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SCOTT DQE stock down 22 percent on lower earnings forecast

| Wednesday, May 2, 2001

DQE Inc., the parent of Duquesne Light Co., is the latest victim of the nationwide dot-com meltdown, which has erased more than 50 percent of the earnings DQE projected for this year.

Tuesday, the stock market reacted violently to the news, sending the stock down 22 percent to a 52-week low. DQE closed yesterday at $23.75, down $6.68, after company executives told securities analysts in a conference call.

DQE said investments in Internet and other technology issues that were supposed to produce most of its net income will contribute practically none.

The whole company had been expected to earn from $2.96 to $3.36 per share this year. DQE Enterprises, the DQE unit that invests in technology companies, was expected to contribute from $1.82 to $2.22 of that.

DQE now is projecting earnings for the year of from $1.25 to $1.35 per share. About 95 cents per share will come from Duquesne Light. Another 30 cents is expected from DQE's water utility, AquaSource, which operates in 12 states.

'We told Wall Street in December what we thought (the investments) would produce, but the (equity) markets haven't recovered,' Chief Operating Officer Morgan K. O'Brien said yesterday. 'Since the analysts haven't reflected that (decline) we felt compelled to put out (lower earnings projections).'

Since December, DQE has been conducting a 'strategic review' of its businesses, which it has said will increase shareholder returns as the company continues a shift from its historic business as an integrated electric utility company.

That review will continue for a few more months, DQE said yesterday. The only outcome it has acknowledged is that Duquesne Light could be separated from the water subsidiary and DQE's other investments.

To bolster earnings, DQE had been counting on cashing in on investments in technology ventures through a combination of initial public offerings or selling its stake in those companies outright.

'They came out of the deregulation program in Pennsylvania after selling (their power plants) with a lot of cash, and they invested in all these high-flying companies. It just shows, there are no guarantees,' said David Schanzer, a securities analyst with Janney Montgomery Scott in Philadelphia.

Monday, DQE reported first quarter net income of $12.2 million, or 22 cents per basic share, versus net income of $45.1 million, or 63 cents per share, a year ago.

A decline had been expected as the company exited the electric generation business in April 2000 when it sold its seven power plants to Baltimore-based Orion Power Holdings Inc. for $1.7 billion.

Yesterday, Baltimore-based Orion Power reported first quarter net income of $15.1 million, or 15 cents per diluted share, on sales of $274.3 million, versus net income of $8.3 million, or 22 cents per share, on sales of $105.5 million, a year ago.

The 82 percent rise in net income was largely attributable to the company's acquisition of the seven former Duquesne power plants, and to higher wholesale electricity prices in deregulated markets in New York, Ohio and Pennsylvania.

DQE Enterprises has interests in 16 companies, including Pittsburgh-startup Onlinechoice.com, which sold electricity and other services over the Internet. It filed for Chapter 7 bankruptcy on Monday.

DQE Enterprises also invested in BodyMedia Inc., a company that is developing medical monitoring devices. It also has stakes in several fuel cell companies and manufacturers of electric power devices based throughout the United States.

'We still think these are good investments, and they will be profitable down the road, though maybe not as much as we once thought,' O'Brien said.

The main segments of DQE are Duquesne Light, which serves 580,000 electricity customers in Allegheny and Beaver counties, and AquaSource, a water and wastewater utility with about 400 systems and 400,000 customers in 12 states.

Schanzer said he believes a spinoff of AquaSource offers the greatest potential value to shareholders, but admits to being confused by the length of time of the strategic study.

'Any time a company says it will study ... and it goes on this length of time, it indicates a loss of focus,' he said.

DQE in December said it would undergo a strategic review, which could lead to a breakup or sale of the company.

About the same time last year, Pittsburgh's USX Corp. began a similar study. That culminated last week in an announcement that it was splitting itself into separate companies by the end of the year, U.S. Steel Corp. for its steelmaking operations, and Marathon Oil Co. for its energy business.

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