Filed On 3/30/98 · SEC File 1-04928 · Accession Number 950168-98-916
As Of Filer Filing On/For/As Docs:Pgs Issuer Agent
3/27/98 Duke Energy Corp 10-K 12/31/97 17:359 950168
Document/Exhibit Description Pages Size
1: 10-K Duke Energy Corporation - 10-K 68 462K
2: EX-10 Exhibit 10-R 91 284K
3: EX-10 Exhibit 10-S 91 290K
4: EX-10 Exhibit 10-T 84 267K
5: EX-10 Exhibit 10(U) 3 16K
6: EX-10 Exhibit 10(V) 3 16K
7: EX-10 Exhibit 10(W) 3 17K
8: EX-10 Exhibit 10(X) 3 16K
9: EX-10 Exhibit 10(Y) 3 15K
10: EX-12 Statement re: Computation of Ratios 1 9K
11: EX-21 Subsidiaries of the Registrant 1 7K
12: EX-23 Exhibit 23(A) 1 8K
13: EX-23 Exhibit 23(B) 1 9K
14: EX-24 Exhibit 24(A) 2 13K
15: EX-24 Exhibit 24(B) 1 8K
16: EX-27 FDS -- Duke Energy 2± 11K
17: EX-99 Miscellaneous Exhibit 1 10K
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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, 1997 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)
· Enlarge/Download Table
North Carolina 56-0205520
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
422 South Church Street, Charlotte, North Carolina 28202-1904
(Address of principal executive offices) (Zip Code)
704-594-6200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
· Enlarge/Download Table
Name of each exchange
Title of each class on 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 2000 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7% Series B Due 2000 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7% Due 2005 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7% Due 2033 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7 3/8% Due 2023 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.
First and Refunding Mortgage Bonds, 8% Series B Due 1999 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.
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 27, 1998 .................... $20,010,800,000
Number of shares of Common Stock, without par value, outstanding at February
27, 1998 .................................................... 360,149,391
Documents incorporated by reference:
The registrant is incorporating herein by reference certain sections of
the proxy statement relating to the 1998 annual meeting of shareholders to
provide information required by Part III, Items 10, 11, 12 and 13 of this
annual report.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
DUKE ENERGY CORPORATION
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
· Enlarge/Download Table
Item Page
------------------------------------------------------------------------------------------ -----
PART I.
1. Business ........................................................................ 1
General ......................................................................... 1
Electric Operations ............................................................. 1
Natural Gas Transmission ........................................................ 4
Energy Services ................................................................. 6
Other Operations ................................................................ 9
Environmental Matters ........................................................... 9
Other Matters ................................................................... 10
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 10
Operating Statistics ............................................................ 11
Executive Officers of the Corporation ........................................... 12
2. Properties ...................................................................... 12
3. Legal Proceedings ............................................................... 14
4. Submission of Matters to a Vote of Security Holders ............................. 14
PART II.
5. Market for Registrant's Common Equity and Related Stockholder Matters ........... 15
6. Selected Financial Data ......................................................... 15
7. Management's Discussion and Analysis of Results of Operations and Financial 16
Condition
7A. Quantitative and Qualitative Disclosures About Market Risk ...................... 26
8. Financial Statements and Supplementary Data ..................................... 27
9. Changes in and Disagreements with Accountants on Accounting and Financial 61
Disclosure
PART III.
10. Directors and Executive Officers of the Registrant .............................. 61
11. Executive Compensation .......................................................... 61
12. Security Ownership of Certain Beneficial Owners and Management .................. 61
13. Certain Relationships and Related Transactions .................................. 61
PART IV.
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ................ 62
Signatures ....................................................................... 63
Exhibit Index .................................................................... 64
PART I.
Item 1. Business.
GENERAL
On June 18, 1997, Duke Power Company (Duke Power) changed its name to Duke
Energy Corporation (the Corporation) in accordance with the terms of a merger
agreement with PanEnergy Corp (PanEnergy), pursuant to which the Corporation
issued 158.3 million shares of its common stock in exchange for all of the
outstanding common stock of PanEnergy (the merger). PanEnergy was involved in
the gathering, processing, transportation and storage of natural gas, the
production of natural gas liquids and the marketing of natural gas,
electricity, liquefied petroleum gases and related energy services. Pursuant to
the merger, each share of PanEnergy common stock outstanding was converted into
the right to receive 1.0444 shares of the Corporation's common stock. In
addition, each outstanding option to purchase PanEnergy common stock became an
option to purchase common stock of the Corporation, adjusted accordingly. The
merger was accounted for as a pooling of interests.
As a result of the merger, the Corporation 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 United States and
abroad. The Corporation provides these services through four business segments:
Electric Operations, Natural Gas Transmission, Energy Services, and Other
Operations.
The Electric Operations segment is engaged in the generation,
transmission, distribution and sale of electric energy in central and western
North Carolina and the western portion of South Carolina. 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).
The Natural Gas Transmission segment is involved in interstate
transportation and storage of natural gas for customers primarily in the
Mid-Atlantic, New England and Midwest states. The interstate natural gas
transmission and storage operations are also subject to the rules and
regulations of the FERC.
The Energy Services segment is comprised of several separate business
units: Field Services gathers and processes natural gas, produces and markets
natural gas liquids (NGLs) and transports and trades crude oil; Trading and
Marketing markets natural gas, electricity and other energy-related products;
Global Asset Development develops, owns and operates energy-related facilities
worldwide; and Other Energy Services provides engineering consulting,
construction and integrated energy solutions.
Other Operations include the real estate operations of Crescent Resources,
Inc. (Crescent Resources) and communications services. Corporate costs and
intersegment eliminations are also reflected in the financial results of this
segment.
A discussion of the current business and operations of each of the
Corporation's segments follows. The Corporation expects moderate growth in its
Electric Operations segment, consistent with historical trends. In the Natural
Gas Transmission segment, relatively slow growth is expected due to increased
competition. The Corporation is seeking to significantly grow its Energy
Services segment through acquisition, construction and expansion opportunities.
For further discussion of the operating outlook of the Corporation and its
segments, see "Management's Discussion and Analysis of Results of Operations
and Financial Condition, Current Issues -- Operations Outlook." For financial
information concerning the Corporation's business segments, see Note 4 to the
Consolidated Financial Statements, "Business Segments."
