Duke Energy Corporation (Holding Company)

Good day, everyone, and welcome to the Duke Energy first quarter earnings call. Today's call is being recorded. And now at this time, I'd like to turn the call over to Jack Sullivan. Please go ahead.

Thank you, April. Good morning, everyone, and welcome to Duke Energy's first quarter 2021 earnings review and business update. Leading our call today is Len Good, chair, president and chief executive officer 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. So with that, let's turn the call over to Lynn.

Jack, thank you, and good morning, everyone. We're pleased to be with you to share our results and the excellent progress we're making in our strategic initiatives. Today we announced adjusted earnings per share of $1.26 for the quarter, delivering strong results to start the year, driven by growth at our electric utilities. Our first quarter results demonstrate the power of our clean energy strategy and our ability to execute that strategy. We also continue to tightly manage costs and engage stakeholders throughout our business as we develop and implement smart policy solutions. With the first quarter behind us and a clear path forward, we are reaffirming our 2021 adjusted EPS guidance range of $5 to $5.30, with a midpoint of 515, and our long-term EPS growth rate of 5% to 7% through 2025, based off the 515 midpoint. Turning to slide five, just over a year ago, we launched our comprehensive response to COVID-19. And although the pandemic is not behind us, I'm very proud of our response, demonstrating our commitment to health, safety, and customer service in the face of very difficult circumstances. But as I reflect on the past year, we accomplished so much more. We made the difficult but appropriate decision to step away from the Atlantic Coast pipeline. We hosted a successful ESG day, clearly articulating our clean energy vision and how we are pursuing the largest fleet transition in the U.S. We actively participated in stakeholder meetings in the Carolinas focused on our clean energy transition and regulatory reforms necessary to recover those investments, laying the groundwork for comprehensive energy legislation. We announced a market-leading transaction with GIC, delivering $2 billion of accretive investment into our company and eliminating the need for equity over the five-year period. We maintained a sharp focus on our cost structure, operational excellence, and customer service, delivering industry-leading safety results and surpassing our internal customer satisfaction target by nearly 15%. We outlined an updated five-year $59 billion capital plan and raised our growth rate to 5% to 7%. Further, we achieved numerous regulatory outcomes, including the successful completion of our first rate case in Indiana in 16 years, resulting in multi-year rate increases, accelerated depreciation of coal plants, and recovery of coal ash costs. We reached comprehensive settlements in our North Carolina rate cases with a broad range of stakeholders, which have been approved by the NCUC. We reached a comprehensive settlement on coal ash recovery, providing customers with near-term benefits while establishing recovery with a return in the years to come, which was also approved. And finally, in Florida, we received approval of a new multi-year rate plan, as well as the Clean Energy Connection Program, and the first three years of our Storm Protection Plan. In light of these accomplishments, which included eliminating uncertainties and creating a clear vision for growth, the stock has performed well, and we're poised to deliver even more in 2021. Turning to slide six, we're leading the way to cleaner energy and continue to make progress toward our 2030 goals and our target of net zero emissions by 2050. Across our jurisdictions, we're engaging with policymakers and stakeholders to accelerate the transition while keeping a sharp focus on reliability and affordability. I wanted to provide an update on the legislative session in North Carolina. As we discussed in February, ongoing work continues to build alignment on the shared objectives that came out of the Clean Energy Plan process. These shared objectives include North Carolina's clean energy transition, as well as the regulatory reforms that provide for timely recovery of these investments. We are now entering the middle phase of the legislative long session, and the legislative process, including opportunities to introduce new legislation, is expected to continue into the summer months. We continue to see momentum from a broad range of stakeholders to make progress on these objectives in 2021, and we remain optimistic for comprehensive energy legislation this year, aligned with our shared goals of generation transition and regulatory reforms needed to enable that change. Moving to Florida, our DEF utility continues to enjoy robust growth, deliver strong returns, and support important energy infrastructure for the benefit of customers. Our constructive relationship with customer and consumer groups has resulted in the advancement of critical infrastructure investments that accelerate our shared clean energy vision. This was clearly demonstrated with the Public Service Commission's approval of our multi-year base rate settlement on May 4th. As the Commission noted in their ruling, the settlement was the culmination of extensive engagement with many interested parties, including the Office of Public Counsel. We appreciate the Commissioner's complimentary remarks on our robust process to reach settlement. keeping the interests of all stakeholders in mind and arriving at a fair and equitable rate design. The settlement approval provides clarity through 2024 and includes recovery of significant investments in the grid, solar generation, and electric vehicle infrastructure. This settlement builds on our Clean Energy Connection solar program and Storm Protection Plan grid program as we continue to advance our transition to net zero emissions. Our Florida operation, positioned well for