Tackling changing markets challenges top line backers.

• Position: Utilities

Warren Buffett likes to say that the stock market is a weighing machine in the long run but a betting machine in the short run. Over years, it rewards solid performers. But over weeks and even months, it can punish those same companies for little more than investors' hand-wringing and hunches.

Take Charlotte-based Duke Energy, long deemed one of the country's best-run utilities. It caught a case of Enronitis in 2002, as investors worried that its financial statements, like Enron's, might have hidden problems. And Duke's hometown newspaper flogged it over a federal investigation into whether it used California's deregulation debacle as a chance to gouge customers there. As of mid-December, Duke's stock had lost 50.5% of its value during the year, compared with a 26.9% loss for the Dow Jones utility average.

By the end of the year, neither of those concerns had amounted to much. No Enron-sized accounting problems had surfaced in the company. And an internal Duke investigation--the federal one is still pending-- had dug up only a handful of so-called wash trades, wherein a trader sells energy, then quickly buys it back at the same price to inflate sales, demand and prices. Those trades accounted for only $217 million of the company's $75.6 billion in trading revenue. Duke fired two employees it says were responsible. "My guess is, the investigations won't result in extensive liabilities for Duke," says Bob Gruber, executive director of the Public Staff of the N.C. Utilities Commission. "The California-grid administrator found that Duke hadn't withheld power improperly."

What did hurt Duke was weakness in the wholesale-power markets in which generators sell power to each other. In September, Duke said it was delaying the construction of wholesale plants in Nevada, Washington and New Mexico. Another setback was an ice storm in early December that left more than 2 million people in the Carolinas without power. The company estimated that restoring service and repairing its lines could cost as much as $130 million. The state's other major electric utility, Raleigh-based Progress Energy, estimated that restoring power in its service area will cost up to $55 million.

For years, Progress (formerly Carolina Power & Light) has been more cautious than Duke about getting into new lines of business. In 2002, that served it well. Despite Enron and the slow economy, its stock was down only 5.6% for the year through mid-December.

If Progress was hurt by...