Progress Energy Carolinas, a subsidiary of
Duke Energy Corporation
) has filed for annual base revenue increase of 12% or
approximately $387 million with North Carolinas Utilities
Commission ("NCUC"). The increase is the result of low-emission
power generation and higher operating expenses.
If the NCUC approves the rates, the rates would increase more for
residential customers in comparison to commercial and industrial
customers. However, a consequent change in the portion of retail
rates that pays for energy-efficiency and demand-side management
programs would reduce the revenue request to approximately 11.0% or
$359 million per year.
For an average residential customer using 1,000 kilowatt-hours
(kWh) per month, total net increase would be 14.2% to $119.94 from
$105.15. This includes an increase in the standard customer charge
from $6.75 to $13.50 per month. However, the average net increase
for commercial and industrial customers would be approximately 9%.
Current allowed ROE in North Carolina is 12.75% and this request
would result in an allowed return on common equity ("ROE") of
11.25%. From the date of hearings to the final decision, North
Carolina retail rate base is expected to be approximately $6.9
billion. If approved, then the filing requests new rates will be
effective from mid-2013.
Of late, the company had been planning for this revenue increase
request. It is neither the consequence of the recent merger nor
does it include recovery of employee severance costs associated
with the merger. The primary portion of base rate is retail
customer rates. The other components are cost of fuel,
energy-efficiency programs and renewable energy investments.
The main reason for the company to file a rate increase is 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. Over the last 16 months, 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
Effective July 2, 2012, Duke Energy had merged with Progress Energy
Inc. ("PGN"). The recently merged company includes two N.C.
utilities, Progress Energy Carolinas and Duke Energy Carolinas.
However, this request will affect the customers of Progress Energy
Carolinas. In 2013, Progress Energy Carolinas is also planning to
file a base rate request in South Carolina. Also, Duke Energy
Carolinas intends to file general rate cases in both Carolinas in
the near term.
Though the company has filed for rate increase, it keeps itself
committed to mitigate the effects of increased electricity costs on
its customers with the help of energy-efficiency programs and
assistance for low-income customers. Over the last three years, the
company has developed more than a dozen new energy-efficiency
programs that have helped the customers in saving more than 357
million kWh. This is equal to the annual energy consumption of
25,000 households. The company has also been assisting its
customers through payment plan options and Energy Neighbor Fund to
mitigate rate increase effects.
Moreover, this merger would benefit the Carolinas customers by $650
million in guaranteed savings. Moreover, by making the utilities
more efficient in day-to-day operations, it would offset the impact
of future rate increases.
Charlotte, North Carolina-based 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.
Duke Energy Corporation's U.S. electricity and gas operations
spread over the Carolinas, Florida, Indiana, Kentucky and Ohio
generate a relatively stable and growing earnings stream. Going
forward, its key growth drivers include its recently concluded
merger proceedings with Progress Energy paving the way for the
largest U.S. utility. In addition, the company's strong balance
sheet, and ongoing capital expansion projects add visibility to the
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, a sudden change of
its CEO and pending regulatory cases. The company presently retains
a short-term Zacks #3 Rank (Hold) that corresponds with our
long-term Neutral recommendation on the stock.
The company mainly competes with
American Electric power Co. Inc.
AMER ELEC PWR (AEP): Free Stock Analysis Report
DUKE ENERGY CP (DUK): Free Stock Analysis
PPL CORP (PPL): Free Stock Analysis Report
To read this article on Zacks.com click here.