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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2000 or
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 1-4928
DUKE ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
56-0205520
North Carolina (I.R.S. Employer Identification
(State or other jurisdiction of No.)
incorporation or organization)
28202-1904
526 South Church Street, Charlotte, (Zip Code)
North Carolina
(Address of principal executive
offices)
704-594-6200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- -----------------------------
Common Stock, without par value New York Stock Exchange, Inc.
6.375% Preferred Stock A, 1993 Series, par value
$25 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 5 7/8% Due
2001 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 5 7/8%
Series C Due 2003 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 6 1/4%
Series B Due 2004 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 6 3/8% Due
2008 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 6 5/8%
Series B Due 2003 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 6 3/4% Due
2025 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 6 7/8%
Series B Due 2023 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7% Due 2033 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7 1/2%
Series B Due 2025 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7 7/8% Due
2024 New York Stock Exchange, Inc.
7.20% Quarterly Income Preferred Securities
issued by Duke Energy Capital Trust I and
guaranteed by Duke Energy Corporation New York Stock Exchange, Inc.
7.20% Trust Preferred Securities issued by Duke
Energy Capital Trust II and guaranteed by Duke
Energy Corporation New York Stock Exchange, Inc.
Preference Stock Purchase Rights New York Stock Exchange, Inc.
Series C 6.60% Senior Notes Due 2038 New York Stock Exchange, Inc.
Corporate Units New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
Title of class
Preferred Stock, par value $100
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
Estimated aggregate market value of the voting stock held by
nonaffiliates of the registrant at February 28, 2001.......... $30,197,000,000
Number of shares of Common Stock, without par value,
outstanding at February 28, 2001.............................. 742,000,590
Documents incorporated by reference:
The registrant is incorporating herein by reference certain sections of
the proxy statement relating to the 2001 annual meeting of shareholders to
provide information required by Part III, Items 10, 11, 12 and 13 of this
annual report.
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DUKE ENERGY CORPORATION
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
Item Page
---- ----
PART I.
1. Business........................................................... 1
General......................................................... 1
Franchised Electric............................................. 3
Natural Gas Transmission........................................ 8
Field Services.................................................. 10
North American Wholesale Energy................................. 11
International Energy............................................ 15
Other Energy Services........................................... 16
Duke Ventures................................................... 16
Environmental Matters........................................... 17
Geographic Regions ............................................. 17
Employees....................................................... 17
Recent Financings............................................... 18
Operating Statistics............................................ 18
Executive Officers of Duke Energy............................... 19
2. Properties......................................................... 20
3. Legal Proceedings.................................................. 22
4. Submission of Matters to a Vote of Security Holders................ 24
PART II.
5. Market for Registrant's Common Equity and Related Stockholder
Matters............................................................ 25
6. Selected Financial Data............................................ 26
7. Management's Discussion and Analysis of Results of Operations and
Financial Condition................................................ 27
7A. Quantitative and Qualitative Disclosures About Market Risk......... 46
8. Financial Statements and Supplementary Data........................ 47
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................... 88
PART III.
10. Directors and Executive Officers of the Registrant................. 88
11. Executive Compensation............................................. 88
12. Security Ownership of Certain Beneficial Owners and Management..... 88
13. Certain Relationships and Related Transactions..................... 88
PART IV.
14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.... 89
Signatures......................................................... 90
Exhibit Index...................................................... 91
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
From time to time, Duke Energy may make statements regarding its
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 the actual
results will not differ materially from those expressed or implied by the
forward-looking statements. For a discussion of some factors that could cause
actual achievements and events to differ materially from those expressed or
implied in such forward-looking statements, see "Management's Discussion and
Analysis of Results of Operations and Financial Condition, Current Issues --
Forward-Looking Statements."
PART I.
Item 1. Business.
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
seven business segments.
Franchised Electric generates, transmits, distributes and sells electric
energy in central and western North Carolina and the western portion of South
Carolina. Its operations are conducted primarily through Duke Power and
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 (NCUC) and the Public Service Commission of South
Carolina (PSCSC).
Natural Gas Transmission provides interstate transportation and storage of
natural gas for customers primarily in the Mid-Atlantic, New England and
southeastern states. Its operations are conducted primarily through Duke Energy
Gas Transmission Corporation. The interstate natural gas transmission and
storage operations are subject to the rules and regulations of the FERC.
Field Services gathers, processes, transports, markets and stores natural
gas and produces, transports, markets and stores natural gas liquids (NGLs).
Its operations are conducted primarily through Duke Energy Field Services, LLC
(DEFS), a limited liability company that is approximately 30% owned by Phillips
Petroleum. Field Services operates gathering systems in western Canada and 11
contiguous states that serve major natural gas-producing regions in the Rocky
Mountain, Permian Basin, Mid-Continent, East Texas-Austin Chalk-North
Louisiana, as well as onshore and offshore Gulf Coast areas.
North American Wholesale Energy's (NAWE's) activities include asset
development, operation and management, primarily through Duke Energy North
America, LLC (DENA), and commodity sales and services related to natural gas
and power, primarily through Duke Energy Trading and Marketing, LLC (DETM).
DETM is a limited liability company that is approximately 40% owned by Exxon
Mobil Corporation. NAWE also includes Duke Energy Merchants (DEM), which
develops new business lines in the evolving energy commodity markets. NAWE
conducts its business throughout the U.S. and Canada. The operations of the
previously segregated Trading and Marketing segment were combined by management
into NAWE during 2000.
International Energy conducts its operations through Duke Energy
International, LLC. International Energy's activities include asset
development, operation and management of natural gas and power facilities and
energy trading and marketing of natural gas and electric power. This activity
is targeted in the Latin American, Asia-Pacific and European regions.
Other Energy Services is a combination of businesses that provide
engineering, consulting, construction and integrated energy solutions
worldwide, primarily through Duke Engineering & Services, Inc. (DE&S),
Duke/Fluor Daniel (D/FD) and DukeSolutions, Inc. (DukeSolutions). D/FD is a
50/50 partnership between Duke Energy and Fluor Enterprises, Inc.
Duke Ventures is comprised of other diverse businesses, primarily operating
through Crescent Resources, Inc. (Crescent), DukeNet Communications, LLC
(DukeNet) and Duke Capital Partners (DCP). Crescent develops high-quality
commercial, residential and multi-family real estate projects and manages land
holdings primarily in the southeastern U.S. DukeNet provides fiber optic
networks for industrial, commercial and residential customers. DCP, a newly
formed, wholly owned merchant finance company, provides financing, investment
banking and asset management services to wholesale and commercial energy
markets.
1
Certain terms used to describe Duke Energy's business are explained below.
British Thermal Unit (Btu). A standard unit for measuring thermal energy or
heat commonly used as a gauge for the energy content of natural gas and other
fuels.
Cubic Foot (cf). The most common unit of measurement of gas volume; the
amount of natural gas required to fill a volume of one cubic foot under stated
conditions of temperature, pressure and water vapor.
Distribution. The system of lines, transformers and switches that connect
the electric transmission system to customers.
Federal Energy Regulatory Commission (FERC). The agency that regulates the
transportation of electricity and natural gas in interstate commerce and
authorizes the buying and selling of energy commodities at market-based rates.
Gathering System. Pipeline, processing and related facilities that access
production and other sources of natural gas supplies for delivery to mainline
transmission systems.
Generation. The process of transforming other forms of energy, such as
nuclear or fossil fuels, into electricity. Also, the amount of electric energy
produced, expressed in megawatt-hours.
Greenfield Development. The development of a new power generating facility
on an undeveloped site.
Independent System Operator (ISO). Ensures non-discriminatory access to a
regional transmission system, providing all customers access to the power
exchange and clearing all bilateral contract requests for use of the electric
transmission system. Also responsible for maintaining bulk electric system
reliability.
Liquefied Natural Gas (LNG). Natural gas that has been converted to a liquid
by cooling it to -260 degrees Fahrenheit.
Local Distribution Company (LDC). A company that obtains the major portion
of its revenues from the operations of a retail distribution system for the
delivery of electricity or gas for ultimate consumption.
Natural Gas. A naturally occurring mixture of hydrocarbon and non-
hydrocarbon gases found in porous geological formations beneath the earth's
surface, often in association with petroleum. The principal constituent is
methane.
Natural Gas Liquids (NGLs). Liquid hydrocarbons extracted during the
processing of natural gas. Principal commercial NGLs include butanes, propane,
natural gasoline and ethane.
Peak Load. The amount of electricity required during periods of highest
demand. Peak periods fluctuate by season, generally occurring in the morning
hours in winter and in late afternoon during the summer.
Throughput. The amount of natural gas or natural gas liquids transported
through a pipeline system.
Transmission System (Electric). An interconnected group of electric
transmission lines and related equipment for moving or transferring electric
energy in bulk between points of supply and points at which it is transformed
for delivery over a distribution system to customers, or for delivery to other
electric transmission systems.
Transmission System (Natural Gas). An interconnected group of natural gas
pipelines and associated facilities for transporting natural gas in bulk
between points of supply and delivery points to industrial customers, local
distribution companies, or for delivery to other natural gas transmission
systems.
Watt. A measure of real power production or usage equal to one joule per
second.
A discussion of the current business and operations of each of Duke Energy's
segments follows. For further discussion of the operating outlook of Duke
Energy and its segments, see "Management's Discussion and Analysis of Results
of Operations and Financial Condition, Introduction--Business Strategy." For
financial information concerning Duke Energy's business segments, see Note 3 to
the Consolidated Financial Statements, "Business Segments."
Duke Energy is a North Carolina corporation with its principal executive
offices located at 526 South Church Street, Charlotte, NC 28202-1904. The
telephone number is 704-594-6200.
2
FRANCHISED ELECTRIC
Service Area and Customers
Franchised Electric generates, transmits, distributes and sells electricity
over a service area which covers about 22,000 square miles with an estimated
population of 5.3 million people in central and western portions of North
Carolina and the western portion of South Carolina. Franchised Electric
supplies electric service directly to approximately two million residential,
commercial and industrial customers over 92,000 miles of distribution lines and
a 12,700 mile transmission system. Electricity is sold at wholesale to
incorporated municipalities and to several public and private utilities. In
addition, sales are made through contractual agreements to municipal or
cooperative customers who purchased portions of the Catawba Nuclear Station.
For statistics related to gigawatt-hour sales by customer type, see "Operating
Statistics." For further discussion of the Catawba Nuclear Station joint
ownership, see Note 5 to the Consolidated Financial Statements, "Joint
Ownership of Generating Facilities."
Franchised Electric's service area is undergoing increasingly diversified
industrial and commercial development. The textile industry, machinery and
equipment manufacturing, and chemical and chemical-related industries are of
major significance to the economy of the area. Other industrial activities
include rubber and plastic products, paper and allied products, and various
other light and heavy manufacturing and service businesses. The largest
industry served is the textile industry, which accounted for approximately $419
million of Franchised Electric's revenues for 2000, representing 9% of total
electric revenues and 35% of industrial revenues. Franchised Electric normally
experiences seasonal peak loads in summer and winter.