The Corporation is a North Carolina corporation with its principal
executive offices located at 422 South Church Street, Charlotte, NC 28202-1904.
The telephone number is 704-594-6200.
ELECTRIC OPERATIONS
Service Area and Customers
The Electric Operations service area, approximately two-thirds of which
lies in North Carolina, covers about 20,000 square miles with an estimated
population of 5.1 million and includes a number of cities, of which the largest
are Charlotte, Greensboro, Winston-Salem and Durham in North Carolina and
Greenville and Spartanburg in South Carolina. Electric Operations supplies
electric service directly to approximately two million residential, commercial
and industrial customers in more than 200 cities, towns and unincorporated
communities. 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
1
by customer type, see "Business, Operating Statistics." For further discussion
of the Catawba Nuclear Station joint ownership, see Note 6 to the Consolidated
Financial Statements, "Joint Ownership of Generating Facilities."
The Electric Operations service area is undergoing increasingly
diversified industrial 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 $457
million of the revenues of the Electric Operations segment for 1997,
representing 10% of electric revenues and 38% of industrial revenues. Electric
Operations normally experiences seasonal peak loads in summer and winter which
are relatively in balance.
Shown below is the Electric Operations service area, in which business is
conducted under the name "Duke Power" and by Nantahala Power and Light
Company, a subsidiary of the Corporation.
[Map of North and South Carolina depicting
Electric Operations Service Area appears here]
Capability and Resources of Energy
Electric energy required to supply the needs of the customers of Electric
Operations is primarily generated through three nuclear generating stations
with a combined net capability of 5,078 MW (Oconee Nuclear Station -- 2,538 MW,
McGuire Nuclear Station -- 2,258 MW and Catawba Nuclear Station -- 282 MW,
which represents Electric Operations' 12.5% ownership share in the Catawba
Nuclear Station), eight coal-fired stations with a combined capability of 7,699
MW, twenty hydroelectric stations with a combined capability of 2,685 MW and
six combustion turbine stations with a combined capability of 1,784 MW. Energy
and capacity are also supplied through contracts with other generators of
electricity and purchased on the open market. Electric Operations 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 Electric Operations' customers are expected to be supplied
through open market purchases. For statistics regarding sources of electric
energy see "Business, Operating Statistics."
Fuel Supply
Electric Operations presently relies principally on coal and nuclear fuel
for the generation of electric energy. Electric Operations 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, 1997
is set forth in the following table:
2
· Enlarge/Download Table
Cost of Fuel per Net
Generation by Source Kilowatt-hour Generated
(Percent) (Cents)
----------------------------- -----------------------------
1997 1996 1995 1997 1996 1995
--------- --------- --------- --------- --------- ---------
Coal .......................................... 59.3 54.0 43.7 1.30 1.40 1.56
Nuclear (a) ................................... 38.8 44.0 53.7 0.48 0.53 0.57
Oil and gas (b) ............................... .4 .3 .3 5.58 6.74 5.06
----- ----- -----
All fuels (cost based on weighted average) (a) 98.5 98.3 97.7 0.99 1.02 1.03
Hydroelectric (c) ............................. 1.5 1.7 2.3
----- ----- -----
100.0 100.0 100.0
===== ===== =====
---------
(a) Statistics related to nuclear generation and all fuels reflect the
Electric Operations' 12.5% ownership interest in the Catawba Nuclear
Station.
(b) Cost statistics include amounts for light-off fuel at the Electric
Operations' coal-fired stations.
(c) Generating figures are net of output required to replenish pumped storage
units during off-peak periods.
Coal. Electric Operations obtains a large amount of its coal under supply
contracts with mining operators utilizing both underground and surface mining.
Electric Operations currently has an adequate supply of coal. Electric
Operations' supply contracts, all of which have price adjustment provisions,
have expiration dates ranging from 1998 to 2003. The Corporation 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 Electric Operations
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 supply of fuel for nuclear generating units
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. After a region (approximately one-third of the nuclear fuel
assemblies in the reactor at any time) of 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. Electric Operations has contracted for uranium
materials and services required to fuel the Oconee, McGuire and Catawba Nuclear
Stations. Based upon current projections, these contracts will meet Electric
Operations' requirements through the following years:
· Download Table
Uranium Conversion Enrichment Fabrication
Nuclear Station Material Service Service Service
----------------------- ---------- ------------ ------------ ------------
Oconee .......... 1998 1998 2000 2006
McGuire ......... 1998 1998 2000 2009
Catawba ......... 1998 1998 2000 2009
Uranium material requirements will be met through various supplier
contracts, with uranium material produced primarily in the United States and
Canada. The Corporation 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
uranium spot market purchases.
Under provisions of the Nuclear Waste Policy Act of 1982, the Corporation
entered into contracts with the Department of Energy (DOE) for the disposal of
spent nuclear fuel. The DOE delayed in accepting the waste materials on the
contract date of January 31, 1998. The Corporation has joined with 35 other
utilities in a lawsuit attempting to force the DOE to meet its obligations as
called for in the contract. The Corporation has satisfactory plans in place to
provide storage of spent nuclear fuel if the DOE cannot accept it.
3
Competition
Competition for retail electric customers is not generally allowed in the
Electric Operations' service territory. However, there are discussions and
events at the national level and within certain states regarding retail
competition which are resulting in changes in the industry. For further
discussion, see "Management's Discussion and Analysis of Results of Operations
and Financial Condition, Current Issues -- Electric Competition."
Electric Operations is subject to competition in some areas from
government-owned power systems, municipally-owned electric systems, rural
electric cooperatives and, in certain instances, from 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 the
Electric Operations' service area has been so assigned. The remaining areas
have been designated as unassigned and in such areas Electric Operations
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, Electric Operations 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 the Electric Operations' rates for
electric sales to wholesale customers. For further discussion of rate matters
and fuel and purchased power cost adjustment procedures, see Note 5 to the
Consolidated Financial Statements, "Regulatory Matters -- Electric Operations."
The FERC, the NCUC and the PSCSC also have authority over the construction and
operation of the Electric Operations' facilities. Electric Operations 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.
