Duke Energy's Subsidiary To Sell 5 Hydroelectric Plants

Duke Energy Corporation (NYSE:DUK) recently announced that its subsidiary Duke Energy Carolinas (“DEC”) is set to sell five hydroelectric plants to Northbrook Energy. These small plants are located in the Western Carolinas region and have a cumulative hydroelectricity generation capacity of 18.7 megawatt.

The deal, struck through a competitive bidding process, is expected to be completed during the first quarter of 2019. While the financial terms of the deal were kept under wraps, its closure is subject to approval from the Federal Energy Regulatory Commission and other state regulatory authorities.

Details of the Deal

These Green/Broad River Basin and Nantahala area–based hydro stations are serving Duke Energy’s customers for a long time in Carolina. However, the company has been incurring higher operations and maintenance cost for these plants.

Per the terms, DEC is going to purchase hydroelectricity generated by these plants for next five years from Northbrook Energy. Therefore, customers will continue to receive electricity from Duke Energy at a lower rate, since Duke Energy will no longer have to bear the cost of operation after the closure of the deal. Shareholders may also enjoy the benefits from this long-term cost-saving initiative undertaken by the company in the form of increased dividend payouts and stock repurchases.

Will This Deal Benefit Duke Energy?

Hydro, being the first technology used to generate electricity, has been the largest source of renewable electricity in the United States. According to the U.S. Energy Information Administration (“EIA”), hydro generated more than 7% energy in 2017 and is expected to serve more than 35 million U.S. homes in average by 2050.

It goes without saying that hydroelectricity has immense prospects in the Unites States. Evidently, the U.S. Department of Energy’s Hydropower Vision analysis finds that U.S. hydropower can rise from 101 GW of capacity in 2015 to nearly 150 GW by 2050.

Therefore, to make most of the growing opportunities of hydropower, utilities are also shifting to renewables from coal. Duke Energy, being no exception, has also been expanding its renewable asset base. In sync with the afore-mentioned strategy and to meet customers’ power demand at lower rates, the company agreed to sell the plants. This decision will maintain the environmental balance and will lower the company’s cost of operations.

Price Movement

Shares of Duke Energy have lost 7.7% in the last 12 months, against the Zacks Electric Power industry’s rise of 2.1%. The downside may have been caused by the significant environmental compliance cost that the company bears.

Zacks Rank & Key Picks

Duke Energy currently has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same industry include Ameren Corp. (NYSE:AEE) , Alliant Energy Corp. (NYSE:LNT) and WEC Energy Group, Inc. (NYSE:WEC) , all of which carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ameren’s expected EPS growth for three to five years is pegged at 6.5%. The Zacks Consensus Estimate for EPS moved up 0.7% in the last 30 days.

Alliant Energy’s expected EPS growth for three to five years is pegged at 5.6%. The Zacks Consensus Estimate for the same moved up by one penny in the last 30 days.

WEC Energy’s expected EPS growth for three to five years is 4.1%. Its 2018 Zacks Consensus Estimate for the same moved up by a penny in the last 30 days.

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