Duke Energy Updates: Nuke Plans; Mercury at Catawba; Rate Cuts For Commercial Customers

Duke Energy (NYSE:DUK) and Progress Energy, soon to be consolidated, have earlier laid out a plan to cover the interest cost on loans for a nuclear power plant via charging existing customers slightly higher rates. ^[1] However, this idea has faced stiff opposition and advocates are challenging it.

Separately, Catawba river has been marked with higher levels of mercury in it and the nearby coal-fired power-plants including one Duke plant, have been blamed for that. ^[2]

Duke Energy has noticed a decline in demand from commercial customers due to tough economic conditions and plans to offer a 6% discount in electricity to those customers. ^[3] Duke Energy provides electric and gas services in North America and Latin America and with the expected completion of the Progress Energy (NYSE:PGN) acquisition by July 2012, Duke will become the largest player in the U.S. power generation market.

We have price estimate of $25 for Duke’s stock, which is about 15% above the current market price.

See our complete analysis for Duke Energy here

Nuke cost recovery

Duke Energy has previously realized the need of more nuclear power in the U.S. power generation landscape and is proactively planning to build some plants. However, the cost of constructing one nuclear power-plant could be as high as $10 billion.

The benefits from the nuclear power would be for the greater good of the future generations. And to be able to construct those plants, Duke Energy along with Progress Energy was expecting existing customers to cooperate by bearing the interest expenses on those steep loans via rate hikes. But, several organizations including Environmental groups wary about Duke abandoning nuclear plans after charging customers for the projects. In view of the Japanese nuclear power fiasco due to Tsunami last year, the attractiveness of nuclear power has drastically taken a beating and hence, a widespread disapproval for nuclear power is likely. However, the issue is still under review from federal regulators and so is the corporate merger between Duke and Progress hanging. If authorities approve the idea, the nuclear projects will get kick-started with reduced interest burden on Duke.

Rate cut for commercial customers

Demand from industrial and commercial customers have dramatically dropped in last few years due to difficult economic conditions in the U.S. Duke does not want to lose these customers. As a result, it has planned to extend a 6% rate cut for commercial customers in North Carolina. This is a ploy to capture more of the commercial customers, who will likely have upbeat demand when circumstances are conducive. We expect Duke to increase capacity served to commercial customers in coming years.

Mercury released from Catawba plant

Catawba River now has a warning to not eat certain fishes from that river because it is contaminated with high levels of mercury. The mercury is expected to have been channeled into the river from the nearby coal-fired power plants and one of those plants is owned by Duke.

There is increased opposition against those plants as mercury is severely injurious for pregnant women and infants in particular. Duke might have to shut down the plant, earlier than expected, by 2015. The phasing out of this plant will reduce the production level and Duke will need to fill the gap through other plants to be commissioned by then.   

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Advocates ready to fight Duke-Progress over recovering nuke costs, newsobserver.com, May 16, 2012 [↩]
2. Residents concerned over mercury levels in local lakes, wcnc.com, May 15, 2012 [↩]
3. Duke Energy wants to pilot rate cuts for large customers, bizjournals.com, May 17, 2012 [↩]