[MAP]
3
Capacity and Resources of Energy
Electric energy required to supply the needs of Franchised Electric's
customers is primarily generated by three nuclear generating stations with a
combined net capacity of 5,409 megawatts (MW), eight coal-fired stations with a
combined capacity of 7,572 MW, 31 hydroelectric stations with a combined
capacity of 2,693 MW and six combustion turbine stations with a combined
capacity of 2,081 MW. Energy and capacity are also supplied through contracts
with other generators of electricity and purchased on the open market.
Franchised Electric has interconnections and arrangements with its neighboring
utilities, which are considered adequate for planning, emergency assistance,
exchange of capacity and energy and reliability of power supply. Future
increased energy requirements of Franchised Electric's customers are expected
to be supplied through additional construction, purchased power contracts and
open market purchases. For statistics regarding sources of electric energy, see
"Operating Statistics."
Fuel Supply
Franchised Electric presently relies principally on coal and nuclear fuel
for the generation of electric energy. Franchised Electric's reliance on oil
and gas is minimal. Information regarding the utilization of sources of power
and cost of fuels for each of the three years in the period ended December 31,
2000 is set forth in the following table:
Cost of Fuel
per Net
Kilowatt-hour
Generation by Generated
Source (Percent) (Cents)
----------------- --------------
2000 1999 1998 2000 1999 1998
----- ----- ----- ---- ---- ----
Coal........................................... 50.9 50.4 50.7 1.29 1.33 1.32
Nuclear(a)..................................... 48.1 48.0 46.2 0.42 0.43 0.44
Oil and gas(b)................................. 0.5 0.8 1.0 7.32 4.51 4.01
----- ----- -----
All fuels (cost based on weighted
average)(a)................................... 99.5 99.2 97.9 0.91 0.92 0.93
Hydroelectric(c)............................... 0.5 0.8 2.1
----- ----- -----
100.0 100.0 100.0
===== ===== =====
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(a) Statistics related to nuclear generation and all fuels reflect Franchised
Electric's 12.5% ownership interest in the Catawba Nuclear Station.
(b) Cost statistics include amounts for light-off fuel at Franchised Electric's
coal-fired stations.
(c) Generating figures are net of output required to replenish pumped storage
units during off-peak periods.
Coal. Franchised Electric meets its coal demand through purchase supply
contracts and spot agreements. Large amounts of its coal supply are obtained
under supply contracts with mining operators utilizing both underground and
surface mining. Franchised Electric has an adequate supply of coal to fuel its
current operations. Its supply contracts, all of which have price adjustment
provisions, have expiration dates ranging from 2001 to 2003. Duke Energy
believes that it will be able to renew such contracts as they expire or to
enter into similar contractual arrangements with other coal suppliers for the
quantities and qualities of coal required. The coal purchased under these
supply contracts is produced from mines located in eastern Kentucky, southern
West Virginia and southwestern Virginia. Coal requirements not met by supply
contracts have been and are expected to be fulfilled with spot market
purchases.
The average sulfur content of coal being purchased by Franchised Electric is
approximately 1%. Such coal satisfies the current emission limitation for
sulfur dioxide for existing facilities. See also "Management's Discussion and
Analysis of Results of Operations and Financial Condition, Current Issues --
Environmental, Air Quality Control" for additional information regarding
particulate matter.
Nuclear. Generally, the process for developing nuclear generating fuel
supply involves the mining and milling of uranium ore to produce uranium
concentrates, the conversion of uranium concentrates to uranium hexafluoride,
enrichment of that gas and fabrication of the enriched uranium hexafluoride
into usable fuel assemblies. Franchised Electric has contracted for uranium
materials and services required to fuel the Oconee,
4
McGuire and Catawba Nuclear Stations. Based upon current projections, these
contracts will meet Franchised Electric's requirements through the following
years:
Uranium Conversion Enrichment Fabrication
Nuclear Station Material Service Service Service
- --------------- -------- ---------- ---------- -----------
Oconee............................... 2002 2002 2002 2006
McGuire.............................. 2002 2002 2002 2009
Catawba.............................. 2002 2002 2002 2009
Uranium material requirements will be met through various supplier
contracts, with uranium material produced primarily in the U.S. and Canada.
Duke Energy believes that it will be able to renew contracts as they expire or
to enter into similar contractual arrangements with other suppliers of nuclear
fuel materials and services. Requirements not met by long-term supply contracts
have been and are expected to be fulfilled with unfabricated uranium spot
market purchases.
Duke Energy owns and operates the McGuire and Oconee Nuclear Stations with
two and three nuclear reactors, respectively, and operates and has a partial
ownership interest in the Catawba Nuclear Station with two nuclear reactors.
Nuclear insurance coverage is maintained in three program areas: liability
coverage; property, decontamination and decommissioning coverage; and business
interruption and/or extra expense coverage. Certain expenses associated with
nuclear insurance premiums paid by Duke Energy are reimbursed by the other
joint owners of the Catawba Nuclear Station. Pursuant to the Price-Anderson
Act, Duke Energy is required to insure against public liability claims
resulting from nuclear incidents to the full limit of liability of
approximately $9.5 billion. See Note 14 to the Consolidated Financial
Statements, "Commitments and Contingencies -- Nuclear Insurance" for further
information.
Estimated site-specific nuclear decommissioning costs, including the cost of
decommissioning plant components not subject to radioactive contamination,
total approximately $1.9 billion stated in 1999 dollars based on
decommissioning studies completed in 1999. This amount includes Duke Energy's
12.5% ownership in the Catawba Nuclear Station. The other joint owners of
Catawba Nuclear Station are responsible for decommissioning costs related to
their ownership interests in the station. See Note 11 to the Consolidated
Financial Statements, "Nuclear Decommissioning Costs" for further information.
Duke Energy entered into a contract with the Department of Energy (DOE) to
use mixed oxide fuel at its McGuire and Catawba nuclear stations. The mixed
oxide fuel is fabricated from plutonium from the government's surplus and is
similar to conventional uranium fuel. Before using the fuel, Duke Energy must
apply for and receive amendments to the respective facility operating licenses
from the Nuclear Regulatory Commission (NRC). Mixed oxide fuel is scheduled to
be used at McGuire and Catawba nuclear stations in 2007.
After spent fuel is removed from a nuclear reactor, it is placed in
temporary storage for cooling in a spent fuel pool at the nuclear station site.
Under provisions of the Nuclear Waste Policy Act of 1982, Duke Energy has
entered into contracts with the DOE for the disposal of spent nuclear fuel. The
DOE failed to begin accepting the spent nuclear fuel on January 31, 1998, the
date provided by the Nuclear Waste Policy Act and by Duke Energy's contract
with the DOE. On June 8, 1998, Duke Energy filed with the U.S. Court of Federal
Claims a claim against the DOE for damages in excess of $1 billion arising out
of the DOE's failure to begin accepting commercial spent nuclear fuel by
January 31, 1998. Damages claimed in the suit are intended to recover costs
that Duke Energy is incurring and will continue to incur as a result of the
DOE's partial material breach of its contract with Duke Energy, including costs
associated with securing additional spent fuel storage capacity. Duke Energy
will continue to safely manage its spent nuclear fuel until the DOE accepts it.
Competition
Electric industry restructuring is being addressed in all 50 states and in
the District of Columbia, which is resulting in changes in the industry. Duke
Energy continues to monitor progress toward a more competitive environment and
has actively participated in regulatory reform deliberations in North Carolina
and South Carolina. Currently, however, movement toward retail deregulation in
these states seems to be slowing as a consequence of recent developments
related to deregulation of the electric industry in California. For further
discussion, see "Management's Discussion and Analysis of Results of Operations
and Financial Condition, Current Issues --Electric Competition and Current
Issues--California Issues."
5
Franchised Electric is currently subject to competition in some areas from
government owned power systems, municipally owned electric systems, rural
electric cooperatives and, in certain instances, other private utilities.
Currently, statutes in North Carolina and South Carolina provide for the
assignment by the NCUC and the PSCSC, respectively, of all areas outside
municipalities in such States to regulated electric utilities and rural
electric cooperatives. Substantially all of the territory comprising Franchised
Electric's service area has been so assigned. The remaining areas have been
designated as unassigned and in such areas Franchised Electric remains subject
to competition. A decision of the North Carolina Supreme Court limits, in some
instances, the right of North Carolina municipalities to serve customers
outside their corporate limits. In South Carolina there continues to be
competition between municipalities and other electric suppliers outside the
corporate limits of the municipalities, subject, however, to the regulation of
the PSCSC. In addition, Franchised Electric is engaged in continuing
competition with various natural gas providers.
Regulation
The NCUC and the PSCSC approve rates for retail electric sales within their
respective states. The FERC approves Franchised Electric's rates for certain
electric sales to wholesale customers. For further discussion of rate matters,
see Note 4 to the Consolidated Financial Statements, "Regulatory Matters --
Franchised Electric." The FERC, the NCUC and the PSCSC also have authority
over the construction and operation of Franchised Electric's facilities.
Franchised Electric holds certificates of public convenience and necessity
issued by the FERC, the NCUC and the PSCSC, authorizing it to construct and
operate the electric facilities now in operation for which certificates are
required, and to sell electricity to retail and wholesale customers. Prior
approval from the NCUC and the PSCSC is required to issue securities.
The NCUC, PSCSC and FERC have implemented regulations governing access to
regulated electric customer data by non-regulated entities and services
provided between regulated and non-regulated affiliated entities. These
regulations affect the activities of NAWE and Other Energy Services with
Franchised Electric.
The Energy Policy Act of 1992 (EPACT) and the FERC's subsequent rulemaking
activities permit the FERC to order transmission access for third parties to
transmission facilities owned by another entity. EPACT does not, however,
permit the FERC to issue orders requiring transmission access to retail
customers. The FERC has issued orders for third-party transmission service and
a number of rules of general applicability, including Orders 888 and 889.
Pursuant to the FERC's final rules, Franchised Electric obtained from the FERC
open-access rule the rights to sell capacity and energy at market-based rates
from its own assets. For further discussion, see "Management's Discussion and
Analysis of Results of Operations and Financial Condition, Current Issues--
Electric Competition."
On December 20, 1999 and February 25, 2000, the FERC issued its Order 2000
and Order 2000-A regarding Regional Transmission Organizations (RTOs). In these
orders, the FERC stressed the voluntary nature of RTO participation by
utilities and set minimum characteristics and functions that must be met by
utilities that participate in an RTO, including exclusive and independent
authority to propose rates, terms and conditions of transmission service
provided over the facilities it operates. 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.
