Duke earnings helped by weather, rates but miss expectations on lower wholesale power prices

NEW YORK, N.Y. – Duke Energy’s first-quarter results got a lift from a healthy dose of winter weather and higher retail electric rates, but lower wholesale prices weighed on profits.

The largest U.S. utility posted earnings Friday of $634 million for the first quarter, or 89 cents per share, on revenue of $5.90 billion. The company’s results aren’t comparable to last year because Duke hadn’t completed its acquisition of Progress Energy.

Adjusted to remove acquisition costs and other one-time items, Duke earned $1.02 per share, a penny shy of what analysts polled by FactSet had expected.

Cooler temperatures during the first three months of the year increased demand for electricity compared with last year, which was the warmest winter on record in the U.S. Heating demand in Duke’s service territories rose between 36 per cent and 50 per cent, helping to drive higher electricity sales to residential and commercial customers.

Duke, based in Charlotte, N.C., serves 7.2 million customers in North Carolina, South Carolina, Florida, Indiana, Ohio and Kentucky.

CFO Lynn Good said in an interview that the number of new residential customers suggest a pickup in the housing markets in the Carolinas, Florida and Indiana.

Power sales to industrial customers slipped, but Good said that’s only because last year’s leap year included one extra day of power sales. In fact, Good said, industrial sales inched up 0.5 per cent. Customers who make steel had a relatively weak quarter, but power sales to automotive customers rose, Good said.

“We’re optimistic there could be stronger growth in the second half (of the year),” Good said. The company remains on track to meet its earnings expectations for the year, she said.

Wholesale power operations suffered in the quarter, however. Payments that power generators receive from regional grid operators for making their power plants available to the grid, called capacity payments, plummeted for this year. Grid operators found when they held auctions for this capacity that they had more than enough capacity to meet expected demand this year.

Also, the company’s overseas operations slipped. Duke’s hydroelectric plants in Brazil couldn’t produce as much electricity as needed because weather has been drier than normal. Duke had to buy electricity on the wholesale market and then resell it to its customers, raising costs.

Duke CEO Jim Rogers said in an interview Friday he expects things will get better as the year progresses with the company petitioning for higher rates in five of its regions. While the size of the rate hikes isn’t assured, Rogers expects regulators to agree to allow rates to rise at least somewhat.

Higher rates in North Carolina that went into effect late last year helped improve Duke’s results in the fourth quarter, but there’s a chance those rates will be rolled back. The North Carolina Supreme Court ruled last month that regulators did not properly consider the effect of the hike on the state’s customers, and has directed them to reevaluate Duke’s rate hike request. The state’s Attorney General asked a regulatory panel on Monday to abandon the higher rates until the matter is settled.

Rogers noted Friday that the Supreme Court did not take issue with the size of the rate increase, just that it wasn’t explained well enough.

Rogers also said Friday that a complex new coal plant under construction in Edwardsport, Ind., that had gone far over budget would begin commercial operation by the end of this month.

Shares of Duke Energy Corp. fell 21 cents to $74.57 in afternoon trading.


Follow Jonathan Fahey on Twitter at .