================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 2000 COMMISSION FILE NUMBER 1-4928
DUKE ENERGY CORPORATION
(Exact name of Registrant as Specified in its Charter)
NORTH CAROLINA 56-0205520
(State or Other Jurisdiction (IRS Employer
of Incorporation) Identification No.)
526 SOUTH CHURCH STREET
CHARLOTTE, NC 28202-1904
(Address of Principal Executive Offices)
(Zip code)
704-594-6200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes x No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares of Common Stock, without par value, outstanding at
April 28, 2000......367,461,535
================================================================================
<PAGE>
DUKE ENERGY CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
PART I. FINANCIAL INFORMATION
<S> <C> <C>
1. Financial Statements....................................................................................1
Consolidated Statements of Income and Comprehensive Income for the Three Months Ended
March 31, 2000 and 1999....................................................................1
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999............2
Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999..............................3
Notes to Consolidated Financial Statements..........................................................5
2. Management's Discussion and Analysis of Results of Operations and Financial Condition..................10
PART II. OTHER INFORMATION
1. Legal Proceedings......................................................................................20
4. Submission of Matters to a Vote of Security Holders....................................................20
6. Exhibits and Reports on Form 8-K.......................................................................20
Signatures.............................................................................................21
</TABLE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
From time to time, Duke Energy's reports, filings and other public announcements
may include assumptions, projections, expectations, intentions or beliefs about
future events. These statements are intended as "forward-looking statements"
under the Private Securities Litigation Reform Act of 1995. Duke Energy cautions
that assumptions, projections, expectations, intentions or beliefs about future
events may and often do vary from actual results and the differences between
assumptions, projections, expectations, intentions or beliefs and actual results
can be material. Accordingly, there can be no assurance that actual results will
not differ materially from those expressed or implied by the forward-looking
statements. Some of the factors that could cause actual achievements and events
to differ materially from those expressed or implied in such forward-looking
statements include state, federal and foreign legislative and regulatory
initiatives that affect cost and investment recovery, have an impact on rate
structures and affect the speed and degree to which competition enters the
electric and natural gas industries; industrial, commercial and residential
growth in the service territories of Duke Energy and its subsidiaries; the
weather and other natural phenomena; the timing and extent of changes in
commodity prices, interest rates and foreign currency exchange rates; changes in
environmental and other laws and regulations to which Duke Energy and its
subsidiaries are subject or other external factors over which Duke Energy has no
control; the results of financing efforts, including Duke Energy's ability to
obtain financing on favorable terms, which can be affected by Duke Energy's
credit rating and general economic conditions; growth in opportunities for Duke
Energy's business units; and the effect of accounting policies issued
periodically by accounting standard-setting bodies.
i
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
OPERATING REVENUES
Sales, trading and marketing of natural gas
and petroleum products $ 4,287 $ 2,014
Generation, transmission and distribution of electricity 1,238 1,097
Trading and marketing of electricity 1,211 439
Transportation and storage of natural gas 259 379
Other 241 249
----------------- -----------------
Total operating revenues 7,236 4,178
----------------- -----------------
OPERATING EXPENSES
Natural gas and petroleum products purchased 4,063 1,940
Net interchange and purchased power 1,206 484
Fuel used in electric generation 180 165
Other operation and maintenance 667 620
Depreciation and amortization 260 225
Property and other taxes 102 99
----------------- -----------------
Total operating expenses 6,478 3,533
----------------- -----------------
OPERATING INCOME 758 645
----------------- -----------------
OTHER INCOME AND EXPENSES
Deferred returns and allowance for funds used during construction 19 21
Other, net 82 17
----------------- -----------------
Total other income and expenses 101 38
----------------- -----------------
EARNINGS BEFORE INTEREST AND TAXES 859 683
INTEREST EXPENSE 185 132
MINORITY INTERESTS 31 35
----------------- -----------------
EARNINGS BEFORE INCOME TAXES 643 516
INCOME TAXES 250 209
----------------- -----------------
INCOME BEFORE EXTRAORDINARY ITEM 393 307
EXTRAORDINARY GAIN, NET OF TAX - 660
----------------- -----------------
NET INCOME 393 967
----------------- -----------------
DIVIDENDS AND PREMIUMS ON REDEMPTIONS OF
PREFERRED AND PREFERENCE STOCK 5 5
----------------- -----------------
EARNINGS AVAILABLE FOR COMMON STOCKHOLDERS 388 962
----------------- -----------------
OTHER COMPREHENSIVE INCOME, NET OF TAX
Foreign currency translation adjustments (1) -
----------------- -----------------
TOTAL COMPREHENSIVE INCOME $ 387 $ 962
================= =================
COMMON STOCK DATA
Weighted average shares outstanding 367 363
Earnings per share (before extraordinary item)
Basic $ 1.06 $ 0.83
Dilutive $ 1.06 $ 0.83
Earnings per share
Basic $ 1.06 $ 2.65
Dilutive $ 1.06 $ 2.64
Dividends per share $ 0.55 $ 0.55
</TABLE>
See Notes to Consolidated Financial Statements.
