Q3 2019 Earnings Call
Please standby we're about to begin.
Good day and welcome to de Duke Energy third quarter earnings call. Today's conference is being recorded at this time really from the conference over to Mr., Brian Butler, Vice President Investor Relations. Please go ahead Sir.
Thank you Eric Good morning, everyone and thank you for joining Duke Energys third quarter 2019 earnings review and business update leading our call today as Lynn Good Chairman, President and CEO , along with Steve Young Executive Vice President and Chief Financial Officer.
Today's discussion will include forward looking information and the use of non-GAAP financial measures slide two presents the safe Harbor statement, which accompanies our presentation materials.
A reconciliation of non-GAAP financial measures can be found on Duke energy Dotcom and in today's materials. Please note. The appendix for today's presentation include supplemental information and additional disclosures.
As summarized on slide three during today's call when we'll provide an update on the quarter and progress on our strategic initiatives.
Steve will then provide an overview of third quarter financial results and insight about economic and load growth trends.
You also provide an update on or regulatory and financing activities. This year before closing with key investor considerations.
With that let me turn call over to win.
Thank you and good morning, everyone.
Today, we announced strong results for the quarter with adjusted earnings per share of $1.79 compared to $1.65 in the prior year. This represents 7% growth through the first three quarters, giving us confidence that we will look to the rest of the or.
We have narrowed our 2019 Dps guidance range to 495 to 515, raising the midpoint into the upper half of our original range.
We also reaffirmed our long term earnings growth rate of 4% to 6% through 2023 up the midpoint of our original 2019 guidance range.
Well the 19, it's proven to be a solid year upgrade for Duke energy as we transform the customer experience and deliver value for our shareholders. We continue executing our strategy, making significant investments in the energy grid cleaner generation and natural gas infrastructure and the fundamentals of our business remains strong.
Let me highlight several operational accomplishments in the quarter on slide four.
First in early September Hurricane Dorian a store category five storm with an unpredictable path.
Devastated the Bahamas before sweeping across the east coast, our thoughts remain with the people the Bahamas as they continue the long journey to rebuild their communities.
And the days, leading up to during its potential landfall Oh weather forecasts and models projected significant outages to our Florida and Carolinas service territories.
Response, we know the lives nearly 8000 resources in Florida and over 10000 resources in the Carolinas as we raised for the storm.
Well during tracks shifted it pause nearly 300000 outages and our service territories, our teams preparation commitment to our customers and focus on operational excellence enabled us to restore more than 95% of the outages within 24 hours.
Also our systems and employees performed well in the face of some of the hottest stays on record in September in early October .
Despite these temperatures our fleet performed well and serves customers with the energy they demand.
In the quarter, Duke energy was named one of the top sustainable companies in North America by Dow Jones for the 14th consecutive year. This is a testament to our climate strategy sustainable practices and ongoing investment and cleaner generation.
In addition, Duke energy received the U.S. Transparency award, which recognizes the quality and transparency of information the U.S. companies make available to investors, Duke energy was awarded best corporate disclosure for the utility industry.
I'm proud of our employees and our operational execution during the quarter from storm preparation to industry recognitions, we continue to demonstrate the strength of our business and excel in our operations, which is fundamental to achieving our long term strategy.
Turning to slide five in September we announced a more aggressive comprehensive strategy to reduce carbon emissions.
My 2030, we will cut carbon emissions by at least 50% from 2005 levels and aspire to attain net zero carbon emissions by 2050.
Our commitment for 2030 includes plant retirements operating our existing carbon free resources and investing in natural gas infrastructure renewables and our energy delivery system.
A recent rate case filings in Indiana, and the Carolinas are consistent with this accelerated approach.
As we look beyond 2030, we will need additional tools to continue our progress we will work actively to advocate for research and development of carbon free Dispatchable resources that includes longer term energy storage advanced nuclear technology, its carbon capture and zero carbon fuels.
We will also pursue second license renewal for all of our nuclear assets to maintain this low cost carbon free source of generation.
The journey and timeline for achieving our targets will be different in each state and we're committed to working with our regulators and other stakeholders to design the right path for our customers and communities.
Taking our energy system cleaner and more sustainable means we must transform the way we operate and we're facing that challenge head on we've made great progress and our acceleration in this area will position the company to provide customers with a cleaner smarter energy future.
The investments shown on slide six are also consistent with our climate strategy or Asheville combined cycle plant. It's on track to be completed but he ended the year. That's plans is part of our 1.1 billion dollar Western Carolinas modernization project that supports this growing region.
