Duke Energy Has Some Questions Going Into Earnings

Duke Energy (NYSE:DUK) will report its fourth-quarter earnings before the market opens on February 13. According to analysts’ estimates, the North Carolina-based energy giant will report revenue and earnings per share (EPS) that are higher than the previous quarter.

Analysts are projecting revenue of $6.25 billion which will be a 2.2% increase from the third quarter. DUK is expected to post EPS of 88 cents which will be a 4.8% increase from its prior quarter.

Duke Energy is regarded by investors as one of the best utility stocks. Over the last few years, shares of the utility giant have traded between $66 and $96. Like any utility company, investors should not be looking at DUK as a growth stock, but should be looking at it for its income benefits (i.e. its dividend first).

Analysts will be looking for an increase in revenue from renewables

Duke Energy has been one of the leaders in generating revenue from renewable energy projects. In its last earnings report, the utility company had over 1,500 megawatts from wind and solar projects. Because of the company’s leadership in this area, analysts are expecting to see how much additional power the company generated in the fourth quarter.

However, from a net income standpoint, any gains in renewables may be offset by the warmer-than-average temperatures in its service territories. Unlike some other sectors that may use the weather as a reason for declining revenue, it’s a valid point for utility companies. In the case of DUK, analysts are forecasting that they may have less revenue due to decreased demand.

Coal-ash cleanup project will continue to weigh on the balance sheet

Duke Energy is involved in an ongoing cleanup project to dispose of coal-ash in North Carolina. Specifically, the company has been ordered to excavate 80M tons of coal ash at its current and former coal plants in North Carolina and redeposit it in lined landfills. The project is not expected to be completed until 2037 and will cost the company $9 billion. Duke Energy officials estimate that the company has already spend about $2.4 billion on the project.

However, the utility is looking to pass along the cost of this disposal project to consumers. Specifically, Duke is looking to increase rates by up to 6%. According to the company, the coal-ash disposal is a routine cost caused by the legal use of coal to generate electricity. Detractors however are fighting the company saying that the utility company was negligent in dumping the coal-ash over a period of many years.

Duke Energy will make its appeal to the North Carolina Utilities Commission in the spring. In the past, the commission has sided with utility companies on similar issues, but it will be something for investors to pay attention to on the conference call.

The utility is also in a battle with solar developers … including itself?

One of the difficulties facing the emerging solar industry is obtaining interconnection agreements. Essentially this means allowing a solar contractor to connect to a utility company’s power grid. But developers have projects that have been in the queue for years waiting for approval from Duke. This is an ongoing source of contention. According to Duke Energy, the delay in issuing agreements comes from the number of tests and screenings that are done to ensure the stability and safety of the grid. However, critics say that Duke continues to add requirements to the process. This is causing additional delays

Duke itself has to wait in line as a subsidiary, Duke Progress, pursues an interconnection agreement for its proposed solar storage microgrid in Hot Springs. Because Duke Progress could not get an interconnection agreement from itself, they had to petition the utility commission for an extension.

Chris Carmody of the N.C. Clean Energy Business Association said, “I applaud Duke for not jumping the line for their own project.” However, the company really had no choice. State law says it must follow the same process as other developers.

Duke Energy should still have appeal for dividend investors

Duke Energy currently has a 3.76% dividend yield. This yield is slightly below the 3.96% average dividend yield of all utility stocks. However, it is above the 3.7% average yield of utility stocks listed in the S&P 500. Duke Energy has increased its dividend in each of the last 13 years and currently pays an annual dividend of $3.78 per share.