1
<PAGE>
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 393 $ 967
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 303 270
Extraordinary gain, net of tax - (660)
Deferred income taxes 89 (18)
Purchased capacity levelization 34 28
Transition cost recoveries, net 24 23
(Increase) decrease in
Receivables (1) 69
Inventory 18 (20)
Other current assets (39) (8)
Increase (decrease) in
Accounts payable 112 (284)
Taxes accrued (413) 254
Interest accrued 25 1
Other current liabilities (153) (90)
Other, net (204) 15
-------------- --------------
Net cash provided by operating activities 188 547
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital and investment expenditures (1,648) (2,086)
Proceeds from sale of subsidiaries - 1,900
Decommissioning, retirements and other 101 -
-------------- --------------
Net cash used in investing activities (1,547) (186)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of
Long-term debt 438 711
Common stock and stock options 60 57
Payments for the redemption of long-term debt (173) (225)
Net change in notes payable and commercial paper 997 (137)
Dividends paid (206) (205)
Other (1) (59)
-------------- --------------
Net cash provided by financing activities 1,115 142
-------------- --------------
Net (decrease) increase in cash and cash equivalents (244) 503
Cash received from business acquisitions 6 -
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 613 80
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 375 $ 583
============== ==============
SUPPLEMENTAL DISCLOSURES
Cash paid for interest, net of amount capitalized $ 151 $ 125
Cash paid for income taxes $ 568 $ 23
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
DUKE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(Unaudited)
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 375 $ 613
Receivables 3,516 3,248
Inventory 616 599
Current portion of natural gas transition costs 57 81
Current portion of purchased capacity costs 138 146
Unrealized gains on mark-to-market transactions 1,289 1,131
Other 472 353
-------- --------
Total current assets 6,463 6,171
-------- --------
INVESTMENTS AND OTHER ASSETS
Investments in affiliates 1,316 1,299
Nuclear decommissioning trust funds 712 703
Pre-funded pension costs 318 315
Goodwill, net 1,065 844
Notes receivable 353 154
Unrealized gains on mark-to-market transactions 936 690
Other 731 705
-------- --------
Total investments and other assets 5,431 4,710
-------- --------
PROPERTY, PLANT AND EQUIPMENT
Cost 32,359 30,436
Less accumulated depreciation and amortization 9,268 9,441
-------- --------
Net property, plant and equipment 23,091 20,995
-------- --------
REGULATORY ASSETS AND DEFERRED DEBITS
Purchased capacity costs 471 497
Debt expense 218 223
Regulatory asset related to income taxes 500 500
Other 307 313
-------- --------
Total regulatory assets and deferred debits 1,496 1,533
-------- --------
TOTAL ASSETS $ 36,481 $ 33,409
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
DUKE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(Unaudited)
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,821 $ 2,312
Notes payable and commercial paper 1,321 267
Taxes accrued 286 685
Interest accrued 165 139
Current maturities of long-term debt and preferred stock 537 515
Unrealized losses on mark-to-market transactions 1,404 1,241
Other 1,783 717
-------- --------
Total current liabilities 8,317 5,876
-------- --------
LONG-TERM DEBT 8,962 8,683
-------- --------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 3,846 3,402
Investment tax credit 222 225
Nuclear decommissioning costs externally funded 712 703
Environmental clean-up liabilities 88 101
Unrealized losses on mark-to-market transactions 576 438
Other 1,778 2,099
-------- --------
Total deferred credits and other liabilities 7,222 6,968
-------- --------
MINORITY INTERESTS 1,052 1,200
-------- --------
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN SUBORDINATED
NOTES OF DUKE ENERGY CORPORATION OR SUBSIDIARIES 1,405 1,404
-------- --------
PREFERRED AND PREFERENCE STOCK
Preferred and preference stock with sinking fund requirements 71 71
Preferred and preference stock without sinking fund requirements 209 209
-------- --------
Total preferred and preference stock 280 280
-------- --------
COMMON STOCKHOLDERS' EQUITY
Common stock, no par, 1 billion shares authorized; 367 million and 366 million
shares outstanding at March 31, 2000 and December 31, 1999, respectively 4,658 4,603
Retained earnings 4,588 4,397
Accumulated other comprehensive income (3) (2)
-------- --------
Total common stockholders' equity 9,243 8,998
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 36,481 $ 33,409
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
DUKE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
Duke Energy Corporation (collectively with its subsidiaries, "Duke Energy") is
an integrated energy and energy services provider with the ability to offer
physical delivery and management of both electricity and natural gas throughout
the U.S. and abroad. Duke Energy provides these and other services through eight
business segments:
o Franchised Electric
o Natural Gas Transmission
o Field Services
o Trading and Marketing
o North American Wholesale Energy
o International Energy
o Other Energy Services
o Duke Ventures
Franchised Electric generates, transmits, distributes and sells electric energy
in central and western North Carolina and the western portion of South Carolina
(doing business as Duke Power or Nantahala Power and Light). These electric
operations are subject to the rules and regulations of the Federal Energy
Regulatory Commission (FERC), the North Carolina Utilities Commission and the
Public Service Commission of South Carolina.
Natural Gas Transmission provides interstate transportation and storage of
natural gas for customers primarily in the Mid-Atlantic and New England states.
With the purchase of East Tennessee Natural Gas Company in March 2000, Natural
Gas Transmission also began serving the southeastern region of the U.S. (see
Note 3 to the Consolidated Financial Statements). The interstate natural gas
transmission and storage operations are subject to the rules and regulations of
the FERC.
Field Services gathers, processes, transports and markets natural gas and
produces, transports and markets natural gas liquids. Field Services operates
gathering systems in western Canada and eleven contiguous states that serve
major gas-producing regions in the Rocky Mountain, Permian Basin, Mid-Continent
and onshore and offshore Gulf Coast areas. On March 31, 2000, Field Services
completed its combination with Phillips Petroleum's Gas Gathering, Processing
and Marketing unit. See Note 3 to the Consolidated Financial Statements for
additional information.
Trading and Marketing markets natural gas, electricity and other energy-related
products across North America. Duke Energy owns a 60% interest in Trading and
Marketing's energy trading operations, with Exxon Mobil Corporation owning a 40%
minority interest. This segment also includes certain other trading activities
and limited hydrocarbon exploration and production activities that are wholly
owned by Duke Energy.
North American Wholesale Energy develops, owns and operates power generation
facilities in North America providing merchant wholesale power. It conducts its
operations through Duke Energy North America, LLC.
International Energy develops, owns and operates energy-related facilities
worldwide providing energy trading, marketing and natural gas and power
development and operations. It conducts its operations through Duke Energy
International, LLC (DEI).
5
<PAGE>
Other Energy Services provides engineering, consulting, construction and
integrated energy solutions worldwide, primarily through Duke Engineering &
Services, Inc., Duke/Fluor Daniel and DukeSolutions, Inc.
Duke Ventures is comprised of Crescent Resources, Inc. (Crescent), DukeNet
Communications (DukeNet) and Duke Capital Partners. Crescent develops high
quality commercial and residential real estate projects and manages land
holdings in the southeastern U.S. DukeNet provides fiber optic and wireless
digital networks for industrial, commercial and residential customers. Duke
Capital Partners is a newly formed, wholly owned finance company that plans to
provide lending, investment banking and asset management services to the
wholesale and commercial energy markets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION. The Consolidated Financial Statements include the accounts of
Duke Energy and all majority-owned subsidiaries. These Consolidated Financial
Statements reflect all normal recurring adjustments that are, in the opinion of
management, necessary to present fairly the financial position and results of
operations for the respective periods. Amounts reported in the Consolidated
Statements of Income and Comprehensive Income are not necessarily indicative of
amounts expected for the respective annual periods due to the effects of
seasonal temperature variations on energy consumption and the timing of
maintenance of certain electric generating units.