Also in North Carolina, the second renewable energy RFP under House Bill 589 launched in mid October the RFP seeks another 680 megawatts of solar projects, which would bring the total renewables procure under the program to almost 1200 megawatts, we look forward to participating in.
The next phase of the process.
As a reminder, in Florida, we will be installing 700 megawatts of solar by 2022, it's part of our multiyear settlement agreements to date. The commission has improved the recovery of 344 megawatts under the solar base rate adjustment mechanism.
Focusing on our commercial renewable business, we had another impressive quarter. So far this year, we've announced over 1500 megawatts of new wind and solar projects, including nearly 400 megawatts announced in the third quarter.
Given our pipeline of investments we have line of sight to nearly all of our growth prospects for 2019 and 2020.
70% over the five year plan.
Shifting to our gas business on slide seven let me update you on the status of the Atlantic Coast pipeline.
In early October the U.S. Supreme Court accepted our petition to review the fourth Circuit Court of Appeals Appalachian Trail crossing decision.
This is a very encouraging sign it provides a path forward to resolve this important issue.
We expect the Supreme Court will schedule arguments for early next year with a final decision no later than mid 2020.
As a reminder, the solicitor General has joined our appeal and we are supported by a broad coalition of stakeholders, including 16 state attorneys General we believe the lawn tax or on our side and look forward to moving toward a final resolution.
We also continue to work with project partners and the fish and Wildlife service on the biological opinion and incidental take statement to resolve the issues identified by the fourth circuit.
Based on early discussions we now expect the permits to be issued in the first half of 2020 well. This is later than previously anticipated. All parties are keenly focused on delivering reissued permits that are robust enough to minimize the potential for further appeals.
This timing also aligns more closely with the expected Supreme Court decision, providing more clarity before we pursue full construction activities.
Given this timeline for the resolution of the Appalachian Trail crossing and the biological opinion, we are no longer pursuing a phased approach but are now planning for mechanical completion of the project in late 2021 with full in service in the first half of 2022.
On the customer Frothy ATP project partners have advanced discussions on the project status and costs and we expect to reach an agreement in principle by the end of this year balancing price and project returns. We believe this pipeline remains the best option to meet our customers need.
We remain committed to the Atlantic coast pipeline and the significant benefits that will bring to our customers and our region. It will provide much needed natural gas to an underserved area of the southeast and will allow us to retire coil units and replace them with a cleaner burning natural gas fired plants to help meet or carbon reduction targets in it.
Question that supports critical resiliency needs for some of the countries most important military military outposts.
At the same time as we execute on our 37 billion dollar growth capital plan that underlies our 4% to 6% earnings growth rate. We have consistently stated our commitment to a strong balance sheet.
Given AC Pete progress and clarity on important milestones, which includes a delay in project revenues until early to mid 2022, we are increasing the amount of equity in our plan.
We plan to monitor market conditions, an issue approximately two and half billion opportunistically by the end of 2020.
This additional equity allows us to absorb a wide range of outcomes associated with ATP, while also offering greater financial flexibility to the company.
For instance, after ATP comes online we will have the ability to moderate our current assumptions of 500 million per year in drip an ATM issuances.
Additionally, we see emerging infrastructure needs for our expansive energy delivery system, which may require incremental investments and which would drive additional growth.
Beyond our existing 37 billion dollar growth capital plan.
We believe this issuance keeps us moving forward as we deliver value to our customers and results for our shareholders. We remain confident in our ability to achieve 4% to 6% earnings growth through 2023, given or a healthy franchises and strong investment growth profile.
Steve will discuss more details about our growth drivers in a moment.
Circling back to ATP I'm pleased with the progress we've made to advance this important infrastructure project well. This is a lengthy process. We're committed to the project and its completion and we will continue to share details as we learn more.
Moving to slide eight let me share a few updates about recent legislative developments.
Earlier this week Senate Bill 559 was enacted into law in North Carolina, enabling the utilities Commission to approve storm cost securitization.
This important mechanism will save customers, 15% to 20% and storm costs and support our balance sheet.
We're pleased with the general assemblies unanimous vote on securitization.
And also the bipartisan support for other cost recovery mechanisms that we advocated for such as multi year rate plans and our OE bands.
A final Bill does not include these other provisions Governor Cooper's clean energy plan speaks to the potential for modern nice recovery mechanisms for the state.
We are encouraged as these important reforms are part of the broader energy policy dialogue and we will actively participate in the 2020 stakeholder engagement process related to the clean energy plan.
Changes to the regulatory construct or vital part of achieving north Carolina's energy objectives in the long term.
We are focused on advancing modern mechanisms and the customer benefits they provide.
