Duke Asks for Rate Hikes - Analyst Blog

Duke Energy Carolinas, a subsidiary of Duke Energy Corporation ( DUK ), has requested to increase base rates in North Carolina in an agreement with North Carolina Utilities Commission ("NCUC").

Under the settlement agreement, Duke has applied for an increase in customer base rates by approximately $310 million, which is based upon a 10.5% return on equity and a 53% equity component of the capital structure.

The proposed rate hike aims to address the quagmire of a challenging economy with the express need for Duke to recover investments made in the electric system to ensure reliable, affordable and clean energy for its customers.

Conscientious of the customer rate impact, Duke Energy Carolinas will defer approximately $51 million in 2012 related to construction work in progress cash recovery. With one other adjustment, the company will reduce the bottom line impact to customers by an additional $8 million. Moreover, to support low-income residents in North Carolina with their energy-related costs, the company plans to contribute $11 million of shareholder money to its Share the Warmth program.

A hearing on the proposed rate increase is expected on November 28, 2011, for the approval of NCUC. On approval by the commission of the subsidiary's request, electric rates will increase by an average of 7.2% for each customer class, effective from February 2012.

To recover the cost of the ongoing generation fleet modernization program, environmental compliance and other capital investments made since 2009, Duke Energy Carolinas had filed a rate case with the NCUC in July this year. It had made a request to increase retail revenues by approximately $646 million, with a rate of return on equity of 11.5%. The hearing for the same is also expected to begin on November 28, 2011 with revised rates to be also effective in February 2012.

Recently, its merger partner, Progress Energy Inc. ( PGN ) announced that its customers in North Carolina will pay slightly more for the electricity from December 1, 2011. This increase reflects the increases in the cost of power plant fuel and energy-efficiency programs. As a result of the NCUC approval, the bill for a typical residential customer will go up 3.7%, increase for a typical commercial customer is 4% and the increase for a typical industrial customer is 3.4%.

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. The company focuses on core utility operations to build its rate base through capital expenditure investments. However, we are concerned about the present unfavorable macro backdrop, predominantly fossil-fuel based generation assets, tepid demand for electricity, foreign currency exchange volatility and pending regulatory cases. The company presently retains a short-term Zacks #2 Rank (Buy). We have a long-term Neutral recommendation on the stock.

DUKE ENERGY CP ( DUK ): Free Stock Analysis Report

PROGRESS ENERGY ( PGN ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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