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Duke Energy Corp (DUK), Arch Coal Inc (ACI), Peabody Energy Corporation (BTU): New Gas Plants

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Duke Energy Corp (NYSE:DUK) recently decided to stop development on a nuclear facility in Florida and to retire some coal assets. It’s looking to build gas plants instead. This is good news for natural gas and coal.

Duke Energy Corp (NYSE:DUK)Duke shares recently yielded around 4.6%. The dividend has been increased annually since a 30% cut back in 2007. The top line has headed generally higher, too, going from $12.7 billion to $19.6 billion. Earnings haven’t been as consistent and were actually lower in 2012 than they were in 2007.

The second quarter seemed to continue that trend, however the weak results were largely driven by write offs. The biggest being over $380 million for the closure of a nuclear facility and the cessation of the development of another. Merger Integration costs, related to the acquisition of Progress Energy, were also a drag. Still, management continues to project earnings of $4.20 a share to $4.45, excluding such items.

Getting out from under uncertain and high-cost nuclear projects is actually a part of the company’s Progress Energy integration process. That merger materially changed the company’s makeup, creating the largest U.S. utility and shifting Duke Energy Corp (NYSE:DUK)’s business more toward the regulated end of the spectrum. Cost savings are the focus for the near future.

That said, income investors looking for a large utility should take a look. Duke Energy Corp (NYSE:DUK) has notable businesses in the Carolinas and Florida, warmer states that should see continued population growth as baby boomers retire and head “south.” Moreover, despite the shift out of nuclear, the company will still be building new power plants. That should lead to rate increases and higher revenues and earnings over the long term.

New gas plants

In Florida alone, the company is examining adding over 1,100 megawatts of natural gas power plants. It is also set to close nearly 900 megawatts of “unscrubbed” coal generation. This continues the industry’s long-term shift toward cleaner burning natural gas. That’s a good thing for the demand side of the equation for the fuel. This trend, along with the use of natural gas to power vehicles and the increasing push to export it, should help to support natural gas prices over the long haul.

That, however, is a mixed blessing for utilities since higher natural gas prices means paying more for a fuel that is being increasingly used for power generation. In fact, higher gas prices is why each of the first four months of this year saw a year over year decline in the use of natural gas, according to the U.S. Energy Information Administration (EIA). Coal use, on the other hand, was up in each of those months.

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