EARNINGS PER COMMON SHARE. Basic earnings per share is based on a simple
weighted average of common shares outstanding. Dilutive earnings per share
reflects the potential dilution that could occur if securities or other
agreements to issue common stock, such as stock options, were exercised or
converted into common stock. The numerator for the calculation of basic and
dilutive earnings per share is earnings available for common stockholders.
<TABLE>
<CAPTION>
================================================================================
DENOMINATOR FOR EARNINGS PER SHARE (In millions)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
------------------------------
2000 1999
------------------------------
<S> <C> <C>
Denominator for basic earnings per share
(weighted average shares outstanding) 366.7 363.4
Assumed exercise of dilutive stock options .7 .9
------------------------------
Denominator for dilutive earnings per share 367.4 364.3
================================================================================
</TABLE>
EXTRAORDINARY ITEM. On March 29, 1999, wholly owned subsidiaries of Duke Energy
sold Panhandle Eastern Pipe Line Company (PEPL), Trunkline Gas Company and
additional storage related to those systems, which substantially comprised the
Midwest Pipelines, along with Trunkline LNG Company to CMS Energy Corporation
(CMS). The sales price of $2.2 billion involved cash proceeds of $1.9 billion
and CMS' assumption of existing PEPL debt of approximately $300 million. The
sale resulted in an extraordinary gain of $660 million, net of income tax of
$404 million, and an increase in earnings per basic share of $1.82.
RECLASSIFICATIONS. Certain amounts have been reclassified in the Consolidated
Financial Statements to conform to the current presentation.
3. BUSINESS ACQUISITIONS
For acquisitions accounted for using the purchase method, assets and liabilities
have been consolidated as of the purchase date and earnings from the
acquisitions have been included in consolidated earnings of Duke Energy
subsequent to the purchase date. Assets acquired and liabilities assumed are
recorded at their
6
<PAGE>
estimated fair values, and the excess of the purchase price over the estimated
fair value of the net identifiable assets and liabilities acquired is recorded
as goodwill. Final purchase price allocations are subject to adjustment when
additional information concerning asset and liability valuations are finalized
and the evaluation of certain pre-acquisition contingent liabilities has been
completed.
PHILLIPS PETROLEUM GAS GATHERING, PROCESSING AND MARKETING UNIT. On March 31,
2000, Duke Energy, through its wholly owned subsidiary, Duke Energy Field
Services, Inc., completed the approximately $2.1 billion transaction that
combined its gas gathering and processing business (Field Services) with
Phillips Petroleum's Gas Gathering, Processing and Marketing unit to form a new
midstream company, named Duke Energy Field Services, LLC (DEFS). In
connection with the combination, DEFS issued approximately $2.75 billion of
commercial paper on April 3, 2000. The proceeds were used to make one-time cash
distributions of approximately $1.53 billion to Duke Energy and $1.22 billion to
Phillips Petroleum. At March 31, 2000, the cash distribution payable to Phillips
Petroleum was accrued and included in Other Current Liabilities on the
Consolidated Balance Sheet. Duke Energy owns approximately 70% of DEFS and
Phillips Petroleum owns approximately 30%.
Assets and liabilities acquired from Phillips Petroleum have been recorded at
preliminary fair values. Goodwill of approximately $237 million was recorded in
connection with the transaction and is being amortized over 20 years.
The parent company of DEFS, Duke Energy Field Services Corporation (DEFS
Corporation), plans to offer approximately 19% of its common stock to the public
in 2000 in an initial public offering. The proceeds of the offering will be
used to reduce the debt described above. DEFS Corporation has filed a
registration statement related to the offering with the Securities and Exchange
Commission. Such an offering is conditioned upon favorable market conditions.
After the offering, Duke Energy and Phillips Petroleum will own approximately
59% and 22%, respectively, of DEFS Corporation.
EAST TENNESSEE NATURAL GAS COMPANY. In March 2000, Duke Energy completed the
approximately $390 million acquisition of East Tennessee Natural Gas Company
from El Paso Energy. East Tennessee Natural Gas Company owns a 1,100-mile
interstate natural gas pipeline system that crosses Duke Energy's Texas Eastern
Transmission Corporation's pipeline and serves the southeastern region of the
U.S. Assets and liabilities have been recorded at preliminary fair values; there
was no amount allocated to goodwill.
DOMINION RESOURCES' HYDROELECTRIC, NATURAL GAS AND DIESEL POWER GENERATION
BUSINESSES. In August 1999, DEI reached a definitive agreement to acquire
Dominion Resources Inc.'s 1,200-megawatt portfolio of hydroelectric, natural gas
and diesel power generation businesses in Argentina, Belize, Bolivia and Peru
for approximately $405 million. The purchases of the businesses in Belize and
Peru were completed in 1999. In March 2000, DEI completed the purchase of the
businesses in Argentina. Assets and liabilities of the Argentine businesses have
been recorded at preliminary fair values; there was no amount allocated to
goodwill.
In April 2000, DEI completed the purchase of Dominion Resources' Latin America
portfolio by finalizing the purchase of the generation business in Bolivia.
COMPANHIA DE GERACAO DE ENERGIA ELETRICA PARANAPANEMA (PARANAPANEMA). In August
1999, DEI entered a series of transactions to complete a $761 million purchase
of a controlling voting interest and an approximate 44% economic interest in
Paranapanema, an electric generating company in Brazil. In January 2000, Duke
Energy completed a tender offer to the minority shareholders of Paranapanema and
successfully acquired an additional 51% economic interest in the company for
approximately $280 million. This increased Duke Energy's economic ownership from
approximately 44% to approximately 95%. The purchase accounting for the
acquisition of this additional interest included a reduction of the carrying
value of the related assets by approximately $626 million to reflect the
difference in the purchase price from the book value of minority interest
acquired.
7
<PAGE>
4. BUSINESS SEGMENTS
Duke Energy's reportable segments are strategic business units that offer
different products and services and are each managed separately. Management
evaluates segment performance based on earnings before interest and taxes (EBIT)
after deducting minority interests. EBIT presented in the accompanying table
includes intersegment sales accounted for at prices representative of
unaffiliated party transactions. Segment assets are provided as additional
information in the accompanying table and are net of intercompany advances,
intercompany notes receivable and investments in subsidiaries.
