Duke Energy Ohio, a subsidiary of Duke Energy Corporation (DUK), announced its intentions of retiring all six Ohio based coal-fired generation units at its W.C. Beckjord Station, located southwest of Cincinnati, by January 1, 2015. The company revealed its plans in its 2011 Resource Plan filing with the Public Utilities Commission of Ohio.
The decision is fallout of the Environmental Protection Agency’s (‘EPA’) recently proposed Utility Maximum Achievable Control Technology (‘MACT’) rule. The anticipated retirement date of Beckjord’s coal-fired units is conditional on potential changes to the implementation timeline for EPA’s MACT rule. The EPA intends to finalize the rule in November 2011, with required emission control technologies to be installed by January 1, 2015.
The Beckjord Station is approximately a 60-year-old plant with six units having a combined generation capacity of 862 megawatts (‘MW’). The construction of the Beckjord Station was announced in 1948 and the first 100-MW unit came into commercial operation in 1952. Five additional coal-fired units were added by 1969 and four oil-fired combustion turbines (‘CTs’) were added in the early 1970s.
Duke Energy Ohio owns 100% of the first five generating units at the station. However, it jointly owns the sixth unit with 12.5% ownership by American Electric Power Co. (AEP), 50% by Dayton Power and Light Co., a subsidiary of DPL Inc. (DPL), and the rest self ownership of 37.5%. Duke Energy Ohio owns all the four CT units that have a generation capacity of 244 MW of electricity and are primarily used for generating power during periods of high demand. The company does not plan to retire the CT units.
The company will work closely with 120 employees of Beckjord Station and unions to determine potential options for impacted workers. Some employees might also be offered the opportunity to work at other Duke Energy plants.
As per the 2011 Resource Plan, following the retirement of Beckjord’s coal-fired units, Duke Energy Ohio plans to meet the demand through the purchase of electricity on the competitive wholesale market or through construction/acquisition of natural gas-fired combined-cycle generating assets.
Duke Energy’s U.S.electricity and gas operations generate a relatively stable and growing earnings stream. Looking ahead, the company is supported by its ongoing merger proceedings with Progress Energy Inc. (PGN) paving the way for the largest U.S. utility. In addition, its strong balance sheet, ongoing capital expansion projects and above industry average dividend yield add visibility to the story.
However, valuation continues to be restrained by a number of factors, including the present unfavorable macro backdrop, predominantly fossil-fuel based generation assets, tepid demand for electricity, and foreign currency exchange volatility. The company presently retains a short-term Zacks #2 Rank (Buy). We have a long-term Neutral recommendation on the stock.
Charlotte, North Carolina-based 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.
