Duke Saw Slowdown but Kept Mum, Critic Claims

Stone's comments, of course, counter Duke's professed surprise. Meanwhile, Duke is clearly trying hard to talk about anything but its merchant business.

In recent discussions with the investment community, Duke has repeatedly stressed that 80% of its future earnings will come from regulated, rather than riskier unregulated, businesses. But formal documents show that these "safer" earnings can be manipulated as well.

Power Point

It was in late 1998 -- just after South Carolina regulators determined that another utility was earning too much profit -? when Stone first began to grow uneasy. Duke had authorized a special project aimed at cutting the profits its own utilities reported to North and South Carolina regulators but leaving the company's overall bottom line unchanged. And the project, which relied heavily on accounting maneuvers, was a clear priority.

During a staff meeting on the matter, Duke executives in fact stressed that there was "a risk to the company" if the project failed. Such comments are documented in a state-ordered investigation triggered by Stone's tips to regulators. After raising futile protests internally, Stone said he felt ethically obligated -- as a certified accountant -- to blow the whistle on his employer.

"By 2001, it had become apparent to me that the two state commissions weren't going to catch it -- because it had been reported that way for three years -- and that management wasn't going to change it," Stone said. "And I just thought it was wrong."

Stone is convinced that his decision to step forward cost him his position in forecasting, although Duke denies this and continues to employ Stone in an equal-paying job. Nevertheless, Stone has gained some vindication.

On Friday, Duke fielded a grand jury subpoena for documents related to its Carolina utility profits. This new investigation comes less than four months after the state-ordered outside">audit conducted last year by Grant Thornton, determined that Duke had intentionally underreported utility profits by nearly $124 million between 1999 and 2001. Duke has publicly disputed some of Thornton's accounting judgments as mere "differences of opinion." But Carolina regulators have sided with Thornton, as have utility customers. Unhappy with a modest $25 million in promised refunds, some of Duke's largest customers have renewed their calls for a full-scale investigation of the company's rate strategy since the release of Thornton's report.

In the meantime, Stone remains concerned that Duke may be less than forthright with the public. He says the company knows better than to tinker with earnings -- and that it even sent executives to an "earnings management" seminar, warning against the practice, just a week before the questionable turbine charge first came up.

"The seminar addressed how to deal with earnings management," Stone recalled. "And it essentially said, 'You don't do it -- up or down.'"