the economic rebound, continues to build momentum with investments aligned to our clean energy transition. Shifting to Indiana, we're making progress as we move through the state's integrated resource plan process. We've hosted multiple stakeholder sessions, receiving input from various interested parties as we collaborate on the path forward, all while ensuring our system remains reliable as we transition to new energy sources. Stakeholders have always been a part of the IRP process in Indiana, and their feedback is valuable as we evaluate a number of possible scenarios for future generation. Our filing will be submitted in November of this year, continuing our progress toward the energy transition in the state. At the federal level, we are actively engaged with policymakers on climate, infrastructure, and tax policy. We support policies that pave the way to net zero emissions while ensuring customer affordability and reliability. We also support investments in research and development for new clean technologies, which will be critical to achieving net zero. To that end, we see permitting reform as a solution to help streamline the process to build infrastructure without compromising community involvement and environmental protections. Electrification has also entered the climate discussions and represents an exciting opportunity to address transportation sector emissions. In the months ahead, we expect more clarity on the form and content of these policies, potentially an infrastructure bill, tax incentive extensions, and regulatory proposals, among others. We will continue to advocate for policies that support and accelerate our clean energy transition, emphasizing the importance of maintaining affordability and reliability for our customers. We will keep you informed along the way. It's important at this early stage, however, to recognize that we see great alignment between our vision of a net zero clean energy future and the policies that are being discussed. Shifting to slide seven, it's clear our industry is transforming and the pace of change is increasing. Duke Energy is not only keeping pace with this change, but we are at the forefront. Our transition to net zero is enabled by our growing capital plan, which in the back half of the decade ranges from $65 to $75 billion. This range of investment is consistent with our integrated resource plan filings and includes up to 15 to 20 gigawatts of additional renewable investment, tripling the amount of renewables on our system by 2030. We are also planning for retirements of 7 gigawatts of coal-only capacity, an amount that could increase as policies and regulations continue to unfold in this decade. The ultimate pace of our clean energy transition will be shaped by a variety of factors, including state and federal clean energy regulations and policies. We are actively engaged with policymakers and regulators on this important topic and are prepared to move as quickly as state and federal regulation and policy allow. We remain confident in achieving our carbon reduction and earnings growth goals as we continue the execution of our clean energy vision, creating value for our customers and growth for our investors. Shifting to slide A, we've carried our momentum forward in our environmental, social, and governance commitments, following our ESG day and fourth quarter call in February. In April, we released our 15th consecutive sustainability report, outlining our tremendous progress during 2020, and we've reached additional milestones in just the last few months. In March, we retired a 270-megawatt coal unit in DEC ahead of schedule, marking the 52nd coal unit closed across the enterprise. We also announced the accelerated closure of our Gallagher station in Indiana, bringing the retirement forward a year and a half to June of 2021. These decisions place us another step closer to our goal of removing all coal-only units from our portfolio in the Carolinas by 2030 and advances the targets for our Midwest utilities as well. As we retire coal, we are also adding renewables and other clean energy infrastructure across our system. In our commercial renewables business, we placed the 350 megawatt Frontier II wind farm in service in Oklahoma during the quarter. And in the regulated business, we placed 220 megawatts of solar in service in the Carolinas and Florida. Our electric vehicle strategy remains front and center as we continue to position Duke Energy as a key enabler of mass electric vehicle adoption. With commission approvals in the Carolinas and Florida, we're investing $100 million to implement pilot programs to support decarbonization of the electric sector across the southeast. And we joined the Electric Highway Coalition to help expand charging infrastructure across the nation's highways, aligned with many of our peer utilities. I'm also pleased to share that we're one of the first in the industry to release EEO diversity data as part of our sustainability report. demonstrating not only our commitment to transparency, but also to moving the needle on our diversity and inclusion metrics across the enterprise. Beyond that, we are one of the first in the industry to issue a report detailing our trade association memberships and their positions on climate change. It's these types of disclosures and transparent reporting that have earned us top rankings for investor transparency. And finally, last week, we announced three new directors to join our board. maintaining a strong focus on diversity, as well as bringing a wide range of backgrounds and skills to the table. Each of these steps highlights our keen focus on ESG priorities, and we look forward to sharing additional updates throughout the year as we make progress on our strategy. With the first quarter behind us and a clearly defined strategy ahead of us, I'm confident in Duke Energy's strong growth trajectory and believe our investment plan will deliver sustainable value and 5% to 7% growth over the next five years. And with that, let me turn it over to Steve.