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, Electric Operations obtained from the FERC
open-access rights to sell at market-based rates up to 2,500 megawatts (MW) of
capacity and energy from its own assets. For further discussion, see
"Management's Discussion and Analysis of Results of Operations and Financial
Condition, Current Issues -- Electric Competition."
The Electric Operations segment is subject to the jurisdiction of the
Nuclear Regulatory Commission (NRC) as to the design, construction and
operation of its nuclear stations. For discussions of nuclear decommissioning
costs and nuclear insurance regulatory requirements and coverages, see Note 12
to the Consolidated Financial Statements, "Nuclear Decommissioning Costs &
Spent Nuclear Fuel" and Note 15 to the Consolidated Financial Statements,
"Commitments and Contingencies -- Nuclear Insurance," respectively.
The hydroelectric generating facilities of Electric Operations are
licensed by the FERC under Part I of the Federal Power Act, with license terms
expiring from 2008 to 2036. The nuclear generating facilities of the Electric
Operations are licensed by the NRC with license terms expiring from 2013 to
2026. The FERC has authority to grant extensions of hydroelectric generating
licenses, and the NRC has authority to grant extensions of nuclear generating
licenses.
The Electric Operations segment is subject to the jurisdiction of the
Environmental Protection Agency (EPA) and state environmental agencies. For a
discussion of environmental regulation, see "Business, Environmental Matters."
NATURAL GAS TRANSMISSION
During 1997, the Natural Gas Transmission segment completed the
organization of its operations into the Northeast Pipelines, which includes
Texas Eastern Transmission Corporation (TETCO) and Algonquin Gas Transmission
Company (Algonquin), and the Midwest Pipelines, which includes Panhandle
Eastern Pipe Line Company (PEPL) and Trunkline Gas Company (Trunkline).
4
In 1997, consolidated natural gas deliveries by the Natural Gas
Transmission segment's interstate pipelines totaled 2,862 TBtu (Trillion
British thermal units), compared to 2,939 TBtu in 1996, which represented
approximately 12% of the natural gas consumed in the United States. A
substantial majority of the delivered volumes of the Natural Gas Transmission
segment's interstate pipelines represents gas transported under long-term firm
service agreements with local distribution company (LDC) customers in the
pipelines' market areas. Firm transportation services are also provided under
contract to gas marketers, producers, other pipelines, electric power
generators and a variety of end-users. In addition, the pipelines offer
interruptible transportation to customers on a short-term or seasonal basis.
See natural gas deliveries statistics under "Business, Operating Statistics."
Demand for gas transmission of the Natural Gas Transmission segment's
interstate pipeline systems is seasonal, with the highest throughput occurring
during the colder periods in the first and fourth quarters.
The Natural Gas Transmission segment's 37,500 mile interstate pipeline
system is fully interconnected and can receive natural gas from most major
North American producing regions for delivery to markets throughout the
Northeast and Midwest states, as shown in the map below.
[Map of United States depicting the Natural Gas Transmission segment Interstate
Pipelines and Storage Fields appears here]
Northeast Pipelines
TETCO's major customers are located in Pennsylvania, New Jersey and New
York, and include LDCs serving the Pittsburgh, Philadelphia, Newark and New
York City metropolitan areas. Algonquin's major customers include LDCs and
electric power generators located in the Boston, Hartford, New Haven,
Providence and Cape Cod areas.
TETCO also provides firm and interruptible open-access storage services.
Since the implementation of the FERC Order 636 restructuring, storage is
offered as a stand-alone unbundled service or as part of a no-notice bundled
service. TETCO's storage services utilize two joint venture storage facilities
in Pennsylvania and one wholly owned and operated storage field in Maryland.
TETCO also leases storage capacity. TETCO's certificated working capacity in
these three fields is 70 Billion cubic feet (Bcf), and the combined working gas
in storage was 55 Bcf on December 31, 1997. Algonquin owns no storage fields.
For further discussion of Order 636, see "Business, Natural Gas Transmission --
Regulation."
Midwest Pipelines
PEPL's market volumes are concentrated among approximately 20 utilities
located in the Midwest market area that encompasses large portions of Michigan,
Ohio, Indiana, Illinois and Missouri. Trunkline's major customers include eight
utilities located in portions of Tennessee, Missouri, Illinois, Indiana and
Michigan.
PEPL also owns and operates three underground storage fields located in
Illinois, Michigan and Oklahoma. Trunkline owns and operates one storage field
in Louisiana. The combined maximum working gas capacity of the four fields is
44
5
Bcf. Additionally, PEPL, through a subsidiary, Pan Gas Storage Company (Pan
Gas), is the owner of a storage field in Kansas with an estimated maximum
capacity of 26 Bcf. PEPL is the operator of the field. Since the implementation
of Order 636, each of PEPL, Trunkline and Pan Gas offer firm and interruptible
storage on an open-access basis. In addition to owning and operating storage
fields, PEPL also leases storage capacity. PEPL and Trunkline have retained the
right to use up to 15 Bcf and 10 Bcf, respectively, of their storage capacity
for system needs. See further discussion of Order 636 in "Business, Natural Gas
Transmission -- Regulation."
Competition
The Corporation's interstate pipeline subsidiaries compete with other
interstate and intrastate pipeline companies in the transportation and storage
of natural gas. The principal elements of competition among pipelines are
rates, terms of service and flexibility and reliability of service. The
Corporation's pipelines continue to offer selective discounting to maximize
revenues from existing capacity and to advance projects that provide expanded
services to meet the specific needs of customers.
In the Mid-Atlantic and New England markets, TETCO competes directly with
Transcontinental Gas Pipe Line Corporation, Tennessee Gas Pipeline Company
(TGPC), Iroquois Gas Transmission System (Iroquois), CNG Transmission
Corporation and Columbia Gas Transmission Corporation. Algonquin competes
directly in certain market areas with TGPC and Iroquois. PEPL and Trunkline
compete directly with ANR Pipeline Company, Natural Gas Pipeline Company of
America and Texas Gas Transmission Corporation in the Midwest market area.
Natural gas competes with other forms of energy available to the
Corporation'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 the Corporation.
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 5 to the Consolidated Financial Statements, "Regulatory
Matters -- Natural Gas Operations." The FERC also has authority over the
construction and operation of pipeline and related facilities utilized in the
transportation and sale of natural gas in interstate commerce, including the
extension, enlargement or abandonment of such facilities. TETCO, Algonquin,
PEPL, Trunkline and Pan Gas 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.
