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Duke Energy to Provide $38M in Tax Savings to Customers

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Duke Energy Corp. (DUK - Free Report) will offer a notable $38 million in annual tax savings on electric and natural gas bills for its customers in Ohio and Kentucky, beginning from April and May 2018. The Tax Cuts and Jobs Act that came into effect on Jan 1, 2018, clearly led to this entire bill reduction.

Details of Projected Tax Savings

In particular, Duke Energy’s customers, residing in Ohio, would save approximately $20 million in annual tax on their electric bills. Beyond this tax saving proposition, the company’s Ohio-based unit has also proposed state regulators for lowering natural gas bills by about $3 million, commencing from May.

Duke Energy also proposed tax savings for Kentucky-based customers as the state regulators reviewed its proposal, recommending an allocation of around $15 million of tax act benefits.

Our View

The latest tax reform has resulted in lower accrued tax expenses for the utilities and lately, various companies are passing on this benefit to the customers by reducing utility rates and bills. Being no exception, Duke Energy has also followed the same path and must have reduced its electricity as well as natural gas rates, which in turn has allowed it to reward the customers with tax savings.

Notably, this rate reduction is in line with the company’s earlier-made recommendation, during the fourth-quarter earnings call, of using the lower tax rates to reduce utility rates for the customers in the near-term as well as aid in offsetting future rate increases.

We have witnessed some other utilities in the recent past, directing the federal tax savings to reduce bills for the customers. Notably, utilities, including the likes of NextEra Energy (NEE - Free Report) , AVANGRID (AGR - Free Report) and WGL Holdings , have expressed intention to pass on tax savings benefits to customers.

Moreover, the recent tax reform will enable Duke Energy to increase the utility rate base, which occurs due to low tax rates and the elimination of bonus depreciation, resulting in lower deferred taxes, which in turn increases rate base. As a result, the company is projected to witness a higher rate base growth along with an increase in the company's earnings growth.

Price Movement

Duke Energy has edged down 5.9% in the last 12 months compared with the broader industry’s decline of 47.3%. The underperformance may have been caused by the potential volatility in market prices of fuel, electricity and other renewable energy commodities that could further create operational risks for the company.

Zacks Rank & Key Picks

Duke Energy currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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