Duke Energy Corporation(DUK) completed the construction of its fourth wind farm in Wyoming. The 200-megawatt (MW) wind farm titled Top of the World, located in ConverseCountywill supply wind energy to PacifiCorp under the terms of a 20-year power purchase agreement. The 110 wind turbines that comprise the Top of the World project are capable of producing enough electricity to power approximately 60,000 homes.
Portland, Oregonbased PacifiCorp is a leading utility, serving approximately 1.7 million customers in six states through three subsidiaries. Its subsidiary PacifiCorp Energy supervises its electric generation, commercial, energy trading and coal mining operations. While its two other subsidiaries Pacific Power and Rocky Mountain Power are electricity providers to customers in six states. Pacific Power’s service area consists of the states of Oregon, Washington and California. Rocky Mountain Power delivers electricity to customers in Utah, Wyoming and Idaho.
With Top of the World wind farm becoming operational, Duke Energy’s electricity capacity from wind power has risen to 935 MW. Further increases in wind power capacity underscore the company’s focus on this renewable source of energy. Capacity will rise to nearly 1,000 MW in fiscal 2010 when its 51-MW Kit Carson Windpower Project in eastern Colorado becomes operational in the final quarter. In the long-run, the company plans to do away with some of its older coal-based generation facilities.
The focus on wind energy is coming at an opportune moment for Duke Energy. The company’s coal assets are exposed to environmental risk as its power plants emit large quantities of nitrogen, sulfur, mercury and carbon dioxide. In order to comply with state and federal regulations, the company may have to incur substantial capital expenditures in the future.
Lastly, in the second quarter of 2010, the company absorbed a non-cash impairment charge of $660 million for its coal-based generation assets to reflect stringent future environmental regulations. This was due to the write-off of goodwill of $500 million for its Midwest non-regulated fleet and a $160 million impairment charge related to certain un-scrubbed Midwestern generation assets.
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 5 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 U.S.
Duke Energy Corporation’s stable U.S. electricity and gas operations, spread over the five states of North Carolina, South Carolina, Indiana, Ohio and Kentucky, provide a relatively stable and growing earnings stream. Looking ahead, our bullish outlook for the company is supported by higher rates, strong balance sheet, ongoing capital expansion projects and an above average dividend yield for the industry.
Duke Energy based on forward earnings estimates is trading at a premium compared to its peers like FirstEnergy Corporation (FE), Pacific Gas & Electric Corporation (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 long-term market Neutral recommendation on the Zacks #3 Rank (Neutral) stock.
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