited offer. In a statement, the company said: "The board of directors will consider and respond to the proposal in due course." Canadian 88 put all it’s the assets up for sale in October, after Duke of Charlotte, N.C., bought 20% of its stock last year and ousted Mr. Noval.
The two companies have become embroiled in a lawsuit over the sale of some of Canadian 88's assets to another U.S. company, Hunt Oil Co. of Dallas.
Mr. Noval, president and chief executive of Canadian Superior and a director and second largest shareholder of Canadian 88, said the two companies plan to meet Monday. "We had discussions for the last couple of months on the stumbling of Canadian 88 and lack of direction.
"There is no reason they shouldn't support it and if they don't want to support it, we have got an exit option for them as well."
Canadian Superior is offering $4.95 a share for Canadian 88, or 2.75 of its shares for each Canadian 88 share.
Canadian Superior would take over management of the combined company, but contribute production of 6 million cubic feet equivalent out of the new company's 85 million cubic feet equivalent.
When one caller asked if the deal was a "paper scam," Mr. Noval said no.
"I wouldn't say this is a paper scam at all. There is great underlying value in Canadian Superior."
Aside from the takeover bid, Canadian Superior has also been looking at acquiring Gulfstream Resources Canada Ltd., a junior company that is the target of a hostile takeover from Roc Oil Co. of Australia, as well as other strategic acquisitions.
At a news conference late Thursday, Mr. Noval did not rule out becoming the chief executive of the new company, although he stayed out of the limelight during the meeting and let other members of his team explain the benefits.
"We would bring lots to the table in terms of an energized new management team and direction. That's the key aspect of this deal" Mr. Noval said…
Takeover Bid for Canadian 88 EnergyGasandOil.com – June 24, 2002
Duke Energy owned a controlling portion of Canadian 88, then sold it - 2001 article
(2001 - Volume 6, issue #10) - Oil maverick Greg Noval has launched a hostile takeover bid for his former company, Canadian 88 Energy, two weeks after suing the Calgary gas producer over the sale of some assets. Canadian Superior Energy, Noval's new junior energy company, announced it is offering $ 4.95 a share in stock for Canadian 88 -- a deal worth about $ 700 mm.
If successful, the merger would create a gas producer with producing operations in the Alberta foothills and key exploration properties off the coast of Nova Scotia. Noval, president of Canadian Superior, said that he expects the offer to be well received by Canadian 88 shareholders.
"Canadian 88 is suffering a lack of leadership and direction," he told a news conference in Calgary. "I built the company up from when it was 10 cents a share to a very successful (exploration and production) company." "There's been no go-forward direction out of Canadian 88 and the stock's languished."
But despite the sharp words for Canadian 88 management, Noval said he was interested in the company's key assets in western Alberta and the North Atlantic, and not revenge for his being forced out as CEO of the company last year. The surprise bid comes two weeks after Noval and Canadian Superior filed a lawsuit against Canadian 88 involving the assets at the centre of a $ 176-mm sale to Dallas-based Hunt Oil.
Canadian Superior, which has a stake in some of the properties, is suing for damages and has asked that a court order be issued to put the assets in trust until it resolves a dispute with Canadian 88. Raymond Coad, Noval's lawyer, said his client may be interested in some of the properties but has been unable to obtain pertinent data from Canadian 88. Noval has right of first refusal on Hunt's offer for some of the assets.
At issue is Canadian 88's Waterton lands in Alberta. Canadian Superior has a 10 % working interest in the properties, which Canadian Superior held on to as part of a separation agreement negotiated when Noval left Canadian 88. Noval, a colourful and combative figure who founded the Calgary company 13 years ago, was replaced last year by Joseph Pritchett, a senior executive of Duke Energy of Charlotte, NC. Duke bought 19 % of Canadian 88's stock in March 2000, appointed a new board and installed Pritchett as CEO.