As a result of these rulemakings, on October 16, 2000, Duke Energy and two
other investor-owned utilities, Progress Energy and South Carolina Electric &
Gas, filed with the FERC to establish GridSouth Transco, LLC (GridSouth), as an
RTO. If approved, GridSouth will be a for-profit, independent transmission
company, responsible for operating and planning the companies' combined
transmission systems. The target date for formation of GridSouth is December
15, 2001. However, the actual date that GridSouth becomes operational will
depend upon the resolution of all necessary regulatory approvals and resolving
all technical issues. Management believes that the establishment of GridSouth
will not have a material adverse effect on Duke Energy's future consolidated
results of operations, cash flows or financial position.
6
The Franchised Electric segment is subject to the jurisdiction of the NRC as
to the design, construction and operation of its nuclear stations.
The hydroelectric generating facilities of Franchised Electric are licensed
by the FERC under Part I of the Federal Power Act, with license terms expiring
from 2001 to 2036. The nuclear generating facilities of Franchised Electric are
licensed by the NRC with license terms expiring from 2021 through 2034. The
FERC has authority to grant extensions of hydroelectric generating licenses,
and the NRC has authority to grant extensions of nuclear generating licenses.
During 2000, the NRC renewed the operating license for Duke Energy's three
Oconee nuclear units through 2033 to 2034. Duke Energy also initiated the
license renewal process for the McGuire and Catawba Nuclear Stations in 2000.
Duke Energy has filed a license application for one of its hydroelectric
facilities for which it expects to receive a new license by the end of 2001.
Duke Energy is also in various stages of relicensing other hydroelectric
facilities whose licenses expire between 2005 and 2008.
The Franchised Electric segment is subject to the jurisdiction of the
Environmental Protection Agency (EPA) and state environmental agencies. For a
discussion of environmental regulation, see "Environmental Matters."
7
NATURAL GAS TRANSMISSION
Natural Gas Transmission provides interstate transportation and storage of
natural gas through its operating subsidiaries, which include Texas Eastern
Transmission Corporation (TETCO) and Algonquin Gas Transmission Company
(Algonquin), East Tennessee Natural Gas Company (East Tennessee) and Market Hub
Partners (MHP). East Tennessee and MHP were acquired in March 2000 and
September 2000, respectively. Panhandle Eastern Pipe Line Company and Trunkline
Gas Company, were also a part of Natural Gas Transmission until their sale to
CMS Energy Corporation (CMS) in March 1999. See further discussion of the sale
and acquisitions in Note 2 to the Consolidated Financial Statements, "Business
Acquisitions and Dispositions."
Investments include a 37.5% ownership interest in Maritimes & Northeast
Pipeline, which has a design capacity of 530 million cubic feet per day
(MMcf/d) in Canada and 400 MMcf/d in the U.S. Maritimes & Northeast Pipeline
was placed in service and received the first delivery of natural gas from the
Sable Offshore Energy Project near Nova Scotia in December 1999. Duke Energy
operates the U.S. portion of the Maritimes & Northeast Pipeline.
For 2000, consolidated natural gas deliveries by Natural Gas Transmission's
interstate pipelines totaled 1,717 trillion British thermal units (TBtu),
compared to 1,565 TBtu in 1999, a 10% increase from last year. The pipelines
that were sold to CMS during 1999 also delivered 328 TBtu in 1999 prior to the
sale. A majority of Natural Gas Transmission's contracted volumes are under
long-term firm service agreements with local distribution company (LDC)
customers in the pipelines' market areas. Firm transportation services are also
provided to gas marketers, producers, other pipelines, electric power
generators and a variety of end-users. In addition, the pipelines provide both
firm and interruptible transportation to various customers on a short-term or
seasonal basis. See natural gas deliveries statistics under "Operating
Statistics." Demand for gas transmission on Natural Gas Transmission's
interstate pipeline systems is seasonal, with the highest throughput occurring
during the colder periods in the first and fourth quarters. Natural Gas
Transmission's major pipeline customers are located in Pennsylvania, New
Jersey, Connecticut, Virginia, Tennessee, Rhode Island and New York.
[MAP]
8
Natural Gas Transmission's interstate pipeline systems consist of
approximately 12,000 miles of pipe, which includes 830 miles related to the
partial ownership interest in Maritimes & Northeast Pipeline. The pipeline
systems receive natural gas from many major North American producing regions
for delivery to markets primarily in the Mid-Atlantic, southeastern and New
England states. Consistent with its growth strategy, Duke Energy and The
Williams Companies, Inc. announced the closing on February 1, 2001 of their
joint purchase of Coastal Corporation's Gulfstream Natural Gas System LLC. The
planned 744-mile Gulfstream gas pipeline will originate near Mobile, Alabama,
and cross the Gulf of Mexico to Manatee County, Florida.
MHP owns natural gas salt cavern facilities in south Texas and Louisiana
with a total storage capacity of 23 billion cubic feet (Bcf). Utilizing these
facilities, MHP provides high deliverability firm storage services, real-time
title tracking and other interruptible storage hub services to producers, end-
users, LDCs, pipelines and natural gas marketers. TETCO and East Tennessee also
provide firm and interruptible open-access storage services. Storage is offered
as a stand-alone unbundled service or as part of a no-notice bundled service
with transportation. TETCO's storage services utilize two joint venture storage
facilities in Pennsylvania and one wholly owned and operated storage field in
Maryland. TETCO's certificated working capacity in these three fields is 75
Bcf. East Tennessee's storage services utilize a liquefied natural gas (LNG)
storage facility in Tennessee which has a certificated working capacity of 1.2
Bcf. Algonquin owns no storage fields.
Competition
Duke Energy's interstate pipeline and storage subsidiaries compete with
other interstate and intrastate pipeline and storage facilities in the
transportation and storage of natural gas. The principal elements of
competition are rates, terms of service, and flexibility and reliability of
service.
Natural Gas Transmission competes directly with other interstate pipelines
serving the Mid-Atlantic, northeastern and southeastern states, and various
storage facilities in south Texas and Louisiana.
Natural gas competes with other forms of energy available to Duke Energy's
customers and end-users, including electricity, coal and fuel oils. The primary
competitive factor is price. Changes in the availability or price of natural
gas and other forms of energy, the level of business activity, conservation,
legislation and governmental regulations, the capability to convert to
alternative fuels, and other factors, including weather, affect the demand for
natural gas in the areas served by Duke Energy.
Regulation
The FERC has authority to regulate rates and charges for natural gas
transported in or stored for interstate commerce or sold by a natural gas
company in interstate commerce for resale. For further discussion of rate
matters, see Note 4 to the Consolidated Financial Statements, "Regulatory
Matters--Natural Gas Transmission." The FERC also has authority over the
construction and operation of pipeline and related facilities utilized in the
transportation, storage and sale of natural gas in interstate commerce,
including the extension, enlargement or abandonment of such facilities. TETCO,
Algonquin, East Tennessee and MHP hold certificates of public convenience and
necessity issued by the FERC, authorizing them to construct and operate the
pipelines, facilities and properties now in operation for which such
certificates are required, and to transport and store natural gas in interstate
commerce.
As required by FERC Order 636, Natural Gas Transmission's pipelines operate
as open-access transporters of natural gas, providing unbundled firm and
interruptible transportation and storage services on an equal basis for all gas
supplies, whether purchased from the pipeline or from another gas supplier.
The FERC has implemented regulations governing access to regulated natural
gas transmission customer data by non-regulated entities and services provided
between regulated and non-regulated affiliated entities. These regulations
affect the activities of NAWE with Natural Gas Transmission.
9
Natural Gas Transmission is subject to the jurisdiction of the EPA and state
environmental agencies. For a discussion of environmental regulation, see
"Environmental Matters." Natural Gas Transmission is also subject to the
Natural Gas Pipeline Safety Act of 1968, which regulates gas pipeline and LNG
plant safety requirements, and to the Hazardous Liquid Pipeline Safety Act of
1979, which regulates oil and petroleum pipelines.
FIELD SERVICES
Field Services gathers, processes, transports, markets and stores natural
gas and produces, transports, markets and stores NGLs. Field Services owns and
operates approximately 57,000 miles of natural gas gathering systems, including
intrastate pipelines, and 68 natural gas processing plants in the U.S. and
Canada. Field Services also has ownership interests in 11 other natural gas
processing plants in the U.S.
Field Services gathers natural gas from production wellheads through
gathering systems in western Canada and 11 contiguous states that serve major
gas-producing regions in the Rocky Mountain, Permian Basin, Mid-Continent, East
Texas-Austin Chalk-North Louisiana, as well as onshore and offshore Gulf Coast
areas. Field Services' operations also include several intrastate pipeline
systems and one high-deliverability natural gas storage facility.
The map below includes Field Services' natural gas gathering systems,
intrastate pipelines, region offices and supply areas. The map also shows the
interstate systems of the Natural Gas Transmission segment.
[MAP]
Field Services' NGL processing operations involve the extraction of NGLs
from natural gas and, at certain facilities, the fractionation of the NGLs into
their individual components (ethane, propane, butane and natural
10
gasoline). The natural gas used in Field Services' processing operations is
generally gathered on its own gathering system. NGLs are sold by Field Services
to a variety of customers ranging from large, multi-national petrochemical and
refining companies to small, family-owned retail propane distributors. Most NGL
sales are based upon current market-related prices. Field Services also
produces helium at the National Helium Corporation facility in Liberal, Kansas
and the Ladder Creek facility in Colorado.
Field Services' operating results are significantly impacted by changes in
NGL prices, which increased approximately 56% in 2000 compared to 1999. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition, Quantitative and Qualitative Disclosures About Market Risk" for a
discussion of Field Services' exposure to changes in commodity prices.
In March 2000, Duke Energy, through a wholly owned subsidiary, completed the
approximately $1.7 billion transaction that combined Field Services' gas
gathering and processing business with Phillips Petroleum's Gas Gathering,
Processing and Marketing unit (Phillips) to form a new midstream company, named
DEFS. In addition to this transaction, Duke Energy transferred its interest in
Texas Eastern Products Pipeline Company (TEPPCO), the general partner of TEPPCO
Partners, L.P., to the newly formed company, DEFS. For further discussion of
the Phillips transaction see Note 2 to the Consolidated Financial Statements,
"Business Acquisitions and Dispositions."
On March 31, 1999, Field Services completed the $1.35 billion acquisition of
the natural gas gathering, processing, fractionation and NGL pipeline business
from Union Pacific Resources (UPR), as well as UPR's natural gas and NGL
marketing activities (collectively, "the UPR acquisition"). For further
discussion of the UPR acquisition see Note 2 to the Consolidated Financial
Statements, "Business Acquisitions and Dispositions."
See certain operating statistics of Field Services under "Operating
Statistics." Activities of Field Services can fluctuate in response to the
seasonality affecting natural gas.
Competition
Field Services competes with major integrated oil companies, major
interstate pipelines, national and local natural gas gatherers, brokers,
marketers and distributors for natural gas supplies, in gathering and
processing natural gas and in marketing and transporting natural gas and NGLs.
