Duke Energy has announced first quarter 2009 adjusted diluted EPS of 28 cents, compared to 35 cents for first quarter 2008. Reported diluted EPS for the first quarter 2009 was 27 cents, compared to 37 cents for the same period last year.

The quarter’s results were impacted primarily by two items – lower sales to the industrial customer class due to the continuing global recession, and increased operating and maintenance expense due to significant winter storms in the quarter.

“Despite the effects of the recession and storm-related expenses, our businesses remain fundamentally strong,” said James E. Rogers, chairman, president and chief executive officer. “We can’t control the weather or the economy so we’re focused on issues we can control – managing our costs, improving operational performance, maintaining our liquidity, and making progress on our regulatory and legislative initiatives. After the first quarter, we are on track to achieve our 2009 employee incentive target of $1.20 per share on an adjusted diluted basis. But, of course, the third quarter is usually the most significant for our company.”

“With our strong balance sheet, we maintain access to the capital markets, as demonstrated by the issuance of $1.65 billion of fixed-rate debt at an average rate of 6.1% during the first quarter of 2009,” said David L. Hauser, group executive and chief financial officer. “We also expect tax incentive provisions from the federal stimulus package to generate about $400 million in positive cash flow in 2009, further strengthening our liquidity.”

Business Unit Results

U.S. Franchised Electric and Gas (USFE&G)

USFE&G reported first-quarter 2009 segment EBIT of $557 million, compared with $637 million in the first quarter of 2008.

Results were adversely affected by increased costs caused primarily by significant winter storms in the Midwest and Southeast, and a decline in weather-adjusted sales volumes to our industrial customers.

Commercial Power

Commercial Power reported first-quarter 2009 segment EBIT from continuing operations of $114 million, compared to $146 million in the first quarter 2008.

Results were adversely affected by lower mark-to-market gains on economic hedges and higher operations and maintenance costs due to the timing of plant outages. These results were partially offset by increased native margins related to the implementation of the Electric Security Plan in Ohio at the beginning of 2009.

Duke Energy International (DEI)

DEI reported first-quarter 2009 segment EBIT from continuing operations of $93 million, compared to $114 million in the first quarter 2008. DEI’s lower results were driven primarily by lower margins due to lower commodity prices at National Methanol and unfavorable foreign exchange rates, primarily in Brazil. Partially offsetting these decreases were favorable prices and hydrology in Brazil.

Other

Due to a change in Duke Energy’s reportable segments in 2008, Other now includes the results of Crescent, Duke Energy’s real estate joint-venture. Other also includes costs associated with corporate governance, costs-to-achieve the Cinergy merger and Duke Energy’s captive insurance company.

Other reported a first-quarter 2009 net expense from continuing operations of $90 million, compared to $76 million in the first quarter 2008. The increase in net expense for the quarter was due primarily to charges related to Crescent obligations for which Duke Energy is a named guarantor. Partially offsetting this increase is a decrease in governance expenses.

Interest Expense

Interest expense from continuing operations was $184 million for the first quarter 2009, compared to $182 million for the first quarter 2008.

Income Tax Expense

Income tax expense from continuing operations for first quarter 2009 was $179 million, compared to $222 million for the first quarter 2008. The effective tax rate for the quarter was about 34%, compared to 32% for the same period last year. The anticipated effective tax rate for 2009 is 34%.

Non-Gaap Financial Measures

The primary performance measure used by management to evaluate segment performance is segment EBIT from continuing operations, which at the segment level represents all profits from continuing operations (both operating and non-operating), including any equity in earnings of unconsolidated affiliates, before deducting interest and taxes, and is net of the non-controlling interest expense related to those profits. Management believes segment EBIT from continuing operations, which is the GAAP measure used to report segment results, is a good indicator of each segment’s operating performance as it represents the results of Duke Energy’s ownership interests in continuing operations without regard to financing methods or capital structures.

Duke Energy’s management uses adjusted diluted EPS, which is a non-GAAP financial measure as it represents diluted EPS from continuing operations attributable to Duke Energy common shareholders, adjusted for the per-share impact of special items and the mark-to-market impacts of economic hedges in the Commercial Power segment, as a measure to evaluate operations of the company.

Special items represent certain charges and credits, which management believes will not be recurring on a regular basis. Mark-to-market adjustments reflect the mark-to-market impact of derivative contracts, which is recognized in GAAP earnings immediately as such derivative contracts do not qualify for hedge accounting or regulatory accounting treatment, used in Duke Energy’s hedging of a portion of the economic value of its generation assets in the Commercial Power segment. The economic value of the generation assets is subject to fluctuations in fair value due to market price volatility of the input and output commodities (e.g. coal, power) and, as such, the economic hedging involves both purchases and sales of those input and output commodities related to the generation assets. Because the operations of the generation assets are accounted for under the accrual method, management believes that excluding the impact of mark-to-market changes of the economic hedge contracts from adjusted earnings until settlement better matches the financial impacts of the hedge contract with the portion of the economic value of the underlying hedged asset.

Management believes that the presentation of adjusted diluted EPS provides useful information to investors, as it allows them to more accurately compare the company’s performance across periods. Adjusted diluted EPS is also used as a basis for employee incentive bonuses.

The most directly comparable GAAP measure for adjusted diluted EPS is reported diluted EPS from continuing operations attributable to Duke Energy Corporation common shareholders, which includes the impact of special items and the mark-to-market impacts of economic hedges in the Commercial Power segment.

Due to the forward-looking nature of adjusted diluted EPS for future periods, information to reconcile such non-GAAP financial measures to the most directly comparable GAAP financial measures is not available at this time, as the company is unable to forecast special items and the mark-to-market impacts of economic hedges in the Commercial Power segment for future periods.

Duke Energy also uses adjusted segment EBIT and Other net expenses (including adjusted equity earnings for Crescent Resources) as a measure of historical and anticipated future segment and Other performance. When used for future periods, adjusted segment EBIT and Other net expenses may also include any amounts that may be reported as discontinued operations or extraordinary items. Adjusted segment EBIT and Other net expenses are non-GAAP financial measures, as they represent reported segment EBIT and Other net expenses adjusted for special items and the mark-to-market impacts of economic hedges in the Commercial Power segment.