Duke Saw Slowdown but Kept Mum, Critic Claims

Going forward, Duke itself portrayed none of Stone's uneasiness. Even as industry experts began to rumble about "overbuilding" in the power sector, Duke insisted that opportunities were ripe and its own strategy was quite sound. In February 2002, for example, the company told local North Carolina media that its cautious risk-management strategy would make Duke immune to any fallout from gluts in supply. Two months later -- after reporting disappointing results for the first quarter -- Duke reiterated its plan to build more power plants and even predicted that new generation would significantly boost earnings by the third quarter and allow the company to deliver on its promise of up to 15% in annual profit growth for 2002.

But information inside the company, available more than half a year earlier, did not support those claims. Stone said as much in an Oct. 25, 2001, email to the SEC, when Duke was in the midst of developing budgets and forecasts for the following three years.

"The initial cut of what got turned in doesn't support what Mr. Priory has told analysts," Stone told the SEC. "As a matter of fact, there is no growth for 2002 over 2001 or 2003 over 2002."

Those internal forecasts, unavailable to the general public, proved to be correct. On Sept. 20, 2002 -- nearly a year after Duke first considered halting its turbine orders -- the company suddenly announced that business had taken a turn for the worse. The company formalized plans to halt construction of three power plants, warning of a hefty third-quarter charge as a result, and slashed earnings guidance for both 2002 and 2003.

"Up until the third quarter, we really didn't see the drastic downturn," Duke spokesman Terry Francisco insisted this month. "The very young merchant energy sector ... really became depressed in 2002 unlike anything many people expected."