Duke Energy Carolinas, a subsidiary of Duke Energy
Corporation ( DUK ), has requested
the South Carolina Utilities Commission ("PSCSC") to make a 15.1%
rate increase. If approved, the rate increase would generate $220
million more from the customers.AES CORP (AES): Free Stock Analysis ReportDUKE ENERGY CP (DUK): Free Stock Analysis
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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 South Carolina is 10.5%. The proposed
rate increase would raise the monthly bill by 16.3% for a
residential customer who uses 1,000 kilowatt-hours ("kWh") of
electricity. The commercial and industrial customers would witness
a rate increase of 14% and 14.4%, respectively.
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. This increase in rates
would help the company in recouping capital cost of $673 million
for Dan River Combined Cycle Station in Eden, $236 million for
Cliffside Steam Station Unit 6 in Mooresboro, $141 million for
Oconee Nuclear Station at Oconee County and $135 million for
McGuire Nuclear Station in Mecklenburg County.
Not unlike other energy players, Duke Energy has applied for 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
Last month, Duke Energy Carolinas 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 ROE of 11.25% with a 53% common equity component. The
current allowed ROE in North Carolina is 10.5%.
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 MW 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.
The energy companies continuously need to increase their rates in
order to recover the huge capital investments they make. Recently,
Mississippi Power Co. - a subsidiary of electric utility firm
Southern Company ( SO ) -received approval
from the Mississippi Public Service Commission to increase customer
rates by 15%. This will enable the company in recovering the
construction cost of a new power plant in Kemper. This new
integrated gasification combined-cycle plant with a construction
cost of $3.5 billion is under construction at Kemper County and
will have a capacity of 582 MW.
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.
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).
Other stocks worth considering are The AES
Corporation ( AES ) and
Edison International ( EIX ), both with a
Zacks Rank #2 (Buy).