Duke Energy Progress, a unit of
Duke Energy Corporation
), has received approval from the North Carolina Utilities
Commission (NCUC) for increase in electric rates for its North
Carolina customers. The rate increase will be implemented in 2013
The company had originally asked for an 11% or $359 million
increase in average retail revenues. In Mar 2013, the company had
reached an agreement on a few issues filed under this request.
The issues that were still pending have finally been resolved.
Per the terms of the approval, the total increase in rates over
the two-year period for all customers would be 5.5% or $178.7
million. Beginning Jun 1, 2013, the electric rates will increase
4.5% or $147.4 million. The second phase will begin from Jun 1,
2014 with an increase of 1% or an additional $31.3 million. The
Commission has also approved a return on equity ("ROE") of 10.2%
and a capital structure of 53% equity and 47% debt.
Electric rates for residential customers using 1,000
kilowatt-hours (kWh) of electricity per month would increase to
$111.39 from the current $104.06. For the first year, the rates
would increase by 6.5% and 7.5% for the second year.
Rates for retail customers would increase by 4.5% and 5.5% for
year 1 and year 2, respectively. Rates for small general service
customers would increase by 4.2% and 5.1% for year 1 and year 2,
respectively. Medium general service customers would experience
an increase of 3.5% and 4.5% in two years and the large general
service customers would witness an increase of 2.7% and 3.6% in
2013 and 2014, respectively.
The commission has also approved the company's proposed nuclear
levelization accounting as well as a new coal inventory rider.
This will enable the company to recover carrying costs on coal
inventory levels above those included in base rates.
The company is aware of the financial burden on customers from
the rate increase. However, it believes that this approved
settlement would allow the company to keep the rates lower. It
indicated that even after the increase, the rates would remain
below the national average.
The company is nevertheless working on energy efficiency programs
and providing assistance to low-income customers. Since 2009, the
company has developed more than a dozen new energy efficiency
programs allowing customers to save more than 357 million kWh.
These programs also offer customers payment plan options.
Per the current rate base approval, the company will contribute
an additional $20 million to help low-income customers in North
Carolina to pay their energy bills and provide training to
improve the quality of the workforce. It will thus be permitted
to reduce its cost of removal liability by $20 million.
In March this year, another energy company
) has requested for an additional electric rate increase of $51
million. The main motive driving utility companies to file for
rate increases is the recovery of their investments for the
modernization of the power system. This is the first rate
increase filing for Ameren 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 too focuses on core utility operations to build its
rate base through capital expenditure investments. Also, the
company is proactively and effectively mitigating long-term
environmental-related risks through investment plans and
constructive dialogue with policymakers.
However, we remain concerned about the present unfavorable
macro backdrop, predominantly fossil-fuel based generation assets
and tepid demand for electricity. The company presently retains a
short-term Zacks Rank #3 (Hold).
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