Duke execs expect slow growth for now

Duke Energy Rate Increases reflect weak electricity demand, higher capital spending on power plants, environmental compliance costs, rate cases in the Carolinas, and modest EPS growth guidance amid flat residential and commercial load.

Duke Energy executives expect a slow economic recovery in 2010 and succeeding years, they told analysts in New York.

"We see the growth in (electrical) demand over the next five years being very, very anemic," CEO Jim Rogers said. Duke is the nation's third-largest, investor-owned utility.

Duke reported that its 2009 earnings were hurt by a 14 percent drop in sales to industries, although fourth-quarter sales stabilized.

"I would describe (industries') mood as cautiously optimistic in 2010," chief financial officer Lynn Good told a meeting of analysts, "although a significant rebound is not expected soon."

Customers are likely to see rising electric rates despite projections of a slow recovery, Duke said.

The company will spend $6 billion on four power plants now under construction, and expects to build more as old plants are shut down, though some argue it has overstated the case for new plants amid weak demand. New environmental rules are likely to cost another $5 billion.

Duke won approval last year for overall rate increases in the Carolinas, after its Carolinas utility asked for a rate increase that was the first since 1991. New rate requests in both states are likely in 2011, it said, with new rates in effect in 2012.

Duke expects earnings to grow 4 to 5 percent this year. Adjusted for one-time charges, earnings per share would grow of $1.25 to $1.30 a share, compared to $1.22 in 2009.

This year's revenue will grow $460 million from rate cases settled in the Carolinas and Midwest, where Ruff leads the Carolinas utility during ongoing proceedings.

But high unemployment in its five-state territory — the Carolinas, Ohio, Kentucky and Indiana — will likely lead to essentially flat residential and commercial growth, executives said.

Good said it is "prudent to plan the year assuming 2010 will look like 2009."

As the recession lingers, Duke is pouring billions of dollars into new power plants.

A $2.4 billion expansion of the Cliffside power plant west of Charlotte, and construction of a new, $2.3 billion coal-fired plant in Edwardsport, Ind., are both about half finished.

New natural gas-fired units will be completed at its N.C. Buck and Dan River plants by 2011 and 2012.

Duke is seeking partners to build a new nuclear plant near Gaffney, S.C., but has pushed the expected completion date to 2021.

It's also considering a nuclear plant in Ohio, and will spend $1 billion to modernize its grid, reaffirming renewables and grid investments over the next five years.

A key priority, executives said, will be to more quickly recover its construction costs, an issue where the company defended its practices at a hearing before regulators.

In North Carolina, that means persuading legislators to change the way Duke could recoup financing costs of a nuclear plant under construction, consistent with its push for major regulatory changes that affect cost recovery. Duke wants to be able to recover those costs without filing a general rate case.

Duke said it expects tighter environmental rules for air pollutants, coal ash and carbon dioxide. Rogers, however, said he does not expect Congress to regulate greenhouse gases this year.

The more stringent rules are likely to cost the company $5 billion over a period of years. That's how much Duke spent to clean up its coal plants over the past decade.

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