(DUK) Duke Energy Files Rate Hike to Recoup Costs

Duke Energy Carolinas, a subsidiary of Duke Energy Corporation (DUK), has requested the North Carolina Utilities Commission (“NCUC”) to make a 9.7% rate increase. If approved, the rate increase would generate $446 million more from the customers.

Per the proposal, the company has requested an allowed return on common equity (“ROE”) of 11.25% with a 53% common equity component. The current allowed ROE in North Carolina is 10.5%.

The proposed rate increase would raise the monthly bill by 11.8% for a residential customer who uses 1,000 kilowatt-hours (“kWh”) of electricity. The commercial and industrial customers would witness a rate increase of 9.6% and 5.3%, respectively.

Not unlike other energy players, Duke Energy has applied for these rate increases to recover the investments it has made for new, cleaner and more efficient power plants. These investments are made in order to comply with increasing state and federal regulations.

As a part of its ongoing fleet-modernization plan, the company has been building and installing power plants that will provide cleaner air to its customers for decades to come.

Some of the major investments include Dan River Combined Cycle Station in Eden with a capital expenditure of $673 million, Cliffside Steam Station Unit 6 in Mooresboro with a capital cost of $863 million, McGuire Nuclear Station in Mecklenburg County with an expenditure of $203 million and capital spending of $448 million for Oconee Nuclear Station at Oconee County.

Of late, the company has been investing in new plants, retiring older plants as well as working on modernization and upgrade of plants to reduce emissions across its service area. Since 2007, the company has invested approximately $6 billion in new plants and has retired up to 6,800 megawatts of older coal capacity.  All the more, it has invested another $7.5 billion for plant upgrades.

Recently, the company announced the closure of two of its coal-fired power plants, Buck and Riverbend, two years earlier than scheduled. These plants were operating irregularly in recent years and the company expected operations to have become more infrequent in the future.

Duke Energy’s other projects at Carolina include a 12.5 MW White Post Solar Project in Beaufort County, a 1-MW Shelby Solar Project, a 1-MW Taylorsville Solar Project, a 1-MW Martins Creek Solar Project, a 5-MW Murfreesboro Solar Project, a 12.5-MW Beaufort County facility and three 1-megawatt commercial solar projects located in or near the town of Murphy.

Based in Charlotte, North Carolina, Duke Energy is a diversified energy company with a portfolio of domestic and international, natural gas and electric, regulated and unregulated businesses which supply, deliver, and process energy for customers in North America and selected international markets. The company focuses on core utility operations to build its rate base through capital expenditure investments. Additionally, it is proactively and effectively mitigating long-term environmental-related risks through investment plans and constructive dialogue with policymakers. These developments indicate the company’s commitment to meet electricity needs through advanced and cleaner generation and bring in revenues at the same time. Also, the company indicated that despite the rate increase, rates would remain below the national average.

However, we remain concerned due to the present unfavorable macro backdrop, predominantly fossil-fuel based generation assets, tepid demand for electricity, and pending regulatory cases. The company presently retains a short-term Zacks Rank #3 (Hold).

The energy companies continuously need to increase their rates in order to cover up the huge capital investments they make. Recently, Mississippi Power Co. – a subsidiary of electric utility firm Southern Company (SO) – had also filed a request with state regulators to increase customer rates, connected with the Kemper County energy facility, by $172 million, in order to cover up the financing cost related to the construction of the plant. The cost of the Kemper County Lignite Plant is estimated to be around $3 billion.

Other stocks to consider are Huaneng Power International, Inc. (HNP) and Pike Electric Corporation (PIKE). Both carry a short-term Zacks Rank #1 (Strong Buy).

DUKE ENERGY CP (DUK): Free Stock Analysis Report

HUANENG POWER (HNP): Free Stock Analysis Report

PIKE ELECTRIC (PIKE): Free Stock Analysis Report

SOUTHN COMPANY (SO): Free Stock Analysis Report

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