Duke Energy earnings fall on construction costs

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By JONATHAN FAHEY, Associated Press

NEW YORK (AP) — Duke Energy Corp. says its net income fell 42 percent in the first quarter because of cost overruns at a coal plant under construction in Indiana.

The company said its underlying earnings grew slightly, though, despite a warm winter that reduced electric power demand and earnings at electric utilities nationwide. Duke's earnings were boosted by higher electric rates in the Carolinas, reduced costs, and higher power sales and rates in Brazil.

The North Carolina-based power company said Friday that it earned $295 million, or 22 cents per share, in the three months ended March 31. That's down from $511 million, or 38 cents per share, a year ago.

Its revenue edged down to $3.63 billion from $3.66 billion a year ago. Analysts expected revenue of $3.61 billion.

Duke took a $420 million charge against earnings in the quarter to cover cost overruns at a coal plant under construction in Edwardsport, Ind. The cost of the project, which uses novel technology to turn coal into a gas before burning it, has risen to $3.36 billion from $1.99 billion.

Duke reached an agreement on Monday with ratepayer groups in Indiana that will allow Duke to charge customers for some of the cost overruns, but not all of them. The agreement still needs to be approved by regulators, and some advocates in the state are opposing it.

Adjusted to remove the effect of the plant costs, Duke earned 38 cents per share. Analysts expected 36 cents per share, according to FactSet survey.

Duke shares rose 16 cents to close at $21.56 Friday. Its shares are near their 52-week high of $22.12.

The first three months of the year were the warmest on record. Duke said Friday the number of heating degree days, an industry measure used to gauge energy demand, was the lowest ever for its service territory.

The warm weather reduced earnings at the company's regulated utilities by 4 cents per share, but higher customer rates and lower operation and maintenance costs offset that reduction.

Increased power sales and rates in Brazil improved the company's international earnings by 11 percent in the quarter, but profit at the company's smaller commercial power division fell 22 percent because of lower rates in Ohio.

Chief Financial Officer Lynn Good said in an interview Friday that Duke's industrial customers were continuing to use more electric power as their activity increases. She said makers of autos, heavy machinery, metals and chemicals have been increasing their power use as the make more products. Activity at textile makers and companies that make housing-related materials has been weak, however, she said.

Residential and commercial customer demand also remains weak.

"We remain cautious on the economic recovery," she said.

Duke, based in Charlotte, N.C., serves 4 million electric and gas customers in the Carolinas, Kentucky, Indiana and Ohio.

Duke has agreed to acquire in-state rival Progress Energy in a deal that would create the largest U.S. utility. The deal was announced more than a year ago but Duke still has not been able to secure approvals from federal regulators. If the deal is not completed by July 8 or if regulators push up the cost of the deal by forcing the companies to sell plants or change rates, it could be abandoned.

The companies have filed a plan with federal regulators to address their concern that the combined company would have too much market power in the Carolinas. The company would build transmission lines and take other measures to help smaller utilities get access to power from other generators. Duke is asking state regulators to review the proposed plan even before it is approved, so they are in a position to vote on the deal quickly if federal regulators sign off on it.

Duke CEO Jim Rogers said Friday in an interview that Duke remains committed to the deal and that it is on track to complete it by July 1.

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Jonathan Fahey can be reached at http://twitter.com/JonathanFahey .

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