In the near term our attention will be on the execution of frequent rate cases, and pursuing solutions to reduce regulatory lag both are important to delivering customer benefits and meeting our earnings objectives.
We have operated in North Carolina for more than a century, providing our customers was safe and reliable power. The state is thriving with a strong economy and increasing demand for new energy infrastructure. As we look ahead, we share many of the state's objectives and will partner with stakeholders to develop innovative solutions and thoughtful energy policy.
Energy policy discussions are also advancing in many of our other state and stakeholders are embracing the value of improving the grid in Ohio House Bill to 47 is progressing through the legislature. This bill would further grid modernization distributed generation and other investments the benefit customers.
And in Florida recently enacted legislation promotes grid hardening investment.
That will improve the resiliency of the grid against extreme weather events, while establishing rider recovery for the investments.
Florida Public Service Commission is finalizing rulemaking, and we expect to file or store protection plans and 2020.
With over 300000 line miles across our utilities, our transmission and distribution network is the largest in the nation and the demands in our energy delivery system have never been greater this requires significant capital investment to ensure our communities keep pace with the energy transformation occurring across the nation.
We're excited to work with stakeholders across all of our electric and gas service territories to ensure the pace and scale of our investments aligned with customer needs.
Before turning it over to Steve I want to reiterate our strong confidence our long term strategy and our continued ability to deliver on our commitment we're taking necessary steps to maintain the strength of our balance sheet advocating for solutions across our jurisdictions and making progress as we advanced our investment priorities to benefit our customers and shareholders.
As we move into the fourth quarter, we look forward to closing out a very strong year.
With that I'll turn it over to see.
Thanks, Lynn and good morning, everyone I'll start with quarterly results on slide nine, including our adjusted earnings per share variance as to the prior year for detailed information on variance drivers and a reconciliation of reported to adjusted results. Please refer to the supporting materials that accompany todays press release.
Presentation.
Reported basis 2019 third quarter earnings per share were $1.82 compared to $1.51 last year third quarter 2019, adjusted earnings per share were dollarsseventy nine compared to $1.65 last year.
The difference between 2019 reported and adjusted earnings was due to a reduction in an open impairment charge. Originally recorded in 2018. This benefit has been reflected as a special item excluded from adjusted earnings for the quarter.
Higher adjusted results compare to the prior year were primarily due to growth from investments at the electric and gas utilities favorable weather and lower or one of them expenses. These items were partially offset by higher financing costs.
In the segments electric utilities and infrastructure was up 25 cents compared to the prior year higher results were driven by base rate increases across multiple utilities more favorable weather and higher rider revenues, including recovery of our Midwest grid investments on him was also favorable in the quarter.
During September Hurricane Dorian impacted our Florida, and Carolinas utilities, we estimate total cost for hurricane Doran as approximately 400 million, including 150 million in Florida, we deferred the majority of these calls to will request recovery through regulatory proceedings at D. P.
Yes in the coming most.
Similar to previous Hurricane calls such as Florence, a portion of the Dorian costs are not eligible for recovery well Hurricane Dorian restoration costs impacted our quarterly results, we incurred higher cost in the third quarter of 28 team for a net favorable effect this quarter.
We also continue to excel at controlling traditional own in cost exceeding our own targeted savings for the quarter, where are we expect somebody on m. favorability to turn in the fourth quarter due to timing. It is clear our digital and efficiency efforts are producing real savings I will speak more about or to the capabilities in this area in them.
Yes.
These positive drivers were partially offset by hard appreciation from a growing asset base and slightly lower retail volumes shifting to gas utilities and infrastructure results were up one cents in the quarter largely due to growth from our midstream investments, while we did see growth in our LDC businesses from an increase in cost.
Numbers, we expect these businesses to have a strong earnings contribution in the fourth quarter due to seasonality.
In commercial renewables results were up two cents driven by favorable wind resource growth from our new projects.
The other segment was down 11 cents for the quarter largely due to higher financing costs and timing of income tax expense recognition in the current year.
We continue to expect our full year 2019, adjusted effective tax rate to be between 12 and 14%.
Finally share dilution drove a three cents declawed given we issued shares in December to settle last year's equity forward agreements.
We're very pleased with our results so far this year delivering 7% growth on a year to date basis. This execution gives us confidence that we will achieve full year results within our narrowed 2019 earnings per share guidance range of $4 at 95 cents to $5 in 15 cents.
Turning to slide 10, we operate in jurisdictions from strong customer and business group fueled by steady population migration in the third quarter, we saw a pause in the volume growth we experienced in recent quarters, driven primarily by the industrial sector on a rolling 12 month basis weather normalized retail electric load growth.