Thanks, Lynn, and good morning, everyone. I'll start with a brief discussion on our quarterly results, highlighting a few of the key variances to the prior year. For more detailed information on the variance drivers and a reconciliation of reported to adjusted results, please refer to the supporting materials that accompany today's press release and presentation. As shown on slide nine, our first quarter reported earnings per share were $1.25 and our adjusted earnings per share were $1.26. This is compared to reported and adjusted earnings per share of $1.24 and $1.14 last year. Please see our non-GAAP reconciliation, including in the earnings release, for more details. Within the segments, electric utilities and infrastructure was up 15 cents compared to the prior year. Results were favorable due to benefits from base rate increases in North Carolina, Florida, Indiana, and Kentucky. weather year-over-year, and timing of O&M expenses. Partially offsetting these items were lower retail and wholesale volumes and higher depreciation costs on our growing investment base. Shifting to gas utilities and infrastructure, results were flat year-over-year. Results were primarily driven by continued margin growth at the LDCs and new retail rates in Tennessee, offset by the cancellation of ACP last year. In our commercial renewables segment, Results were down 4 cents for the quarter, largely driven by the impact of the Texas weather event. Other was favorable 6 cents for the quarter, principally due to higher market returns and certain benefit plans, as well as lower holding company financing costs. Finally, segment results are impacted by the allocation of dilution related to the $2.5 billion equity forward that settled in December 2020, which totaled 5 cents for the quarter. Overall, we were pleased with the strong results compared to last year, further illustrating how we continue to execute on our business and regulatory strategies. It's these excellent results and our strong start to the year that ensure we are well positioned to meet the 2021 guidance we shared in February. We remain confident in our ability to consistently grow our adjusted earnings per share at 5% to 7% throughout the five-year period off of the 2021 base year. Turning to slide 10, let me provide an overview of electric volumes and economic trends. Our results for the first quarter were down approximately 1% year over year. Keep in mind that we are comparing sales data to a quarter last year that had little impact from COVID-19. Residential volumes were up 2.6 over last year, driven by continued strong customer growth in our service territories and ongoing remote learning and work-from-home policies. The winter surge in COVID-19 cases impacted our commercial class, which was down 5% for the quarter. As vaccination rates continue to climb and restrictions ease, we expect a strong improvement in the commercial class through the rest of the year. While industrial volumes were down 2% for the quarter, nearly all of our large commercial and industrial customers have resumed operations, and the sector is showing signs of optimism. The ISM Manufacturing Index, a key indicator of economic activity, was 64.7 in March, its highest reading since 1983. As we look back, we continue to expect 1% to 2% load growth in 2021. This is supported by our early look at April volumes, which showed strong sales across all customer classes. Our service territories are well positioned for sustained growth over the long term. We operate in four of the top eight states for population migration, a testament to the attractive business environments of our service territories and electricity rates well below the national average. In fact, Apple recently announced a $1 billion investment in North Carolina that will bring 3,000 jobs to the Research Triangle area, highlighting the governor's commitment to economic development in the state. Turning to slide 11, we remain active in the regulatory arena. engaging stakeholders as we see constructive outcomes and smart solutions for our customers. In North Carolina, we received orders in our DEC and DEP rate cases, which approved key settlements we reached with interveners. These settlements incorporate significant infrastructure investment, providing benefits to our customers. The orders include approval of a 9.6% ROE and 52% equity capital structure, deferral treatment for approximately $1.2 billion in grid improvement plan projects, and resolution of coal ash recovery through early 2030. We have also mitigated customer rate increases with EDIT flowback from the 2018 tax rate change and storm cost securitization. Overall, we are very pleased with the outcomes in these rate cases. As Lynn noted, our settlement in Florida was approved last week. The settlement includes investments in renewables in the grid, the approval of an ROE band of 8.85% to 10.85%, and a 53% equity capital structure. Importantly, the ROE band also includes a trigger mechanism that protects against rising interest rates. Additionally, it approves accelerated depreciation for coal plants and the Vision Florida program, which funds $100 million in emerging technologies. Turning to our LDC business, our Tennessee gas rate case settlement was approved. Looking forward, we expect to complete two rate filings this year. Piedmont filed a North Carolina rate case in March, which includes investments in our Robison LNG facility, pipeline integrity management, and system infrastructure growth to support our rapidly growing customer base. We expect an evidentiary hearing in September and new rates to be effective later this year. And in Kentucky, we submitted our pre-filing notice on April 30, indicating our intention to file a natural gas rate case in June. Our ability to execute on our robust capital plan and grow our investment base is underpinned by a healthy balance sheet and solid credit ratings. So far this year, we have raised approximately $1.4 billion in long-term debt for DEC and Piedmont, with both transactions pricing at very attractive rates. We expect to close the first tranche of the minority sale of Duke Energy Indiana to GIC by the middle of this year and are on track to complete the North Carolina storm securitization in 2021. The proceeds from the GIC transaction, along with our overall financing plan, allow us to maintain a strong credit profile without the need for common equity issuances throughout the five-year plan. Looking ahead, To second quarter and beyond, I want to provide some perspective on timing considerations for the balance of the year. Our expectations are that volumes will recover over the balance of the year, with a 1 to 2 percent increase over 2020. Having said that, our second quarter will reflect the cancellation of ACP, and as we discussed in the year-end call, we expect O&M to be unfavorable in the second and third quarters, due to the significant COVID mitigation actions we took in the spring and summer of 2020. Before we open it up for questions, let me close with slide 13. We remain confident in our 2021 adjusted earnings per share guidance of $5 to $5.30 with a midpoint of $5.15. Our first quarter results position us well to achieve full-year results within this range. as we continue to invest in important energy infrastructure that our communities value. Our attractive dividend yield, coupled with our long-term earnings growth from investments in our regulated utilities, provide a compelling risk-adjusted return for shareholders. As Lynn discussed in her opening remarks, we continue to advance our clean energy strategy with a keen focus on affordability and reliability, keeping customers at the center of all we do. Duke Energy is well positioned to lead as the pace of change in our industry accelerates, delivering sustainable value to our customers and investors. With that, we'll open the line for your questions.

