Duke Energy Corporation (Holding Company)

Ladies and gentlemen, good day and welcome to the Duke Energy Second Quarter Earnings Call. Today's call is being recorded. At this time, I would like to turn the conference over to Brian Buckler, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Abby. Good morning, everyone, and welcome to Duke Energy's Second Quarter 2020 Earnings Review and Business Update. Leading our call today is Lynn Good, Chair, President, and Chief Executive Officer of along with Steve Young, Executive Vice President and CFO. Today's discussion will include the use of non-GAAP financial measures and forward-looking information within the meaning of the securities laws. Actual results could differ materially from such forward-looking statements, and those factors are outlined herein and disclosed in Duke Energy's SEC filings. A reconciliation of non-GAAP financial measures can be found in today's materials and on dukenergy.com. Please note the appendix for today's presentation includes supplemental information and additional disclosures. As summarized on slide four, here in today's call, Lynn will provide an update on our 2020 financial results and rate cases, as well as insights on the company's long-term strategy and investment outlook. Steve will then share an overview of our second quarter financial results. We will also offer insights into our economic and road growth outlook and long-term earnings projections before closing with key investor considerations. With that, let me turn the call over to Lynn.

Ryan, thank you, and good morning, everyone. Today we announced suggested earnings per share of $1.08 for the quarter, which is favorable to our internal projections, including COVID. The decline in load during the quarter was less significant than originally anticipated. with some of our states reopening and residential usage stronger than expected. Looking ahead and recognizing the uncertainties that remain, including the potential impact of a resurgence in the virus, we're maintaining our full year projection of a 3% to 5% decline in retail volumes. We are also closely monitoring the pace of economic recovery and will know more as the year progresses. We made great progress in mitigating operations and maintenance expense. I'm very proud of our demonstrated track record in managing our cost structure over many years, but I'm particularly proud of the work of the team this year. We have identified and launched significant efforts to reduce costs in 2020 by $350 to $450 million, matching the impact of mild winter weather, major storms, and the pandemic. The quarter reflects a portion of those savings, and we are on track to deliver the remaining savings over the balance of 2020. We remain steadfast in our 2020 financial commitment to shareholders and are reaffirming our full-year guidance range of 505 to 545. Through our aggressive approach to cost mitigation, which began early in the year, we are positioned to navigate through the uncertainties of COVID and to absorb the loss of earnings from the cancellation of ACP. As Steve will discuss in a moment, our year-to-date results, along with a strong July, position us to deliver in the lower half of the 2020 guidance range. The third quarter, our most significant one, is still ahead of us, and we will update expectations again during our third quarter earnings call. Let me also touch briefly on 2021. In July, we announced the cancellation of the ACP due to ongoing delays and increasing cost uncertainty. which threatened the economic viability of the project. We are disappointed in this outcome, but believe the decision to cancel is in the best interest of our shareholders and our customers, and we are actively pursuing other infrastructure plans to support eastern North Carolina, as I will touch on in a moment. There's a lot to be excited about as we head into 2021. We will enter the year with 95% of our future earnings and capital allocation in our regulated electric and gas utilities. Our utilities serve some of the most attractive jurisdictions in the country and provide our investors with a transparent, low-risk capital plan and annual rate-based growth of 6%. We will use every tool available to us to maximize 2021 earnings for shareholders and will remain steadfastly focused on delivering growth of 46% over the long term grounded in our regulated jurisdictional businesses. Steve will share more with you in a moment regarding our 2021 outlook. Before I talk about a recent regulatory activity and investment strategy, I wanted to share an update on our ongoing response to COVID and the social unrest that has gripped our communities. We are nearly six months into the pandemic, an unprecedented event that has required us to create new solutions for our customers and employees. In short order, we've adapted our workplaces, shifted to remote operations where possible, created new processes for customer interactions and more. while keeping the health and safety of our communities and employees paramount. We've also maintained reliable service for our customers and quickly restored 350,000 outages across Florida and the Carolinas as a result of the recent hurricane. Our employees continue to rise to the challenges associated with this pandemic, and I am so proud of our workforce's extraordinary response. And in the midst of the pandemic, our company, and indeed the nation, I've been challenged by the killing of George Floyd and his aftermath. Issues surrounding racial equity and social justice are front and center as they should be. A national movement has been ignited that demands much more than a debate. It deserves action. Our company is determined to work toward fair, responsible, and practical solutions. Times like these remind me of the importance of our company's values. We believe deeply that having diverse backgrounds, experiences, and skills allows us to serve our customers better. innovate, and attract the talent we need to be successful. Now more than ever, we are relying on these values to cultivate a workplace rooted in diversity and inclusion. As we power