The Natural Gas Transmission segment's pipelines operate as open-access
transporters of natural gas. In 1992, the FERC issued Order 636, which requires
open-access pipelines to provide firm and interruptible transportation services
on an equal basis for all gas supplies, whether purchased from the pipeline or
from another gas supplier. To implement this requirement, Order 636 provided,
among other things, for mandatory unbundling of services that have historically
been provided by pipelines into separate open-access transportation, sales and
storage services. Order 636 allows pipelines to recover eligible costs, known
as "transition costs," resulting from the implementation of Order 636. For
further discussion of Order 636, see Note 5 to the Consolidated Financial
Statements, "Regulatory Matters -- Natural Gas Operations."
The Natural Gas Transmission segment is subject to the jurisdiction of the
EPA and state environmental agencies. For a discussion of environmental
regulation, see "Business, Environmental Matters." The Natural Gas Transmission
segment is also subject to the Natural Gas Pipeline Safety Act of 1968, which
regulates gas pipeline safety requirements, and to the Hazardous Liquid
Pipeline Safety Act of 1979, which regulates oil and petroleum pipelines.
ENERGY SERVICES
The Energy Services segment is comprised of several separate business
units: Field Services, Trading and Marketing, Global Asset Development and
Other Energy Services. See certain operating statistics of the Energy Services
segment under "Operating Statistics." Activities of the Energy Services segment
can fluctuate in response to the seasonality affecting both electricity and
natural gas.
6
Field Services
Field Services owns and operates approximately 17,000 miles of natural gas
gathering systems, including intrastate pipelines, and 27 natural gas
processing plants in the United States. Field Services also has ownership
interests in 11 other natural gas processing plants in the United States.
Field Services' gathering systems are located in 10 states, which serve
major gas-producing regions in the Rocky Mountain, Permian Basin, Mid-Continent
and Gulf Coast (offshore and onshore) areas. Field Services' gathering
operations also include several intrastate pipeline systems and two natural gas
storage facilities.
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 gasoline). The
natural gas used in Field Services' processing operations is generally gathered
on its own gathering system or from the natural gas stream on the Corporation's
transmission system. Field Services also operates approximately 450 miles of
NGL pipelines in the Texas Gulf Coast area which transport NGLs received from
12 processing plants in South Texas. 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. NGL sales
are based upon current market-related prices. Field Services also provides, on
a more limited basis, processing services to producers and others for a
stipulated fee and produces helium at the National Helium facility.
Field Services also operates approximately 1,500 miles of intrastate crude
oil pipelines in the Mid-Continent and South Texas areas. The crude oil
pipeline system provides gathering and mainline transportation service, for a
volumetric fee, based on published tariffs. Crude oil is also purchased from
producers and sold to end users.
Trading and Marketing
The Corporation's energy marketing operations are conducted through Duke
Energy Trading and Marketing L.L.C. in the United States, Duke Energy Marketing
Limited Partnership in Canada (collectively, DETM) and Duke/Louis Dreyfus
L.L.C. (D/LD).
DETM was formed in August 1996 as a natural gas and power marketing joint
venture with Mobil Corporation (Mobil). All of Mobil's United States and
Canadian natural gas production is committed to be marketed through DETM for at
least a 10-year period. The Corporation, through its affiliates, operates the
joint venture and owns a 60% interest, with Mobil owning a 40% minority
interest.
In June 1997, a wholly owned subsidiary of the Corporation acquired the
remaining 50% ownership interest in D/LD not already owned from affiliates of
Louis Dreyfus Corp. A substantial portion of the Corporation's trading and
marketing of electricity is conducted through D/LD.
Trading and Marketing markets natural gas primarily to LDCs, electric
power generators, municipalities, industrial end-users and energy marketing
companies and markets electricity to investor owned utilities, municipal power
generators and other power marketers. Operations are primarily in the United
States and, to a lesser extent, in Canada, and are serviced through 13 offices
or operating centers.
Natural gas marketing operations encompass both on-system and off-system
sales. With respect to on-system sales, Trading and Marketing generally
purchases natural gas from the Corporation's Field Services facilities and
delivers the gas to an intrastate or interstate pipeline for redelivery to
another customer. The Corporation's Natural Gas Transmission pipelines are
utilized for deliveries when prudent. With respect to off-system sales, Trading
and Marketing purchases natural gas from producers, pipelines and other
suppliers not connected with the Corporation's facilities for resale to
customers.
Trading and Marketing 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 sales, also
generally include market-sensitive pricing provisions. Purchases and sales of
off-system gas and electricity supply are normally made under short-term
contracts. Purchase and sales commitments involving significant price and
location risk are generally hedged with commodity futures, swaps and options.
For information concerning the Corporation's risk-management activities, see
"Management's Discussion and Analysis of Results of Operations and Financial
Condition, Quantitative and Qualitative Information About Market Risk --
Commodity Price Risk" and Note 8 to the Consolidated Financial Statements,
"Financial Instruments and Risk Management -- Commodity Derivative
Instruments."
7
Trading and Marketing 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.
Global Asset Development
Global Asset Development is an active participant in competitive power
markets worldwide and has ownership interests in more than 6,500 megawatts of
generation worldwide, including projects under construction and under contract.
Global Asset Development is comprised of three units: Duke Energy Power
Services (DEPS), Duke Energy Industrial Asset Development, and Duke Energy
International.
DEPS develops, owns and operates electric generation projects for
customers in the United States and Canada. DEPS focuses on acquisitions of
existing energy production facilities, greenfield opportunities and operating
energy assets. Domestic investments include a 32.5% indirect ownership interest
in American Ref-Fuel Company, which owns five waste to energy facilities in New
York, New Jersey, Massachusetts and Connecticut. Such facilities process about
4 million tons of municipal solid waste per year and have an aggregate
generating capacity of 286 megawatts. DEPS projects under construction include
an ownership interest in the Bridgeport Energy Project, a 520 megawatt combined
cycle natural gas fired merchant generation plant which will be Connecticut's
largest non-nuclear power plant.