<unk> was negative 0.5% within the residential class, we continue to experience outstanding customer growth in each of our territories with an overall increase of 1.6% in 2019.
Company sponsored energy efficiency programs for which we are compensated.
Contributed to the decline in recent residential usage per customer.
Residential results in the quarter will also likely impacted by Hurricane Dorian. These factors together resulted in relatively flat residential volumes for the rolling 12 month period.
In the commercial class sales were down 0.6% over the rolling 12 months results were impacted by greater adoption over energy efficiency programs in big box retail closures. These were partially offset by an uptick in data center expansions and strength in the medical services segment.
Finally sales in our industrial class declined 1.3% on a rolling 12 month basis, lower industrial volumes were driven by manufacturing contractions in the weakening global economy.
Few singular industrial closings and manufacturing outages further influenced the rolling 12 month average we believe these specific outliers will improve as we move forward.
Overall, our strong customer growth attractive jurisdictions and business diversity helped to mitigate broader macroeconomic headwinds we expect to in the year flat to last year and recall this fall as growth in 2018 of almost 1%.
Continue to monitor economic trends in impacts on our sales volumes and will provide updates on our February call.
Turning to slide 11, let me update you on our active regulatory count we filed rate cases for D C and D P and North Carolina in September and October respectively.
Seeking recovery for investments and cleaner generation infrastructure grid modernization projects and accelerated depreciation of certain coal units.
The requests also include recovery of coal ash remediation spin and deferred storm costs.
Now this is one securitization bill is law, we will seek to securitize, the North Carolina portion of these costs, which will reduce the rate impact to our customers. Both cases propose a 10.3% or are we at 53% equity component of the capital structure.
Evidentiary hearings for the do you see case are set to begin in March 2020, we expect revised rates for both D C and D P to be affected in the third quarter 2020.
Moving to Piedmont natural gas, we're pleased with the outcome of the settlement in the North Carolina rate case, which was approved on October 30, Onest under the agreement Piedmont has allowed a 9.7% orally and 52% equity capital structure. Piedmont also received approval of a 9.9% orally and 55.
5% equity capital structure in their recent South Carolina annual regulatory thought.
Turning to our other utilities, we continue to work through rate case proceedings at Duke Energy, Indiana, and Duke Energy, Kentucky with hearings expected in the first quarter of 2020 in both cases.
We have a robust regulatory strategy that has enabled us to consistently secure recovery of investments, we make on behalf of our customers or regulators understand the importance of the work we do to serve our communities. While also maintaining healthy utilities and their regions. We will continue this important work as we close out 29 team and move into.
2020.
Shifting to slide 12, our strategy is focused on delivering value to customers through investments in clean energy natural gas and grid infrastructure underscored by a 37 billion dollar growth capital plan through 2023.
As Lynn mentioned and as we have previously emphasized we are committed to maintain the strength of our balance sheet and are taking proactive steps to ensure our credit metrics remained strong with HCP is projected revenues delayed until 2022, we intend to issue approximately 2.5 billion of equity by the end of 2020.
This will align proceeds with the timing of HCP construction activities and help avoid unnecessary dilution in 2020.
In 2021, and 2022 dilution will be offset by increased AC fee earnings given we are no longer pursuing a phased approach. If you do you see will accrue on the entire balance until full commissioning occurs providing an earnings uplift during construction.
This additional equity strengthens the company's credit profile and provide sufficient balance sheet strength to absorb a wide range of outcomes associated with a CP. We continue to expect equity issuances of 500 million per year through 2022 via the drip and ATM programs for a total of approximately $4 billion.
Equity issuances over this three year period compared to our previous plans of $1.5 billion. During this time.
However, after HCP comes on wall. This additional equity will provide us the balance sheet flexibility to moderate or eliminate annual equity issuances or deploy additional capital towards regulated investments.
Let's turn to slide 13, where I'd like to highlight the approximately 5.5% growth we've seen in our core electric and gas segments. This year.
Which includes financing costs at the holding company.
This is on top of the adjusted 5.5% growth we saw for these businesses in 2018 versus 2017.
These results have been driven by execution on or 37 billion dollar growth capital plan and top notch ONU cost control efforts, highlighting the outstanding electric and gas service territories in which we operate and giving us great confidence as we look to 2020 and beyond.
With that let's move to slide 14 to discuss primary growth drivers for next year.
I'll start with 2020 drivers in the electric utility segment in Florida, We will continue to recover our grid investments through the second base rate increase in our multiyear rate plan. We also expect growth.
From additional solar projects recovered on to the solar base rate adjustment mechanism in the Carolinas, we have a full year benefit of the South Carolina rate increases that went into effect in June .
