Duke turns profit, reversing a year-earlier loss

AP News
Posted: Aug 02, 2011 1:36 PM
Duke turns profit, reversing a year-earlier loss

Duke Energy says the sputtering economy continues to keep demand for electricity low.

The utility posted a second-quarter net income of $441 million on Tuesday, reversing a year-earlier loss. But concerns about longer-term energy demand hung over the results.

Electric power demand nationwide has been volatile and generally weaker in recent quarters, a reflection of an economy that is not yet gaining momentum. Duke, like other utilities, has only seen moderate growth at best.

"There still remain economic headwinds," Duke CFO Lynn Good said in an interview.

Power demand typically grows with the economy as factories turn out more goods, businesses serve more customers, and families move into bigger houses with more gadgets.

CEO Jim Rogers doesn't expect Duke's electric power demand to return to 2007 levels _ before the recession _ until 2015.

Power demand for the year would likely grow less than one percent, after removing the effect of weather from the results, Good said during a conference call with investors.

Duke, based in Charlotte, N.C., earned 33 cents on a per-share basis during the quarter. That compared with a loss of $217 million, or 17 cents, a year earlier. Revenue rose 7 percent to $3.53 billion in the quarter.

Duke serves four million electric customers in North Carolina, South Carolina, Ohio, Kentucky, and Indiana, along with 500,000 gas customers in Ohio and Kentucky.

Big Midwestern industrial customers, such as steel companies, cut back on power use. Demand from commercial customers _ including office buildings, restaurants and retail stores _ also was weak.

There were some pockets of strength. Duke said textile makers in the Southeast and auto factories in some parts of its territory increased demand for power.

Residential power demand also rose slightly.

Weather that was warmer than normal in Duke's service territory helped offset some of the weakness in core power demand, although temperatures weren't quite as warm as last year when June heat records were set in the Carolinas. Hot weather boosts demand for electricity to run air conditioners, a major electric power draw.

Duke says its results were also helped by higher rates it was allowed to charge customers for building power plants in Indiana and in the Carolinas.

Revenue for the company's biggest division, delivering power and gas to customers in the U.S., rose 5 percent to $2.55 billion, but profit fell 8 percent to $619 million.

Earnings from the company's overseas operations rose sharply on higher average prices in Brazil, increased prices and volumes in Central America, and better exchange rates. The division earned $179 million, up 42 percent from the year before.

Duke's commercial power division, which sells power into wholesale markets, earned $59 million, reversing a loss of $604 million in the second quarter of 2010. Last year's loss was due to a write-down of power plants that were faced with lower electric prices and increased expenses for emissions-control equipment.

In January, Duke agreed to buy Progress Energy, also based in North Carolina, for $13.7 billion in a deal that would create the nation's largest electric utility. Duke has cleared two federal regulatory hurdles, but it is still awaiting approval from the Federal Energy Regulatory Commission.

Kentucky is expected to deliver its decision on the merger Tuesday, Duke said. The merger must also be approved by regulators in North Carolina and South Carolina. Rogers said Tuesday he still expects the deal to close this year.

In another development important to investors, Duke on Wednesday plans to ask Indiana regulators to allow the company to charge customers for the rising costs of a coal-fired power plant.

The plant, an advanced design which turns coal into a gas and then burns the gas, was originally supposed to cost $1.98 billion. The cost has since risen to $2.9 billion.

Earlier this month the Indiana agency representing utility customers, and a group of industrial electric customers, accused Duke of mismanaging the project. They've asked regulators to block Duke from charging customers for anything beyond the original $1.98 billion.

Rogers said Tuesday that the company's testimony to be filed Wednesday will show it has acted prudently and has only incurred costs that were necessary to complete the project.

Jonathan Fahey can be reached at www.facebook.com/Fahey.Jonathan