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DUK Unit Gets Rate Hike Approval

Zacks Equity Research

Duke Energy Corporation’s (DUK) subsidiary Duke Energy Carolinas has received approval from the North Carolina Utilities Commission (:NCUC) to increase the monthly electricity rates of the residential North Carolina customers. The revised rate will be applicable from Sep 2013.

Currently, the residential customers, consuming electricity of 1,000 kilowatt-hours (kwh) per month, pay a monthly bill of $102.72. As per the commission’s approval, the new rate will be $110.32 after Sep 2015, up 7.4% from the current rate. This includes a 23.1% increase in monthly basic customer charge of $12.19 from the current charge of $9.90. In addition, Duke Energy Carolinas is currently in the process of fixing new rates for both industrial and commercial customers.

Per the agreement, Duke Energy Carolinas will not be allowed to ask for another base rate increase prior to 2015, except for any specific reasons. The NCUC have granted a total rate increase of $235 million or an average of 5.1%. For the first two years, the electricity rates will increase by $205 million or an average of 4.5%. The rates will increase by an additional $30 million or 0.6% thereafter. A return on equity of 10.2% and a capital structure of 53% equity and 47% debt were also approved.

The purpose of the current rate hike is to recover the funds that Duke Energy invested for several projects, including Dan River Combined Cycle Station, Cliffside Steam Station Unit 6 and McGuire Nuclear Station, Mecklenburg County in N.C., and Oconee Nuclear Station in S.C.

Initially, Duke Energy Carolinas has filed for a rate hike request to the commission on Feb 4. The company had requested to increase the bill of the residential customers, using electricity of 1,000 kwh per month, by $14.27.

Duke Energy aims to provide uninterrupted utility services to its customers at lesser prices than its peers. Despite an increase in electricity rates, it will remain lower than the national average.

The regulated utility providers recoup their investments from the customers through the filing of rate hike to the commission. Recently, Duke Energy received approval from the Public Service Commission of South Carolina (PSCSF) and all other parties for a rate hike for its South Carolina customers. The parties have granted a rate increase of $118.6 million or an average of 8.2% which will be implemented over a two-year period. The revised rate came into effect from Sep 18, 2013.

Since 2007, Duke Energy has invested approximately $6 billion to expand and modernize its utility generation and transmission infrastructure. We appreciate the initiatives taken by the company to provide uninterrupted reliable utility services to its customers at a lower price.

Duke Energy currently has a Zacks Rank #3 (Hold). However, other stocks that are worth considering include Huaneng Power International, Inc. (HNP) with a Zacks Rank #1 (Strong Buy) and Brookfield Infrastructure Partners L.P. (BIP) and IdaCorp, Inc. (IDA), each carrying a Zacks Rank #2 (Buy).

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