Duke Energy Carolinas, a subsidiary of
Duke Energy Corporation
), 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
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.
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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
) - 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.
Pike Electric Corporation
). Both carry a short-term Zacks Rank #1 (Strong Buy).