the lives of our customers, we will also continue to advocate for change, stand up for justice, and ensure the communities where we work and live are provided with equal opportunities. Turning to slide six, you can see that we've been active in the regulatory space over the past few months and are engaging stakeholders to reach balanced solutions for our customers. In late June, the Indiana Utility Regulatory Commission issued a constructive order in our base rate case supporting our long-term investment strategy for the Midwest. As you will recall, we filed our case last July, marking the first case DEI filed in 16 years. We received approval for an overall base rate increase of $159 million or a 6.2% average rate increase. The rate increase, which is based on the modernized forward test year, will be implemented in two steps, with step one rates already effective and step two rates will be implemented in Q2 2021 and then trued up with carrying costs to January 1st of 2021. The commission ordered a 9.7% ROE and a requested capital structure of 53% equity. We were also pleased with the decisions on full recovery of and return on historic coal ash costs, and inclusion of the Edwards Ford IGCC plant in base rates. Importantly, the Commission approved shortened depreciable lives for our coal fleet, a key step in our transition to a cleaner energy future and consistent with the IRP we filed in 2019. Shifting to North Carolina, we recently reached constructive partial settlements in both our DEC and DEP rate cases. The settling parties include a broad group of interveners from large customers to community groups, and most recently, the public staff. Illustrated, the focus our company places on stakeholder engagement. Key terms of the agreement with public staff include a 9.6% ROE and 52% equity component of the capital structure, along with deferral treatment and a return on approximately $1.3 billion in grid improvements from 2020 to 2022. The settlement terms are subject to approval by the North Carolina Utilities Commission, with hearings set to begin on August 24th. The delay in hearings provides sufficient time for the parties to review our updates to capital and service data and other revenue requirement inputs for May 31st. These changes will increase the annual revenue requirement request by approximately $70 million. And lastly, I'd like to point out our filing to implement interim rate changes for both DEC and DEP. These temporary rates are designed to protect our ability to earn on investments, consistent with the originally requested effective dates, while avoiding a rate change for customers during this interim period. This innovative approach by our North Carolina regulatory team was made possible by utilizing the flowback of excess deferred income taxes and ensures we maintain our financial strength as we make these investments. We look forward to sharing more updates on our North Carolina rate cases and other regulatory proceedings in the months to come. Now turning to slide seven and eight, Duke Energy's strategy to modernize and strengthen the energy grid, generate cleaner energy, and expand smart energy infrastructure across our footprint is underpinned by a robust five-year, $56 billion capital plan. It also provides a clear line of sight to tremendous capital deployment opportunities for our communities well past 2024. Our financial and capital planning process is underway, and we continue to see ample capital investment opportunities, including emerging infrastructure needs for the Piedmont natural gas system in eastern North Carolina, ongoing grid upgrades and infrastructure to support economic growth, and renewable expansion, and additional solar investments in Florida and the Carolinas. We're also finalizing our work on the integrated resource plan in the Carolinas, the IRP, which we will file in early September. In the IRP, we will outline alternatives to achieving our carbon reduction goals, as well as the North Carolina governor's executive order to achieve a 70% reduction by 2030. This IRP filing follows a comprehensive stakeholder engagement process, which worked to identify the best potential paths forward to achieve carbon reduction targets, while also balancing reliability and affordability for our customers. We are also engaged in a separate stakeholder process led by the state of North Carolina focusing on establishing a clean energy plan for the future. We see this engagement and our IRP filing as complementary, and we believe they will serve as foundational elements in our investment planning over the next decade. Retirement of coal plants and investment in replacement generation coupled with investments in battery storage, the energy delivery system, energy efficiency, and demand-side management will underpin the state's transition to a cleaner energy future, and Duke Energy's investment plan for customers and shareholders. We look forward to sharing more with you as the year progresses. This line of sight to an extensive runway of investment opportunities in the Carolinas, as well as our other states, gives us confidence to deliver on our long-term rate-based growth rate of 6%, not only through 2024, but into the next decade. As I reflect on 2020 and where we're headed, Duke Energy is very well positioned. Time and again, we adapt, innovate, and deliver, creating value for customers and shareholders alike. As we continue to respond to the pandemic, we are looking to the future and executing on our long-term plans, advancing a smarter energy future for our communities. I hope you'll join us for our inaugural ESG Analyst Day on October 9th to learn more about our Carolinas IRP filing, long-term strategy, and specific focus around the environment, social issues, and governance. We've included more information on slides 27 and 28 in the appendix, which illustrate our strong progress on transitioning our generation portfolio to carbon-free resources, including renewables. These are important topics, and we look forward to further discussions with you at the ESG Day. With that, let me turn the call over to Steve.