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Duke Energy Arm Seeks for Rate Hike to Recover Investments

Zacks Equity Research

Duke Energy Corporation’s DUK unit, Duke Energy Kentucky, recently filed an application to the Kentucky Public Service Commission for a public review of the company's electric rates. The company seeks to recover the investments made in the Northern Kentucky region's electric delivery system and power generation stations. Notably, residents, businesses and communities of Northern Kentucky are benefiting from the company's ongoing strategic investments. The company is seeking permission to increase base rates by about $45.6 million.

If approved, a residential customer consuming electricity of 1,000 kilowatt-hours (KWh) per month will witness $15.62 increase in monthly electricity bill from $96.46 to $112.08. On an average, electricity bills will increase12.5%.

Other than the rate hike request, the company’s proposal includes few plans that will enable it to cater to customers efficiently. Duke Energy is creating a no-cost payment option for residential customers. Now customers are liable to pay mandatory $1.50 convenience fee while making a transaction. The company also proposed for battery storage and electric vehicle charging pilot programs along with LED street lighting expanding options. The company proposed to create Green Source Advantage program, which will be convenient and cost-effective for large energy users to meet their internal sustainability goals.

Importance of Investments and Recoveries

Utility companies are focused on delivering safe, reliable and efficient service to all customers. For uninterrupted services they keep on investing in the infrastructures. The regularity of investments cash inflow is equally important.

Duke Energy has plans to spend $28.5 billion for electric utilities and infrastructure, $5.9 billion for gas utilities and infrastructure as well as $2.6 billion for commercial renewables during the 2019-2023 period. The company is dependent on rate hikes to recover the invested funds to continue with infrastructure strengthening operations.  Cash flow from investment enables it to reward shareholders through dividends.

Increasing Focus in Renewables

As the recent proposal includes a recommendation for new renewable energy option, it indicates the company’s increasing interest in cleaner energy. The company is focused on expanding its wind and solar portfolio. In 2018 end, the company had nearly 2,900 megawatt (MW) of renewable capacity across 14 states, comprising 21 wind and 64 solar facilities.

The company has acquired the 200-MW Holstein solar project from 8minute Solar Energy in Texas in July, 2019. In August, the company in collaboration with SolAmerica Energy has developed nine solar projects in Central Georgia to expand its renewable generation portfolio.
With increasing adoption of renewable energy, there is a shift in preference for fuel in the United States utility industry. The companies are trying to reduce fossil fuel usage and are investing in renewable energy sources. Utilities like Xcel Energy XEL, NiSource NI and Ameren Corporation AEE among others are focusing on renewable sources to add more clean generations in their portfolios.

Price Movement

In the past three months, Duke Energy’s stock has rallied 7.1% compared with the industry’s 4.4% growth.

Zacks Rank & Key Picks    

Duke Energy currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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