Progress Energy Carolinas, a subsidiary of Duke Energy
Corporation ( DUK ), received
regulatory nod from North Carolina Public Staff to increase its
base rates. The company had made the request in Oct 2012. However,
all issues in the request have not been approved yet.
As per the settlement, the net increase for customers in the first
year would come to $151.4 million and an additional $183 million in
the second year. Overall, it translates into a 5.7% hike at the end
of the second year. The company had originally asked for an 11% or
$359 million raise in average retail revenues.
Per the approval, North Carolina Public Staff has approved a
return on equity ("ROE") of 10.2% as against the requested ROE of
11.25%. The approval includes a capital structure of 53% equity and
47% debt. The company had requested a 55.4% equity component. Also,
the company will get support for the proposed nuclear levelization
accounting and for a new coal inventory rider. This will allow the
company to recover carrying costs on coal inventory levels above
those included in base rates.
The company plans to contribute an additional $20 million to help
low-income customers in North Carolina (NC) to pay their energy
bills and provide training to improve the quality of the workforce.
Progress Energy Carolinas will thus be permitted to reduce its cost
of removal liability by $20 million.
However, there were a few unresolved issues. These include
allocation of the overall rate increase among residential,
commercial and industrial customers, the company's change to a
single coincident peak cost allocation factor, industrial economic
recovery rider proposed by the company and resolution of the
deferral request for combined cycle units at the Smith Complex in
Richmond County, N.C. These unresolved issues are expected to be
heard on Mar 18, 2013 in Raleigh by the North Carolina Utility
Commission.
The company had requested to get the new rates effective from Jun
1, 2013.
We note that the company's filing for revenue increase request is
neither the consequence of the recent merger with Progress Energy
nor does it include recovery of employee severance costs associated
with the merger. The primary portion of the base rate is to
increase retail revenue while the other components include cost of
fuel, energy-efficiency programs and renewable energy
investments.
The main reason for the company to file a rate increase is the
recovery of its investments for the modernization of the power
system. Progress Energy Carolinas is retiring and replacing 12
coal-fired units at five sites in the Carolinas with low-emission
and natural gas-fueled combined-cycle plants. Of late, the company
has invested more than $1.3 billion and has brought on-line two
gas-fueled plants in Richmond and Wayne counties. One more
combined-cycle plant is under construction near Wilmington in North
Carolina and is expected to be completed in late 2013.
This is the first rate increase filing after 1987. Since then, the
company has invested approximately $11 billion in the power
systems. Over the last two decades, the company has invested in a
number of additional gas-fueled power plants and has made
significant investments in the transmission and distribution
systems.
Duke Energy focuses on core utility operations to build its rate
base through capital expenditure investments. Additionally, the
company is proactively and effectively mitigating long-term
environmental-related risks through investment plans and
constructive dialogue with policymakers. However, we prefer to
remain on the sidelines 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).
Charlotte, North Carolina-based Duke Energy Corporation 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.
Other stocks worth considering are The AES
Corporation ( AES ), ALLETE,
Inc. ( ALE
) and CenterPoint Energy, Inc. ( CNP ), all with a Zacks
Rank #2 (Buy).
AES CORP (AES): Free Stock Analysis ReportALLETE INC (ALE): Free Stock Analysis ReportCENTERPOINT EGY (CNP): Free Stock Analysis
ReportDUKE ENERGY CP (DUK): Free Stock Analysis
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