Duke Energy (DUK) is expected to release its Q4 earnings on Feb. 13. While the firm performed relatively well in the previous quarter, thanks to growth in the number of customers, demand has been weighed down by weak economic conditions and milder weather. Some of the factors that we will be tracking in the firm's earnings release include its advancements in realizing synergies relating to the Progress Energy merger, the status of the firm's rate increases, and the firm's progress in the Latin American market, particularly in Chile.
U.S. Franchised Electric and Gas Division
The U.S. franchised electric and gas division is Duke's largest business segment and accounts for around 90% of its Trefis price. The two key factors we will be watching for this segment are the firm's cost savings and the status of the rate cases that the firm has filed.
Cost Savings: Keeping up with industry trends, Duke's outlook for electricity demand growth has been very cautious. The company expects the demand to grow at about 1% in the future, negating the effects of climate change. Despite the restrained demand outlook, the company said that it expects profits to grow between 4% and 6% going forward and a portion of this is likely to come from synergies and cost savings relating to its merger with Progress Energy. The merger provides scope to reduce fuel and transmission costs through enhanced economies of scale and provides opportunities for joint dispatch. The firm had targeted operations and maintenance expenses by 5%-7% per year, and we will be interested to see the firm's progress in realizing some of these benefits.
Status of Rate Increases: Over 90% of Duke's business comes from its regulated utility services, and the firm is dependent on state regulators for rate increases to defray costs of expansions and upgrades to its fleet. During the fourth quarter, the firm filed for rate increases totaling $359 million for its Progress Energy Carolinas division. Earlier this month, Duke Energy Carolinas also filed for an average 9.7% rate increases for its North Carolina operations, which would amount to a total of around $446 million hike.
Operations in Chile: Duke Energy International operates power generation facilities and engages in sales and marketing of electric power and natural gas primarily in Latin America. Although the division accounts for just around 16% of the firm's business, these operations are important from a growth perspective, given the high demand for energy and relatively high electricity prices in the region.
While the business mainly comes from Brazil and Peru, the firm has been expanding into Chile as well. Earlier in the year the firm acquired a diesel powered plant, and in Q4, the firm bought a hydroelectric power plant in the country (see also: "Duke Expands Footprint In Chile Through Hydroelectric Capacity Acquisition"). The deals were significant since they gave the firm access to a largely energy starved market. We will be interested in hearing updates on the progress of these operations.
Disclosure: No positions.