Duke Energy Indiana, a subsidiary of Duke Energy Corporation (DUK), filed a testimony with the Indiana state utility regulators and has proposed to limit the construction costs of its Edwardsport power plant.
Under the proposal, Duke Energy has proposed a cap of $2.88 billion including financing on construction costs to be passed to customers. It has also asked the regulators to lower the overall customer rate increase related to the project from approximately 19% to 16%. On an average, this would affect the residential homeowner by about 14%.
Additionally, Duke Energy wants Indiana customers to experience the benefits of bonus depreciation. Bonus depreciation is a federal tax incentive provided for major projects as part of the Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of 2010. The company has also proposed to reduce the depreciation expense charged to customers.
Commission hearings are scheduled to begin on August 22, 2011. If approved by the regulators, the rate increase will come in phases. In April 2010, the company had announced an increase of $530.0 million of the previously approved $2.35 billion project due to its complexity.
The Edwardsport coal gasification plant is a 618-megawatt plant in southwest Indiana. The total project is more than 80% and is expected to be in operation by the end of 2012. It is a part of Duke Energy Indiana’s efforts to modernize its generation fleet and an initial step toward replacing older, and coal-fired generation expected to be retired in the future due to pending EPA regulations.
Duke Energy’s stable U.S. electricity and gas operations generate a relatively stable and growing earnings stream. The company is supported by higher rates, strong balance sheet, and ongoing capital expansion projects. However, valuation continues to be restrained by 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 #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
Based in Charlotte, North Carolina, 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 mainly competes with American Electric Power Co. Inc. (AEP) and Constellation Energy Group Inc. (CEG).
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