Duke Energy reported modest earnings for 2012 of about $3 per share – but the number would have been much lower if Duke hadn't raised electric rates in the Carolinas by 7 percent last year. WFAE's Julie Rose reports on this classic case of conflicting interests – where pain for ratepayers means profit for investors:
Whenever Duke Energy reports earnings, it holds a conference call with industry analysts who get paid to decide if DUK (that's Duke's stock symbol) is a good investment or not. So when Duke CFO Lynn Good spoke on that call, she touted a bright spot for the company's revenues last year – the 48-cents per share investors earned as a result of higher electric rates in the Carolinas.
And she promised more to come.
“Revenue growth due to rate case activity is expected to be a continuing theme over the next few years as we have a number of rate cases pending or expected to be filed shortly,” said Good.
What she's basically saying is that Duke investors can expect to see nice revenues in the coming years because the company will press hard for permission to raise rates.
The latest request – filed last week with the North Carolina Utilities Commission – calls for residential customers to pay 11.8 percent more. Duke's Progress Energy Carolinas subsidiary is asking for a 14.2 percent residential rate increase. Next month it'll be South Carolina's turn to field a rate hike request from Duke.
"Investors love Duke's profits, but it's families that are struggling," says Doug Dickerson, North Carolina director of AARP. "They're the ones that can't afford these back to back rate hikes that benefit shareholders."
AARP is one of several groups opposing Duke's requests as both unfair and unnecessary. And Dickerson's right that investors do like them.
"It was definitely a good thing," said Morningstar analyst Andy Bischoff after the earnings call. "You look at how regulated utilities earn their return - they invest in significant capital expenditures for reliability and overall demand increases and then they have to file to get an allowed return on those investments."
The question is how much return Duke should be able to guarantee its investors.
Duke's latest request in North Carolina calls for an 11.25 percent return on equity for investors. Last year's included a 10.5 percent return for investors and even that was too much for Attorney General Roy Cooper who is challenging it in the state supreme court.
Duke Energy 2012 Earnings
Duke Energy's earnings last year were down from the previous year, because of costs associated with the Progress Energy merger and overruns at a new coal-fired plant in Indiana. The company reported earnings per share for 2012 of $3.07 compared to $3.83 cents in 2011.
Still, CEO Jim Rogers says, "I am very pleased with what we accomplished in 2012. We completed a complicated, complex merger. We delivered on our financial and operational objectives. We are resolving our priority issues one by one."
Those issues include the resolution of an investigation into the abrupt firing of Progress CEO Bill Johnson after the merger was finalized and the decision last week to permanently shutter a broken nuclear plant that belonged to Progress Energy in Florida. Duke Energy says its much-criticized rate increase in the Carolinas last year was a significant boost to the company's earnings.