Have a partial years contribution from the North Carolina rate cases filed this year as well as increased wholesale earnings due to improved pricing and the Midwest, we'll see the impacts of or Indiana in Kentucky rate cases, and we'll continue to invest in transmission and distribution upgrades the recover under our rider programs.
Shifting to the gas segment, we will see higher AFUDC earnings from HCP, given we expect construction activities to resume in 2020 once key permits or.
Reissued.
LTC business, we'll see growth from piedmont's rate cases customer additions and continued investments in integrity management and power generation infrastructure.
Our commercial renewable segment will be largely flat to 2019, but as Lynn mentioned, we have line of sight substantially all our growth prospects for 2020 and 70% over the five year plan.
In addition to along utility driven runway for investment or demonstrated cost control capabilities will remain an important tool to achieve our growth objectives. Our track record of cost management has been outstanding since 2015, we have actually lowered nonrecoverable onea from 4.9 billion to 4.8 billion.
In dollars.
This includes absorbing 300 million of owning them from the Pmone acquisition in 2016. In addition to offsetting wage and salary increases in general inflation.
In 2019, we continue to take advantage of our scope and scale by investing in digital capabilities and data analytics, which are creating sustainable cost savings. For example, we established an ideal app earlier. This year, we have nearly 400 people at this facility who are dedicated to developing digital applications.
In other solutions to benefit operations every day.
In less than a year they have put more than 20 applications into the field. We know these capabilities will serve us well overall long term planning horizon.
Beyond 2020, we expect dilution from the 2.5 billion dollar equity issuance to occur beginning in 2021.
This will be offset by increased a HCP earnings we're no longer pursuing a phased approach and therefore, a AFUDC will improve on the entire balance throughout the construction Courier is providing an earnings uplift in 2021 and 2022.
Many of the drivers I. Just described will also support earnings growth in 2021, such as the Florida multiyear rate plan and sober investments full year rate case impacts in North Carolina, Indiana, and Kentucky as wells as well as continued grid investments in the Midwest utilities long.
Our term, we expect significant investment opportunity from storm hardening legislation and solar demand in Florida, the growing need for cleaner generation in energy delivery infrastructure in the Carolinas and new gas distribution infrastructure across our footprint.
These drivers give us confidence in our 4% to 6% earnings per share growth rate through 2023, consistent with our historical practice, we will provide 2020 earnings guidance and our growth prospects for future years during our February financial update.
I'll close with slide 15, we are having a fantastic 2019 as illustrated by another strong quarter.
The fundamentals of our business remains strong as those are attractive investor value proposition. It is founded upon our growing dividends, which currently yields 4%.
Coupled with earnings growth of 4% to 6% from transparent low risk investments, we offer a compelling risk adjusted total shareholder return of 8% to 10% or scale constructive service areas and ability to execute make Duke energy a solid long term investment opportunity.
With that let's open the line for your questions.
Thank you, ladies and gentlemen, if you'd like to asking a question at this time. Please signal by pressing star one on your telephone keypad and if you are using a speakerphone. Please make sure immune function has turned off your lives signal to reach our equipment. Once again that is star one.
Our first question comes from the liner sharper Reza with Guggenheim Partners. Please go ahead.
Hey, good morning grants.
Sure.
Just on the couple of questions here on equities I was just announce curious on your thoughts on the timing, especially without knowing the viability of HCP. So you can you run into a situation, where you issue or commit to the equity and skodas or further appeal somehow deal and blow to the project.
I do you sort of need the equity HCP is ultimately canceled and then I'm just curious on how how Steve you're thinking about the method on the equity hybrid convertibles forwards.
Sure I'll take that I think this has been a journey on this project as you know and we really looked at the progress made in this quarter. The provided us some clarity on a couple of important milestones. So certainly SCOTUS, taking the case was important for us to have greater confidence and getting over the trail.
And then the fact that we've continued discussions on the biological opinion discussions with our customers and contractors all of that taken together we concluded the targeting a single in service date at the end of 21.
With completion mechanical completion, and 21 full completion and 22 was the right approach balancing customer benefits construction efficiencies and all of the thing.
And so as we reach those milestones we thought looking at financing was also a preference.
And.
As we looked at financing we did consider a range of outcomes on this project. We are committed to completing the project, but I think the fact that we have had challenges along the way makes us cleareyed about.
Evaluating a range of outcomes. We also believe this approach supports the three 7 billion dollar capital, we're funding and the rest of our regulated business and whats getting the equity out there we do have flexibility with our drip an ATM a in the future if circumstances indicate that we could moderate that are we haven't.
