Duke Energy Ohio, a unit of
Duke Energy Corporation
), has reached a settlement with the Staffs of the Public
Utilities Commission of Ohio ("PUCO") over its Jun 2012 request
to hike its rates.
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Under the latest agreement, the annual increment in revenue for
the Cincinnati-based utility is $49 million for an average 2.9%
increase in electric bills. This is equivalent to a monthly hike
of $3.72 for a normal Ohio residential electric customer. After
the necessary permit, the electric rate increases would take
effect mid-year. The recourse to rate hike applications is a
usual practice by energy companies to recover the huge capital
investments they make.
However, the settlement leaves gas rate increases unresolved due
to the lawsuits over environmental remediation costs related to
Duke Energy's former manufactured gas plant locations.
Per the approval, PUCO has approved a return on equity ("ROE") of
9.84% for both the electric and natural gas distribution cases.
The approval includes a capital structure of 53.3% equity and
46.7% debt. This is in line with the company's present capital
structure. Duke Energy Ohio has also decided to set aside about
$700,000 annually for its low income weatherization and fuel
This rate hike approval will aid the company to recover its
investments. Over the last couple of years, Duke Energy has
exhausted a substantial amount to improve the natural gas
delivery system. This is essential for improving efficiency,
cutting fuel consumption and, thereby, lowering the cost of
Recently, another affiliate of Duke Energy Corporation − Duke
Energy Carolinas − requested the South Carolina Utilities
Commission ("PSCSC") to make a 15.1% rate increase. If approved,
the rate increase is expected to generate $220 million more from
We view Duke Energy − the largest electric power holding company
in the U.S. − as a well-managed and high-quality energy provider
in high-growth areas. However, the present unfavorable macro
backdrop, predominantly fossil-fuel based generation assets,
tepid demand for electricity, and pending regulatory cases keep
us on the sidelines.
Duke Energy presently retains a short-term Zacks Rank #3 (Hold).
Other stocks worth considering are
Brookfield Infrastructure Partners L.P.
Empresa Nacional de Electricidad S.A.
). All of these utility companies carry a Zacks Rank #1 (Strong