Canadian 88 put its assets up for sale last October. Meanwhile, Noval remained as a director and began operating Canadian Superior as a separate business. Canadian Superior chairman Don Axford said if successful, the new merged company would have "one of the best and most exciting inventories of world-class exploration prospects in the Canadian Atlantic and significant Western Canadian exposure."
Canadian Superior is also touting a new board of directors for the merged company, that includes oil patch expertise in former TransCanada Pipelines CEO Gerald Maier as well as financing connections in Dale Blue, former president of Chase Manhattan Bank of Canada.
Source: CP Business News
Canadian 88 Hangs Out 'For Sale' SignReuters – by Jeffery Jones – June 24, 2002
Duke Energy owned a controlling portion of Canadian 88, then sold it - 2000 article
(10/21/00) - CALGARY (Reuters) - Canadian 88 Energy Corp. put itself on the auction block late on Monday, just six months after big U.S. firm Duke Energy Corp. rescued the natural gas producer by buying a controlling stake.
Shares in Canadian 88, an exploration and production firm with a market value of about C$520 million ($347 million), jumped more than 15 percent on Tuesday on the news, which left questions about whether Charlotte, North Carolina-based Duke would be a buyer or a seller.
"It's going to be a competitive thing, so that means Duke could bid on it, or it could be that another company buys it," said Jeff Fiell, analyst with Canaccord Capital Corp. in Calgary.
However, one Canadian investment banker pointed out that Duke was not normally in the exploration and production business and had already nearly doubled its investment.
Canadian 88 said in a statement it formed a special directors' committee to "review strategic alternatives and identify opportunities to enhance shareholder value" -- corporate-speak usually meaning a company is up for sale -- because it believed its assets and current strong gas prices were not reflected in its share price.
Duke, one of North America's biggest energy marketing, power generation and pipeline companies, made waves last March when it bought a fifth of then-struggling Canadian 88 for C$50 million. The gas producer had been hit by high debt levels and the effects of selling forward more gas than it was delivering at a price well below market.
The U.S. firm immediately replaced long-time chief executive Greg Noval, who was known as a maverick and often at odds with analysts and the business press, with one of its own, Joseph Pritchett III.
Canadian 88 then revised downward the reserves at its marquee project, the Waterton deep gas field in the southern Alberta Rocky Mountain foothills.
Pritchett declined to say on Tuesday whether Duke might sell its interest to another buyer or purchase the shares it doesn't already own.
"I don't want to taint the process or say something that might influence the process," he said. "The special committee is going to review all strategic alternatives...there's going to be a meeting today and more will follow. We want this process to be clear and transparent to everybody." ,p> The company said it would hire financial advisers shortly.
Canadian 88 shares on the Toronto Stock Exchange were up 52 Canadian cents in heavy volume of almost 2.3 million shares to C$3.90 on Tuesday, off their year high of C$4.20.
Fiell said he believed the process began recently with in-house proposals to sell the tricky and expensive Waterton play, where reserves have climbed since the revision last spring to about 500 billion cubic feet.
"Waterton is a bit problematic. I mean, there's gas there but it's an engineering problem. And 88 doesn't think that it's got the engineering expertise or the cash to do it justice," he said.
Canadian 88 said in its statement that its selling points included high working interests in company-operated fields, an inventory of "high-impact" exploration prospects, its holdings off Canada's east coast and potential tax deductions for an acquisition of more than C$400 million.
It also pointed out that its ill-fated gas hedges were due to expire by the end of this month.
Duke Energy Land Deal is DeniedThe Bulletin – by Mike Cronin – June 22, 2002
(4/11/02) - The Deschutes County Commission voted Wednesday to refuse an offer from Duke Energy to option a 125-acre parcel of land just east of Redmond for a potential power plant.
Commissioners voted 3-0 to reject the proposal by the Houston-based wholesale energy company to pay the county for exclusive rights to the land while it explored building a power plant.
Commissioners also voted 3-0 to remove the 125-acre parcel from the county's list of property for sale until commissioners had a chance to meet with representatives from the cities of Sisters and Redmond and residents of La Pine to discuss what kinds of heavy industry they want to bring into the county.
