Duke Energy Finishes Merger with Progress Energy in Second-Quarter 2012, Expects Full-Year CapEx Up to $5.7 Billion

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Researched by Industrial Info Resources (Sugar Land, Texas)--Duke Energy Company (NYSE:DUK) (Charlotte, North Carolina), a leading U.S. electric power holding company, reported small gains in revenue and earnings in the second quarter of 2012, as fewer storm-related expenses and new customer rates in the U.S. mostly offset weaknesses in the International segment. Net income was reported to be $444 million, a 2.07% increase from second-quarter 2011.

Duke recently completed a merger with Progress Energy Incorporated (NYSE:PGN) (Raleigh, North Carolina), which is now a wholly owned subsidiary of Duke. The company will begin including Progress in consolidated results in the next quarter. The merger followed a long period of difficulties with regulatory matters; for more information see March 13, 2012, article - Exelon-Constellation Merger Finalized; Duke-Progress Merger Remains in Regulatory Limbo.

"After 18 months of hard work, we closed our merger on July 2," said Jim Rogers, the chairman, president and chief executive officer of Duke, in a conference call. "The strategic value of this transaction remains unchanged. The combination creates a new Duke, with unmatched financial and operational scale and scope. The highly regulated business mix of the combined company supports the strength and growth of our dividend."

Total revenues for the quarter stood at $3.58 billion, a 1.22% increase from the same period last year. The U.S. Franchised Electric and Gas segment benefited from lower operation and maintenance costs, largely due to last year's heavy storm damage and the ensuing expenses, as well as new customer rates in North and South Carolina. The International Energy segment suffered from weaker earnings in Central America and unfavorable foreign exchange rates, although pricing improved in Brazil and Peru.

Industrial Info is tracking about $32 billion in active projects involving Duke, including the $2.88 billion addition of a 630-megawatt (MW) IGCC coal unit at a generating station in Edwardsport, Indiana, and the $850 million construction of the 200-MW Los Vientos Windfarm in Raymondville, Texas. The Los Vientos project involves 84 Siemens SWT2.3-101-model wind turbine generators of 2.3 MW each. The projects are to be completed in October and December of this year, respectively.

Duke's total segment income was $470 million, a 3.52% increase from second-quarter 2011:

• The U.S. Franchised Electric and Gas segment reported income of $337 million, a 13.47% increase from the same period last year. Segment revenues were $2.7 billion, a 5.81% increase.
• The Commercial Gas segment reported income of $28 million, a 6.67% decrease from second-quarter 2011. Segment revenues were $502 million, a 15.63% decrease.
• The International Energy segment reported income of $105 million, a 17.32% decrease from the same period last year. Segment revenues were $397 million, a 2.22% decrease.
• Other income totaled a loss of $25 million, compared to a loss of $19 million in second-quarter 2011. Other revenues totaled $16 million, compared with $9 million in the same period last year.

Following the merger with Progress, Duke executives expect capital expenditures for full-year 2012 to be between $5.5 billion and $5.7 billion; Progress added $1.2 billion to the total. Through the end of June, Duke's capital expenditures for the year totaled about $2.3 billion.

As part of the merger between Duke and Progress, the companies are eliminating redundant programs and systems. Nineteen such projects already have been completed, while 55 will be under way by the end of 2012. Rogers said that 1,100 employees accepted voluntary severance packages, with about half set to leave the company by the end of 2012, and another half to leave by the end of 2014.

"Beginning on day one of the merger, we are jointly dispatching generating fleets to the Carolinas," Rogers said in the conference call. "In fact, yesterday we filed a request with the Carolinas' commissions to reduce customers' rates by around $89 million over the next 12 months. This will allow our Carolinas customers to begin receiving benefits in their bills as early as this fall. We have guaranteed a minimum of $650 million in joint dispatch and fuel savings over the first five years after the merger close. We also have an additional 18 months of timing flexibility if we determine we're unable to achieve the savings in five years due to the impact of low natural gas prices on gas consumption."

For more information, visit Industrial Info's North American Power Project Database.

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Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.