Duke Energy (NYSE:DUK) is set to ride a wave of new environmental regulation that has been heaped on utilities. Seven major rules governing the industry have been proposed for the next six years. A massive amount of capital expenditure will be required to bring existing systems in line with the new regulations. Rather than spend the money, many companies are shutting down their dirtiest operations.
Size gives utility companies flexibility. A small company may be forced into expensive upgrades to stay in business because it relies on too many dirty plants. Larger companies can more easily adjust. Once its merger with Progress Energy (NYSE:PGN) is complete, Duke Energy will be the largest utility in the United States. Increased scale will allow Duke to make the upgrades it needs with greater flexibility.
After the merger, Duke will serve seven million customers across six states. The combined company will also have the nation’s largest generating capacity, 57.2GW. Today, Duke yields 4.4%. With 85% of its post-merger operating earnings from regulated operations, Duke has a stable income stream with which to pay future dividends. My price chart shows Duke’s strong breakout above its post-recession high of $22.06 per share.
Go ahead and make DUK a buy for your portfolio.