Duke Energy fires two employees in energy trading inquiry

CHARLOTTE, N.C., Aug. 2, 2002 — Duke Energy on Thursday announced management actions to strengthen its trading and marketing operations and submitted its final response to the Securities and Exchange Commission’s (SEC) May 31 informal request for information about “round-trip” energy trades.

As a result of its internal review, the company has terminated two employees and put in place additional risk management procedures to improve and strengthen the oversight and controls of its trading operations.

Duke Energy also has reconfirmed to employees that engaging in round-trip transactions, or any trading activities that lack a legitimate business purpose, is against company policy.

The final SEC response reported that Duke Energy’s review of approximately 750,000 trades had identified a very small number of round-trip transactions. It found that these transactions had a minimal impact on reported trading revenue and no material impact on the company’s financial statements. None of these round-trip transactions was in the western United States.

Harvey Padewer, group president of Duke Energy Services, said that although the very few improper trades were confined to a single segment of the trading operation and involved only a handful of the company’s nearly 300 traders, the company has taken strong action to ensure such behavior does not recur.

“Although the effect on the company’s financial statements was immaterial, we consider improper trades in total conflict with Duke Energy’s policies and business values,” Padewer said. “To address this head-on we have made changes in our organization, personnel, policies and procedures.”

Duke Energy looked at all aspects of its trading operation to assure the highest level of integrity throughout the business. To ensure objectivity, the company hired outside experts to conduct the review, with the assistance of necessary internal legal, risk management and accounting resources.

“Energy trading is important to the vitality of energy markets and to our asset-based business strategy,” Padewer said. “We are using the results of our rigorous review to strengthen our trading operations and to help restore confidence in energy trading.”

The trading and marketing operations of Duke Energy North America, Duke Energy Merchants and the company’s Canadian trading business will be consolidated into one organization. Nancy DeSchane, currently senior vice president of western natural gas and power trading, will lead the group as president and chief executive officer — Duke Energy Services Trading and Marketing.

DeSchane began her career with Duke Energy in 1993 with the company’s first competitive power marketing venture. She has played a key role in building the company’s energy trading operations in the West, both in Salt Lake City and with the company’s Canadian trading organization in Calgary.

“Nancy brings a decade of energy trading and marketing experience and tremendous leadership to this new organization,” Padewer said. “She will lead our effort to find efficiencies and continuously improve customer service. She will also ensure we have consistent policies as well as improved control and reporting systems across all our trading and marketing operations.”

In its final SEC response, based on a review of all trading transactions between Jan. 1, 1999, and June 30, 2002, Duke Energy confirmed that virtually all of its trading activities were done for legitimate business purposes. The company’s final report amended its interim SEC filing on July 15 as follows:

* Round-trip trades conducted over the Intercontinental Exchange with the

apparent purpose of increasing volumes number 28 transactions, amended

from 23 reported on July 15.

* Duke has also identified 61 round-trip transactions done at the

direction of one trader that did not have a legitimate business purpose

and that were contrary to corporate policy.

The revenues from the reported transactions were recorded during 2001 and the first two quarters of 2002 and represent less than one-third of 1 percent of the company’s revenues from electricity and gas marketing activity in that period. Reported revenues, with offsetting expenses, for the trades totaled approximately $217 million, compared with total electricity and gas trading and marketing revenues of $75.6 billion during the same period. The effect of these transactions is not material to the company’s financial statements.

Duke Energy is a diversified multinational energy company with an integrated network of energy assets and expertise. The company manages a dynamic portfolio of natural gas and electric supply, delivery and trading businesses — meeting the energy needs of customers throughout North America and in key markets around the world. Duke Energy, headquartered in Charlotte, N.C., is a Fortune 100 company traded on the New York Stock Exchange under the symbol DUK. More information about the company is available on the Internet at: www.duke-energy.com.

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