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Duke Energy's Rogers Calls for an End to Investment 'Short-Termism' April 29, 2010

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Seeks continued favorable tax treatment of dividends for individual shareholders

Jim Rogers, chairman, president and CEO of Duke Energy, today testified before the U.S. Senate Committee on Banking, Housing and Urban Affairs. Here are excerpts from that testimony.

“The electric utility industry – my industry – is among the most capital-intensive in the world. We are a big-bet; long-term business. Capital is our lifeblood. For example, Duke Energy has a capital investment program of approximately $15 billion over the next three years. Access to capital allows us to modernize our power plants and transmission grid – reducing our impact on the environment, keeping our customers and communities competitive and putting people to work.

“Decisions we make today at Duke will still be impacting the company decades from now. The power plants we build today will operate for 30, 40, 50 years or more.

“Unfortunately, I often feel that the current mindset of Wall Street conflicts with the longer time frames that are the reality of our business. In this hedge fund-driven world of instant earnings gratification, it’s very difficult to justify projects that take years to complete.

“Last fall, I had the privilege of joining 28 leaders representing business, investment, government, academia and labor of the Aspen Institute Business & Society Program’s Corporate Values Strategy Group to endorse a call to end the focus on short-termism. We provided recommendations to focus attention on the problems of short-termism.

“In the report, we identified several structural changes to enhance incentives to patient investors, including:

  • Increasing capital gains discounts for greater holding periods of stock;
  • Removing deduction limitations on long-term capital losses; and
  • Enhancing shareholder rights for shareholders who meet certain minimum holding period requirements.

“Beyond these three recommendations, we need to ensure that all of our policies to promote long-term investments work in harmony. That leads me to highlight another current source of stability – favorable tax treatment of dividends for individual shareholders – that is in danger of being lost.

We must preserve the current dividend tax treatment “Currently, dividend income for individuals is subject to a maximum tax rate of 15 percent, instead of the larger marginal tax rate that would otherwise apply. However, this treatment expires at the end of this year. Congress should not allow this to happen.

“Encouraging dividend payout through tax policy promotes investor stability and long term holding in two ways. “If that tax treatment expires, it will work at cross purposes with the goal of promoting long-term investor focus.

“More importantly, dividend stocks create steady income vehicles for investors. And in a world of disappearing pensions and longer life expectancies, dividends can provide a vital source of income for retirees. An investor that is motivated by the dividend will generally be a loyal, long term investor – so long as the company performs.

“This has certainly been our experience at Duke Energy. Our outstanding shares of common stock are currently held equally by institutional investors and retail investors. And, just over 10 percent of our institutional shares are held by investors who value dividend income. Our high retail ownership is supported by the relatively low volatility of our stock price and we have paid a quarterly dividend to shareholders for 84 consecutive years.

“Nationally, we see the utility dividend providing needed income to retirees and the middle class. For instance, Ernst & Young studied tax returns in 2007 and noted the following characteristics of taxpayers claiming the dividend deduction:

  • 61 percent are from taxpayers age 50 and older,
  • 30 percent are from taxpayers age 65 and older,
  • 65 percent are from returns with incomes less than $100,000, and
  • 36 percent are from returns with incomes less than $50,000.

“It will be a giant step backwards if we eliminate the incentives we now have for all investors regardless of their income level to hold stocks for the dividend payment. The public policy goal of encouraging individuals to hold dividend-paying stocks for the long-term should trump the need to increase the tax rate on dividends.

“Short-termism constrains the ability of a business to do the things that it must do to prosper -- create sustainable jobs, goods and services, invest in innovation, take risks and develop human capital. We cannot create a long lasting economic recovery without financial policies that incent this behavior.

Headquartered in Charlotte, N.C., Duke Energy is a Fortune 500 company traded on the New York Stock Exchange under the symbol DUK. More information about the company is available on the Internet at:  To contribute to the discussion about energy issues

Contact: MEDIA: Tom Shiel
Phone: 704-382-2355
24-Hour Phone: 800-559-3853 (DUKE)

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