<TABLE>
<CAPTION>
=====================================================================================================
BUSINESS SEGMENT DATA (In millions)
- -----------------------------------------------------------------------------------------------------
Capital and
Unaffiliated Intersegment Total Investment
Revenues Revenues Revenues EBIT Expenditures
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
MARCH 31, 2000
Franchised Electric $1,115 $ - $1,115 $441 $177
Natural Gas Transmission 252 34 286 152 428
Field Services 1,274 192 1,466 69 128
Trading and Marketing 4,059 372 4,431 22 97
North American
Wholesale Energy 104 38 142 56 238
International Energy 152 2 154 102 447
Other Energy Services 247 28 275 7 11
Duke Ventures 34 - 34 17 64
Other Operations (A) (1) 22 21 (13) 58
Eliminations and
Minority Interests - (688) (688) 6 -
------------------------------------------------------------------
Total Consolidated $7,236 $ - $7,236 $859 $1,648
- -----------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, 1999
Franchised Electric $1,061 $ - $1,061 $407 $125
Natural Gas Transmission 378 24 402 208 42
Field Services 234 110 344 12 1,445
Trading and Marketing 2,242 44 2,286 18 5
North American
Wholesale Energy 70 11 81 27 86
International Energy 36 9 45 (1) 296
Other Energy Services 134 20 154 (5) 8
Duke Ventures 26 - 26 13 64
Other Operations (A) (3) 13 10 (17) 15
Eliminations and
Minority Interests - (231) (231) 21 -
------------------------------------------------------------------
Total Consolidated $4,178 $ - $4,178 $683 $2,086
=====================================================================================================
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================
SEGMENT ASSETS (In millions)
- -------------------------------------------------------------------------------------
March 31, 2000 December 31, 1999
----------------- ------------------
<S> <C> <C>
Franchised Electric $12,883 $13,133
Natural Gas Transmission 4,183 3,897
Field Services 6,179 3,565
Trading and Marketing 5,003 4,060
North American Wholesale Energy 2,102 2,220
International Energy 3,831 4,459
Other Energy Services 747 612
Duke Ventures 1,083 1,031
Other Operations (A) 1,442 1,250
Eliminations (972) (818)
----------------- ------------------
Total Consolidated $36,481 $33,409
=====================================================================================
</TABLE>
(A) Includes certain unallocated corporate items.
5. DEBT AND CREDIT FACILITIES
In March 2000, Duke Energy issued $300 million of Series D 7 3/8% Senior Notes
due 2010.
6. COMMITMENTS AND CONTINGENCIES
LITIGATION. Duke Energy and its subsidiaries are involved in legal, tax and
regulatory proceedings before various courts, regulatory commissions and
governmental agencies regarding performance, contracts and other matters arising
in the ordinary course of business, some of which involve substantial amounts.
Where appropriate, Duke Energy has made accruals in accordance with Statement of
Financial Accounting Standards No. 5, "Accounting for Contingencies," to provide
for such matters. Management believes that the final disposition of these
proceedings will not have a material adverse effect on consolidated results of
operations or financial position.
OTHER COMMITMENTS AND CONTINGENCIES. Periodically, Duke Energy may become
involved in contractual disputes with natural gas transmission customers
involving potential or threatened abrogation of contracts by the customers. If
the customers are successful, Duke Energy may not receive the full value of
anticipated benefits under the contracts.
Management believes that these commitments and contingencies will not have a
material adverse effect on consolidated results of operations or financial
position.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
INTRODUCTION
Duke Energy Corporation (collectively with its subsidiaries, "Duke Energy") is
an integrated energy and energy services provider with the ability to offer
physical delivery and management of both electricity and natural gas throughout
the U. S. and abroad. Duke Energy provides these and other services through
eight business segments:
o Franchised Electric
o Natural Gas Transmission
o Field Services
o Trading and Marketing
o North American Wholesale Energy
o International Energy
o Other Energy Services
o Duke Ventures
See Note 1 to the Consolidated Financial Statements for further descriptions.
Management's Discussion and Analysis should be read in conjunction with the
Consolidated Financial Statements.
RESULTS OF OPERATIONS
For the three months ended March 31, 2000, earnings available for common
stockholders were $388 million, or $1.06 per basic share. For the comparable
1999 period, earnings available for common stockholders were $962 million, or
$2.65 per basic share, including an after-tax extraordinary gain of $660
million, or $1.82 per basic share. The decrease in earnings available for common
stockholders was primarily due to the 1999 extraordinary gain resulting from the
sale of the Midwest Pipelines. The absence of this gain and higher interest
expense in the current year were partially offset by increased segment profit
and loss described by segment below.
Operating income for the three months ended March 31, 2000 was $758 million
compared to $645 million for the same period in 1999. Earnings before interest
and taxes (EBIT) were $859 million and $683 million for the three months ended
March 31, 2000 and 1999, respectively. Management evaluates each business
segment based on an internal measure of earnings before interest and taxes,
after deducting minority interests. Operating income and EBIT are affected by
the same fluctuations for Duke Energy and each of its business segments. The
only notable difference between operating income and EBIT is the inclusion in
EBIT of certain non-operating activities. See Note 4 to the Consolidated
Financial Statements for additional information on business segments.
10
<PAGE>
EBIT is summarized in the following table and is discussed by business segment
thereafter.
<TABLE>
<CAPTION>
=============================================================================================
EBIT by Business Segment (In millions)
- ---------------------------------------------------------------------------------------------
Three Months Ended
March 31,
----------------------------
2000 1999
----------------------------
<S> <C> <C>
Franchised Electric $441 $407
Natural Gas Transmission 152 208
Field Services 69 12
Trading and Marketing 22 18
North American Wholesale Energy 56 27
International Energy 102 (1)
Other Energy Services 7 (5)
Duke Ventures 17 13
Other Operations (13) (17)
EBIT attributable to Minority Interests 6 21
----------------------------
Consolidated EBIT $859 $683
=============================================================================================
</TABLE>
Other Operations primarily include certain unallocated corporate costs. Included
in the amounts discussed hereafter are intercompany transactions that are
eliminated in the Consolidated Financial Statements.
FRANCHISED ELECTRIC
<TABLE>
<CAPTION>
=============================================================================================
Three Months Ended
March 31,
----------------------------
(In millions, except where noted) 2000 1999
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Revenues $1,115 $1,061
Operating Expenses 693 675
----------------------------
Operating Income 422 386
Other Income, Net of Expenses 19 21
----------------------------
EBIT $ 441 $ 407
============================
Sales - GWh a 20,554 19,537
=============================================================================================
</TABLE>
a Gigawatt-hours.