On November 18, 1997, DEPS entered into an agreement with Pacific Gas &
Electric Company (PG&E) for the purchase of three electric generating plants in
California for approximately $500 million. The plants have a combined net
operating capacity of 2,645 megawatts. The sale is expected to close during
1998. Pursuant to California's electric restructuring law, DEPS must contract
with PG&E to operate and maintain the facilities for two years following the
sale. Energy and capacity from the plants will be sold into the California
power exchange and under separate contracts.
Duke Energy Industrial Asset Development was formed in July 1997 to
develop, own, manage and operate on-site, inside-the-fence electric generation
and energy conversion facilities for industrial customers. Its market focus is
the United States and Canada. This unit is currently working with prospective
customers from the textile, pulp and paper, petrochemical, agricultural, food
and automotive industries and the federal privatization sector.
Duke Energy International develops, owns and operates energy projects
worldwide. This unit focuses on projects involving natural gas exploration,
production, processing, transportation and supply. Additionally, projects
include generation, delivery and marketing of electric power and thermal
energy. Its ownership interests include investments in Argentina, Chile, Peru,
Indonesia and Saudi Arabia.
Other Energy Services
Other Energy Services provides engineering consulting, construction and
integrated energy solutions, primarily through Duke Engineering & Services,
Inc. (DE&S), Duke/Flour Daniel and DukeSolutions, Inc. (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 projects worldwide.
Duke/Flour Daniel, 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.
DukeSolutions provides integrated energy solutions to industrial,
commercial, institutional, governmental and wholesale customers and focuses on
increasing customers' efficiency, productivity and profitability through energy
cost savings.
Competition
Field Services and Trading and Marketing compete with major integrated oil
companies, major interstate pipelines and their marketing affiliates, national
and local natural gas gatherers, brokers, marketers and distributors and
electric utilities and other electric power marketers for natural gas supplies,
in gathering and processing natural gas and in marketing and transporting
natural gas, electricity, NGLs and crude oil. Competition for natural gas
supplies is primarily based on efficiency, reliability, availability of
transportation and the ability to obtain a satisfactory price for the
producer's natural gas. Competition for customers is based primarily upon
reliability and price of delivered natural gas, NGLs and crude oil. 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.
8
The Global Asset Development and Other Energy Services business units
experience substantial competition in their fields from utility companies in
the United States or abroad and from independent companies.
Regulation
The intrastate pipelines owned by the Field Services group are subject to
state regulation and, to the extent they provide services under Section 311 of
the Natural Gas Policy Act of 1978 (NGPA), are also subject to FERC regulation.
The natural gas gathering activities of the Field Services group are generally
not subject to regulation by the FERC, but are subject to state regulation.
The energy marketing activities of the Trading and Marketing group may, in
certain circumstances, be subject to the jurisdiction of the FERC. Current FERC
policies permit the Trading and Marketing entities subject to the FERC
jurisdiction to market natural gas and electricity at market-based rates.
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 Energy Services' activities with the Corporation's Electric
Operations segment.
The Energy Services segment is subject to the jurisdiction of the EPA and
state environmental agencies. For a discussion of environmental regulation, see
"Business, Environmental Matters." The Energy Services segment 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.
OTHER OPERATIONS
The Other Operations segment includes the Corporation's non-energy related
subsidiaries, including Crescent Resources and DukeNet Communications, Inc.
(DukeNet).
Crescent Resources develops high quality commercial and residential real
estate projects and manages substantial forest holdings. At December 31, 1997,
Crescent Resources owned 3.5 million square feet of commercial space, of which
75% of the operating space was leased. Crescent Resources' portfolio included
2.1 million square feet of warehouse space, 1.1 million square feet of office
space and .3 million square feet of retail space. In 1997, Crescent Resources
sold 884 residential developed lots compared to 869 lots in 1996. At December
31, 1997, Crescent Resources also had approximately .2 million acres of land
under its management.
DukeNet develops and manages communications systems, including fiber optic
and wireless digital network services. DukeNet provides a network for
communications and other services to commercial, industrial and residential
markets.
ENVIRONMENTAL MATTERS
The Corporation is subject to 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 the
Corporation include:
o The Clean Air Act Amendments of 1990, which require a two-phase reduction by
electric utilities in aggregate annual emissions of sulfur dioxide and
nitrogen oxide by 2000;
o State Implementation Plans (SIP), which were issued by the EPA to 22 states
related to existing and new national ambient air quality standards for
ozone;
o The Federal Water Pollution Control Act Amendments of 1987, which require
permits for facilities that discharge treated wastewater into the
environment; and
o The Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA), 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 the Corporation,
including possible liability and capital costs, see "Management's Discussion
and Analysis of Results of Operations and Financial Condition, Current Issues
-- Environmental" and Note 15 to the Consolidated Financial Statements,
"Commitments and Contingencies -- Environmental." Except as set
9
forth therein, compliance with federal, state and local provisions which have
been enacted or adopted regulating the discharge of materials into the
environment, or otherwise protecting the environment, is not expected to have a
material adverse effect on the consolidated results of operations or financial
position of the Corporation.
OTHER MATTERS
The Corporation is exempt from regulation as a holding company under the
Public Utility Holding Company Act of 1935 (PUHCA), except with respect to the
acquisition of the securities of other public utilities. The issuance of debt
or equity securities by the Corporation is subject to the regulation of the
NCUC and the PSCSC.
Foreign operations and export sales are not material to the Corporation's
business as a whole. For a discussion of risks associated with the
Corporation's foreign operations, see "Management's Discussion and Analysis of
Results of Operations and Financial Condition, Quantitative and Qualitative
Disclosures About Market Risk -- Foreign Operations Risk."
At December 31, 1997, the Corporation had approximately 23,000 employees.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
From time to time, the Corporation may make statements regarding its
expectations, intent or beliefs about future events. These statements are
intended as "forward-looking statements" under the Private Securities
Litigation Reform Act of 1995. The Corporation cautions that assumptions,
projections and expectations about future events may and often do vary from
actual results, the differences between assumptions, projections and
expectations and actual results can be material, and there can be no assurance
that the forward-looking statements will be realized. 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."