Thank you. If you'd like to ask a question, simply press the star key followed by the digit 1 on your telephone keypad. Also, if you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, star 1 at this time. to ask a question or make a comment. We'll pause for a moment. And we'll first hear from Char Parisa of Guggenheim Partners.

Good morning, Lindsay. Good morning, Char. Good morning. So just touching on the North Carolina legislative process and maybe just following up a little bit on your prepared remarks, Lindsay, I mean, obviously recognizing, you know, you guys are in the middle of a lengthy and comprehensive legislative process, and we know you can't get into too many details here, but, you know, you seem obviously you're optimistic, which is good, but, you know, we are coming up on the, you know, House filing deadline of the crossover dates, and everyone is hyper-focused on sort of these timelines. Can you maybe just elaborate why you're still optimistic, given a very tight window, sort of giving you this sense of optimism?

Sure, thanks for the question. Our optimism is really centered on the broad support for comprehensive energy legislation that exists within the state. You know, we've been talking for some time about the robust process that occurred in 2020 and under the governor's clean energy plan. So, you know, the administration, the environmental community, solar developers, industrial customers, Duke Energy, others have been at the table. And there is broad support to move forward in 2021. I think that the other thing that's important to note, which I tried to emphasize in the remarks, is we're in the middle of the session. But that legislative process, which includes the opportunity to introduce bills, will continue and is expected to continue well into the summer. So one thing I would just point out is if we think back to 2017 when House Bill 589 was moving, it was actually introduced in June. which was well past crossover dates and then became law at the end of July. So the timing and approach to advance the bill is in the hands of legislative leadership, and we will remain patient as they work through their process. But as I said, we have optimism based on the broad support for this legislation.

Got it. So basically sometime in the summer is when you expect an introduction.

You know, I don't want to point to a specific timeframe, Char, but I do think we'll have data points to talk about this summer, including, you know, we'll be back in front of all of you in early August. The timing is really in the hands of legislative leadership, which is where it belongs to advance the bill. And so we'll continue to keep you updated. But the optimism, as I said before, really centers on the broad support.

Got it. And then just lastly for me, remind us, you know, what some of the key priorities there are around the legislation and maybe potential treatment we could see come about from it. So if we're thinking about, you know, performance-based rate making, are we bands, formula rates, rate-based renewables, is everything on the table right now or some facets not palatable? So just a bit of a sense on some of the pushes and takes that you're seeing here.

Sure. And, you know, Char, I think all of the things you mentioned kind of fit under the broad objectives where there's alignment. So transition away from coal, advancing renewables, regulatory and rate-making reforms. And so when I, you know, when we use the word comprehensive and you list all of those things underneath, you can see that there are a number of key issues that will be addressed. And so, you know, we'll have more to say as this progresses. The other point I would emphasize is the five-year plan, the 5% to 7%, the 2021 guidance that we've put in front of you is not predicated on a specific outcome of this legislation. It has a more dramatic impact on the back part of the decade as we accelerate the transition into 2030. So, you know, we think good progress is being made, and we'll continue to update you.

