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Rate Hikes for Duke's S.C. Customers

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Duke Energy Corp. (DUK - Free Report) has received approval from the Public Service Commission of South Carolina (PSCSC) and all other parties for a rate hike for its South Carolina customers. The parties have granted a rate increase of $118.6 million or an average of 8.2% which will be implemented over a two-year period. A return on equity of 10.2% and a capital structure of 53% equity and 47% debt were also approved.

In March this year, the company had requested an average annual increase in retail revenues of 15.1% or $220 million. Except for any extraordinary circumstances, the company will now not be allowed to implement another base rate increase prior to Sep 2015, per the agreement.

Beginning Sep 18, 2013, electric rates will increase by $80.4 million or 5.53% on an average. For the second year, beginning Sep 18, 2014, rates will increase by an additional $38.2 million or 2.63%.

Particularly for a residential customer, using 1,000 kilowatt-hours of electricity in a month, the monthly bill in the first year would be $107.97, up 6.9%. For the second year, the average net rate increase will be 3.3%, which would bring the monthly bill to $110.76.

For a general customer, average net rate increase for the first year and second year would be 4.3% and 2.1%, respectively, while for industrial customers these rate increases would be 5% and 2.7% in 2013 and 2014, respectively. In case of lighting customers, the increase would be 2.9% in the first year and 1.4% in the second year.

Duke Energy indicated that this approved agreement would keep the rate increase as low as possible. In order to mitigate the effect of the increase, the company would also fulfill Corporate Social Responsibility. The company would contribute to support public education initiatives and also fund public assistance programs for low income customers, as well as manufacturing competitiveness grants, economic development and education workforce training programs.

The settlement would also help the company in meeting its target of recovering the investment costs that are being incurred to modernize its system to ensure safe and clean electricity for the future. Of late, the company has been investing in new plants, retiring older plants as well as working on modernization and upgrade of plants to reduce emissions across its service area. Since 2007, the company has invested approximately $6 billion in new plants and has retired up to 6,800 MW of older coal capacity.  All the more, it has invested another $7.5 billion for plant upgrades.

Indeed, other energy providers are also working convincingly to reach their renewable energy goal that calls for these companies to modernize their system, thereby increasing rates. Recently, TECO Energy Inc.’s unit Tampa Electric Company has received approvals from the Florida Public Service Commission to increase the monthly rates of residential electricity customers for which it had made a rate-hike request in April this year. The revised rates are expected to be applicable from Nov 2013.

Duke Energy presently retains a short-term Zacks Rank #3 (Hold) based on the present unfavorable macro backdrop, predominantly fossil-fuel based generation assets, tepid demand for electricity and pending regulatory cases. Stocks worth considering in the space are Brookfield Infrastructure Partners L.P. (BIP - Free Report) and IdaCorp, Inc. (IDA - Free Report) , both with a Zacks Rank #2 (Buy).

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