Duke ( DUK) has checked another big-ticket item off its expense list.

The giant energy company on Tuesday agreed to pay $208 million -- twice what it had expected -- to settle charges that it unfairly profited during the western energy crisis of 2000-01. The company inked the deal, triggering a $105 million pretax charge to second-quarter results, even though it has consistently maintained its innocence.

Duke reiterated its stand on Tuesday.

"As part of these proceedings, all participants in the western electric markets -- including Duke Energy -- have refund obligations, even though Duke Energy acted appropriately and within the market rules," the company stated in a prepared release.

Duke President Fred Fowler went on to explain that the settlement offers "welcome closure" to protracted legal proceedings that have dragged on for years. Federal regulators have predicted that California by itself could receive up to $3.3 billion in refunds from energy companies that profited handsomely when power prices soared because of suspected manipulation by players such as Enron.

At least one Duke insider was startled by his company's portion of the bill, however.

"That's a big chunk of money -- a lot more than we initially thought we would have to pay," he said. "Cash is just flying out the door."

Hefty Tabs

To be sure, other companies have already agreed to pay California far more, according to figures compiled by Power Markets Week. In mediation proceedings, which are separate from the big refund case, Williams ( WMB) inked a massive $1.4 billion global settlement with the state two years ago. El Paso ( EP) followed up with an even larger $1.7 billion deal in an effort to lessen its California exposure ahead of a heated proxy fight last summer. The deals resolved a number of legal challenges that both companies faced in the western U.S.

Meanwhile, Duke is footing a high bill for refunds alone. The company has agreed to pay $85.1 million in cash -- and write off another $122 million in receivables and credits -- to settle allegations made by multiple parties investigating the western energy crisis.

But Duke has paid steep penalties already. Last year the company agreed to pony up $28 million -- the highest fine levied so far -- to settle charges made by the Commodity Futures Trading Commission that the company reported false information about gas prices and attempted to manipulate energy markets in the process. Two of the company's former trading executives were later indicted on fraud charges for booking questionable transactions that may have inflated reported profits in the past.

Still, Duke has paid considerably more for other big mistakes. Most notably, the company has written off billions of dollars in losses -- and could still write off billions more -- for its failed investment in the merchant energy business. Under the leadership of turnaround CEO Paul Anderson, the company this year finally agreed to sell its money-losing merchant plants in the southeastern U.S. Many expressed relief at the move, but some felt less than reassured.

"I'm not saying it wasn't the right decision," one Duke employee conceded. "But we got $475 million for $3.5 billion to $4 billion worth of assets. Even with the tax effect, we just got a quarter on the dollar."

Coming Tidal Wave

Meanwhile, one equity analyst is predicting more big writedowns to come. Robert Chewning of BB&T Capital Markets last week suggested that Duke may eventually sell all of its merchant assets -- at a huge loss -- over the next few years. He predicts that liquidation of the Duke Energy North America division could impair the company's balance sheet by up to $5 billion, before taxes, in the end.

Still, he actually upgraded the stock from underweight to hold, part on the basis of this assumption. Although he pointed first to Duke's rich dividend -- which he now believes is safe -- as a reason for his revision, he also believes that Duke could ultimately deserve its "very expensive" price-to-earnings multiple if the company sheds DENA and thus eliminates the division's losses by 2006.

In the meantime, however, Chewning is among a large crowd that expects DENA to post even bigger pretax losses than the company expects. He believes that DENA will end this year $387 million in the red -- or $87 million worse than management guidance -- if it fails to reverse the mark-to-market losses reported last quarter. Some people suspect that such losses have actually continued through the latest quarter. And they are convinced that Anderson, despite his impressive track record, has no "silver bullet" that can turn DENA around.

For now, Duke is relying heavily on its regulated utilities for profits. But Chewning worries about even this core business. Duke recently inked a deal with North Carolina regulators, agreeing to split wholesale power profits with customers, that could push its regulated profits back below the allowed rate of return. But the agreement extends only until a North Carolina rate freeze ends in 2007, after which Duke could become susceptible to its first rate review in more than a decade.

Big industrial customers have already described Duke's power prices as more expensive than those offered by companies that have undergone more recent reviews. Thus, Duke's problems may not necessarily end when -- and if -- the company finally manages to eliminate DENA's losses.

Still, Chewning ultimately believes that Duke's stock price rests on two other major issues.

"Can the company write off its remaining DENA assets and maintain its dividend?" he pondered. "Is it willing to take such an action? We believe the answer to both questions is 'yes.'"

Duke's stock, down 5 cents to $20.42 on Tuesday, is currently trading just above the midpoint of Chewning's projected range of $18 to $22 a share.