Net Migration Rate at Duke Energy Ohio Grows Marginally

Duke Energy's Commercial Power segment reported lower adjusted EBIT of $145 million for the third quarter, versus $155 million a year ago, due to the impacts of customer migration in its affiliated Ohio service area.

Specifically, customer migration at Duke Energy Ohio, net of customers retained by affiliate Duke Energy Retail Sales, resulted in a $37 million reduction in EBIT versus the year-ago quarter, offset by a variety of factors, including higher pricing for generation dedicated to default service, and coal and emission allowance sales.

As of September 30, 2011, the gross switching rate for customer load at Duke Energy Ohio was at 68%, with 32% of load on the Standard Service Offer. The gross switching rate is up marginally versus a gross switching rate of 67% as of June 30, 2011.

Additionally, the net migration rate, or migration to a provider other than Duke Energy Retail Sales, increased to 30% of load as of September 30, 2011, versus 28% as of June 30, 2011.

As of September 30, 2011, approximately 70% of the Duke Energy Ohio service territory generation was served by Duke Energy Ohio (32%) or Duke Energy Retail Sales (38%). That's down from 72% as of June 30, 2011, with the decrease occurring in both SSO sales (33% three months ago) and at Duke Energy Retail Sales (39% three months ago).

Switching for the year is forecast to negatively impact 2011 earnings by approximately about $93 million.

Duke Energy noted that under the stipulated electric security plan for the period starting January 1, 2012, Commercial Power will no longer face significant migration risk since its generation will not be used to serve default service load at Duke Energy Ohio (at least during a three-year period when such assets are supported by a nonbypassable charge).

During an earnings call, Duke Energy CEO James Rogers said that the transition of Duke Energy Ohio's assets out of ratebase and into the PJM energy and capacity markets by 2015 is a "good thing" because it will result in customers paying more for such generation.

"Because if you look at the forward curve you start to see the prices rise, more [in] the '16, '17 time frame. But as you can imagine in PJM -- and I am sure you heard from others who have a much larger position in PJM -- with the retirement of a lot at the old coal plants that will happen by 2015 and with the new regulations on emissions, I believe the prices -- there will be upward pressure on the prices and the forward curve will in all likelihood move up even more," Rogers said.