10
OPERATING STATISTICS
· Enlarge/Download Table
Years Ended December 31
----------------------------------------------------
1997 1996 1995 1994 1993
----------------------------------------------------
Electric Operations
Sources of Electric Energy, GWh (a)
Generated -- net output:
Coal .............................................................. 45,234 40,649 32,389 32,714 34,097
Nuclear ........................................................... 29,569 33,177 39,836 35,587 34,390
Hydro ............................................................. 1,129 1,319 1,685 1,460 1,582
Oil and gas ....................................................... 301 199 255 35 43
------ ------ ------ ------ ------
Total generation ............................................... 76,233 75,344 74,165 69,796 70,112
Purchased power and net interchange ............................... 3,776 3,587 1,175 1,276 1,750
------ ------ ------ ------ ------
Total output ................................................... 80,009 78,931 75,340 71,072 71,862
Plus: Purchases from other Catawba joint owners ................... 2,316 2,662 6,070 9,046 8,810
------ ------ ------ ------ ------
Total sources of energy ........................................ 82,325 81,593 81,410 80,118 80,672
Less: Line loss and company usage ................................. 4,784 4,741 4,673 4,555 4,614
------ ------ ------ ------ ------
Total GWh sales ................................................ 77,541 76,852 76,737 75,563 76,058
====== ====== ====== ====== ======
Electric Energy Sales, GWh
Residential ....................................................... 20,005 20,992 19,669 18,870 19,465
General service ................................................... 19,368 19,269 18,160 17,289 16,904
Industrial
Textile ......................................................... 11,950 11,599 12,151 12,285 11,954
Other ........................................................... 18,253 18,021 17,631 17,005 16,244
Other energy and wholesale ........................................ 7,555 7,028 8,330 10,274 11,337
------ ------ ------ ------ ------
Total GWh sales billed ......................................... 77,131 76,909 75,941 75,723 75,904
Unbilled GWh sales ............................................ 410 (57) 796 (160) 154
------ ------ ------ ------ ------
Total GWh sales ............................................. 77,541 76,852 76,737 75,563 76,058
====== ====== ====== ====== ======
· Enlarge/Download Table
Natural Gas Transmission
Throughput Volumes, TBtu (b):
Northeast Pipelines
TETCO ........................................................... 1,300 1,349 1,234 1,194 1,115
Algonquin ....................................................... 341 327 331 288 245
----- ----- ----- ----- ------
Total Northeast Pipelines ...................................... 1,641 1,676 1,565 1,482 1,360
Midwest Pipelines
PEPL ............................................................ 659 687 663 626 607
Trunkline ....................................................... 620 632 519 560 633
----- ----- ----- ----- ------
Total Midwest Pipelines ........................................ 1,279 1,319 1,182 1,186 1,240
Intercompany eliminations ........................................ (58) (56) (44) (91) (125)
----- ----- ----- ----- ------
Total Natural Gas Transmission .................................... 2,862 2,939 2,703 2,577 2,475
===== ===== ===== ===== ======
Energy Services
Field Services Natural Gas Gathered/Processed, TBtu/d (c) ......... 3.4 2.9 1.9 1.6 1.4
Field Services NGL Production, MBbl/d (d) ......................... 103.9 76.5 54.8 49.4 42.0
Trading and Marketing Natural Gas Marketed, TBtu/d ................ 6.9 5.5 3.6 2.7 2.1
Trading and Marketing Electricity Marketed, GWh ................... 64,650 4,229 513 -- --
---------
(a) Gigawatt-hour
(b) Trillion British thermal units
(c) Trillion British thermal units per day
(d) Thousand barrels per day
11
Executive Officers of the Corporation
RICHARD B. PRIORY, 51, Chairman of the Board and Chief Executive Officer.
Mr. Priory served as President and Chief Operating Officer from 1994 until he
assumed his present position in 1997. He was Executive Vice President, Power
Generation Group, from 1991 to 1994.
PAUL M. ANDERSON, 52, President and Chief Operating Officer. Mr. Anderson
served as Chairman of the Board, President and Chief Executive Officer of
PanEnergy prior to the merger, when he assumed his present position. Mr.
Anderson was elected Chairman of the Board of PanEnergy in 1997, Chief
Executive Officer in 1995 and President in 1993. He was Executive Vice
President of PanEnergy from 1991 to 1993.
WILLIAM A. COLEY, 54, Group President, Duke Power. Mr. Coley served as
President, Associated Enterprises Group, from 1994 to 1997 when he assumed his
present position following the merger. Mr. Coley served as Executive Vice
President, Customer Group, from 1991 to 1994.
FRED J. FOWLER, 52, Group President, Energy Transmission. Mr. Fowler
served as Group Vice President of PanEnergy from 1996 until the merger, when he
assumed his present position. He was President of TETCO from 1994 to 1996,
President of 1Source Corporation from 1993 to 1994 and President of Trunkline
Gas Company from 1991 to 1993.
JAMES T. HACKETT, 44, Group President, Energy Services. Mr. Hackett served
as Executive Vice President of PanEnergy from 1996 until the merger, when he
assumed his present position. Prior to joining PanEnergy, Mr. Hackett served as
Senior Vice President of NGC Corporation (formerly Natural Gas Clearinghouse)
from 1990 to 1995.
RICHARD W. BLACKBURN, 55, Executive Vice President and General Counsel.
Mr. Blackburn was named to his present position in October 1997. Prior to
joining the Corporation, he served as President and Group Executive of NYNEX
Corporation's Worldwide Communications and Media Group from 1995 to 1997. He
was Chief Operating Officer, Worldwide Communications and Media Group, of NYNEX
from 1993 to 1995 and Senior Vice President for Business Development and
General Counsel of NYNEX from 1991 to 1993.
RICHARD J. OSBORNE, 46, Executive Vice President and Chief Financial
Officer. Mr. Osborne served as Senior Vice President and Chief Financial
Officer from 1994 until he assumed his present position in 1997 following the
merger. Mr. Osborne served as Vice President and Chief Financial Officer from
1991 to 1994.
RUTH G. SHAW, 50, 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 merger. Ms. Shaw was
Vice President, Corporate Communications, from 1992 to 1994, and prior to
joining the Corporation, she served as President of Central Piedmont Community
College from 1986 to 1992.
