Duke Saw Slowdown but Kept Mum, Critic Claims

In October of 2001, as Enron prepared to shock Wall Street with a huge earnings shortfall, rival Duke (DUK Quote) was pondering a big surprise of its own.

The North Carolina energy giant was set to report third-quarter earnings that would topple expectations. The numbers looked particularly strong in energy trading, a business pioneered by Enron and one that Wall Street continued to embrace as especially lucrative and rewarding.

Duke's "problem," if you will, was that third-quarter earnings were so high -- and beating the Street, by more than a penny or two, promised only limited rewards. Nevertheless, Duke went on to report ongoing quarterly profits of $1.02 that beat consensus estimates by 26 cents and set a company record that remains intact today.

But Duke filed that earnings report only after a telling private debate among high-level company executives, according to an internal Duke accountant who's raised concerns about the company's bookkeeping. He says that less than a week before releasing its third-quarter numbers, Duke was still weighing the idea of taking various charges -- including a big write-down that would have reflected a cooling view of the still-hot merchant energy business.

"The company would have liked to have held back some of those earnings for a rainy day," says Barron Stone, who served as a senior forecast analyst for the company at the time. "Because the storm did come. And there was information on the table that leads one to believe we saw the future then."

For its part, Duke insists it had no way of forecasting the meltdown that was coming. "It's unfair to criticize the company for not seeing [the future] in a crystal ball," said Duke spokesman Randy Wheeless.

Wheeless declined to elaborate on the matter further. But Stone's account suggests that Duke knew in 2001 that the merchant energy business looked far less rosy than the company and Wall Street were forecasting. Even so, Duke continued to boast about opportunities in the sector -- until last fall, when it became one of the last energy traders to publicly back away from its expectations.