Duke Energy Settles with EPA - Analyst Blog

Duke Energy Corporation (DUK) has reached a settlement with the U.S. Environmental Protection Agency, and the U.S. Department of Justice on a lawsuit pertaining to a clean air violation at Duke Energy’s coal-fired power Gallagher plant in southern Indiana. 

Duke Energy will spend about $93 million to settle clean air violations at the plant. Also, as part of the settlement, the company will continue to operate the 560 megawatts (MW) Gallagher facility. Duke Energy plans to convert the facility to gas-fired from coal-fired.

Duke Energy estimates the cost to convert the units to gas from coal and install additional pollution controls at $80 million. In addition to resolving litigation, the steps will help the company comply with future federal rules that are anticipated to further limit power plant emissions. Duke Energy Indiana's operations provide approximately 6,800 MW of electricity capacity to approximately 780,000 customers.

Duke Energy is the third largest electric power holding company in the United States, based on kilowatt-hour sales. Its regulated utility operations serve approximately 4 million customers located in five states – North Carolina, South Carolina, Indiana, Ohio and Kentucky.

Duke Energy’s steady performance across its solid base of stable utility operations, higher rates, strong balance sheet, an above industry average dividend yield and a relatively cheap earnings-based valuation support our bullish outlook for the company. However, the present unfavorable macro backdrop, lower demand for electricity, foreign currency exchange volatility and pending regulatory cases continue to restrain valuation.

Shares of Duke Energy rose 7 cents to $17.34 on Monday. We currently have a Neutral recommendation on Duke Energy, which reflects our view that the shares will trade at par with its peer companies like Public Service Enterprise Group Inc. (PEG), FirstEnergy Corporation (FE) and Consolidated Edison Inc. (ED).
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