JEFFREY L. BOYER, 41, Vice President and Corporate Controller. Mr. Boyer
served as Controller from 1994 to 1997, when he assumed his present position
following the merger. He was Director of Corporate Accounting from 1992 to
1994.
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.
Item 2. Properties.
ELECTRIC OPERATIONS
At December 31, 1997, the Corporation's Electric Operations segment
operated three nuclear generating stations with a combined net capability of
5,078 MW (which includes Electric Operations' 12.5% ownership share in the
Catawba Nuclear Station), eight coal-fired stations with a combined capability
of 7,699 MW, twenty hydroelectric stations with a combined capability of 2,685
MW and six combustion turbine stations with a combined capability of 1,784 MW,
all of which are located in North Carolina or South Carolina.
In addition, the Corporation owned, as of December 31, 1997, approximately
12,800 conductor miles of electric transmission lines, including 600 conductor
miles of 500 kilovolts, 2,600 conductor miles of 220 kilovolts, 6,400 conductor
miles of 100 kilovolts, and 3,200 conductor miles of 13 to 66 kilovolts. The
Corporation also owned approximately 75,000 conductor miles of electric
distribution lines, including 47,300 conductor miles of rural overhead lines,
15,000 conductor miles of urban overhead lines, 7,000 conductor miles of rural
underground lines and 5,700 conductor miles of urban underground
12
lines. At December 31, 1997, the Corporation's electric transmission and
distribution systems comprised approximately 1,600 substations with an
installed transformer capacity of approximately 84,100,000 kVA
(kilovolt-ampere).
Substantially all electric plant is mortgaged under the Indenture relating
to the First and Refunding Mortgage Bonds of the Corporation.
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,
including its gathering systems, has 73 compressor stations. The TETCO system
connects with the PEPL and Trunkline systems in Lebanon, Ohio.
TETCO also owns and operates two offshore Louisiana gas supply systems,
which extend over 100 miles into the Gulf of Mexico and consist of 490 miles of
pipeline.
Algonquin's transmission system connects with TETCO's facilities in New
Jersey, and extends through New Jersey, New York, Connecticut, Rhode Island and
Massachusetts. The system consists of approximately 250 miles of pipeline with
6 compressor stations.
PEPL's transmission system, which consists of four large-diameter parallel
pipelines and 13 mainline compressor stations, extends a distance of
approximately 1,300 miles from producing areas in the Anadarko Basin of Texas,
Oklahoma and Kansas through the states of Missouri, Illinois, Indiana and Ohio
into Michigan.
Trunkline's transmission system extends approximately 1,400 miles from the
Gulf Coast areas of Texas and Louisiana through the states of Arkansas,
Mississippi, Tennessee, Kentucky, Illinois and Indiana to a point on the
Indiana-Michigan border. The system consists principally of three
large-diameter parallel pipelines and 18 mainline compressor stations.
Trunkline also owns and operates two offshore Louisiana gas supply systems
consisting of 337 miles of pipeline extending approximately 81 miles into the
Gulf of Mexico.
For information concerning natural gas storage properties, see "Business,
Natural Gas Transmission."
ENERGY SERVICES
For information regarding the properties of Field Services, see "Business,
Energy Services -- Field Services."
Global Asset Development owns two liquid natural gas (LNG) ships, each
with a transportation capacity of 125,000 cubic meters of LNG. Both vessels
have been chartered to Nigeria LNG Limited (Nigeria LNG) for 22 years starting
in 1999. Under the terms of the charter, Nigeria LNG will have the right to
purchase the vessels.
Global Asset Development also owns a marine terminal, storage and
regasification facility for LNG located in Louisiana. This LNG facility has a
design output capacity of approximately 700 million cubic feet per day (MMcf/d)
and a storage capacity of approximately 1.8 million barrels, which approximates
6 Bcf.
Other generation, transmission and distribution properties of Global Asset
Development are owned primarily through joint ventures in which the
Corporation's ownership interest is 50% or less.
Properties of Trading and Marketing and Other Energy Services are not
considered material to the Corporation's operations as a whole.
OTHER OPERATIONS
None of the other properties used in connection with the Corporation's
other business activities are considered material to the Corporation's
operations as a whole.
13
Item 3. Legal Proceedings.
See Note 15 to the Consolidated Financial Statements, "Commitments and
Contingencies" and "Management's Discussion and Analysis of Results of
Operations and Financial Condition, Current Issues -- Environmental" for a
discussion of legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Corporation's security holders
during the last quarter of 1997.
14
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The common stock of the Corporation is listed for trading on the New York
Stock Exchange. At February 27, 1998, there were approximately 155,619 holders
of record of such common stock.
The following table sets forth for the periods indicated the dividends
paid per share of common stock and the high and low sales prices of such shares
reported by the New York Stock Exchange Composite Transactions:
· Download Table
Dividends
1997 Per Share (a) Stock Price Range
------------------- --------------- ----------------------
High Low
---------- -----------
First Quarter .. $.40 $ 48 $ 43 3/8
Second Quarter . .40 48 42 1/8
Third Quarter .. .55 51 1/8 47 11/16
Fourth Quarter . .55 56 3/16 45 3/4
· Download Table
Dividends
1996 Per Share (a) Stock Price Range
------------------ --------------- --------------------
High Low
--------- ----------
First Quarter ... $.38 $53 $46 7/8
Second Quarter .. .39 51 1/2 45 3/4
Third Quarter ... .40 51 3/8 45 3/4
Fourth Quarter .. .40 49 1/8 43 3/8
---------
(a) Financial information reflects accounting for the merger with PanEnergy
Corp as a pooling of interests. As a result, the financial information
gives effect to the merger as if it had occurred January 1, 1996.
Item 6. Selected Financial Data.
