Duke Energy Corporation (Holding Company)

Good day and welcome to the Duke Energy First Quarter Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Mike Callahan, Vice President, President, Investor Relations. Please go ahead, sir.

Thank you, Ellie. Good morning, everyone, and thank you for joining Duke Energy's First Quarter 2019 Earnings Review and Business Update. Leading our call today is Lynn Good, Chairman, President, and CEO of along with Steve Young, Executive Vice President and CFO. Today's discussion will include forward-looking information and the use of non-GAAP financial measures. Slide 2 presents the Safe Harbor Statement, which accompanies our presentation materials. A reconciliation of non-GAAP financial measures can be found on dukenergy.com and in today's materials. Please note the appendix for today's presentation includes supplemental information and additional disclosures. As summarized on slide three, during today's call, Lynn will provide an update on the quarter, including legislative and regulatory activity in the Carolinas. She will also discuss progress on our strategic initiatives. Steve will then provide an overview of our first quarter financial results and insight about economic and low-growth trends. He will also provide an update on our 2019 financing activities before closing with key investor considerations. With that, let me turn the call over to Lynn.

Thank you, Mike, and good morning, everyone. Today, we announced reported and adjusted earnings per share of $1.24, marking a strong start to the year. We are on track to achieve our 2019 adjusted EPS guidance range of 480 to 520, and our long-term earnings growth target of 4% to 6% through 2023. We remain confident in the strength of our business and the ability to grow with investments that deliver value to our customers and our shareholders. In the first quarter, we advanced our strategy to modernize the grid, generate cleaner energy, and expand natural gas infrastructure. We added more than 400,000 smart meters and continued to deploy self-optimizing grid technology across our system. We made progress on the construction of the Asheville Combined Cycle Unit as part of our Western Carolinas Modernization Project. and we filed for the next wave of solar generation projects in Florida. Our investments in these key areas, combined with our attractive, growing service areas, are foundational to growth in our electric and gas utilities. We had several noteworthy accomplishments in the quarter, so let me highlight a few of them on slide four. First, we continue to advocate for modern cost recovery mechanisms in our service territories, and we're pleased to see the introduction of related legislation in North Carolina, our largest jurisdiction. We also recently announced 1,250 megawatts of regulated and commercial renewables projects that we will either own or procure on behalf of our customers. Approximately two-thirds of these projects will be built in our service territories. This was a remarkable start to the year as we expand these important resources in our portfolio. As we invest in new renewables, we are recycling capital from existing projects, having announced a transaction to sell a minority stake in our current commercial renewables portfolio to John Hancock. Finally, we received multiple recognition of our employees' efforts to generate clean, reliable energy for our customers. EEI named Duke Energy one of the industry leaders in safety for the fourth year in a row. This is especially meaningful as safety is our highest priority and is foundational to operational excellence. And in April, Forbes recognized Duke Energy as a top employer for the second year in a row, highlighting our efforts to engage, develop, and retain our workforce. I'm proud of the work our employees do every day, keeping the customer at the center of everything we do and driving efficiencies across our business. Turning to slide five, let me update you on recent legislative and regulatory activities in the Carolinas. In early April, bipartisan legislation was introduced in both chambers of the North Carolina General Assembly that would give the Utilities Commission the authority to consider alternative cost recovery mechanisms. This would include multi-year rate plans, ROE bans, and storm cost securitization. We were pleased to see this important legislation pass the Senate last week, moving now to the House for consideration. If enacted into law, North Carolina would join 35 states across the nation that already have alternative cost recovery frameworks in place. A multi-year rate plan would benefit customers with bill predictability and certainty as we make important investments for the future. It would provide the Commission another tool to address the changing nature of utility investments while still retaining the authority to review investments and the prudency of incurred costs just as it does today. Similarly, storm cost securitization would provide the Commission new authority to consider financing structures to mitigate customer bill impacts from major storm activity. This legislation is a step in the right direction for North Carolina, and we will continue to provide updates as the session progresses. On the regulatory front, Piedmont Natural Gas filed its first rate case in North Carolina in six years on April 1st. We requested an $83 million increase in the revenue requirement to recover costs for necessary infrastructure investments. We expect new rates to be effective by the end of the year. In South Carolina, we received directives from the Commission regarding our pending DEC and DEP electric rate cases. Aspects of the directives were constructive, including a 53% equity component of the capital structure and a 20-year flowback period for unprotected excess deferred income taxes. However, we were disappointed with certain critical aspects of the rulings. Of note, the Commission adopted a 9.5% ROE and disallowed recovery of certain coal ash costs deemed to be related to implementation of North Carolina's Coal Ash Management Act. We will look for the written orders to be issued in the coming weeks to better understand the Commission's position on these issues. However, it is clear the regulatory and related business environment in South Carolina has changed, and this will affect the investment climate for the state in our industry and in others. Our commitment to safe and reliable operations for our customers is unchanged. However, our appetite for further growth and discretionary investments will be influenced by our ability to earn a fair and reasonable return. At 9.5%, the ROE in South Carolina is the second lowest in the Southeast and the lowest among other regulated utilities. Further, our coal ash management costs are consistent with our obligations under state and federal regulations and have been prudently incurred on behalf of customers in both North and South Carolina. Both states have enjoyed the benefits of a combined generation and transmission system over many decades, and the decommissioning of assets, including storage of ash, should rightly fit under the same sharing mechanism. We intend to