Terrific. Congrats on the results. Thank you, guys.

Thank you, Char.

Thank you.

And next we'll hear from Julian DeMoulin-Smith of Bank of America.

Hey, good morning, team. Congratulations.

Hi, Julian.

Hey, thank you. Perhaps just to pick up where that last one was left off, can you provide a little bit more color on how you and legislatures are thinking about customer bill implications here. How do you make the legislators comfortable with the rate increases? Or how do you think about compromise therein? You mentioned a number of different specific pieces that constitute this. Can you elaborate a little bit more?

Sure. And you know, Julian, reliability and affordability have been front and center really dating back into 2020 in the stakeholder process. So all of the things that we're talking about here around transition, around renewables, around regulatory reforms will be looked at within the construct of reliability and affordability, and that's appropriate if you think about the growing economy here in the Carolinas. So those topics are being discussed and should be discussed.

Okay, excellent. And just to clarify, I think I saw this in your remarks, but the introduction of verbiage into any bill here. The crossover date seemingly doesn't necessarily matter here. It's really, as you said earlier and emphasized, the summer timeline matters most as you think about a 22 rate case timing, right?

You know, 22 rate case, I don't know about that, Julian. We don't have specific plans around a rate case in 2022. But I would, your point around the summer, you know, the legislative process continues into the summer and You know, as the calendar lays out in the Carolinas, the long session doesn't have a required end date. So, you know, we'll continue to keep you apprised of the developments in the summer and, you know, again, remain optimistic.

Right. Fair enough. Yeah, the point was there was a broad latitude. Quickly, Steve, if I can ask you to elaborate, your comments were intriguing here with respect to load trends. How are you thinking about the 1% to 2% increase as you've contemplated formally versus your seeming acceleration commentary into April here? Can you reconcile with you just a tad?

Well, we've got a good bit more to learn as we move through the second quarter, but the April results look solid for us. That's one month. I think as vaccinations roll out and stimulus funding comes into play and so forth, we are seeing the economy pick up, and we're seeing activities at our customer base pick up as well. So whether the 1% to 2% growth is light or in the ballpark correct, we feel confident with it. We'll update that as we move forward into the next quarter and have a bit more data. But we are encouraged by what we're seeing across our footprints. And we are encouraged by the customer growth, which continues to be high, and that underpins it.

Yeah, Julian, you might have seen on the front page of the journal today they were highlighting communities that have been benefiting from migration. Greenville, South Carolina is on the list. So, you know, we've continued to see good customer growth and hope to be surprised to the upside, but, you know, the 1% to 2% I think is a good planning assumption. We've sized our cost structure to be consistent with that. So, we're continuing to manage the business really tightly.

Excellent. Congratulations. Speak soon.

Thank you, Julian.

Steve Fleischman of Wolf Research has our next question.

Yeah. Hey, good morning, Lynn and Steve.

Hi, Steve.

Morning. Hi. So just apologies for beating a dead horse here, but just the legislative process, is there anything to read into the fact that these utility-related bills or clean energy-related bills were not addressed early in the session? Were there certain other priorities that kind of came ahead or just anything to reason kind of why that happened?

Yeah, I wouldn't read anything into it. You know, it's comprehensive energy legislation with a broad group of stakeholders. And, you know, one of the reasons I pointed to HB 589 being introduced in June of 17 is because you may not remember that bill specifically, but it included PURPA reform and also included, you know, a pathway for renewables over a multi-year period. So, you know, the timeline, how to advance the bill timeframe, always within the hands of the legislative leadership, And we continue to work with the broad range of stakeholders. But I don't think there's anything specific that I would point to on the timing. We remain optimistic that it will move forward.

Great. Okay, great. And then how about an update on the approvals of the Indiana transaction? Just I know you said mid-year. Has there been any intervention, any process to kind of monitor there?

Sure, sure. So two things remain, Steve. CFIUS approval and FERC approval. There have been some filings in the FERC docket back and forth, Sierra Club, CAC, others. You know, in our view, the issues that are being raised are not really relevant to what FERC is evaluating. And further, there have been strong support from our wholesale customers. And so we still believe kind of middle of the year is appropriate timing for that. CFIUS has recently notified that they're moving to another phase, which is quite common. With the caseload that they have to reach agreement within 45 days or approval is increasingly uncommon. So again, we think mid-year is the right timeline for both of those approvals, and we'll continue to keep you updated.