Diana Vavrek, who works in western U.S. development for Duke Energy, responded to the decision this morning.
"We are disappointed that they have declined the offer at this time. However, we understand they needed to make a decision on very preliminary information. While the commission recognized Oregon's need for additional clean energy and energy diversity, they made it clear additional discussion is necessary before they can move forward with this proposal."
Each commissioner said he rejected Duke Energy's proposal for different reasons.
Mike Daly said the company had not replied to the commission questions.
"They (Duke Energy) need to educate the public on who and what they are and what they do," he said. "Are they environmentally friendly? They need to answer those questions before we do anything."
Dennis Luke opposed the option because "it's not a good business deal for the county." The company would have the option to buy the land in five years based on today's appraisal value.
With area property values increasing every year, the county would have ultimately lost that money. If the option had been granted, it would have meant Duke Energy would have paid Deschutes County $60,000 so no one else could have bought the site during the option period. The option would have lasted for three years. Duke Energy could have extended the option for two successive one-year periods for $30,000 per year.
Luke pointed out that his decision is not a reflection on Duke Energy as a company or what type of plant it might build on the property.
Instead, Luke bristled at the litany of requirements the option would have required — some of which might have put the county into a conflict of interest position.
The option, if it had been approved, would have required Deschutes County to:
The Duke Energy proposal generated opposition from many who already oppose a plan by Cogentrix Energy to build a 980-megawatt plant 12 miles southeast of Madras.
Deschutes County Commission Chairman Tom DeWolf presented evidence of that opposition when he showed the audience a nearly three-inch thick manila folder stuffed with letters written to him about the plant.
He, too, underlined that his opposition is not a reflection on Duke Energy as a company. He also said his no vote should not be construed as being against gas-fired power plants.
"Visitors come here to hike, fish, golf, ski, raft, swim, ride horses, climb Smith Rock and a host of other outdoor activities," DeWolf said.
"The key attractions that define Deschutes County are our natural beauty, clean air, clean water, recreational opportunities, our vast forest, high desert open spaces and our scenic views. I believe additional heavy industrial businesses are incompatible with what Deschutes County has become."
Damage Control TimeDow Jones – by Arden Dale – June 18, 2002
(6/14/02) - NEW YORK (Dow Jones) -- A major U.S. electricity industry group expects to begin meeting soon with the Securities and Exchange Commission on accounting and other issues related to recent turmoil in the power business.
The meetings would be highly unusual for the group, which has met with the SEC in the past on matters regarding the agency's regulation of holding companies, but not on general accounting issues, according to David Owens, the executive vice president of the Edison Electric Institute, the group involved. Owens said he hopes to schedule the first of the meetings within the next few weeks.
EEI already met with SEC officials in mid-May in what Owens described as "basically an exploratory meeting," which EEI initiated "with the goal of trying to get a good sense of what to anticipate" from the agency. The group asked SEC Chief Accountant Robert Herdman to appoint an SEC member to work with the industry on accounting issues, Owens said. Since then, the agency has designated John Albert, its associate chief accountant, to do so, according to Owens.
The SEC declined to comment.
As reported by Dow Jones Newswires, Herdman told electricity industry officials at the meeting in May that he wanted merchant power companies to take three steps in particular. They were: to use real markets rather than models to value projected gains from contracts booked as current earnings, to stop declaring revenues based on gross trading dollars and instead report revenues based on net trading margins, and to standardize the method for determining value at risk, which measures a trading operation's total liability.
"I had never had the opportunity to have a briefing with the chief accountant's office, because generally they wouldn't have the need to deal specifically with the range of issues they're confronted with now," said Owens. "We think it's in everyone's best interest to start a dialogue, to give us an opportunity to understand where the anxieties exist. It is a new world for many folks, and we sometimes make an assumption that people understand how the industry works."
