Duke Energy delays construction on two plants

NEW YORK, NY, Aug. 22, 2002 — Standard & Poor’s Ratings Services noted recently that Duke Energy Corp. (A/Stable/A-1) has stopped construction on its 620 MW Grays Harbor plant in Washington and its 608 MW Luna plant in New Mexico.

These plants, scheduled to come on line in mid-2003, will now be delayed and, at the extreme (per Duke’s Aug. 21, 2002 teleconference), could be cancelled. Duke is evaluating the economics of completing and subsequently running these facilities in light of regional oversupply and the attendant slump in wholesale energy prices.

Standard & Poor’s believes this event is credit neutral. At worst, the revenue loss from these facilities will only marginally depress key financial ratios.

If the plants are delayed, Standard & Poor’s would look past this temporary situation. If the plants are cancelled, capital would not be spent to complete them, which may reduce debt-financing needs.

These construction-related savings would be minimized by cancellation penalties, the figures for which are not available. Hedges for future power sales are more portfolio-driven, rather than plant specific, thus mitigating the need to unwind such hedges due to postponed start-up.

Source: Standard & Poor’s Ratings Services

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