Okay. I guess the last question just Could you give us a sense of the IRP schedule, just since it kind of could interact with legislation? Sure. What is the latest on the IRP schedule?

Yeah, so the IRP is moving in two ways, Steve. In North Carolina, there have been public hearings underway. The North Carolina Commission does not approve the IRP, but rather provides feedback. And so we are on pace. to hear from them, we believe, likely in the fall in North Carolina. And then in South Carolina, there was a hearing that began on April 26th. It has wrapped up. South Carolina does approve. This is a part of Act 62 that you may remember from a couple of years ago. We expect an order from them by June 28th. And I think what's important in South Carolina is the Office of Regulatory Staff is supportive, in fact, was complimentary of the work that we accomplished with the IRP. And so we believe we'll get good feedback from the South Carolina Commission as well, June, end of June for that timeframe.

Okay, great. Okay, thank you.

Thank you, Steve. And we'll hear from Stephen Bird of Morgan Stanley.

Hi, good morning. Hi, Stephen.

Good morning.

I wanted to just discuss the Indiana IRP, I guess, a little bit more broadly. And I was interested in trying to compare the dynamics in Indiana versus, say, in the Carolinas. I'm thinking about things like, you know, different renewables costs, different generation cost structures, feedback you've received, you know, so far in terms of priorities in Indiana. How would you at a high level sort of characterize some of the maybe differences and similarities as you compare sort of the resource mix and where you may head in Indiana versus, say, in the Carolinas?

So, Steve, a heavier coal mix in Indiana, as you know. Some wind availability in terms of resource capability in Indiana more so than in the Carolinas. Solar is available but would have a slightly different capacity profile than in the southeast, as you can imagine. And so we have been in active conversations in Indiana on the appropriate transition for some time. You may recall that in the rate case that was approved in July, we actually accelerated depreciation, shortening the lives of the assets. And the legislature in Indiana has also undertaken a review in a clean energy task force of how the state can keep making progress. And so we see this IRP filing as a way for us to continue discussions with all the parties. How can we accelerate? How can Indiana maintain control of their destiny? How can we bring in renewables in a cost-effective way? Is there a role for natural gas as we move away from coal? And good conversations are underway, and I expect to have more to say as we get closer to that filing. Stephen, but I would share with you that we're building on conversations that have been underway in the state for some time.

That's really helpful. And maybe just focusing on renewables. And I'm just curious what data points you're seeing in terms of cost of equipment, availability of equipment. A common theme among investor discussions is just sort of availability of of renewable equipment, supply chain stresses along the way. Are you all seeing any data points along those lines, or is it broadly that equipment is available, costs continue to be fairly low?

Yes, I'll take that, Steven. We have, in our commercial renewables business, pretty extensive input to the supply chain. and so we have a good diverse set of vendors that we utilize for the various services there. We haven't seen any anomalies or stresses at this point that interfere with our projects and moving them online. We saw some challenges in 2020 related to COVID and worker availability along the supply chain, but as that has been relieved, that has helped move along. We're keeping an eye on increasing price pressures as we are across our entire footprint, not just the renewable standpoint. At this point, we haven't seen anything what I would call dramatic.

Yes, Stephen, the one thing I would add to that I think is, you know, we monitor the acceleration of policy discussions at the federal level. and we also see how our states and customers are moving, we continue to keep our eye on what size of supply chain are we going to need in order to accomplish all of these objectives. And I think that is going to be something that every utility is looking at in the near term. There could be some pricing pressures as we all try to figure out how to get on our front foot. But I suspect if there's a lot of support for this growth, that supply chains will continue to expand and we'll look for ways we can find the lowest cost for customers. So it is a front-of-mind issue for us broadly, not only for the coming year and projects on the docket, but over the long term as we look at the size of these capital spending plans that we have in front of us.

That's extremely helpful. And maybe just one last one at a high level at the federal legislative level. I'm just curious your take on the prospects for clean energy support is sort of broader legislation that may pass. What is your sense as to the prospects for getting further support for clean energy and, you know, perhaps for transmission and other asset classes as well?

You know, Stephen, I think it's early, and there are a lot of things being discussed, as you know, infrastructure, clean energy policies, tax policy. And so I do think we are encouraged by the conversations around clean tech R&D and electric vehicles, some discussion around permitting, reform, tax policy. We expect to have some incentives around clean energy investment, which will be to the benefit of our customers. So we remain engaged, and we'll know more about how these things take shape over the course of the summer and continue. to be encouraged that there might be a bipartisan way to approach infrastructure. I think there's an upcoming bipartisan infrastructure week in early June because I think that could be, you know, needed investment in the economy and certainly great for Duke if that were to move forward.