· Enlarge/Download Table
1997 (a) 1996 (a) 1995 (a) 1994 (a) 1993 (a)
-------------- -------------- ------------- ------------- -------------
In Millions (except per share amounts)
Income Statement
Operating Revenues ....................................... $ 16,308.9 $ 12,302.4 $ 9,694.7 $ 9,115.0 $ 8,784.3
Operating Expenses ....................................... 14,338.9 10,143.8 7,626.4 7,309.0 7,068.6
---------- ---------- ---------- ---------- ----------
Operating Income ......................................... 1,970.0 2,158.6 2,068.3 1,806.0 1,715.7
Other Income and Expenses ................................ 138.1 135.6 122.2 101.0 137.5
---------- ---------- ---------- ---------- ----------
Earnings Before Interest and Taxes ....................... 2,108.1 2,294.2 2,190.5 1,907.0 1,853.2
Interest Expense ......................................... 471.8 499.2 508.2 484.5 526.3
Minority Interests ....................................... 23.0 6.2 -- -- --
---------- ---------- ---------- ---------- ----------
Earnings Before Income Taxes ............................. 1,613.3 1,788.8 1,682.3 1,422.5 1,326.9
Income Taxes ............................................. 638.9 697.8 664.2 558.4 528.9
---------- ---------- ---------- ---------- ----------
Income Before Extraordinary Item ......................... 974.4 1,091.0 1,018.1 864.1 798.0
Extraordinary Item ....................................... -- 16.7 -- -- --
----------- ---------- ---------- ---------- ----------
Net Income ............................................... 974.4 1,074.3 1,018.1 864.1 798.0
Dividends and Premiums on Redemptions of Preferred and
Preference Stock ........................................ 72.8 44.2 48.9 49.7 52.4
----------- ---------- ---------- ---------- ----------
Earnings for Common Stockholders ......................... $ 901.6 $ 1,030.1 $ 969.2 $ 814.4 $ 745.6
=========== ========== ========== ========== ==========
Common Stock Data
Shares of common stock
Year-end ................................................ 359.8 359.4 361.8 360.6 359.1
Average ................................................. 359.8 361.2 361.2 360.2 353.6
Basic earnings per share (before extraordinary item) ..... $ 2.51 $ 2.90 $ 2.68 $ 2.26 $ 2.11
Basic earnings per share ................................. $ 2.51 $ 2.85 $ 2.68 $ 2.26 $ 2.11
Dividends per share ...................................... $ 1.90 $ 1.57 $ 1.50 $ 1.44 $ 1.39
Balance Sheet
Total Assets ............................................. $ 24,028.8 $ 22,366.2 $ 20,867.9 $ 20,254.2 $ 19,717.4
Long-term Debt ........................................... $ 6,530.0 $ 5,485.1 $ 5,803.0 $ 5,930.8 $ 5,370.9
Preferred Stock with Sinking Fund Requirements ........... $ 149.0 $ 234.0 $ 234.0 $ 279.5 $ 281.0
---------
(a) Financial information reflects accounting for the merger with PanEnergy
Corp as a pooling of interests. As a result, the financial information
gives effect to the merger as if it had occurred January 1, 1993.
15
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
INTRODUCTION
On June 18, 1997, Duke Power Company (Duke Power) changed its name to Duke
Energy Corporation (the Corporation) in accordance with the terms of a merger
agreement with PanEnergy Corp (PanEnergy), pursuant to which the Corporation
issued 158.3 million shares of its common stock in exchange for all of the
outstanding common stock of PanEnergy (the merger). PanEnergy was involved in
the gathering, processing, transportation and storage of natural gas, the
production of natural gas liquids and the marketing of natural gas,
electricity, liquefied petroleum gases and related energy services. Pursuant to
the merger, each share of PanEnergy common stock outstanding was converted into
the right to receive 1.0444 shares of the Corporation's common stock. In
addition, each outstanding option to purchase PanEnergy common stock became an
option to purchase common stock of the Corporation, adjusted accordingly.
As a result of the merger, the Corporation 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 United States and
abroad. The Corporation provides these services through four business segments:
Electric Operations, Natural Gas Transmission, Energy Services, and Other
Operations.
The Electric Operations segment is engaged in the generation,
transmission, distribution and sale of electric energy in central and western
North Carolina and the western portion of South Carolina. 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).
The Natural Gas Transmission segment is involved in interstate
transportation and storage of natural gas for customers primarily in the
Mid-Atlantic, New England and Midwest states. The interstate natural gas
transmission and storage operations are also subject to the rules and
regulations of the FERC.
The Energy Services segment is comprised of several separate business
units: Field Services gathers and processes natural gas, produces and markets
natural gas liquids and transports and trades crude oil; Trading and Marketing
markets natural gas, electricity and other energy-related products; Global
Asset Development develops, owns and operates energy-related facilities
worldwide; and Other Energy Services provides engineering consulting,
construction and integrated energy solutions.
Other Operations include the real estate operations of Crescent Resources,
Inc. (Crescent Resources), communications services, corporate costs and
intersegment eliminations.
The merger was accounted for as a pooling of interests and, accordingly,
the Consolidated Financial Statements included in this Annual Report are
presented as if the merger was consummated as of the beginning of the earliest
period presented. Portions of the following discussion provide information
related to material changes in the Corporation's consolidated results of
operations and financial condition between the periods presented, based on the
combined historical information of Duke Power and PanEnergy.
Management's Discussion and Analysis should be read in conjunction with
the Consolidated Financial Statements of the Corporation.
RESULTS OF OPERATIONS
Earnings available for common stockholders of the Corporation decreased
12% in 1997 as compared to 1996, from $1,030.1 million or $2.85 per share in
1996 to $901.6 million or $2.51 per share in 1997. The decrease was due
primarily to increases in non-recurring merger related costs, a provision for
non-recurring severance costs associated with the work force reduction in
Electric Operations, premiums associated with the redemption and tender offer
for ten issues of preferred stock and higher expenses as a result of increased
outages at the Electric Operations' nuclear stations. Partially offsetting the
decrease were lower expenses in 1997 as compared to 1996 when major storms
affected the Electric Operations' distribution costs.
In 1996, earnings available for common stockholders increased 6% over
1995, from $969.2 million or $2.68 per share in 1995 to $1,030.1 million or
$2.85 per share in 1996. Contributing to the increase were Electric Operations'
customer growth, business expansion projects placed in service in both the
Natural Gas Transmission and the Energy Services segments and increased volumes
in Energy Services due primarily to the joint venture formed with Mobil
Corporation (Mobil)
16
in August 1996. Partially offsetting the increase were expenses related to
major storms in 1996, which affected the Electric Operations' distribution
costs, non-recurring merger related costs and an extraordinary item related to
the early retirement of debt in 1996.
Operating income of the Corporation for 1997 was $1,970 million compared
to $2,