PSC Cuts Rates for Progress Energy - Analyst Blog

Progress Energy Inc. (PGN) rejoices on receiving approval for reduced rates in South Carolina for the consecutive second year. The approval calls for more than $20 of annual reduction for an average household customer.
 
The changes approved by the Public Service Commission (PSC) of South Carolina include a reduction of $2.73 per month (for a residential customer using 1,000 kilowatt-hours of electricity) in the portion of rates used to recoup the cost of fuel used in power production, and a 98 cent increase in charges per month to include the costs related to expanded energy-efficiency and demand-side management programs.
 
In all, the changes result in lower rates by $1.75 per month and sum up to more than $20 savings over a year for a residential customer. This represents a drop of nearly 2% in the total bill of a residential customer – from the current $100.90 to $99.15. For commercial and industrial customers, the change will result in a total bill reduction of 2.7% to 4.3%, based on the amount of electricity used.
 
Progress Energy remains focused on increasing its operational efficiency, while continuing to meet the expectations of customers and regulators for reliable and environmentally sound service. Progress Energy negotiated for lower-priced fuel contracts on behalf of customers at an opportune moment of decline in fuel costs. Note that costs of fuel – coal, natural gas and other fuels – shot up dramatically in the middle of the last decade, which have come down significantly in the last two years.
 
Production costs have also declined as the electricity demand from average customers has stabilized due to the slow economic growth. Collectively, these factors have helped Progress Energy to pull off reduced prices for customers for the second year in a row. Further, the company’s base rates, another component of rates, also have not increased since 1988.
 
The PSC adjusts the fuel portion of the company's rates annually to reflect the actual cost of fuel the utility uses to produce electricity to meet customer demand. By law, Progress Energy does not make a profit from the fuel charge. Furthermore, the company annually files for recovery of costs of implementing programs designed to help reduce energy consumption and reduce customers’ energy bills.
 
Based in Raleigh, North Carolina, Progress Energy generates power from a diverse mix of resources, which includes nuclear, coal, natural gas, oil and hydroelectric energy. The main competitors of the company are DTE Energy Co. (DTE), NextEra Energy Inc. (NEE) and American Electric Power Co. Inc. (AEP). We maintain our Neutral recommendation on PGN, justified by our Zacks Rank #3 (Hold).