EBIT for Franchised Electric increased $34 million for the three months ended
March 31, 2000 compared to the same period in 1999, primarily due to increased
sales to new and existing retail customers. The average number of customers in
Franchised Electric's service territory increased 2.6% and gigawatt-hour sales
rose by 5.2% over the prior year. Sales to general service and residential
customers increased 5.7% and 4.5%, respectively, while sales to industrial
customers decreased slightly.
11
<PAGE>
NATURAL GAS TRANSMISSION
<TABLE>
<CAPTION>
=============================================================================================
Three Months Ended
March 31,
----------------------------
(In millions, except where noted) 2000 1999
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Revenues $286 $402
Operating Expenses 146 202
----------------------------
Operating Income 140 200
Other Income, Net of Expenses 12 8
----------------------------
EBIT $152 $208
============================
Throughput - TBtu a 505 811
=============================================================================================
</TABLE>
a Trillion British thermal units.
Natural Gas Transmission's EBIT decreased $56 million for the three months ended
March 31, 2000 compared to the same period in 1999. The decrease mainly resulted
from the absence of $70 million in 1999 earnings related to the Midwest
Pipelines, which were sold to CMS Energy Corporation on March 29, 1999. This
decrease was partially offset by a $14 million increase in EBIT, primarily
attributable to increased earnings from market-expansion projects and joint
ventures, including the Maritimes & Northeast Pipeline which was placed into
service in December 1999. EBIT also increased as a result of earnings from East
Tennessee Natural Gas Company, which was acquired in March 2000. See Note 3 to
the Consolidated Financial Statements for additional information on the
acquisition.
FIELD SERVICES
<TABLE>
<CAPTION>
=============================================================================================
Three Months Ended
March 31,
----------------------------
(In millions, except where noted) 2000 1999
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Revenues $1,466 $344
Operating Expenses 1,393 332
----------------------------
Operating Income 73 12
Other Income, Net of Expenses (4) -
----------------------------
EBIT $ 69 $ 12
============================
Natural Gas Gathered and Processed/Transported, TBtu/d a 6.0 3.4
Natural Gas Liquid (NGL) Production, MBbl/d b 231.2 107.6
Natural Gas Marketed, TBtu/d 0.5 0.4
Average Natural Gas Price per MMBtu c $2.52 $1.75
Average NGL Price per Gallon d $0.50 $0.23
=============================================================================================
</TABLE>
a Trillion British thermal units per day.
b Thousand barrels per day.
c Million British thermal units.
d Does not reflect results of commodity hedges.
For the three months ended March 31, 2000, EBIT for Field Services increased $57
million compared to the same period in 1999. The increase was primarily due to
the acquisition of the natural gas gathering, processing, fractionation and NGL
pipeline business from Union Pacific Resources (UPR) in April 1999, and other
asset purchases since the first quarter of 1999. Improved average NGL prices,
which increased $0.27 per gallon from the prior year, also contributed to the
increase in EBIT.
12
<PAGE>
At the end of March 2000, Duke Energy completed the transaction that combined
Field Services' gas gathering and processing business with Phillips Petroleum's
Gas Gathering, Processing and Marketing unit to form a new midstream company,
named Duke Energy Field Services, LLC. See Note 3 to the Consolidated Financial
Statements for further discussion.
TRADING AND MARKETING
<TABLE>
<CAPTION>
=============================================================================================
Three Months Ended
March 31,
-----------------------------
(In millions, except where noted) 2000 1999
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Revenues $4,431 $2,286
Operating Expenses 4,414 2,257
-----------------------------
Operating Income 17 29
Other Income, Net of Expenses 2 4
Minority Interest (Benefit) Expense (3) 15
-----------------------------
EBIT $ 22 $ 18
============================
Natural Gas Marketed, TBtu/d 12.0 11.0
Electricity Marketed, GWh 50,353 21,837
=============================================================================================
</TABLE>
For the three months ended March 31, 2000, Trading and Marketing's EBIT
increased $4 million from the comparable 1999 period. The increase was mainly
due to increased earnings from new acquisitions and new businesses, including
securing additional gas through additional investment in Canada and adding
fertilizer as another commodity to the trading portfolio. Partially offsetting
the increase were lower natural gas and electricity trading margins. Lower
natural gas and electricity trading margins at the Exxon Mobil Corporation
(Exxon Mobil) joint venture resulted in a minority interest benefit for the
first quarter of 2000.
NORTH AMERICAN WHOLESALE ENERGY
<TABLE>
<CAPTION>
=============================================================================================
Three Months Ended
March 31,
-----------------------------
(In millions, except where noted) 2000 1999
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Revenues $142 $81
Operating Expenses 84 53
----------------------------
Operating Income 58 28
Other Income, Net of Expenses 2 3
Minority Interest Expense 4 4
----------------------------
EBIT $ 56 $27
============================
Proportional Megawatt Capacity Owned a 6,889 5,012
=============================================================================================
</TABLE>
a Includes under construction or under contract.
North American Wholesale Energy's EBIT increased $29 million for the three
months ended March 31, 2000 compared to the same period in 1999. The increase
was primarily attributable to a $49 million increase in income from the sale of
interests and investments in generating facilities as a result of North American
Wholesale Energy executing its domestic portfolio management strategy. This
income was partially offset by reduced earnings from generation facilities in
California and increased development costs associated with business expansion.
13
<PAGE>
INTERNATIONAL ENERGY
<TABLE>
<CAPTION>
=============================================================================================
Three Months Ended
March 31,
-----------------------------
(In millions, except where noted) 2000 1999
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Revenues $154 $45
Operating Expenses 115 48
-----------------------------
Operating Income 39 (3)
Other Income, Net of Expenses 68 4
Minority Interest Expense 5 2
-----------------------------
EBIT $102 $(1)
============================
Proportional Megawatt Capacity Owned a 4,205 906
Proportional Maximum Pipeline Capacity a, MMcf/d b 332 332
=============================================================================================
</TABLE>
a Includes under construction or under contract.
b Million cubic feet per day.
EBIT for International Energy increased $103 million for the three months ended
March 31, 2000 compared to the same period in 1999. The increase included $54
million in other income from the sale of liquefied natural gas ships. Earnings
from new projects in Latin America and Australia also contributed $48 million to
the increase.