Competition for natural gas supplies is primarily based on the efficiency and
reliability of operations, the availability of transportation to high demand
markets and the ability to obtain a satisfactory price for the producer's
natural gas. Competition for sales customers is based primarily upon
reliability and price of delivered natural gas and NGLs.
Regulation
The intrastate pipelines owned by Field Services are subject to state
regulation and, to the extent they provide services under Section 311 of the
Natural Gas Policy Act of 1978, are also subject to FERC regulation. However,
the majority of the natural gas gathering activities of Field Services are not
subject to regulation by the FERC.
Field Services is subject to the jurisdiction of the EPA and state
environmental agencies. For a discussion of environmental regulation, see
"Environmental Matters." Certain operations of Field Services are subject to
the jurisdiction of the Department of Transportation and certain similar state
agencies whose regulations have incorporated certain provisions of the Natural
Gas Pipeline Safety Act of 1968, the Hazardous Liquid Pipeline Safety Act of
1979, and subsequent amendments.
NAWE
NAWE's business activities include asset development, operation and
management of merchant generation facilities, primarily through DENA, and
commodity sales and services related to natural gas and power, primarily
through DETM, a limited liability company that is approximately 40% owned by
Exxon Mobil Corporation; NAWE also includes DEM, which develops new business
lines in the evolving energy commodity markets. NAWE conducts its business
throughout the U.S. and Canada.
11
DENA is an integrated energy business that develops, owns and manages a
portfolio of merchant generation facilities. To capture the greatest value,
DENA, through its portfolio management strategy, seeks opportunities to invest
in markets that have capacity needs and to divest assets, in whole or in part,
when significant value can be realized. DENA captures additional value by
combining its project development, commercial and risk management expertise
with the technical and operational skills of other Duke Energy business units
to build and manage its projects with maximum efficiency. DENA also supplies
competitively priced energy, integrated logistics and asset optimization
services, as well as risk management products, to wholesale energy customers.
DENA currently owns, operates or has substantial interests in approximately
6,200 MW of gross operating generation and has approximately 7,300 MW of
projects under construction, which are slated for completion to meet summer
peak demand: 3,200 MW in 2001 and 4,100 MW in 2002. In addition to the
facilities in operation or under construction, DENA has approximately 13,500 MW
in advanced development scheduled to begin operation between 2002 and 2004.
The following map includes DENA's power generation facilities.
[MAP]
12
DETM markets natural gas, electricity and other energy-related products to a
wide range of customers across North America. Duke Energy owns a 60% interest
in DETM's natural gas and electric power trading operations, with Exxon Mobil
Corporation owning a 40% minority interest. Duke Energy and Exxon Mobil
Corporation are in arbitration regarding the ownership of DETM. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition, Current Issues -- "Litigation and Contingencies, Exxon Mobil
Corporation Arbitration" and Note 14 to the Consolidated Financial Statements,
"Commitments and Contingencies -- Litigation."
DETM markets natural gas primarily to LDCs, electric power generators
(including DENA's generation facilities), municipalities, large industrial end-
users and energy marketing companies. DETM markets electricity to investor
owned utilities, municipal power generators and other power marketers. DETM
also provides energy management services, such as supply and market
aggregation, peaking services, dispatching, balancing, transportation, storage,
tolling, contract negotiation and administration, as well as energy commodity
risk management products and services. Operations are primarily in the U.S.
and, to a lesser extent, in Canada, and are serviced through three operating
centers.
Natural gas marketing operations encompass both on-system and off-system
supplies. With respect to on-system supplies, DETM generally purchases natural
gas from producers who are connected to Field Services' facilities and delivers
the gas to an intrastate or interstate pipeline for redelivery to another
customer. Natural Gas Transmission's pipelines are utilized for deliveries when
prudent. With respect to off-system supplies, DETM purchases natural gas from
producers, pipelines and other suppliers not connected with Duke Energy's
facilities for resale to customers. Substantially all of Mobil's U.S. and
Canadian natural gas production is committed to be marketed by DETM through
2006.
With respect to electricity marketing operations, DETM purchases electricity
from third-party suppliers and from DENA's domestic generation facilities for
resale to customers.
DETM has a portfolio of short-term and long-term sales agreements with
customers, the vast majority of which incorporate market-sensitive pricing
terms. Long-term gas purchase agreements with producers, principally entered
into in connection with on-system supplies, also generally include market-
sensitive pricing provisions. Purchase and sales commitments involving
significant price and location risk are generally hedged with offsetting
commitments and commodity futures, swaps and options. For information
concerning DETM's risk-management activities, see "Management's Discussion and
Analysis of Results of Operations and Financial Condition, Quantitative and
Qualitative Disclosures About Market Risk -- Commodity Price Risk" and Note 7
to the Consolidated Financial Statements, "Risk Management and Financial
Instruments -- Commodity Derivatives -- Trading."
DEM conducts physical and financial marketing and trading in evolving global
energy commodity markets, and provides energy, financial and asset management
services to producers, transporters and users of energy commodities and
derivative products. Additionally, DEM invests capital in limited hydrocarbon
exploration and production prospects through non-operating working interests.
See certain operating statistics of NAWE under "Operating Statistics."
Activities of DETM and DEM can fluctuate in response to the seasonality
affecting electricity, natural gas and other energy-related commodities.
Competition
DETM and DEM compete with major integrated oil companies, major interstate
pipelines and their marketing affiliates, brokers, marketers and distributors,
and electric utilities and other electric power marketers for natural gas
supplies and in marketing natural gas, electricity and other energy-related
commodities. Competition in the energy marketing business is driven by the
price of commodities and services delivered, along with the quality and
reliability of services provided.
DENA experiences substantial competition from existing utility companies as
well as other merchant electric generation companies in the U.S.
13
Regulation
The energy marketing activities of NAWE may, in certain circumstances, be
subject to the jurisdiction of the FERC. Current FERC policies permit NAWE's
trading and marketing entities to market natural gas, electricity and other
energy-related commodities at market-based rates, subject to FERC jurisdiction.
Most of DENA's operations are not subject to rate regulation. However, to
the extent that DENA's generating stations in California sell electricity under
"reliability must run" agreements to the California Independent System
Operator, such sales are made at FERC regulated rates.
As described in Note 14 to the Consolidated Financial Statements,
"Commitments and Contingencies -- California Issues," a number of
investigations have commenced to determine the causes of higher wholesale
electric prices in California in 2000. During March 2001, the FERC ordered
several electricity suppliers, including DETM, to (i) refund or offset prices
that were bid for power in California during stage 3 emergencies in January and
February 2001, to the extent such prices exceeded a FERC-approved market-
clearing price or (ii) submit information supporting the prices that were bid.
During the months of January and February 2001, DETM's bids included a
commercially-based credit premium to cover the substantial risk of nonpayment
that existed at the time. The credit premiums were responsible for the bids of
DETM exceeding the FERC-approved market-clearing prices for January and
February 2001. Although DETM believes that the credit premiums were
appropriate, in a compliance filing with the FERC on March 23, 2001, DETM
elected to offset the credit premium amounts against the bid prices, provided
it was paid what it was owed based on the FERC-approved market-clearing price.
Pursuant to such filing, the amount that DETM will offset totals approximately
$20 million in the aggregate. It is expected that the FERC will issue
additional orders with respect to sales in California covering the period from
October 2 through December 31, 2000, and periods following February 2001.
Various parties have expressed differing views on the FERC's actions in this
area, and such actions may be subject to reconsideration or appeal. Although
this matter is in its earliest stage, management believes this matter will not
have a material effect on Duke Energy's consolidated results of operations,
cash flows or financial position.
NAWE is subject to federal, state and local environmental regulations. For a
discussion of environmental regulation, see "Environmental Matters."
14
INTERNATIONAL ENERGY
International Energy develops, owns and operates energy-related facilities
worldwide. These facilities provide natural gas and power development and
operations, as well as energy trading and marketing. International Energy
conducts its operations primarily in Latin America, Asia Pacific and Europe,
through Duke Energy International (DEI).
Liberalization of energy markets abroad is providing substantial opportunities
for International Energy to grow through acquisitions, construction of
greenfield projects and expansion of existing facilities. International Energy
is an active participant in international competitive energy-related markets,
which include natural gas pipelines, power generation, energy trading and
marketing and other services. International Energy owns, operates or has
substantial interests in approximately 5,000 MW of generation and approximately
1,100 miles of pipeline systems.
International Energy continues to focus on its regional target areas in Asia
Pacific, Latin America and Europe for further expansion opportunities. In
January 2000, DEI completed a series of transactions to purchase, for
approximately $1.03 billion, an approximate 95% interest in Companhia de
Geracao de Energia Eletrica Paranapanema (Paranapanema), an electric generating
company in Brazil. From August 1999 through April 2000, DEI acquired Dominion
Resources, Inc.'s portfolio of hydroelectric, natural gas and diesel power
generation businesses in Argentina, Belize, Bolivia and Peru for approximately
$405 million. Also, during 2000, DEI acquired 100% of Mobil Europe Gas Inc.
(MEGAS) from Mobil Corporation. MEGAS is a gas marketing company located in the
Netherlands. For additional information on significant business acquisitions,
see "Management's Discussion and Analysis of Results of Operations and
Financial Condition, Liquidity and Capital Resources -- Investing Cash Flows"
and Note 2 to the Consolidated Financial Statements, "Business Acquisitions and
Dispositions."
The following map illustrates the locations of International Energy's
worldwide energy facilities, including projects under construction or under
contract.
[MAP]
15
Competition and Regulation
International Energy's operations are subject to country and region-specific
market and competition regulations enacted by various regulatory authorities.
Regulatory issues that are commonly addressed in various international regions
include: rules governing open and competitive access to the gas and power
transmission grids, dispatch rules for merchant power plant dispatch and
remuneration, and rules that support the emergence of competitive gas and power
trading and marketing.
International Energy's operations are subject to international environmental
regulations. For a discussion of environmental regulation, see "Environmental
Matters."
OTHER ENERGY SERVICES
Other Energy Services provides engineering, consulting, construction and
integrated energy solutions worldwide, primarily through DE&S, D/FD and
DukeSolutions.
DE&S specializes in energy and environmental projects and provides
comprehensive engineering, quality assurance, project and construction
management and operating and maintenance services for all phases of
hydroelectric, nuclear and renewable power generation, transmission and
distribution projects worldwide.
D/FD, operating through several entities, provides full service siting,
permitting, licensing, engineering, procurement, construction, start-up,
operating and maintenance services for fossil-fired plants, both domestically
and internationally. Subsidiaries of Duke Energy and Fluor Enterprises, Inc.
each own 50% of D/FD.