Additional investments that we could put forward.
So we thought it was appropriate in light of Oh events that occurred this quarter sharar to de risk our plan.
Get the balance sheet in good shape move forward as we have said on Atlantic Coast pipeline and really feel like the plan itself is you a solid one that represents good growth for investors.
Got it so with or without.
Sorry, sorry.
I was just got to say regarding the mechanism.
We've got plenty of time to do this equity.
So there are as you mentioned a number of tools out there.
We'll be looking at that and seeing what makes the most sense for us, but nothing further beyond that at this point.
So with or without HCP. The capital program, you have necessitates the needs for equity with or without a superior.
You know Charlotte I would say is we have already invested almost 2 billion in HCP.
And we are continuing to advance the project in light of the developments that have occurred and so this equity is really to strengthen the balance sheet through that construction period also supporting the capital growth and we do have ability to the jip drip an ATM to moderate if we think that makes sense in the future.
But we were we thought it was appropriate to look at financing and de risk the balance sheet at this stage in light of the progress that we've made.
Got it and then just lastly on Senate Bill five Fivenine obviously.
Highlighted it signed into law, but it was obviously missing a key piece of the proposal multiyear planning our OE bands et cetera curious why this was removed, especially given the governor's kind of clean energy plan, which was submitted earlier this year and included the possibilities of these mechanism. So he's obviously understands the importance.
So I'm curious why that ultimately was removed and I have to envision the stakeholder process in the Governor's clean energy plan is going to be much more involved. So if you can give us a little bit of the sense on timing that would be great.
And then or.
Appreciate that Shire and you know I I think the fact that the clean energy plan gives recognition to regulatory modernization is a good thing.
But the clean energy plan also includes carbon reductions of up to 70% of greenhouse gas emission reductions up to 70% also talks about retirement of an economic hold play on grid support for clean energy. So it does bring in a number of other topics and I think the spirit of the stakeholder process will.
To address not only the modernized regulatory construct but some of these other items and as we look at the plan in light of our climate strategy, we see a great deal of alignment on how we would like to go forward and believe will be an important part of delivering the solutions that the governor lays out in the clean energy plan.
Got it thanks, guys I'll I'll jump back end. Thank you so much thank you sharp.
Thank you. Our next question comes from the line of Michael Weinstein with Credit Suisse. Please go ahead.
Hi, Lynn Steve.
No.
Hey can you eliminate further on reasons for delays at U.S. fish and wildlife into the first half 2020.
This.
Does the move away from a phased in approach simply mean that there's just no appetite among off takers for that phase one alternative.
Discussed previously.
Let me take that into parts Michael So the discussions are underway with fish and wildlife. We are taking a look at all of the feedback from the force circuit evaluating next steps. There's an extensive work done as you know additional surveys of the bumble Bee and the club shall muscle.
And the a ton of all the parties is to address those concerns in a way that reduces any additional risk associated with Threed NAND.
From that up from that permit so we believe it could be issued a is early as wintertime, we keep our eye on that tree clearing window as you know to try to get trees cleared if we can before the first in March but given our timeline with the Appalachian Trail. We can also accommodated slipping a little further and 2020.
I think in terms of the phased in approach. We have continued discussion through out just project with customers and also monitoring all of the developments that have occurred including these permit challenges et cetera.
And the greatest value for our customers is the complete project because they're trying to get to that supply basin, a and also infrastructure in diversity into the eastern part of the state and so that single project is where our customers see the greatest value.
And I also believe with our timing the construction efficiencies of building. It in a single phase also make a great deal of sense. So we've got some alignment.
And with that movement to a two a revenue in 2022 that was a driver as well as we thought about our financing plan.
Got you.
And one last one has there been any change to the approximate 2% dividend growth expectation.
I know your commitment to dividend growth.
Just wondering this equity issuance makes any change to that.
Michael we will reevaluate in connection with guidance in February , but I think that's a reasonable planning assumption for now.
We see that as an opportunity in a way for us to moderate or payout ratio to be more in line with our industry peers.
And the combination of all these things puts us in a very strong position to execute our growth plans.
Okay. Thank you very much.
Thank you.
Thank you we'll next go to the line of Great Gordon with Evercore ISI.
Thanks, Good morning.
Morning morning.
Thats on having a really strong year. This year. Thank you Greg as it as it pertains to two HCP with the phased in with the lack of a phasing approach would be booking the fully if you do see rate until the.
Project.
Into service so I can see how that has a an accretive effect to earnings in 20.
Juan and sort of you know as an offset to the increased share count, but when the when it goes into into into service and you start collecting the actual cash revenues based on the current contract rate.