Electricity companies want to discuss a number of issues, including their use of mark-to-market accounting methods to report earnings from gas and power trades, which is getting increased scrutiny from regulators, Wall Street firms and others since the collapse of Enron Corp. (ENRNQ). Another topic is likely to be the timing of filing financial statements including 10-K and 10-Q forms, Owens said.
The electricity industry's outreach to the SEC is coming at a time of extreme turmoil in the power business.
Companies are under pressure from regulators including the SEC, the Federal Energy Regulatory Commission, the Commodity Futures Trading Commission and the Department of Justice. Credit-rating agencies and other financial analysts have expressed a crisis of confidence in the sector, and investors have given the companies a drubbing. "It's really a coalescing of three agencies, the FERC, the CFTC, which has some oversight of commodities markets, and the SEC," that the industry is now confronted with, Owens said.
"FERC and the SEC, they're both very serious issues," said Steven I. Fleishman, managing director of power and gas research at Merrill Lynch, an investment firm that maintains banking relationships with a number of electricity-trading companies. "Both hit at the difficulty of trying to invest in the sector, which is like walking through a minefield."
Aquila Inc. (ILA), Williams Cos. (WMB), Mirant Corp. (MIR), Duke Energy (DUK), Dynegy Inc. (DYN), CMS Energy Corp. (CMS), Reliant Resources Inc. (RRI), and El Paso Corp. (EP) are among those hit in recent months by sagging electricity prices, fallout from the collapse of Enron and California's energy crisis, and recent revelations about possible widespread fraudulent electricity trading practices. All of these companies except Williams and El Paso are members of EEI.
FERC agitated the industry and investors last month when it released internal Enron memos that detail trading schemes the company used in California during the crisis. California lawmakers and critics of the industry called the documents the smoking gun that proved companies had caused the state's energy crisis. FERC then ordered 150 companies to provide documents revealing their practices in the state during the crisis. Subsequently, the agency issued a series of requests for information about so-called "wash" trades, in which companies exchange volumes of gas or electricity at the same time for the same price, apparently to pump up their reportable volumes.
The SEC is also taking a closer look at energy trades and other aspects of the companies' businesses. Dynegy said the agency plans to seek a formal order of investigation into matters related to some of the company's natural gas and electricity trades. Aquila, Duke, and El Paso all said this month that they've received informal data requests from the SEC regarding gas and electricity trades, and CMS disclosed in May that the agency had requested information on its electricity trades. In April, Reliant Resources said the agency was conducting an informal inquiry of the "facts and circumstances surrounding the company's recent restatement of earnings for the second and third quarters of 2001."
The SEC's oversight of the industry has been limited until recently for the most part to its regulation of energy holding companies under the Public Utility Holding Company Act of 1935.
"One of our goals would be to encourage the SEC to become more informed about developments in the industry," Owens said. "One commitment is to engage in a dialogue to explain how the industry works."
EEI is planning a meeting for power industry participants in New York on June 27. The group said it expects SEC members will attend, but hasn't yet confirmed that they will.
Duke Rate Review SoughtDow Jones Newswires – by Mary Ellen Lloyd – June 14, 2002
(6/13/02) - CHARLOTTE - An association of industrial utility customers has asked North Carolina utility regulators to initiate a review of electricity rates for Duke Energy Corp.'s Duke Power unit.
The Carolina Utility Customers Association filed a petition Wednesday with the N.C. Utilities Commission, seeking a general rate review, saying Duke Power's North Carolina retail electric revenue and many of its tariffed rates are "unjustly and unreasonably excessive."
Bob Bennink, executive director of the N.C. Utilities Commission and a 23-year employee, said he couldn't remember another complaint and rate-review petition having been filed against Duke before.
Duke's allowed 12.5% return on equity, a benchmark set in 1991, is outdated due to changes in inflation, the cost of borrowing and other economic factors, the association said in its petition.