Very good. Thank you so much.

Thank you. Thanks.

We'll hear from Jonathan Arnold of Vertical Research Partners.

Oh, yeah. Good morning, guys. Thank you. Hi, Jonathan. Extra color. It was reported a while back, Lynn, that the House was sort of the venue that was seen to be taking the lead on the legislation in North Carolina. Is that the case, or is that sort of something that's moving around here?

So the House is taking the lead, Jonathan. And, you know, all the comments I've made, you know, continue, remain. We're working our way through it.

Okay. And, you know, we've talked about greater flexibility on dates. Should we be looking for them to sort of formally move any of these dates, or is that just it's just more that the process is fluid and a long session?

I wouldn't expect the dates that you're referencing, like crossover and so on, to move, Jonathan. I think the bigger point is that legislation and introduction of bills and amendment of bills and other things can move throughout the legislative session. So it's not dependent on those specific dates.

Thank you. Okay. And I want to just, a couple other things. Steve, the 1% to 2% sales growth, am I correct that that's a full year number or is rather than your sort of balance of year number?

That's a full year number, Jonathan, and that takes into account what we expected to see in the first quarter of 2021, knowing that there was still some carry forward and winter surge and so forth, but the 1% to 2% is the entire year.

And how does what you did see in first quarter sort of marry up with what you were expecting to see?

You know, given the winter surge, it was not surprising to see the drop there. And so we expected that to occur compared to 2020. So I think it was fairly well in line. What we're encouraged by is the early signs from April. Now, that's just one month. Quite strong. And some of the other indices. So, again, we would feel confident in the 1% to 2%. and we'll see if there's upside to that as we move to the next quarter.

Thank you. And then just finally, you said in the 10K that you thought Winter Storm Yuri was going to be a 75 to 100 million pre-tax event for you, and I think the slide showed it was a $0.04 hit in the quarter, so that seems to be quite a bit less than you originally thought. Could you just talk about what went on between one day and the other?

You know, Jonathan, that filing was an early estimate. And as we learned more and got more information on how the transactions actually settled and came through, the $0.04 is what we experienced. Steve, would you add anything?

Yeah, that's right. It was a quick and fast look. We needed to get some information out about that on that early estimate. But as we worked with the individual customers and off-takers and tax equity partners, there was different allocations of events, and it resulted in less of a loss.

Great. Thanks for that. Thank you, Jonathan.

And Michael Weinstein of Credit Suisse.

Hi, good morning. Hi, Michael. Hey, could you also comment, Lynn, on the recent headlines that the Biden administration has support for nuclear, maybe talking about nuclear PTC? I'm just wondering how that affects the calculus in a regulated context, you know, in terms of, you know, as you apply for license renewals and going forward, do you see the plants, do you see federal support as helping or maybe no change from before? I'm not sure.

I think any support, federal support, other support for nuclear is important, Michael. We are big proponents of nuclear power at Duke Energy. If you think about the Carolinas, 50% of the energy comes from carbon-free nuclear plants. And so we are on path to seek second license renewal for all of our plants, and we're also engaged on some new technologies from the standpoint of providing operating experience for the advanced nuclear that we believe will be helpful to get to net zero. And so when I listen to incentives around nuclear that you were referencing, I think they can be quite important for technology development and for encouraging further expansion of nuclear power as part of the net zero plan.

Do you think it changes the discussion around the IRP, though, going forward? How much nuclear will be in the future, 2030s and beyond?

It could. I don't think at this early stage it will. Michael, one of the things that we're in discussions with the commissions about on the IRPs, all of them are based on historic tax policy. So any incentives around extended renewables, nuclear, offshore wind, transmission, all of those would be updates and generally more cost-effective for customers. So we'll continue to update these IRP plans as we go forward. And, you know, as I said a couple of times, the support for new technologies we think is really important because as we get kind of to that 70% to 80% carbon reduction working toward net zero, We need technologies we don't have today, and that's where the advanced nuclear could show up, carbon capture, hydrogen, and other things. So we're big advocates of keeping attention on that and funding in a way that will help those technologies get to commercial scale.

Along the same lines, RNG, renewable natural gas, is there other plans to blend that into the Piedmont system, and how do you see that developing over the next 20 years?