Given that the project is you know coming into that.
Seven and a half billion when the initial.
Service costs was estimated to be in the mid fives is not that your alone. There's lots pipes that are having this issue.
Shouldn't shouldn't be the the return on the pipe unless you're able to.
Negotiate some pass through of those cost overruns go.
The cash earnings will be lower than the if you do see rate.
Unless you were able to get contract belief is that the right assumption.
Greg I think its important to recognize that we had been in conversations with customers all along the way on the status of the project and also the costs.
We do expect to reach an agreement in principle by the end of this year that provides the right balance between customer pricing returns. So we have said a number of times that the actual executed return on this project will be a regulated like return and we believe that continues to be a fair planning assumption I think.
As you know the PTC rate is higher about 14%.
But we believe the you know the in service rate will be a very good regulated return.
Okay. So you believe you'll be able to negotiate a balanced outcome where the.
So the after tax or are we on the pipe on the current on the new consumer construction cost will look.
Well look like a good regulated return.
I think it's a it'll be a balanced outcome and you know Greg the business case for this pipe has remained unchanged.
If I look at it from the perspective of Duke energy the need for additional firm transport into the Carolinas is unchanged in increasing.
It's time continues and so this pipe in its entirety represents an extraordinary opportunity.
For us to position the southeast for decades to come and our customers recognize that.
And the same as the case in Virginia and that eastern part of Virginia. So I think what often gets overlooked is that there's a fundamental need for this pipe because of the demand in the region.
No doubt about that thank you and.
Thank you.
Thank you I'm, we'll next go to Chris for term with JP Morgan.
Good morning, Lennon and Steve.
Yes.
Obviously, the the markets are doing well and utilities are doing well in terms of stock price performance I'm wondering if part of your plans, including evaluating asset sales.
Two of doing equity and then I guess.
To that question is part of your decision to do this size of equity tied to the strong market performance.
Yeah, Chris It's a good question and you know from our history, we have monetized assets.
Over time, including as recently as a joint venture partner into our commercial renewables business. So we have evaluated that we believed that our portfolio, we like our portfolio, it's delivering value. It's growing we have great investment opportunities.
So our intent is to pursue this equity need through a security through the markets as opposed to an asset disposition.
And so we'll evaluate it the timing opportunistically as Steve mentioned.
And believe that you're not going to position the company well from growth in the future.
Okay, and then is it fair on the equity issuance to assume that the fall amounted to two plus billion would hit your share count by the end of next year.
Just wanted to structure or others.
Yes, Yes, that's fair planning assumption.
Okay.
And then when you started to address this in a prior question, but just the governor is fine and North Carolina, I'm kind of what it means for the future.
It seems like it's a good thing for for you guys in your ability to invest in the state and and further the goals there but.
Is there any more detail that you can provide us on on next steps and your efforts to get.
Lower regulatory.
Lagging and more visibility into your regulatory recovery.
Sure.
And I guess I'll take that in two ways, Chris on regulatory lag, we have that assignment regardless of what happens to the clean energy plan and we'll accomplish said through deferral through capital optimization through timing our rate case as well and you can expect us to continue to focus on that very keenly.
But as it pertains to the clean energy plan early discussions are already underway the department of environmental quality in the state is overseeing this process, we would expect stakeholder.
Workshops to kick off even as early as the ended this year, but continuing into 2020 and there were probably a half dozen stakeholder processes. During the course of 19 in preparation for the issuance of the plan. So it's already building some momentum and as you noted in his.
As I said, we see a lot of alignment between our climate strategy and what the Governor is trying to accomplish and I look at where we are in North Carolina with over 30% reduction and carbon emissions already close to 35% our IR Pete plan puts us between 50 and 55% already by 2030.
Ah North Carolina second in the nation and installed solar capacity over 50% of any energy our comes from carbon free sources. We're looking to second license renewal I'm nuclear so there are number of strategic things that I think line up well with this and so we'll be very.
Very interested in continuing that discussion in 2020 with the clean energy plan stakeholder process.
Okay is there a point in time I wish.
Those stakeholder discussions from <unk> to the utility commission or is that kinda too far out to tell.
I think it's too far out to tell.
Chris I do think I'm, just getting back to part of it. So we haven't front of the commission right now accelerated retirements of coal in connection with our rate case. So we'll have an opportunity to advance that discussion, it's consistent with the clean energy plan.
Over the course of our rate case, and you can expect to see testimony along those lines. So there will be advances consistent with that plan. During 2020 I will of course keep you informed about the stakeholder process as it unfolds.
Okay, great. Thanks, one thank you.
