Duke Energy Corp. (DUK) is leveraging its interests in five of its commercial wind farms to finance its capital expansion programs in renewable power. Green Frontier Windpower Holdings LLC, an affiliate of Duke Energy Generation Services (DEGS) using the wind farms as collateral had secured a 15-year term loan of approximately $325 million and letters of credit totaling roughly $50 million. DEGS is a business unit of Duke Energy’s Commercial Business.
 
Of the five wind farms leveraged by Green Frontier Windpower, Wyoming has three and Pennsylvania and Colorado have one each. Duke Energy till date owns and operates 735 MW of commercial wind power generation at seven U.S. sites. With the addition of two projects currently under construction, the company will have nearly 1,000 MW of wind power generation capacity by the end of fiscal 2010.
 
Duke Energy had cash and cash equivalents of $1.1 billion at the end of the first quarter of 2010 compared to $1.2 billion at the end of the year-ago quarter. At the end of the first quarter, total debt stood at $17.2 billion with a debt-to-capitalization ratio of 44%. Total debt however was only $15.5 billion at the end of the first quarter of 2009 (debt-to-capitalization was 42%). A higher debt balance increased the interest expense to $210 million in the reported period from $184 million for the first quarter of 2009.
 
Duke Energy Generation Services, part of Duke Energy’s Commercial Businesses, develops renewable energy solutions, including wind, solar and biofuel projects. DEGS builds, owns and operates electric generation for large energy consumers, municipalities, utilities and industrial facilities. DEGS is also working to build commercial transmission capacity to help the U.S. meet its energy needs in the future.
 
Duke Energy is one of the largest electric power holding companies in the United States. Its regulated utility operations serve approximately 4 million customers located in five states in the Southeast and Midwest, comprising a population of approximately 11 million. Its commercial power and international business segments own and operate diverse power generation assets in North America and Latin America, including a growing portfolio of renewable energy assets in the United States.
 
Duke Energy’s stable U.S. electricity and gas operations, spread over the five states of North Carolina, South Carolina, Indiana, Ohio and Kentucky, generate a relatively steady and growing earnings stream. Looking ahead, our bullish outlook for the company is supported by higher rates, its strong balance sheet, ongoing capital expansion projects, and an above industry average dividend yield.
 
Duke Energy based on forward earnings estimates at present is trading at a premium compared to its peers like FirstEnergy Corp. (FE), Pacific Gas & Electric Corp. (PCG), Public Service Enterprise Group Inc. (PEG) and Edison International (EIX).
 
Also, the present unfavorable macro backdrop, fossil-fuel based generation assets, lower demand for electricity, foreign currency exchange volatility and pending regulatory cases continue to restrain valuation. Thus, we maintain our market Neutral recommendation on the Zacks Rank #3 (hold) stock.
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