Sure. So we have made some investments, Michael, in Sustain R&G, which makes advanced methane, uses advanced methane generation technology to produce renewable natural gas from dairy farms. And so we're really working with the technology today with the hope that we can introduce it in our Piedmont system or our system in the Midwest and Tennessee as we go forward. And that, coupled with our commitment to net zero methane by 2030, makes a strong statement about our commitment to lowering carbon in our LDC business.

Great. Thank you very much.

Thank you.

Next, we'll hear from Jeremy Tenet of J.P. Morgan.

Hi. Good morning. Hi, Jeremy. Just wanted to turn over to the commercial renewable segment, if I could, here. And just want to see, does the Duke Energy Sustainable Solutions rebranding signal kind of an interest to potentially expand this business? Or even if the Biden administration, if the plans come through with kind of greater tax incentives on this side, would Duke look to ramp up growth in commercial renewables?

You know, the branding, Jeremy, I would characterize as us being responsive to the market. We have a lot of work going on. with large industrial and commercial customers looking for customized solutions as they work to achieve their own sustainability goals. It could take the form of commercial renewables. It could take the form of microgrids. It could take the form of supporting electrification of industrial processes or transportation. And so we have been working with these large customers for some time and thought this would be a helpful way just to bring a comprehensive set of solutions to those customers as we go forward. And I believe that customization is going to be an important part of the decarbonization journey for, you know, large industrial commercial customers as we move forward.

Got it. That makes sense. And maybe just touching a bit on slide 16, advancing EV infrastructure here, just wondering if you could, you know, Talk us through how you think the complete opportunity set is here. Could this represent upside to CapEx as you see it over the next 10 years?

We do see opportunities for more CapEx, and frankly, we see opportunities for more load growth as customers adopt the technology and we see increasing utilization on the part of our communities and municipalities, etc., So we have been very active in this, Jeremy, with conversations around all of our jurisdictions, trying to get a base level of infrastructure in place to encourage adoption, and then working directly with, you know, like the city of Charlotte, we're partnering with them on electrification of municipal buses, working with school districts. Anything that we can do to bring our expertise around electrification to this important transition, I think, represents an incredible opportunity for us. All of these individuals have sustainability goals, all these communities, many of them have sustainability goals. And then I think you see the auto manufacturers and others transitioning to electric. We want to have the infrastructure in place to serve those customers. So I think it represents an incredible opportunity.

Got it. Makes sense. I'll leave it there. Thank you. Thanks so much.

And we'll hear from Michael Lapidus of Goldman Sachs.

Hey, guys, thank you for taking my question. Hi, Michael. Hi, Les. Can you remind us what's in 2021 guidance for the change in O&M company-wide relative to 2020 and then how you're thinking about kind of 2022 and beyond O&M growth?

Yes, Michael, for 2021, the O&M is going to go up compared to 2020. And keep in mind, in 2020, we reduced O&M by $320 million, roughly, through various efforts. $200 million of that is sustainable, but a chunk of that is not sustainable. So you're going to see an absolute increase in 21 over 20 in O&M. But the broad trend line of O&M continues to decrease. We've taken it down 1% since roughly 2015-2016 timeframe on a consistent basis. And our goal is to certainly keep it flat to declining as we go forward. And I have confidence in our ability to do that. We've learned a lot from COVID, an entirely new set of efficiencies that we've learned from that that we're going to try to carry forward and broaden. But on the absolute basis, you'll see it go up in 2021 as we have to catch up a few things compared to 2020.

Got it. And then longer term, do you still see opportunities for material cost synergy or savings? Or is the goal just to keep it flattish on 2021 levels?

You know, Michael, I think there continues to be opportunities. You know, Steve talked about some of the learnings from COVID. We're aggressively moving on real estate opportunities. As we continue to invest in the grid with new technologies, we're finding O&M savings. And if you think about this clean energy transition moving out of coal, there's a natural reduction in O&M that could come there as well. So we continue to find ideas, continue to find ways to really focus on this. And we also see it as a strategic priority for our company to maintain affordable prices for customers as we put this capital to work. So our focus on this is not going to lessen. We're not at the end of anything. We're just continuing to find ways we can drive efficiencies.

Got it. Thank you, guys. Much appreciated. Thank you, Michael.

And that does conclude the question and answer session for today. At this time, I'd like to turn the call back over to Lynn Good for any additional or closing comments.

Thank you, April. And thanks to all of you for joining today, for your interest in Duke, your investment in Duke. And the IR team is available, as always, for further questions following this call. So thanks so much. Have a good afternoon.

That does conclude today's conference. Thank you all for your participation. You may now disconnect.