Duke reduces value of power plants
- Duke hopes to sell the plants by the end of 2014 or early 2015.
Duke Energy lost $97 million in the first quarter after reducing the value of a fleet of 13 coal-fired power plants in the Midwest, including seven in the Cincinnati region, that it is trying to sell.
The company took a $1.4 billion charge for the power plants, the largest writedown by Duke – the nation’s largest utility owner – in a decade.
Duke announced in February that it would try to unload the power plants in the Midwest that sell power into wholesale markets, instead of directly to customers. Wholesale prices have been extremely volatile, but generally low in recent years, due to extremely low natural gas prices.
The writedown reflects “the difference between book value and what we expect fair market value to be,” Duke CEO Lynn Good said in a phone interview. The move also comes ahead of June’s announcement by federal regulators of new rules curbing carbon emissions from coal-fired power plants.
Duke hopes to sell the plants by the end of 2014 or early 2015. It expected the sale to fetch $2.1 billion. But because wholesale power prices apear likely to remain weak, Duke is unlikely to get its asking price – so it wrote down their value.
Locally, the Fortune 500 company plans to sell its Beckjord Station oil plant and coal plant in New Richmond, Dicks Creek natural gas plant in Middletown, Miami Fort Station natural gas plant and coal plant in North Bend, Stuart Station coal plant in Aberdeen and Zimmer Generating Station coal plant in Moscow.
Duke owns all of the oil plant at Beckjord Station, the Dicks Creek natural gas plantand the natural gas plant at Miami Fort Station. The other plants are partially owned by Duke Energy, Dayton Power and Light Co. and American Electric Power.
Duke's plants in Greater Cincinnati have a total capacity of 3,543 megawatts.
Duke expects the sale to fetch $2.1 billion. It put the plants on the market in February after Ohio regulators denied Duke a rate increase. Eleven of the plants the company plans to sell are located in the Buckeye State while one is in Illinois and one in Pennsylvania.
Despite the writedown, the company’s regulated utility operations performed better than expected due to stronger demand as the economy recovers and one of the coldest winters in 30 years. It’s also able to charge higher rates.
Duke lost 14 cents per share on revenue of $6.62 billion in the first three months of the year, the company said Wednesday. Last year, the company earned $634 million, or 89 cents per share, on revenue of $5.9 billion.
Adjusted to remove the $1.4 billion write-down of the coal plants, Duke earned $1.17 per share in the latest quarter. That’s up from last year’s adjusted $1.02 per share and higher than the $1.12 expected by analysts surveyed by FactSet.
“We’re seeing this economic recovery deepen and broaden a bit,” said Duke CFO Steve Young in an interview Wednesday. “It’s started to get into median income households and small businesses.”
Electricity sales rose 7.1 percent in the quarter, and 2.6 percent when the effect of weather was removed.
Christopher Muir, an analyst at S&P Capital IQ, said the growth was promising. “It’s not enough of a trend yet,” he said. But it’s definitely encouraging.”
Duke Energy Corp., based in Charlotte, is the nation’s largest electric utility by market value and number of customers. It serves 7.2 million customers in Ohio, Kentucky, Indiana, North Carolina, South Carolina and Florida.
In February, a pipe at the bottom of a pond that held waste from a Duke coal plant in North Carolina burst and spilled toxic ash into the Dan River. Good said cleanup efforts cost the company $15 million in the quarter. Good said while there will be more costs to come, she does not expect them to be large enough to materially affect overall results.
Duke shares are up 6 percent so far this year and hit a new high for 2014 last week.
Bloomberg News contributed.