DukeSolutions provides energy consulting services to large end users of
energy by first identifying and then affecting points in a customer's
operations where energy related costs are incurred, including procurement,
production and disposal. The scope of services involves providing strategic
solutions to reduce costs when customers buy energy, convert it into a usable
form, use it to manufacture products and dispose of any waste.
Other Energy Services experiences substantial competition from utilities and
other independent companies in the U. S. and abroad.
Other Energy Services is subject to the jurisdiction of the EPA and
international, state and local environmental agencies. For a discussion of
environmental regulation, see "Environmental Matters."
DUKE VENTURES
Duke Ventures is comprised of other diverse businesses, primarily operating
through Crescent, DukeNet and DCP.
Crescent develops high quality commercial, residential and multi-family real
estate projects and manages land holdings primarily in the southeastern U.S. At
December 31, 2000, Crescent owned 3.8 million square feet of commercial and
industrial space, with an additional 2.3 million square feet under
construction. This portfolio included 2.9 million square feet of office space,
0.8 million square feet of warehouse space and 0.1 million square feet of
retail space. Crescent's residential developments include high-end, country
club and golf course communities with individual lots sold to custom builders
and tract developments with sales to national builders. In 2000, Crescent began
development of two multi-family communities in Florida. At December 31, 2000,
Crescent also had approximately 175,000 acres of land under its management.
DukeNet provides fiber optic networks for industrial, commercial and
residential customers and plans to enable networks for energy services
applications. It owns and operates a 700-mile fiber optic communications
network centered in the Carolinas that is interconnected with a 15,500-mile
fiber optic communications network, through affiliate agreements with third
parties, that stretches from Maine to Texas. DCP, a merchant finance company,
provides financing, investment banking and asset management services to
wholesale and commercial energy markets. During September 2000, DukeNet sold
its 20% interest in BellSouth Carolina PCS to BellSouth Corporation. See
further discussion of this sale in Note 2 of the Consolidated Financial
Statements, "Business Acquisitions and Dispositions."
16
ENVIRONMENTAL MATTERS
Duke Energy is subject to international, federal, state and local
regulations with regard to air and water quality, hazardous and solid waste
disposal and other environmental matters. Certain environmental regulations
affecting Duke Energy include:
. The Clean Air Act and the 1990 amendments to the Act, as well as state
laws and regulations impacting air emissions that impose
responsibilities on owners, operators or both of air emissions sources
including obtaining permits and annual compliance and reporting
obligations;
. State Implementation Plans, which were issued by the EPA to 22 states,
including North and South Carolina, and the District of Columbia
related to existing and new national ambient air quality standards for
ozone;
. The Federal Water Pollution Control Act Amendments of 1987, which
require permits for facilities that discharge treated wastewater into
the environment; and
. The Comprehensive Environmental Response, Compensation and Liability
Act, which can require any individual or entity which may have owned
or operated a disposal site, as well as transporters or generators of
hazardous wastes which were sent to such site, to share in remediation
costs for the site.
For further discussion of environmental matters involving Duke Energy,
including possible liability and capital costs, see "Item 3--Legal
Proceedings," "Management's Discussion and Analysis of Results of Operations
and Financial Condition, Current Issues -- Environmental" and Note 14 to the
Consolidated Financial Statements, "Commitments and Contingencies --
Environmental." Compliance with international, federal, state and local
provisions' regulating the discharge of materials into the environment, or
otherwise protecting the environment, is not expected to have a material
adverse effect on the competitive position, consolidated results of operations,
cash flows or financial position of Duke Energy.
GEOGRAPHIC REGIONS
Duke Energy's significant geographic regions are as follows:
Latin Other
U.S. Canada America Foreign Consolidated
------- ------ ------- ------- ------------
In millions
2000
Consolidated revenues.............. $43,282 $4,964 $ 512 $ 560 $49,318
Consolidated long-term assets...... 31,074 900 2,823 1,222 36,019
1999
Consolidated revenues.............. $19,336 $2,007 $ 171 $ 252 $21,766
Consolidated long-term assets...... 22,995 250 2,708 901 26,854
1998
Consolidated revenues.............. $16,589 $ 996 $ 31 $ 46 $17,662
Consolidated long-term assets...... 20,982 140 207 632 21,961
For a discussion of Duke Energy's foreign operations and the risks
associated with them, see "Management's Discussion and Analysis of Results of
Operations and Financial Condition, Quantitative and Qualitative Disclosures
About Market Risk -- Foreign Currency Risk" and Notes 3 and 7 to the
Consolidated Financial Statements, "Business Segments" and "Risk Management and
Financial Instruments," respectively.
EMPLOYEES
At December 31, 2000, Duke Energy had approximately 23,000 employees.
Approximately 1,580 operating and maintenance employees are represented by
unions. Of these, approximately 1,400 are represented by the International
Brotherhood of Electrical Workers (IBEW) at two operating units. During 2000, a
new agreement was reached with the IBEW for the larger of these units.
Negotiations are underway with the IBEW for the other unit, with a new contract
anticipated in early 2001. An additional 65 employees are represented by the
United Steelworkers and Rubberworkers of America. Approximately 37 employees
are represented by the Paper, Allied, Chemical and Energy Workers Union (PACE)
and 13 employees are represented by the PACE International Unit. A new labor
agreement was reached with the PACE International Unit in 2000. Approximately
64 employees are represented by the International Union of Operating Engineers.
17
RECENT FINANCINGS
In late March 2001, Duke Energy completed an offering of 25 million shares
of common stock, at a price of $38.98 per share, before underwriting discount
and other offering expenses. In addition, Duke Energy completed an offering of
approximately 31 million units of mandatorily convertible securities (Equity
Units) at a price of $25 per unit before underwriting discount and other
offering expenses. The Equity Units consist of senior notes of Duke Energy's
wholly owned subsidiary, Duke Capital Corporation and purchase contracts
obligating the investors to purchase shares of Duke Energy's common stock in
2004. Also in late March 2001, the underwriters exercised options granted to
them to purchase an additional 3.75 million shares of common stock and 4
million Equity Units at the original issue prices, less underwriting discounts,
to cover over-allotments made during the offerings. Total net proceeds from the
offerings were approximately $1.94 billion and were used to repay short-term
debt and for other corporate purposes.
OPERATING STATISTICS
Years Ended December 31,
-------------------------------------
2000 1999 1998 1997 1996
------- ------- ------ ------ ------
Franchised Electric
Sources of Electric Energy, GWh(a)
Generated--net output:
Coal................................... 43,526 41,306 42,164 45,234 40,649
Nuclear................................ 41,073 39,263 38,366 29,569 33,177
Hydro.................................. 394 638 1,714 1,633 1,802
Oil and gas............................ 459 662 846 301 199
------- ------- ------ ------ ------
Total generation...................... 85,452 81,869 83,090 76,737 75,827
Purchased power and net interchange.... 4,497 3,617 2,659 3,781 3,885
------- ------- ------ ------ ------
Total output.......................... 89,949 85,486 85,749 80,518 79,712
Plus: Purchases from other Catawba
joint owners.......................... 150 1,233 1,656 2,316 2,662
------- ------- ------ ------ ------
Total sources of energy............... 90,099 86,719 87,405 82,834 82,374
Less: Line loss and company usage...... 5,333 5,171 5,394 4,899 4,827
------- ------- ------ ------ ------
Total GWh sales....................... 84,766 81,548 82,011 77,935 77,547
======= ======= ====== ====== ======
Electric Energy Sales, GWh
Residential............................ 22,884 21,897 22,002 20,483 21,484
General service........................ 22,845 21,807 21,093 19,687 19,593
Industrial
Textile............................... 10,819 11,201 11,981 11,955 11,603
Other................................. 18,952 18,704 18,668 18,376 18,131
Other energy and wholesale............. 8,671 7,715 8,933 7,029 6,781
------- ------- ------ ------ ------
Total GWh sales billed................ 84,171 81,324 82,677 77,530 77,592
Unbilled GWh sales................... 595 224 (666) 405 (45)
------- ------- ------ ------ ------
Total GWh sales..................... 84,766 81,548 82,011 77,935 77,547
======= ======= ====== ====== ======
Natural Gas Transmission
Throughput Volumes TBtu(b)(c):.......... 1,717 1,565 1,459 1,641 1,676
Field Services
Natural Gas Gathered and
Processed/Transported, TBtu/d(d)....... 7.6 5.1 3.6 3.4 2.9
NGL Production, MBbl/d(e)............... 358.5 192.4 110.2 108.2 78.5
Average Natural Gas Price per MMBtu(f).. $ 3.89 $ 2.27 $ 2.11 $ 2.59 $ 2.59
Average NGL Price per Gallon............ $ 0.53 $ 0.34 $ 0.26 $ 0.35 $ 0.39
Natural Gas Marketed, TBtu/d............ 0.7 0.5 0.4 0.4 0.5
NAWE
Natural Gas Marketed, TBtu/d............ 11.9 10.5 8.0 6.9 5.5
Electricity Marketed, GWh............... 275,258 109,634 98,991 64,650 4,229
- --------
(a)Gigawatt-hour.
(b)Trillion British thermal units.
(c) Excludes throughput of pipelines sold in March 1999 to CMS Energy: 328 TBtu
(1999); 1,141 TBtu (1998); 1,279 TBtu (1997); 1,319 TBtu (1996).
(d)Trillion British thermal units per day.
(e)Thousand barrels per day.
(f)Million British thermal units.
18
EXECUTIVE OFFICERS OF DUKE ENERGY
Richard B. Priory, 54, Chairman of the Board, President and Chief Executive
Officer. Mr. Priory served as President and Chief Operating Officer from 1994
until he assumed his present position in 1997 following the merger with
PanEnergy Corp (PanEnergy).
William A. Coley, 57, Group President, Duke Power. Mr. Coley served as
President of Duke Energy's Associated Enterprises Group from 1994 to 1997 when
he assumed his present position following the PanEnergy merger.
Fred J. Fowler, 55, Group President, Energy Transmission. Mr. Fowler served
as Group Vice President of PanEnergy from 1996 until the PanEnergy merger, when
he assumed his present position.
Harvey J. Padewer, 53, Group President, Energy Services. Mr. Padewer assumed
his present position on January 1, 1999. From 1995 through 1998, he served as
Senior Vice President and General Manager of Utilicorp Energy Group.
Richard W. Blackburn, 58, Executive Vice President, General Counsel and
Secretary. Mr. Blackburn was named to his present position in 1997. Prior to
joining Duke Energy, he served as President and Group Executive of NYNEX
Corporation's Worldwide Communications and Media Group from 1995 to 1997.
Richard J. Osborne, 50, Executive Vice President and Chief Risk Officer. Mr.
Osborne assumed his present position in May 2000. Prior to his present
position, Mr. Osborne served as Executive Vice President and Chief Financial
Officer from 1997, following the PanEnergy merger. Prior to the merger, Mr.
Osborne was the Senior Vice President and Chief Financial Officer beginning in
1994.
