Growth Squeeze Taints Prospects at Duke

It reported a 48% surge in first-quarter earnings that was due primarily to asset sale gains in Australia. But operating profits actually fell. Unlike some neighboring utilities, such as Scana SCG and Southern SO, Duke saw demand for its regulated power decline as the economic slump continued, unabated, in the company's Carolina markets. Meanwhile, Duke Energy North America -- the company's unregulated arm -- swung to a huge loss in the quarter.

The unit, hit by yet another writedown of distressed power plants, posted a $521 million pretax loss in the latest period. All told, DENA reduced the value of its plants in the glutted Southeastern market three separate times before finally agreeing to sell them on the cheap earlier this month. The company expects to generate just $475 million in cash -- plus a little more than that in tax benefits -- for the eight merchant energy plants.

During a frenetic building boom, Duke spent between $500 and $700 per kilowatt to construct its merchant power plants. It now stands to collect less than $90 per kilowatt, however, for its Southeastern generation assets.

One Duke insider says he's not impressed.

"I think anybody could have sold those assets for 10 cents on the dollar and gotten the tax benefit," he said. "I'm not sure we're significantly better off than we were when Paul Anderson arrived. ... At the end of the day, we're basically a regulated company with a huge amount of debt."

Growing Pains

On Monday, however, Duke confirmed that it will seek out growth opportunities when appropriate. Spokesman Peter Sheffield pointed to Duke's "strongest businesses" -- regulated power, field services and gas transmission -- as possible areas of expansion. But he didn't rule out growth in the company's weaker divisions, either.

"Where there are opportunities for growth at DENA or in the international space, I'm sure those would be considered as well," Sheffield told TheStreet.com. But the decision -- for any portfolio changes -- will be "driven by whether it makes sound business sense."