Posted on 07/12/2002 10:13:37 PM PDT by lewislynn
July 12, 2002, 11:46PM
Two companies with major energy trading operations in Houston were hit Friday with subpoenas from a local grand jury seeking records on questionable trades.
Both a Houston grand jury and commodities trading regulators subpoenaed Duke Energy's records, the company reported.
Houston-based El Paso Corp. was also served a subpoena seeking its records of round-trip trades of natural gas.
El Paso and Duke, a Charlotte, N.C.,-based energy company whose energy trading is done in Houston, said they had received subpoenas from the Houston office of the U.S. Attorney regarding a grand jury investigation. Duke also said it received a subpoena from the Commodity Futures Trading Commission regarding its round-trip trades.
Duke's shareholders were sent scurrying to sell by the news. Duke shares closed Friday at $24.75, down $3.20 per share, or about 11 percent, on a volume of 19.1 million shares, almost five times the average daily volume for the stock. The shares hit a 52-week low of $24.05 during the trading day.
El Paso, which said it will cooperate fully with the request, disclosed the action after the market closed. Its shares dropped 35 cents to $17.75.
The subpoena was the first indication to Duke that it was under investigation by a grand jury here, said Terry Francisco, a Duke spokesman in Charlotte.
Duke said in June it had received informal requests from the Securities and Exchange Commission related to its round-trip trades.
But the subpoenas escalated the investigation to another level.
"Investors are viewing the situation more seriously than they did when it was just a request for information," said Paul Fremont, analyst with Jefferies & Co. in New York. "Duke seems to be suffering from the same scrutiny as the other energy companies that have been identified."
Both subpoenas seek information related to trading activities, including round-trip trading. In a round-trip trade, the two parties buy and sell an identical amount of power or natural gas with the aim of inflating trading volumes and, in some cases, reportable revenues.
Duke has said the trades were not used to boost revenues, volume or prices. The company said it is fully cooperating with these investigations, "as it has with other government organizations inquiring into the same issues."
El Paso has stated publicly in response to two requests issued by the Federal Energy Regulatory Commission that it has not engaged in round-trip trades for the purpose of artificially inflating volumes or revenues or for the purpose of manipulating prices.
The investigations are part of a widening probe of energy trading companies that includes Reliant Resources, Dynegy and CMS Energy Corp.
Of those, Reliant has conceded that it used the round-trip trades to inflate revenues. Last week, Reliant and Reliant Resources restated revenues for the years 1999, 2000 and 2001, trimming almost $8 billion off revenues for those years.
The subpoenas capped off a rocky week for Duke, which saw its stock fall by about 19 percent.
The shares dropped sharply early in the week after Prudential Securities analyst Carol Coale issued a report lowering her estimates on the company's projected earnings, citing expectations that the energy trading market will remain weak through the year, as well as concerns over declining returns from international projects and low demand for natural gas liquids.
"Duke has operations in each of these businesses, and we believe its earnings could be at risk," according to the report.
Duke and the other energy trading companies are expected to report lackluster results for the second quarter in the coming weeks.
Of those, Reliant has conceded that it used the round-trip trades to inflate revenues. Last week, Reliant and Reliant Resources restated revenues for the years 1999, 2000 and 2001, trimming almost $8 billion off revenues for those years.
Very interesting, especially that Reliant has admitted to overstating revenues. Overstating revenues is a lot different from "price gouging" the poor California ratepayer, but in today's climate of go after CEO's that cook the books, a very sersious crime. Thank you.
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