Ruth G. Shaw, 53, Executive Vice President and Chief Administrative Officer.
Ms. Shaw served as Senior Vice President, Corporate Resources, from 1994 until
she assumed her present position following the PanEnergy merger.
Robert P. Brace, 51, Executive Vice President and Chief Financial Officer.
Mr. Brace joined Duke Energy in 2000. He had served as Group Finance Director
of British Telecommunications plc from 1993 until joining Duke Energy.
Michael S. Tuckman, 56, Executive Vice President, Nuclear Generation, Duke
Power. Mr. Tuckman assumed his present position in 1997. He had been Senior
Vice President, Nuclear Generation, Duke Power, since 1993.
Sandra P. Meyer, 46, Senior Vice President and Corporate Controller. Ms.
Meyer assumed her present position in September 1999. Prior to her present
position, Ms. Meyer served as Vice President, Duke Power Planning and Finance
from 1997, following the PanEnergy merger. She served as Vice President and
Controller of PanEnergy in 1994 and was named to the additional position of
Treasurer in October 1996.
David L. Hauser, 49, Senior Vice President and Treasurer. Mr. Hauser held
various positions, including Controller, at Duke Power before being named
Senior Vice President, Global Asset Development, in 1997 and to his current
position in 1998.
Executive officers are elected annually by the Board of Directors and serve
until the first meeting of the Board of Directors following the annual meeting
of shareholders and until their successors are duly elected.
There are no family relationships between any of the executive officers nor
any arrangement or understanding between any executive officer and any other
person pursuant to which the officer was selected.
19
Item 2. Properties.
FRANCHISED ELECTRIC
At December 31, 2000, Franchised Electric operated three nuclear generating
stations with a combined net capacity of 5,409 MW (which includes 12.5%
ownership in the Catawba Nuclear Station), eight coal-fired stations with a
combined capacity of 7,572 MW, 31 hydroelectric stations with a combined
capacity of 2,693 MW and six combustion turbine stations with a combined
capacity of 2,081 MW, all of which are located in North Carolina or South
Carolina.
In addition, Franchised Electric owned, as of December 31, 2000,
approximately 13,000 conductor miles of electric transmission lines, including
600 conductor miles of 525 kilovolts, 2,600 conductor miles of 230 kilovolts,
6,500 conductor miles of 100 kilovolts, and 3,300 conductor miles of 13 to 66
kilovolts. Franchised Electric also owned approximately 92,300 conductor miles
of electric distribution lines, including 62,300 conductor miles of rural
overhead lines, 15,500 conductor miles of urban overhead lines, 7,900 conductor
miles of rural underground lines and 6,600 conductor miles of urban underground
lines. At December 31, 2000, the electric transmission and distribution systems
comprised approximately 1,600 substations.
Substantially all electric plant is mortgaged under the indenture relating
to First and Refunding Mortgage Bonds.
NATURAL GAS TRANSMISSION
TETCO's gas transmission system extends approximately 1,700 miles from
producing fields in the Gulf Coast region of Texas and Louisiana to Ohio,
Pennsylvania, New Jersey and New York. It consists of two parallel systems, one
consisting of three large-diameter parallel pipelines and the other consisting
of from one to three large-diameter pipelines over its length. TETCO's system
consists of approximately 9,000 miles of pipeline and has 70 compressor
stations.
TETCO also owns and operates two offshore Louisiana pipeline systems, which
extend over 100 miles into the Gulf of Mexico and include 469 miles of TETCO's
pipeline system.
Algonquin's transmission system connects with TETCO's facilities in New
Jersey, and extends approximately 250 miles through New Jersey, New York,
Connecticut, Rhode Island and Massachusetts. The system consists of 1,066 miles
of pipeline with six compressor stations.
East Tennessee's transmission system crosses TETCO's system at two points in
Tennessee and consists of two mainline systems totaling 1,100 miles of pipeline
in Tennessee and Virginia with 18 compressor stations.
For additional information and a map concerning natural gas transmission and
storage properties, see "Business, Natural Gas Transmission."
FIELD SERVICES
For information and a map regarding the properties of Field Services, see
"Business, Field Services."
20
NAWE
The DENA generation portfolio includes:
Ownership
Gross Interest
Name MW Fuel Location (percentage)
---- ----- --------------- -------------- ------------
Moss Landing ................. 1,478 Natural gas CA 100
Morro Bay..................... 1,002 Natural gas CA 100
South Bay..................... 700 Natural gas CA 100
Madison....................... 640 Natural gas OH 50
Vermillion.................... 640 Natural gas IN 50
Maine Independence............ 520 Natural gas ME 100
Bridgeport.................... 480 Natural gas CT 67
American Ref-Fuel............. 286 Waste-to-energy CT, MA, NJ, NY 37
St. Francis................... 247 Natural gas MO 50
Oakland....................... 165 Oil CA 100
Fort Drum..................... 50 Coal NY 10
-----
Total......................... 6,208
=====
DENA has approximately 7,300 MW under construction in various high-growth
markets, which are slated for completion to meet summer peak demand: 3,200 MW
in 2001 and 4,100 MW in 2002. In addition to its facilities in operation or
under construction, DENA has approximately 13,500 MW in advanced development
scheduled to begin operation between 2002 and 2004.
For additional information and a map regarding the properties of NAWE, see
"Business, NAWE."
INTERNATIONAL ENERGY
The International Energy generation portfolio in operation includes:
Approximate
Ownership
Gross Interest
Name MW Fuel Location (percentage)
---- ----- ------------- ----------- -----------
Paranapanema...................... 2,307 Hydro Brazil 95
Hidroelectrica Cerros Colorados... 547 Thermal/Hydro Argentina 91
Egenor............................ 529 Hydro/Thermal Peru 90
Acajutla.......................... 400 Thermal El Salvador 88
Puncakjaya Power.................. 389 Thermal Indonesia 43
Western Australia................. 280 Thermal Australia 100
Electroquil....................... 169 Thermal Ecuador 52
Aquaytia.......................... 160 Thermal Peru 22
Empressa Electrica Corani......... 126 Hydro Bolivia 50
New Zealand....................... 112 Thermal New Zealand 100
Mollejon.......................... 25 Hydro Belize 95
-----
Total............................. 5,044
=====
DEI has approximately 562 and 43 gross MWs under construction in Latin
America and Australia, respectively. DEI owns approximately 1,320 miles of
pipeline systems in Australia, including 434 miles under development.
Additionally, DEI has an 11.84% ownership interest in 855 miles of pipeline
systems in Australia and a 21.9% ownership interest in 190 miles of pipeline
systems in Peru. Also as of December 31, 2000, DEI had a 25% indirect interest
in National Methanol Company, which owns and operates a methanol and MTBE
(methyl tertiary butyl ether) business in Jubail, Saudi Arabia.
21
For additional information and a map regarding the properties of
International Energy, see "Business, International Energy."
DUKE VENTURES
For information regarding the properties of Duke Ventures, see "Business,
Duke Ventures."
OTHER
None of the properties used in connection with Duke Energy's other business
activities are considered material to Duke Energy's operations as a whole.
Item 3. Legal Proceedings.
Duke Energy's subsidiaries, DENA and DETM, have been named among 16
defendants in a class action lawsuit (the Gordon lawsuit) filed against
companies identified as "generators and traders" of electricity in California
markets. DETM also was named as one of numerous defendants in four additional
lawsuits, including two class actions (the Hendricks and Pier 23 Restaurant
lawsuits), filed against generators, marketers and traders and other unnamed
providers of electricity in California markets. These suits were brought either
by or on behalf of electricity consumers in the State of California. The Gordon
and Hendricks class action suits were filed in the Superior Court of the State
of California, San Diego County, in November 2000. The other three suits were
filed in January 2001, one in the Superior Court of the State of California,
San Diego County, and the other two in the Superior Court of the State of
California, County of San Francisco. These suits generally allege that the
defendants manipulated the wholesale electricity markets in violation of state
laws against unfair and unlawful business practices and state antitrust laws.
Plaintiffs in the Gordon suit seek aggregate damages of over $4 billion, and
the plaintiffs in the other suits, to the extent damages are specified, allege
damages in excess of $1 billion. The lawsuits each seek the disgorgement of
alleged unlawfully obtained revenues for sales of electricity and, in three
suits, an award of treble damages. For further information related to this
lawsuit, see Note 14 to the Consolidated Financial Statements, "Commitments and
Contingencies --California Issues," and "Management's Discussion and Analysis
of Results of Operations and Financial Condition, Current Issues -- California
Issues."
On December 22, 2000, the U.S. Justice Department, acting on behalf of the
EPA, filed a complaint against Duke Energy in the U.S. District Court in
Greensboro, North Carolina, for alleged violations of the New Source Review
(NSR) provisions of the Clean Air Act (CAA). The EPA is claiming that 29
projects performed at 25 of Duke Energy's coal-fired units were major
modifications as defined in the CAA and that Duke Energy violated the CAA's NSR
requirements when it undertook those projects without obtaining permits and
installing emission controls for sulfur dioxide, nitrogen oxide and particulate
matter. The complaint requests, among other things, that the court enjoin Duke
Energy from operating the coal-fired units identified in the complaint, and
order Duke Energy to install additional emission controls and pay unspecified
civil penalties. This complaint appears to be part of the EPA's NSR enforcement
initiative, in which the EPA claims that utilities and others have committed
widespread violations of the CAA permitting requirements for the past 25 years.
The EPA has sued or issued notices of violation of investigative information
requests to at least 48 other electric utilities and cooperatives.
The EPA's allegations run counter to previous EPA guidance regarding the
applicability of the NSR permitting requirements. Duke Energy, along with other
utilities, has routinely undertaken the type of repair, replacement, and
maintenance projects that the EPA now claims are illegal. Duke Energy believes
that all of its electric generation units are properly permitted and have been
properly maintained, and intends to defend itself
22
vigorously against these alleged violations. However, because these matters are
in a preliminary stage, management cannot estimate the effects of these matters
on Duke Energy's future consolidated results of operations, cash flows or
financial position. The CAA authorizes civil penalties of up to $27,500 per day
per violation at each generating unit. Civil penalties, if ultimately imposed
by the court, and the cost of any required new pollution control equipment, if
the court accepts the EPA's contentions, could be substantial.
For further information related to this lawsuit, see Note 14 to the
Consolidated Financial Statements, "Commitments and Contingencies --
Environmental," and "Management's Discussion and Analysis of Results of
Operations and Financial Condition, Current Issues -- Environmental."
In December 2000, three subsidiaries of Duke Energy initiated binding
arbitration against three subsidiaries of the Exxon Mobil Corporation
(collectively, the "Exxon Mobil entities") concerning the parties' joint
ownership of DETM and certain related affiliates (collectively, the
"Ventures"). At issue is a buy-out right provision in the parties' agreement.
