Energy merchants began the week on rocky ground, tumbling amid a torrent of downgrades, earnings worries and other reminders of the industry's shaky health.

Shares of

Duke Energy

(DUK) - Get Report

plummeted $2.55 to $22.20 at the open, hammered by a downgrade from Goldman Sachs that removed the stock from the firm's recommended list. Goldman Sachs now rates Duke a market performer and expects lower earnings from the company in both 2002 and 2003.

"The EPS changes are not the primary reason for the downgrade," Goldman Sachs analyst Jonathan Raleigh wrote in a research note. "The downgrade is driven by our view that Duke has lost its historic premium position in the group in the eyes of investors."

Goldman Sachs lowered its earnings guidance for the company from $2.75 to $2.50 per share for 2002, and from $3 to $2.65 per share for 2003. The firm also reduced its earnings guidance for a slew of other companies through the utilities sector.

"As we approach the Q2 earnings reporting season, it has become apparent that many companies are still grappling with a lower EPS outlook," Raleigh explained.

Duke's morning tumble continues a sharp slide begun Friday, when the North Carolina company announced two new government investigations of its energy trading practices. Prior to those investigations, launched by the Houston office of the U.S. attorney and the Commodity Futures Trading Commission, Duke had escaped the brunt of investor panic over deterioration of the once highflying merchant energy sector.

But by midmorning, Duke had fallen $3.23 to $21.52, down 46 % for the year.

Shares of

El Paso

( EP) were also down sharply, following a late-Friday announcement that it, too, is the target of a formal probe by the Houston office of the U.S. attorney. Both Duke and El Paso are being investigated for possible "roundtrip" power trades that can artificially inflate trading volumes and revenues but bring no real economic benefit to the parties involved.

Dynegy

(DYN)

, which faces similar investigations, saw its stock topple on news of an expanded second-quarter charge and reaudit of its books. The Houston energy trader is now expecting a second-quarter charge of $500 million instead of $450 million, due to an increase in noncash charges related to its natural gas marketing business. It also announced that PricewaterhouseCoopers will expand its reaudit of the company's books to include 1999 and 2000, as well as 2001.

Dynegy predicted the reaudit will take until the end of the year to complete.

Chris Ellinghaus, an analyst at Williams Capital Group, saw little cause for alarm in Dynegy's announcements.

"If they had just announced the $500 million charge, that would be a big deal," Ellinghaus said. "But an additional $50 million isn't material at this point."

Ellinghaus rates Dynegy hold and doesn't own the stock.

The news from Dynegy sent wary investors racing for the exits Monday, as the stock tumbled 72 cents to a fresh 52-week low of $5.58.

Even $200 million in interim financing, which keeps Dynegy's liquidity above $900 million, failed to calm investors' frazzled nerves. The new financing, secured by two Dynegy power facilities, matures in six months. In the meantime, Dynegy must make payments on $200 million worth of senior notes and $96 million in mortgage bonds that mature today.

Similarly,

CMS Energy

(CMS) - Get Report

investors failed to share the company's enthusiasm for its successful renewal of $1.4 billion worth of credit facilities. They focused instead on the sacrifice CMS made to get the renewals: a 50% cut in the company's annual dividend, from $1.46 to 72 cents.

Shares of CMS were off 46 cents to $9.79 in late-morning trading.

Reliant

(REI) - Get Report

was also down, despite a late-Friday announcement that it had secured a 90-day extension on $4.7 billion worth of credit facilities. The stock had shed 26 cents to hit $14.69 in Monday trading.