make a motion for rehearing by the PSE and are prepared to file an appeal of these and potentially other portions of the case. Moving to slide six, let me update you on our strategic initiative. Our transition to a cleaner energy future is well underway. Our $1.1 billion Western Carolinas modernization project in Asheville remains on track for a late 2019 in-service date. The project combines various aspects of our cleaner energy strategy, retiring an older coal plant, building new natural gas units, installing renewables, and upgrading transmission and distribution infrastructure. We also engaged the community, increasing energy efficiency and demand response adoption, and effectively collaborating on a successful solution to better serve the growing region. Renewables development is also off to a tremendous start in 2019. In Florida, we announced three new solar projects totaling 195 megawatts is part of our commitment to add 700 megawatts of solar under our multi-year settlement agreement. We expect to begin recovering the cost of these investments under the solar base rate adjustment mechanism once the projects are in service. In North Carolina, the independent administrator issued results of the first RSP for renewable energy under House Bill 589, with 602 megawatts of utility-scale solar projects clearing the auctions. In total, Duke Energy was awarded 270 megawatts, with most projects coming online at the end of next year. Including those awarded under HB 589, our commercial renewables business has added multiple projects to their growing backlog. Combined with the earnings from our existing portfolio, these projects give us confidence in our ability to maintain the earnings contribution of this segment over the five-year plan. We have strong visibility to approximately 90% of the earnings target for 2019 and 2020, and approximately 60% of the target through 2023. This success clearly demonstrates our ability to capture a share of the robust market for contracted renewable generation. We expect this market to remain strong as it transitions away from tax incentives over the next few years. Turning to the grid, we continue to add new technology to make it more resilient, secure, and reliable. In Florida, base rate increases under our multi-year rate plan went into effect this January. Annual rate increases over the next three years support approximately 1.1 billion of grid modernization investments at Duke Energy Florida, including smart meter deployment and other system upgrades that will reduce outages, shorten restoration times, and support renewable energy growth. We are also building electric vehicle infrastructure in Florida and awaiting approval of our proposed EV programs in the Carolinas. A recently announced North Carolina initiative would be the largest in the Southeast and help to fund the adoption of electric school buses and public transportation with approximately 2,500 new charging stations. Shifting to natural gas infrastructure, I want to share a brief update on the Atlantic Coast pipeline. Oral arguments before the Fourth Circuit Court of Appeals regarding the biological opinion and incidental take statement are underway today. We expect an order in the case within 90 days. We are also pursuing an appeal to the Supreme Court for the US Forest Service permit to cross national forests and the Appalachian Trail. We expect the petition to be filed in the summer and are optimistic that the Department of Justice and Solicitor General will join this request. As discussed on our February earnings call, we expect construction to resume this fall and the first phase of the project in service by late 2020 and the full pipeline in service in 2021. We continue to advance discussions with customers regarding this approach. Our cost estimate remains in the range of $7 to $7.8 billion. We remain committed to this important project. ACP will provide much needed infrastructure to Eastern North Carolina and drive economic growth across the region. Turning to slide seven, I want to take a moment to update you on our ash basin closure efforts and the recent announcements in North Carolina. On April 1st, we received an order from the North Carolina Department of Environmental Quality stating that we must excavate all remaining low priority and low risk basins in the state. While we share the same goals of permanently and safely closing all basins, we disagree with DEQ's position. We estimate full excavation would cost an incremental four to five billion versus the cap-in-place or hybrid closure methods proposed by our utilities. This would impose significant costs on customers without any measurable benefit to the environment. The agency's position also fails to recognize the environmental impact of open basins and excavation activities that would occur over decades. Under a full excavation scenario, the state would need to take action to extend closure deadlines under state and federal laws based on the amount of ash to be addressed. We recognize it's within DEQ's authority to set the environmental policy of the state. However, in the interest of pursuing what is best for our customers, we submitted a comprehensive appeal to the North Carolina Office of Administrative Hearings. We expect the appeal would take approximately nine to 12 months. In parallel, we are developing a range of closure options to support compliance with the order while also maintaining a focus on cost for our customers. Under a full excavation scenario, it's important to note that it would take time to pursue permitting and construction of new basins to receive excavated ash. As a result, the most significant financial impact would occur outside the five-year plan, with about $200 to $400 million of incremental closure costs incurred in the next five years. We will continue to safely and permanently close ash basins in the Carolinas. We are currently excavating basins where it makes sense to do so and have already removed more than 20 million tons of ash in North Carolina. We have also advanced the construction of three ash reprocessing units in the state. Our focus remains unchanged. We will protect the environment and do what's best for our customers. Before turning it over to Steve, Our work in the first quarter demonstrates our ability to deliver on our commitments and create value for our customers and investors. We are executing our strategy to generate increasingly clean energy and make improvements to the energy grid. We're expanding our regulated renewables footprint with significant deployments announced in North Carolina and Florida, and we remain on track for smart meters to be fully deployed in all of our jurisdictions by 2021. This technology will complement other grid enhancing investments to provide customers with the information they expect while improving grid resiliency and security. I'm proud of our progress in the first quarter as we continue transforming our business and creating a smarter energy future. Our goal is to position Duke Energy to be the leading infrastructure investment, and I look forward to updating you on our progress throughout the year. So with that, I'll turn it over to Steve.