OTHER ENERGY SERVICES
<TABLE>
<CAPTION>
=============================================================================================
Three Months Ended
March 31,
-----------------------------
(In millions) 2000 1999
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Revenues $275 $154
Operating Expenses 268 159
---------------------------
EBIT $ 7 $ (5)
=============================================================================================
</TABLE>
For the three months ended March 31, 2000, EBIT for Other Energy Services
increased $12 million compared to the same period in 1999. The increase was
primarily due to decreased operating expenses at Duke Engineering & Services,
Inc. and DukeSolutions, Inc. and earnings growth from new projects at Duke/Fluor
Daniel.
DUKE VENTURES
<TABLE>
<CAPTION>
=============================================================================================
Three Months Ended
March 31,
-----------------------------
(In millions) 2000 1999
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Revenues $34 $26
Operating Expenses 17 13
-------------- -------------
EBIT $17 $13
=============================================================================================
</TABLE>
Duke Ventures' EBIT increased $4 million for the three months ended March 31,
2000 compared to the same period in 1999. The increase primarily resulted from
reduced operating losses for the PCS business at DukeNet Communications.
14
<PAGE>
OTHER IMPACTS ON EARNINGS AVAILABLE FOR COMMON STOCKHOLDERS
For the three months ended March 31, 2000, interest expense increased $53
million compared to the same period in 1999, due to higher average debt balances
outstanding, resulting from acquisitions and expansion.
Minority interests decreased $4 million for the three months ended March 31,
2000 compared to the same period in 1999. This change is the net result of $10
million of increased expense related to regular distributions on additional
issuances of Duke Energy's trust preferred securities during 1999 and decreases
in minority interest expense related primarily to Trading and Marketing's joint
venture, discussed previously, and International Energy's reduced investments in
Brazil as a result of its tender offer (see Note 3 to the Consolidated Financial
Statements).
The sale of the Midwest Pipelines closed on March 29, 1999 and resulted in a
$660 million extraordinary gain, net of income tax of $404 million. For further
discussion on the sale, see Note 2 to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING CASH FLOWS
Net cash provided by operations was $188 million for the three months ended
March 31, 2000 compared to $547 million for the same period in 1999. The
decrease in cash was primarily due to increased tax payments as a result of the
sale of the Midwest Pipelines in 1999, offset by increased accounts payable.
In 1999, Duke Energy established an accrual for estimated injury and damages
claims. Duke Energy expects to fund approximately $350 million, which is
comprised of an insurance policy premium and estimated claim activity over the
next year, primarily through new debt issuances. During the first quarter of
2000, Duke Energy paid approximately $253 million related to the insurance
premium. Management believes that the long-term cash requirements of the
projected liability will not have a material effect on Duke Energy's liquidity
or cash flows.
INVESTING CASH FLOWS
Capital and investment expenditures were $1,648 million for the three months
ended March 31, 2000 compared to $2,086 million for the same period in 1999. The
decrease in capital and investment expenditures during the period primarily
resulted from the 1999, $1.35 billion acquisition of the natural gas gathering,
processing, fractionation and NGL pipeline business from UPR, as well as UPR's
NGL marketing activities. This decrease in expenditures was offset by current
year business expansion for the Natural Gas Transmission, North American
Wholesale Energy and International Energy segments discussed below.
NATURAL GAS TRANSMISSION
In March 2000, Duke Energy completed the approximately $390 million acquisition
of East Tennessee Natural Gas Company from El Paso Energy. East Tennessee
Natural Gas Company owns a 1,100-mile interstate natural gas pipeline system
that crosses Duke Energy's Texas Eastern Transmission Corporation's pipeline and
serves the southeastern region of the U.S. See Note 3 to the Consolidated
Financial Statements for further discussion.
15
<PAGE>
NORTH AMERICAN WHOLESALE ENERGY
In the first quarter of 2000, Duke Energy North America (DENA) began
construction of three new 500-megawatt, natural gas-fired, combined cycle
generating plants: the McClain Energy Facility in Oklahoma, and the Hinds Energy
Facility and Attala Energy Facility in Mississippi. Duke Energy's capital
commitment to these projects totals approximately $680 million through June
2001. DENA also continued capital expenditures on projects initiated prior to
2000.
INTERNATIONAL ENERGY
In January 2000, Duke Energy International (DEI) completed a tender offer to the
minority shareholders of Companhia de Geracao de Energia Eletrica Paranapanema
(Paranapanema) and successfully acquired an additional 51% economic interest in
the company for approximately $280 million. This increased Duke Energy's
economic ownership from approximately 44% to approximately 95%. For additional
information on the Paranapanema acquisition, see Note 3 to the Consolidated
Financial Statements.
In August 1999, DEI announced that it would be acquiring Dominion Resources,
Inc.'s portfolio of hydroelectric, natural gas and diesel power generation
businesses in Argentina, Belize, Bolivia and Peru for approximately $405
million. The purchases of the businesses in Belize and Peru were completed in
1999. In March of 2000, DEI completed the purchase of the businesses in
Argentina and completed the purchase of the business in Bolivia in April 2000.
See Note 3 to the Consolidated Financial Statements for further discussion.
DEI also announced its first acquisition in Europe when it reached agreement
with Exxon Mobil to purchase 100% of Mobil Europe Gas Inc., a leading
independent gas marketing company in the Netherlands for approximately $230
million. The acquisition closed in early second quarter 2000. DEI plans to
expand its European operations into both gas and power trading in the near
future.
All projected capital and investment expenditures for the above segments are
subject to periodic review and revision and may vary significantly depending on
a number of factors including, but not limited to, industry restructuring,
regulatory constraints, acquisition opportunities, market volatility and
economic trends.
FINANCING CASH FLOWS
Duke Energy's consolidated capital structure at March 31, 2000, including
short-term debt, was 47% debt, 5% minority interest, 6% trust preferred
securities, 1% preferred stock and 41% common equity. Fixed charges coverage,
calculated using the Securities and Exchange Commission method, was 4.2 times
and 4.6 times for the three months ended March 31, 2000 and 1999, respectively.
Duke Energy plans to continue to significantly grow several of its business
segments: Field Services, Trading and Marketing, North American Wholesale
Energy, International Energy and Other Energy Services. These growth
opportunities, along with dividends, debt repayments and operating and investing
requirements, are expected to be funded by cash from operations, external
financing, common stock issuances and the proceeds from certain asset sales.
Funding requirements met by external financing, common stock issuances and
proceeds from the sale of assets are dependant upon the opportunities presented
and favorable market conditions. Management believes Duke Energy has adequate
financial resources to meet its future needs.