Furthermore, the association argued Duke Power has been inappropriately allowed to include amortization expenses related to asbestos, resulting in Duke "persistently" earning a return above 12.5%. For example, the association estimates Duke's net income in 2001 would have produced a return on equity of about 14% had the amortization expenses been excluded.
Trading Comments Seep OutAssociated Press – June 12, 2002
ATLANTA (AP) Taped conversations between energy traders discussing ways to boost profits from Western power markets in 2000 and 2001 have raised new questions about how traders structured deals as grid operators struggled to keep the lights on.
The revelations, made by Minneapolis-based Xcel Energy Inc. in a filing with federal regulators, also have sparked the ire of an industry trying to show it acted ethically during California's energy crisis.
The conversations were between traders from Atlanta-based Mirant Corp. and Public Service Co. of Colorado, an Xcel division.
Xcel released them last month in its response to the Federal Energy Regulatory Commission, which is investigating whether energy traders practiced market-manipulation strategies employed by Enron Corp. In one conversation, June 20, 2000, a Mirant trader tells the Public Service trader about taking power from northern California and moving it in the south.
``I mean, it's just kind of loop-t-looping but it's making money,'' the Mirant trader said.
``So what, it works,'' the other trader responds. ``So they got to be loving you for that.''
``It's working pretty well so far, hopefully it keeps going,'' the Mirant trader said.
Energy trading companies typically record their traders' telephone conversations to provide a record if a dispute arises later over a transaction or other issue.
In a July conversation, traders of the two companies discussed ways to make money on a 300-megawatt purchase by Mirant. The Mirant trader suggested restricting the deal to 50 megawatts.
``I don't want to crush the market too bad,'' he said.
At that time, Californians were dealing with a severe energy shortage that was causing rolling blackouts. Mirant executives said the traders' comments could be ``easily misinterpreted'' and that all of their activity was focused on providing Californians with sufficient electricity to meet demand.
The California ISO, which operates the state's power grid, had no immediate comment on the transcripts, agency spokeswoman Stephanie McCorkle said Monday. The ISO has appointed a special committee to review the transcripts and other materials submitted to FERC.
``All of this needs to be digested with a methodical, thorough approach,'' she said.
Paul Bonavia, president of Xcel's Denver-based Energy Markets, said the company released the transcripts because it had nothing to hide. The transactions and power scheduling discussed by the traders is too complex to determine on a cursory glance whether anything inappropriate occurred, he said.
``Could people take advantage of the rules? I'm sure that clever people will find ways to use the rules every way they can,'' he said. ``By and large, where the rules invite this kind of activity, you have to look carefully before you conclude that something sinister is going on.''
Mirant, known as Southern Co. Energy Marketing before it was spun off, found that California utilities routinely underestimated consumer demand, Mirant spokesman James Peters said.
The company said it overscheduled its energy use with the ISO's blessing. McCorkle declined to comment on that issue.
``The scheduling to load and other market-related activities discussed between these employees were legal, appropriate and within the rules of the Western power market as established by FERC and the California Independent System Operator,'' said Marce Fuller, Mirant's president and chief executive officer.
The ISO requires companies to balance their expected energy use with their generation.
In another transcript in Xcel's release, two people discuss how Duke Energy Corp. and Oklahoma-based Williams Cos. Inc. routinely overscheduled their loads to create congestion.
Overscheduling occurs when an electricity provider that serves customers within California schedules more energy supply with the California ISO than it actually requires.
The state then paid traders to relieve congestion in the system, although a recent report from attorneys studying Enron's actions found that no electricity was moved and no congestion relieved.
In a statement, the head of Duke Energy North America, based in Charlotte, N.C., called it ``irresponsible to treat gossip or speculation with the same regard that is given to sworn statements.''
``In the hundreds of thousands of hours of taped traders' conversation, there is probably idle speculation or gossip about every trading entity, with little knowledge of or regard for the facts,'' said Jim Donnell, president and chief executive officer of Duke Energy North America. ``This is the trading floor equivalent of locker-room chatter.''