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Duke’s Regulated Utilities Kept Up the Strong Performance in 4Q15

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Mar. 4 2016, Updated 12:05 a.m. ET

Revenues

Duke Energy (DUK) reported operating revenues of $5.3 billion in the fourth quarter of 2015 versus its revenues of $5.5 billion in 4Q14. Duke Energy’s Regulated Utilities segment accounted for nearly 90% of its total revenues.

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Weather impact

The above chart shows Duke Energy’s (DUK) quarterly revenue trends over a one-year period. Revenues from its commercial portfolio are not included in the above chart. Duke Energy’s Regulated Utilities segment posted a strong performance throughout the year. As expected, Duke Energy managed to offset lower electricity usage per customer with an increased number of customers.

In 4Q15, heating degree days dropped drastically compared to 4Q14. This resulted in lower electricity usage per customer. Strong economic growth, particularly in Florida and the Carolinas, positively impacted its customer base growth. Overall, Duke Energy experienced flat demand for power in the last three quarters.

Duke Energy expects flat electricity usage per customer in 2016, influenced by weather and energy efficiency programs. However, it expects to enhance its customer base by ~1.3% in 2016. Employment growth in Duke-served areas is outpacing the US average, which can positively impact its customer base growth.

Peer performance

Utilities (JXI) in the US are increasingly facing this issue of flat demand for energy. To add to the industry’s woes, the fourth quarter of 2015 reported record high temperatures, mainly in the Midwest and South. Utilities like American Electric Power (AEP), Dominion Resources (D), and Xcel Energy (XEL) experienced dents in their 4Q15 earnings, driven by unfavorable weather.

Apart from customer growth, Duke Energy’s revenues were positively impacted by increased pricing and rate riders in 4Q15. Rate riders are temporary additional charges to a customer levied by a utility to recover incremental costs. Operating expenses also declined in 4Q15 compared to 4Q14, mainly due to lower fuel costs.

Duke Energy’s International Energy segment showed mundane performance, driven by weaker methanol prices during the quarter.

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