In March 2000, Duke Energy issued $300 million of Series D 7 3/8% Senior Notes
due 2010. In relation to the acquisition of generation businesses in Argentina
in March of 2000, Duke Energy also entered into a $75 million, one-year bridge
loan.
16
<PAGE>
Under its commercial paper facilities, Duke Energy had the ability to borrow up
to $2.8 billion at both March 31, 2000 and December 31, 1999. The commercial
paper facilities at March 31, 2000 consisted of $1.25 billion for Duke Energy,
and $1.55 billion for Duke Capital Corporation. At March 31, 2000, DEI also had
available a combined commercial paper and medium-term note program for
approximately $500 million and Duke Energy Field Services LLC had a $2.8 billion
commercial paper facility. See Note 3 to the Consolidated Financial Statements
for further discussion. At March 31, 2000 and December 31, 1999, Duke Energy's
various bank credit and construction facilities totaled approximately $7.0
billion and $3.7 billion, respectively (including approximately $307 million and
$320 million related to foreign facilities for the respective periods). At March
31, 2000, approximately $2.7 billion was outstanding under the commercial paper
facilities and approximately $520 million of borrowings were outstanding under
the bank credit and construction facilities. Certain of the credit facilities
support the issuance of commercial paper; therefore, the issuance of commercial
paper reduces the amount available under these credit facilities.
As of March 31, 2000, Duke Energy and its subsidiaries had the ability to issue
up to $3.25 billion aggregate principal amount of debt and other securities
under shelf registrations filed with the Securities and Exchange Commission.
Such securities may be issued as First and Refunding Mortgage Bonds, Senior
Notes, Subordinated Notes or Preferred Securities.
In connection with the combination of Field Services' gas gathering and
processing businesses with Phillips Petroleum's Gas Processing and Marketing
unit, the new company issued approximately $2.75 billion of commercial paper in
April 2000. The proceeds were used to make one-time cash distributions of
approximately $1.53 billion to Duke Energy and $1.22 billion to Phillips
Petroleum. Duke Energy used its share of the proceeds to reduce existing
indebtedness. The new company plans to offer approximately 19% of its common
stock to the public in 2000 in an initial public offering. Proceeds from the
offering will be used to reduce the debt described above. A registration
statement related to the offering has been filed with the Securities and
Exchange Commission. Such an offering is conditioned upon favorable market
conditions. See Note 3 to the Consolidated Financial Statements for further
discussion.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RISK POLICIES
Duke Energy is exposed to market risks associated with interest rates, commodity
prices, equity prices and foreign exchange rates. Comprehensive risk management
policies have been established by the Corporate Risk Management Committee (CRMC)
to monitor and control these market risks. The CRMC is chaired by the Chief
Financial Officer and is comprised of senior executives. The CRMC has
responsibility for oversight of interest rate risk, foreign currency risk,
credit risk and energy risk management, including approval of energy financial
exposure limits. A description of the changes in Duke Energy's market risk since
December 31, 1999 follows.
COMMODITY PRICE RISK
In March 2000, Duke Energy's exposure to market fluctuations in the prices of
NGLs increased as a result of Duke Energy combining its gas gathering and
processing business with Phillips Petroleum's Gas Gathering, Processing and
Marketing unit to form a new midstream company. See Note 3 to the Consolidated
Financial Statements for additional information on the combination. Duke Energy
closely monitors the risks associated with NGL price changes on its future
operations, and where appropriate, uses crude oil and natural gas commodity
instruments to hedge NGL prices. Based on a sensitivity analysis as of March 31,
2000, it was estimated that if NGL prices average one cent per gallon less in
the next twelve months, earnings before income taxes would decrease by
approximately $10 million, after considering the effect of Duke Energy's
commodity hedge positions.
17
<PAGE>
FOREIGN OPERATIONS RISK
Duke Energy is exposed to foreign currency risk, sovereign risk and other
foreign operations risk that arise from investments in international affiliates
and businesses owned and operated in foreign countries. To mitigate risks
associated with foreign currency fluctuations, when possible, contracts are
denominated in or indexed to the U.S. dollar or may be hedged through debt
denominated in the foreign currency. Duke Energy also uses foreign currency
derivatives, where possible, to manage its risk related to foreign currency
fluctuations. To monitor its currency exchange rate risks, Duke Energy uses
sensitivity analysis, which measures the impact of a devaluation of the foreign
currencies to which it has exposure.
At March 31, 2000, Duke Energy's primary foreign currency exchange rate
exposures were the Brazilian Real, the Peruvian Nuevo Sol, the Australian
dollar, the El Salvadorian Colon and the Canadian dollar. Based on the
sensitivity analysis at March 31, 2000, a 10% devaluation in the currency
exchange rates in Brazil would reduce Duke Energy's financial position by
approximately $123 million and would not significantly affect Duke Energy's
consolidated results of operations or cash flows over the next twelve months.
Based on the sensitivity analysis at March 31, 2000, a 10% devaluation in other
foreign currencies were insignificant to Duke Energy's consolidated results of
operations, financial position or cash flows.
CURRENT ISSUES
ELECTRIC COMPETITION. WHOLESALE COMPETITION. On December 20, 1999, the Federal
Energy Regulatory Commission (FERC) issued its Order No. 2000 regarding Regional
Transmission Organizations (RTOs). In its order, the FERC stressed the voluntary
nature of RTO participation by utilities and sets minimum characteristics and
functions that must be met by utilities that participate in an RTO. The order
provides for an open, flexible structure for RTOs to meet the needs of the
market, and provides for the possibility of incentive ratemaking and other
benefits for utilities that participate in an RTO.
On February 25, 2000, the FERC issued an Order on Rehearing -- Order No. 2000-A.
In Order No. 2000-A, the Commission reaffirmed the core elements and basic
framework of Order No. 2000 and issued clarifying guidance in several areas.
Among the issues clarified was the requirement that the RTO must have exclusive
and independent authority to propose rates, terms and conditions of transmission
service provided over the facilities it operates.
Several entities, including the Edison Electric Institute, of which Duke is a
member, have filed Petitions for Review of Order No. 2000 and Order No. 2000-A
at the United States Court of Appeals for the District of Columbia Circuit.
Because Order No. 2000 ultimately may be revised in certain respects by the
court, management cannot estimate its effect on future consolidated results of
operations or financial position.
