Credit rating agency Moody’s downgraded Charlotte, N.C.-based Duke Energy and its subsidiary Duke Carolinas this week – the latest bad financial news for the beleaguered investor-owned utility.
According to Moody’s, Duke’s long-term rating was downgraded from Baa1 to Baa2, while Duke Carolinas saw its rating downgraded from A1 to A2. Duke’s other regional subsidiary – Duke Energy Progress – saw its rating remain at A2.
Moody’s began its most recent review of Duke on February 16, 2021.
“The downgrade of Duke reflects the company’s weaker balance sheet strength objectives,” said Laura Schumacher, Moody’s vice president and senior credit officer. “The downgrade also considers the adverse financial impact of recent settlement agreements the company has reached for both of its Carolina utilities in their North Carolina regulatory jurisdictions.”
According to Schumacher, the terms of these agreements “resulted in current impairment charges and lowered the amount of future cash flow the utilities will be receiving in conjunction with their coal ash remediation spending.”
Duke reached a settlement in January with the Sierra Club, the N.C. Utilities Commission (NCUC) and the office of North Carolina attorney general Josh Stein to shave $1.1 billion off of the cost of its coal ash cleanup – which aims to excavate a staggering 124 million tons of ash from fourteen coal-powered facilities over the next decade at a cost of more than $8 billion.
The cost of the coal ash fiasco is what prompted Duke recent rate hikes in South Carolina.
As we have noted in previous posts, Duke is excessively reliant on coal – despite its protestations of environmental friendliness. It is also excessively reliant on natural gas as a “bridge fuel” away from coal – assuming it is serious about reaching its lofty climate pledges.
News of the downgrades comes a month after Bank of America – Duke’s hometown financial institution – issued a “neutral” outlook on its shares citing concerns regarding “legislative prospects in the Carolinas” related to its resource planning.
That downgrade came after a study revealed Duke was potentially on the hook for billions of dollars in stranded carbon costs related to its proposed buildup of natural gas infrastructure.
While the Moody’s downgrade did not specifically reference these stranded carbon costs, it did note that Duke was “investing heavily to achieve the company’s clean energy transition plan, all of which puts negative pressure on credit metrics.”
The downgrade also cited Duke’s “reduced financial flexibility” associated with its capital plans.
As for Duke Carolinas, the downgrade referenced “the utility’s ongoing capital program and continued regulatory lag,” noting that these factors “will maintain pressure on its balance sheet and financial credit metrics.”
Perhaps not surprisingly, Duke announced sweeping changes to its executive lineup on Wednesday morning – less than forty-eight hours after the downgrade was announced.
According to senior staff writer John Downey of Biz Journals, retiring executive vice president Doug Esamann will see his duties fall to Alex Glenn and Brian Savoy – the latter of whom will oversee the company’s “commercial renewables” as well as its “natural gas business.”
Effective May 1, Duke will add three people to its “senior management committee” – including a new vice president for external affairs and communications, Louis Renjel.
The shakeup will also extend to the company’s “regulatory and legislative affairs” efforts in North Carolina and South Carolina, with Julie Janson assuming responsibility for “the long-term strategic direction and growth, execution and overall financial performance of the company’s regulated utilities North Carolina and South Carolina,” according to Downey.
“With these appointments, we’re aligning our company to more effectively execute our clean energy strategy, collaborate with stakeholders, and deliver value to our customers and shareholders,” Duke chief executive officer Lynn Good said in a statement.
Duke Energy Carolinas serves an estimated 2.5 million residential, commercial and industrial customers in North and South Carolina. Meanwhile, Duke Energy Progress serves an estimated 1.5 million million residential, commercial and industrial customers in the same two states.
Shares of Duke opened trading on Wednesday at $96.24. Obviously, we will keep an eye on how they perform in the aftermath of this shakeup – which could whet the appetite of those looking to purchase the utility.
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