The agreements governing the ownership of the Ventures contain provisions
giving Duke Energy the right to purchase the Exxon Mobil entities' 40% interest
in the Ventures in the event material business disputes arise between the
Ventures' owners. Such disputes have arisen, and consequently, Duke Energy
exercised its right to buy the Exxon Mobil entities' interest. Duke Energy
claims that refusal by the Exxon Mobil entities to honor the exercise is a
breach of the buy-out right provision, and seeks specific performance of the
provision. Duke Energy also complains of the Exxon Mobil entities' lack of use
of, and contributions to, the Ventures.
In January 2001, the Exxon Mobil entities asserted counterclaims in the
arbitration and claims in a separate Texas state court action alleging that
Duke Energy breached its obligations to the Ventures and to the Exxon Mobil
entities. The Exxon Mobil entities also claim that Duke Energy violated a
Guaranty Agreement. While this matter is in its early stages, management
believes that the final disposition of this action will not have a material
adverse effect on Duke Energy's consolidated results of operations, cash flows
or financial position.
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. Management
believes that the resolution of this matter will not have a material adverse
effect on consolidated results of operations, cash flows or financial position.
Duke Energy's subsidiary, DEFS, is presently resolving non-compliance issues
with the Texas Natural Resources Conservation Commission associated with the
timing of air permit annual compliance certifications submitted to the agency
in 1998 and 1999. This matter, the bulk of which was voluntarily self-disclosed
to the agency, involves approximately 115 of DEFS' facilities that did not meet
specific administrative filing deadlines for required air permit paperwork.
Additionally, DEFS is actively resolving, with the New Mexico Environment
Department, alleged non-compliance of various air permit requirements at four
facilities in New Mexico. These matters, the majority of which were also
voluntarily self-disclosed to the agency, generally involve document
preparation and submittal as required by permits, compliance testing
requirements at two facilities and compliance with permit emissions limits at
one facility. DEFS believes that these apparent non-compliance issues being
addressed with Texas and New Mexico agencies, under relevant air programs, will
result in total penalty assessments of less than $500,000. Management believes
that the resolution of this matter will not have a material adverse effect on
consolidated results of operations, cash flows or financial position.
23
Duke Energy's subsidiary, DEFS, has been in discussions with the Colorado
Air Pollution Control Division regarding various asserted non-compliance
issues arising from agency inspections of DEFS' Colorado facilities in 1999
and 2000, as well as non-compliance issues either disclosed to the agency
pursuant to permit requirements or voluntarily disclosed to the agency in
2000. These items relate to various specific and detailed terms of the Title V
Operating Permits at seven gas plants and two compressor stations in Colorado,
including, for example, record keeping requirements, parametric monitoring
requirements, delayed filings, and operations inconsistent with throughput
limits on particular pieces of equipment. As a result of these discussions,
DEFS received from the agency in March 2001 a comprehensive proposed
settlement agreement to resolve all of these various items related to air
permit compliance at the nine facilities. Although DEFS is still discussing
the appropriate resolution of these apparent instances of non-compliance with
the Colorado Air Pollution Control Division, management believes that the
comprehensive resolution for all nine facilities will result in a total
penalty assessment of less than $575,000.
For additional information concerning litigation and other contingencies,
see Note 14 to the Consolidated Financial Statements, "Commitments and
Contingencies," and "Management's Discussion and Analysis of Results of
Operations and Financial Condition, Current Issues -- Environmental and
Current Issues --California Issues and Current Issues -- Litigation and
Contingencies."
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of Duke Energy's security holders
during the last quarter of 2000.
24
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The common stock of Duke Energy is listed for trading on the New York Stock
Exchange. At February 28, 2001, there were approximately 148,000 holders of
record of such common stock.
Common Stock Data by Quarter(a)
2000 1999
----------------------- -----------------------
Stock Price Stock Price
Range Range
Dividends ------------- Dividends -------------
Per Share High Low Per Share High Low
--------- ------ ------ --------- ------ ------
First Quarter................... $0.275 $28.94 $23.19 $0.275 $32.34 $27.41
Second Quarter.................. 0.55 31.25 26.16 0.55 30.59 26.06
Third Quarter................... -- 42.88 28.31 -- 29.25 26.22
Fourth Quarter.................. 0.275 44.97 40.22 0.275 28.44 23.53
- --------
(a) Restated to reflect the two-for-one common stock split effective January
26, 2001.
On December 17, 1998, Duke Energy's Board of Directors adopted a shareholder
rights plan. Under the terms of the plan, one preference stock purchase right
was distributed for each share of common stock outstanding on February 12, 1999
and for each share issued thereafter, subject to adjustment as specified
therein. The distribution was approved by the NCUC and PSCSC. The plan is
intended to assure the fair treatment of all shareholders in the event of a
hostile takeover attempt and to encourage a potential acquirer to negotiate
with the Board of Directors a fair price for all shareholders before attempting
a takeover. The adoption of the plan was not in response to any takeover offer
or threat.
25
Item 6. Selected Financial Data.
2000 1999(a) 1998 1997(b) 1996(b)
------- ------- ------- ------- -------
In millions, except per share amounts
Income Statement
Operating revenues.................. $49,318 $21,766 $17,662 $16,309 $12,302
Operating expenses.................. 45,505 19,947 15,177 14,339 10,143
------- ------- ------- ------- -------
Operating income.................... 3,813 1,819 2,485 1,970 2,159
Other income and expenses........... 201 224 162 138 135
------- ------- ------- ------- -------
Earnings before interest and taxes.. 4,014 2,043 2,647 2,108 2,294
Interest expense.................... 911 601 514 472 499
Minority interest expense........... 307 142 96 23 6
------- ------- ------- ------- -------
Earnings before income taxes........ 2,796 1,300 2,037 1,613 1,789
Income taxes........................ 1,020 453 777 639 698
------- ------- ------- ------- -------
Income before extraordinary item.... 1,776 847 1,260 974 1,091
Extraordinary gain (loss), net of
tax................................ -- 660 (8) -- (17)
------- ------- ------- ------- -------
Net income.......................... 1,776 1,507 1,252 974 1,074
Dividends on preferred and
preference stock................... 19 20 21 72 44
------- ------- ------- ------- -------
Earnings available for common
stockholders....................... $ 1,757 $ 1,487 $ 1,231 $ 902 $ 1,030
======= ======= ======= ======= =======
Common Stock Data(c)
Shares of common stock outstanding
Year-end.......................... 739 733 726 720 718
Weighted average.................. 736 729 722 720 722
Earnings per share (before
extraordinary item)
Basic............................. $ 2.39 $ 1.13 $ 1.72 $ 1.26 $ 1.45
Diluted........................... 2.38 1.13 1.71 1.25 1.44
Earnings per share
Basic............................. $ 2.39 $ 2.04 $ 1.70 $ 1.26 $ 1.43
Diluted........................... 2.38 2.03 1.70 1.25 1.42
Dividends per share................. 1.10 1.10 1.10 0.95 0.79
Balance Sheet
Total assets........................ $58,176 $33,409 $26,806 $24,029 $22,366
Long-term debt, less current
maturities......................... 11,019 8,683 6,272 6,530 5,485
- --------
(a) Financial information reflects a pre-tax $800 million charge for estimated
injury and damages claims. The earnings per share effect of this charge was
$0.67 per share. See Note 14 to the Consolidated Financial Statements,
"Commitments and Contingencies -- Injury and Damages Claims," for
additional information.
(b) Financial information reflects accounting for the 1997 merger with
PanEnergy as a pooling of interests. As a result, the financial information
gives effect to the merger as if it had occurred January 1, 1996.
(c) Restated to reflect the two-for-one common stock split effective January
26, 2001.
26
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
INTRODUCTION
Management's Discussion and Analysis should be read in conjunction with the
Consolidated Financial Statements.
Business Segments. 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 seven business segments.
Franchised Electric generates, transmits, distributes and sells electric
energy in central and western North Carolina and the western portion of South
Carolina. Its operations are conducted primarily through Duke Power and
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 (NCUC) and the Public Service Commission of South
Carolina (PSCSC).
Natural Gas Transmission provides interstate transportation and storage of
natural gas for customers primarily in the Mid-Atlantic, New England and
southeastern states. Its operations are conducted primarily through Duke Energy
Gas Transmission Corporation. The interstate natural gas transmission and
storage operations are subject to the rules and regulations of the FERC.
Field Services gathers, processes, transports, markets and stores natural
gas and produces, transports, markets and stores natural gas liquids (NGLs).
Its operations are conducted primarily through Duke Energy Field Services, LLC
(DEFS), a limited liability company that is approximately 30% owned by Phillips
Petroleum. Field Services operates gathering systems in western Canada and 11
contiguous states that serve major natural gas-producing regions in the Rocky
Mountain, Permian Basin, Mid-Continent, East Texas-Austin Chalk-North
Louisiana, as well as onshore and offshore Gulf Coast areas.
North American Wholesale Energy's (NAWE's) activities include asset
development, operation and management, primarily through Duke Energy North
America, LLC (DENA), and commodity sales and services related to natural gas
and power, primarily through Duke Energy Trading and Marketing, LLC (DETM).
DETM is a limited liability company that is approximately 40% owned by Exxon
Mobil Corporation. NAWE also includes Duke Energy Merchants, which develops new
business lines in the evolving energy commodity markets. NAWE conducts its
business throughout the U.S. and Canada. The operations of the previously
segregated Trading and Marketing segment were combined by management into NAWE
during 2000. Previous periods have been restated to conform to current period
presentation.
International Energy conducts its operations through Duke Energy
International, LLC. International Energy's activities include asset
development, operation and management of natural gas and power facilities and
energy trading and marketing of natural gas and electric power. This activity
is targeted in the Latin American, Asia-Pacific and European regions.
Other Energy Services is a combination of businesses that provide
engineering, consulting, construction and integrated energy solutions
worldwide, primarily through Duke Engineering & Services, Inc. (DE&S),
Duke/Fluor Daniel (D/FD) and DukeSolutions, Inc. (DukeSolutions). D/FD is a
50/50 partnership between Duke Energy and Fluor Enterprises, Inc.
Duke Ventures is comprised of other diverse businesses, primarily operating
through Crescent Resources, Inc. (Crescent), DukeNet Communications, LLC
(DukeNet) and Duke Capital Partners (DCP). Crescent develops high-quality
commercial, residential and multi-family real estate projects and manages land
holdings primarily in the southeastern U.S. DukeNet provides fiber optic
networks for industrial, commercial and residential customers. DCP, a newly
formed, wholly owned merchant finance company, provides financing, investment
banking and asset management services to wholesale and commercial energy
markets.