RETAIL COMPETITION. In May 1997, North Carolina passed a bill that established a
study commission to examine whether competition should be implemented in the
state. Members of this commission include legislators, customers, utilities and
a member of an environmental group. The study commission unanimously approved a
set of recommendations on electric restructuring in April 2000. The
commission's report to the legislature containing these recommendations is
expected to be submitted to the legislature during the second quarter. No
legislative action based upon the recommendation is expected until 2001.
NATURAL GAS COMPETITION. WHOLESALE COMPETITION. On February 9, 2000, the FERC
issued Order 637 which sets forth revisions to its regulations governing
short-term natural gas transportation services and policies governing the
regulation of interstate natural gas pipelines. "Short term" has been defined as
all transactions of less than one year. Among the significant actions taken are
the lifting of the price cap for short-term capacity release by pipeline
customers for an experimental 2 1/2-year period ending September 1, 2002 and
requiring that interstate pipelines file pro forma tariff sheets to (i) provide
for nomination equality between capacity release and primary pipeline capacity;
(ii) implement imbalance management services (for which interstate pipelines may
charge) while at the same time reducing the use of operational flow orders and
penalties and (iii) provide segmentation rights if operationally feasible. Order
637 also narrows the right of first refusal to remove economic biases perceived
in the current rule. Order 637 imposes significant new reporting requirements
for interstate pipelines which must be implemented by September 1, 2000. The
stated FERC goal of these reporting requirements is to increase transparency of
transactions on a real-time basis and to provide additional information on
pipeline organizational structure. Additionally, Order 637 permits pipelines to
propose peak/off-peak rates and term-differentiated rates, and encourages
pipelines to propose experimental capacity auctions. Order 637 is subject to
requests for rehearing and possible court appeal.
18
<PAGE>
Because the ultimate resolution of the foregoing proceeding is unknown,
management cannot estimate the effects of these matters on future consolidated
results of operations or financial position.
ENVIRONMENTAL MATTERS. AIR QUALITY CONTROL. In October 1998, the Environmental
Protection Agency (EPA) issued a final ruling on regional ozone control that
requires revised State Implementation Plans for 22 eastern states and the
District of Columbia. This EPA ruling was challenged in court by various states,
industry and other interests, including the states of North Carolina and South
Carolina and Duke Energy. In March 2000, the court upheld most aspects of the
EPA's rule. Petitioners have asked the court to rehear the case and overturn the
March decision. In May 1999, the court had ordered that no state need submit a
plan "pending further order of the court." That order is still in place,
although the EPA had asked the court to lift the order. The EPA has undertaken
other ozone-related actions having virtually identical goals to its October 1998
action. These actions have likewise been challenged in court by the same or
similar parties. The final resolution of the October 1998 action is expected to
resolve these other ozone-related actions as well. The North Carolina
Environmental Management Commission (EMC) is considering several competing
proposals to reduce utility emissions of nitrogen oxide. The EMC voted in March
2000 to send three alternative nitrogen oxide proposals to public hearing with
the intention of adopting a final rule in September 2000. Duke Power announced
that it will undertake additional nitrogen oxide control projects between 2000
and 2005, at a cost of approximately $100 million as an interim step to address
possible contributions to ozone formation in North Carolina. Depending on the
resolution of these matters, costs to Duke Energy may range from the $100
million that Duke Energy has already committed to $600 million for additional
capital improvements.
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Illinois Environmental Protection Agency has initiated an environmental
enforcement proceeding against a former subsidiary of Duke Energy relating to
alleged air quality permit violations at a natural gas compressor station. Duke
Energy has agreed to indemnify the purchaser of this former subsidiary against
liability for any penalty or fines resulting from these alleged violations. This
proceeding could result in a penalty in excess of $100,000.
For additional information concerning litigation and other contingencies, see
Note 6 to the Consolidated Financial Statements, "Commitments and
Contingencies."
Management believes that the resolution of the matters discussed and referred to
above will not have a material adverse effect on consolidated results of
operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of the security holders of Duke Energy
during the first quarter of 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(27) Financial Data Schedule (included in electronic
filing only)
(b) Reports on Form 8-K
A Current Report on Form 8-K filed on March 3, 2000 contained
disclosures under Item 7, Financial Statements and Exhibits.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DUKE ENERGY CORPORATION
May 12, 2000 /s/ David L. Hauser
------------------------
David L. Hauser
Senior Vice President and
Treasurer
May 12, 2000 /s/ Sandra P. Meyer
---------------------
Sandra P. Meyer
Vice President and Corporate Controller
21
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME, CONSOLIDATED STATEMENTS OF CASH FLOWS, AND
CONSOLIDATED BALANCE SHEETS AS OF AND FOR YEAR TO DATE 03/31/00 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000030371
<NAME> DUKE ENERGY CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 9,745,000
<OTHER-PROPERTY-AND-INVEST> 18,777,000
<TOTAL-CURRENT-ASSETS> 6,463,000
<TOTAL-DEFERRED-CHARGES> 1,496,000
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 36,481,000
<COMMON> 4,658,000
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 4,588,000
<TOTAL-COMMON-STOCKHOLDERS-EQ> 9,243,000
71,000
209,000
<LONG-TERM-DEBT-NET> 8,962,000
<SHORT-TERM-NOTES> 8,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 2,812,000
<LONG-TERM-DEBT-CURRENT-PORT> 504,000
33,000
<CAPITAL-LEASE-OBLIGATIONS> 118,000
<LEASES-CURRENT> 18,000
<OTHER-ITEMS-CAPITAL-AND-LIAB> 16,138,000
<TOT-CAPITALIZATION-AND-LIAB> 36,481,000
<GROSS-OPERATING-REVENUE> 7,236,000
<INCOME-TAX-EXPENSE> 250,000
<OTHER-OPERATING-EXPENSES> 6,478,000
<TOTAL-OPERATING-EXPENSES> 6,728,000
<OPERATING-INCOME-LOSS> 758,000
<OTHER-INCOME-NET> 101,000
<INCOME-BEFORE-INTEREST-EXPEN> 578,000
<TOTAL-INTEREST-EXPENSE> 185,000
<NET-INCOME> 393,000
5,000
<EARNINGS-AVAILABLE-FOR-COMM> 388,000
<COMMON-STOCK-DIVIDENDS> 202,000
<TOTAL-INTEREST-ON-BONDS> 43,000
<CASH-FLOW-OPERATIONS> 188,000
<EPS-BASIC> 1.06 <F1>
<EPS-DILUTED> 1.06
<FN>
<F1> REPRESENTS BASIC EARNINGS PER SHARE
</FN>
</TABLE>