27
Business Strategy. Duke Energy is one of the world's leading integrated
energy companies. The company's business strategy is to develop integrated
energy businesses in targeted regions where Duke Energy's extensive
capabilities in developing energy assets, operating electric power, natural gas
and NGL plants, optimizing commercial operations and managing risk can provide
comprehensive energy solutions for customers and create superior value for
shareholders. The growth in and restructuring of global energy markets are
providing opportunities for Duke Energy's competitive business segments to
capitalize on their comprehensive capabilities. Domestically, Duke Energy is
aggressively investing in new merchant power plants throughout the U.S.,
expanding its natural gas pipeline infrastructure in the eastern U.S., rapidly
increasing its leading position in natural gas gathering and processing and NGL
marketing, and developing its trading and marketing structured origination
expertise across the energy spectrum. Internationally, Duke Energy is currently
focusing on integrated electric and natural gas opportunities in Latin America,
Asia Pacific and Europe.
Franchised Electric continues to add customers, maintain low costs and
deliver high-quality customer service. Franchised Electric is expected to grow
moderately, consistent with historical trends. Expansion will primarily result
from continued economic growth in its service territory.
Natural Gas Transmission has increased its earnings growth rate by executing
a comprehensive strategy of selected acquisitions and expansions and by
developing expanded services and incremental projects that meet changing
customer needs.
Field Services has developed market-leading size, scope and reliability of
supply in natural gas gathering, processing and NGL marketing. Field Services
plans to make additional investments in gathering, processing and NGL
infrastructure. Field Services' interconnected natural gas processing
operations provide an opportunity to capture fee-based investment opportunities
in certain NGL assets, including pipelines, fractionators and terminals.
NAWE plans to continue increasing earnings through acquisitions,
divestitures, construction of greenfield projects and expansion of existing
facilities as regional opportunities are identified, evaluated and realized
throughout the North American marketplace. To capture the greatest value in the
U.S., DENA, through its portfolio management strategy, seeks opportunities to
invest in energy assets in markets that have capacity needs and to divest other
assets, in whole or in part, when significant value can be realized. Commodity
sales and services related to natural gas and power continue to expand as NAWE
provides energy supply, structured origination, trading and marketing, risk
management and commercial optimization services to large energy customers,
energy aggregators and other wholesale companies.
International Energy plans to continue expanding through acquisitions,
divestitures, construction of greenfield projects and expansion of existing
facilities in selected international regions. International Energy's
combination of assets and capabilities and close working relationships with
other subsidiaries of Duke Energy allow it to efficiently deliver natural gas
pipeline, power generation, energy marketing and other services.
Other Energy Services plans to grow by providing an expanding customer base
with a variety of engineering and energy efficiency services that allow
customers to more effectively deal with rapidly changing conditions in the
energy marketplace.
Duke Ventures plans to expand earnings capabilities in its real estate,
telecommunications and capital financing business units by developing regional
opportunities and by applying extensive experience to new project development.
Duke Energy's business strategy and growth expectations can vary
significantly depending on many factors, including, but not limited to, the
pace and direction of industry restructuring, regulatory constraints,
acquisition opportunities, market volatility and economic trends. However, Duke
Energy's growth expectations do not rely on industry restructuring in North
Carolina and South Carolina.
28
RESULTS OF OPERATIONS
In 2000, earnings available for common stockholders were $1,757 million, or
$2.39 per basic share, including a pre-tax gain of $407 million, or an after-
tax gain of $0.34 per basic share, on the sale of Duke Energy's 20% interest in
BellSouth Carolina PCS (BellSouth PCS). In 1999, earnings available for common
stockholders were $1,487 million, or $2.04 per basic share, including an after-
tax extraordinary gain of $660 million, or $0.91 per basic share resulting from
the sale of the Panhandle Eastern Pipe Line Company (PEPL), Trunkline Gas
Company (Trunkline) and additional storage related to those systems, which
substantially comprised the Midwest Pipelines along with Trunkline LNG Company.
The increase in earnings available for common stockholders in 2000 was
primarily due to a 96% increase in segment earnings as described below,
including the BellSouth PCS gain. Partially offsetting this increase was the
1999 extraordinary gain and higher interest and minority interest expense in
the current year.
Earnings available for common stockholders increased $256 million in 1999
from 1998 earnings of $1,231 million, or $1.70 per basic share. The increase in
earnings available for common stockholders was primarily due to the 1999
extraordinary gain resulting from the sale of the Midwest Pipelines. This gain,
along with the factors described below that affect segment earnings, was
partially offset by a pre-tax $800 million charge for estimated injury and
damages claims (see Note 14 to the Consolidated Financial Statements) and
higher interest and minority interest expense.
Earnings per share information provided above has been restated to reflect
the two-for-one common stock split effective January 26, 2001. See Note 15 to
the Consolidated Financial Statements for additional information.
Operating income for 2000 was $3,813 million compared to $1,819 million in
1999 and $2,485 million in 1998. Earnings before interest and taxes (EBIT) were
$4,014 million, $2,043 million and $2,647 million for 2000, 1999 and 1998,
respectively. Management evaluates each business segment based on an internal
measure of EBIT, 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 3 to the
Consolidated Financial Statements for additional information on business
segments. EBIT is summarized in the following table and is discussed by
business segment thereafter.
EBIT by Business Segment
Years Ended December 31,
----------------------------
2000 1999 1998
-------- -------- --------
In millions
Franchised Electric............................... $ 1,704 $ 856 $ 1,513
Natural Gas Transmission.......................... 534 627 702
Field Services.................................... 296 144 76
North American Wholesale Energy................... 418 209 133
International Energy.............................. 331 42 12
Other Energy Services............................. (61) (94) 10
Duke Ventures..................................... 563 162 122
Other Operations.................................. (2) 5 22
EBIT attributable to minority interests........... 231 92 57
-------- -------- --------
Consolidated EBIT................................. $ 4,014 $ 2,043 $ 2,647
======== ======== ========
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.
29
Franchised Electric
Years Ended December 31,
--------------------------------
2000 1999 1998
---------- ---------- ----------
In millions, except where noted
Operating revenues............................ $ 4,946 $ 4,700 $ 4,626
Operating expenses............................ 3,316 3,966 3,228
---------- ---------- ----------
Operating income.............................. 1,630 734 1,398
Other income, net of expenses................. 74 122 115
---------- ---------- ----------
EBIT.......................................... $ 1,704 $ 856 $ 1,513
========== ========== ==========
Sales--GWh(a)................................. 84,766 81,548 82,011
- --------
(a) Gigawatt-hours.
Franchised Electric's EBIT increased $848 million in 2000 when compared to
1999, primarily due to an $800 million charge in 1999 for estimated injury and
damages claims (see Note 14 to the Consolidated Financial Statements). Overall
favorable weather and growth in customers, partially offset by increased
operating costs, also contributed to this increase in EBIT. The average number
of customers in Franchised Electric's service territory increased 2.5% during
2000. Total gigawatt-hour sales to customers increased by 3.9% for 2000. Sales
to general service and residential customers increased 4.7% and 4.4%,
respectively, while total industrial sales decreased 0.5%.
In 1999, Franchised Electric's EBIT decreased $657 million compared to 1998,
primarily due to the above-mentioned charge for estimated injury and damages
claims. Partially offsetting this decrease was a 2.8% increase in the number of
customers in Franchised Electric's service territory during 1999, and the
absence of 1998 severance and other costs related to closing Franchised
Electric's merchandising business.
Natural Gas Transmission
Years Ended December 31,
--------------------------------
2000 1999 1998
---------- ---------- ----------
In millions, except where noted
Operating revenues............................ $ 1,131 $ 1,230 $ 1,542
Operating expenses............................ 609 615 864
---------- ---------- ----------
Operating income.............................. 522 615 678
Other income, net of expenses................. 12 12 24
---------- ---------- ----------
EBIT.......................................... $ 534 $ 627 $ 702
========== ========== ==========
Throughput--TBtu(a)........................... 1,717 1,893 2,593
- --------
(a) Trillion British thermal units.
In 2000, EBIT for Natural Gas Transmission decreased $93 million compared to
1999, primarily due to $132 million of EBIT in 1999 that did not reoccur in
2000. These items consisted of $70 million of EBIT related to the Midwest
Pipelines, which were sold to CMS Energy Corporation (CMS) in March 1999; a $24
million gain resulting from the sale of Duke Energy's interest in the Alliance
Pipeline project; and benefits totaling $38 million related to the completion
of certain environmental cleanup programs below estimates. These items were
partially offset by increased earnings from market-expansion projects and joint
ventures such as the Maritimes & Northeast Pipeline, which was placed into
service in December 1999, and earnings from East Tennessee Natural Gas Company
and Market Hub Partners (MHP), which were acquired in March and
30
September 2000, respectively. See Note 2 to the Consolidated Financial
Statements for additional information on the sale of the Midwest Pipelines and
the acquisitions of East Tennessee Natural Gas Company and MHP.
EBIT for Natural Gas Transmission decreased $75 million in 1999 compared to
1998. As a result of the sale of the Midwest Pipelines in March 1999, EBIT for
the Midwest Pipelines decreased $156 million compared to 1998's full year of
operation. For the remainder of Natural Gas Transmission, EBIT increased $81
million compared to 1998, primarily as a result of increased earnings from
market-expansion projects and joint ventures, higher throughput and lower
operating expenses. A $24 million gain resulting from the sale of Duke Energy's
interest in the Alliance Pipeline project and benefits totaling $38 million
related to the completion of certain environmental cleanup programs below
estimates also increased EBIT in 1999. Partially offsetting these contributions
to EBIT were the favorable impacts in 1998 in connection with the resolution of
regulatory issues related to natural gas supply realignment costs and a refund
from a state property tax ruling.
Field Services
Years Ended December 31,
---------------------------------
2000 1999 1998
---------- ---------- ----------
In millions, except where noted
Operating revenues......................... $ 9,060 $ 3,590 $ 2,677
Operating expenses......................... 8,635 3,444 2,598
---------- ---------- ----------
Operating income........................... 425 146 79
Other income, net of expenses.............. 6 (2) (3)
Minority interest expense.................. 135 -- --
---------- ---------- ----------
EBIT....................................... $ 296 $ 144 $ 76
========== ========== ==========
Natural gas gathered and
processed/transported, TBtu/d(a).......... 7.6 5.1 3.6
NGL production, MBbl/d(b) 358.5 192.4 110.2
Natural gas marketed, TBtu/d............... 0.7 0.5 0.4
Average natural gas price per MMBtu(c)..... $ 3.89 $ 2.27 $ 2.11
Average NGL price per gallon(d)............ $ 0.53 $ 0.34 $ 0.26
- --------
(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.
Field Services' EBIT increased $152 million in 2000 from 1999. The increase
in EBIT and volume activity was primarily due to the combination of Field
Services' natural gas gathering, processing and marketing business with
Phillips Petroleum's Gas Gathering, Processing and Marketing unit (Phillips) in
March 2000; the acquisition of the natural gas gathering, processing,
fractionation and NGL pipeline business from Union Pacific Resources (UPR)
(collectively, the "UPR acquisition") in April 1999; and other recent
acquisitions and plant expansions. For additional information on the