Thank you. Our next question comes from Steve Fleishman with Wolfe Research. Please go ahead.
Hey, good morning, when I.
Hi, Steve.
Hi, So just could you just remind us the commercial renewables business just.
Given the products increased project you got there how much you're going to end up investing.
In that business roughly this year and maybe next year.
Yes, it will take that yes, Steve I think we'll be in the range of a billion dollars. This year it'll be lesser amounts as we go forward.
Still in line with the five year plan of roughly two and a half billion investments.
What about earlier this year.
Okay.
Okay, and then switching back to.
So kind of the news today on.
The equity and the like so just maybe trying to.
I ignore the exact timing by year, but just overall.
If we still have a CP coming on which is what was in the plan before but there is now two and a half billion of additional equity could you just maybe better explain how.
That's still keeps you in the same growth lay awake what else is an offset is it just better performance in some of the other businesses.
Yeah, So Steve I think we should take that kind of break that down a little bit. So let's talk about the construction period of HCP. We have moved away from the face an approach with a plan now for the project you go into mechanical completion and 2021 full and.
Service in 2022.
So with this change we will be accruing allowance for funds for a longer period of time on the full project than what we had previously considered where we were putting part of the 60% or so of the project in service at the end of 20.
And then the rest in service at the end of 21, so that gives us additional earnings during the construction period or that will offset dilution from the equity.
And then as we go post in service.
We are working actively with customers as I said, a moment ago to reach agreement. We believe in principle by the ended the year to find a balance between construction costs and returns on the project that would be consistent with revenues that would come into service in 2022.
And then I think Steve kind of outlined on slide 14 of the dock very comprehensive set of drivers of that are driving growth and the regulated businesses and I believe we have consistently delivered within our growth range on the regulated businesses and we see even more potential with the Florida.
Legislation with the Ohio legislation with the clean energy plan being outlined in the Carolinas and so as we come to the street in February we'll be giving you some more visibility on where we see additional growth and we think the combination of all of these things.
Ah give us confidence that we can remain within the range of 4% to 6% over planning period.
Okay, I think I think I got it thank you.
Thank you.
Thank you we'll next go to profit Mehta with Citigroup. Please go ahead.
Thanks, So much high high.
Hello warning.
So let me maybe coming back to the equity, but looking at it more from the credit side. It seems like there's a little bit of surprise.
Around the need of equity and it seems to be stemming more from a credit.
Pressure that you are seeing potentially from the agencies. The you you hadn't FILO any other Indiana now you're doing more equity even despite sounds like you know very CP goes from a timing perspective.
So just wanted to understand so we have a better kinda framework what is the credit situation right now what are the rating agencies, saying and is there like a minimum threshold you're trying to hit just so we get you know what's driving be the fundamental equity needs.
Yeah, and Praful I'll try to do and Steve can chime in as well.
I think it's important to focus on cash flow and when we move an in service date, a full year.
That means were four go in cash flow in 2021, and part of 2022 and Atlantic Coast pipeline and that is a substantial cash flow driver.
We are committed as we've said to our metrics were targeting FFO to debt of 15% to 16%.
We think that is appropriate and consistent with the way the agencies look at US you know that Moody's has us on stable S&P has had some negative outlook really looking not only HCP, but a number of other developments are regulated business and so I would look at this is us being responsive to developments.
That have occurred around an important project and consistent with our commitment to the balance sheet, which we have been clear about all along.
Ah So combination together is the way I would think about this equity issuance and on what the seem to see if he would add.
I would echo that entirely and we certainly want to have a solid balance sheet and the measure you think about there is a 15% AFFO.
And so we want to make sure that we can attain that.
And as Len said, a delay of a project of this magnitude has a lot of cash flow implications and so we want to be mindful of that it'd be proactive and I think this will give us flexibility on the back end of things as well.
Gotcha, that's very helpful context appreciate that.
And then maybe just quickly on coal ash and the DQ, we ought to.
Just what does the current status of the appeal on that is there anything that you can share on the process. There I know you're expecting it to go run into 20, Twentys, who actually reference on your slides, but just wanted to see how to think about that that process.
You probably call. It is still moving forward, we are pursuing appeal through the early age and also the North Carolina Superior Court.
Our appeals are focused or claims are focus not only on the process that led to the decision, but also the substance of the decision.
And so that process continues and as we reach milestones we will of course update on that.
But that's where I would leave it at this point.
Gotcha finally, just to on Florida carry positive in terms of the Senate Bill 796, and the authority around grid investments.
Any color on opportunities to further increase your capex associated with this I know you said, you're evaluating everything that comes out of it but how should we think about that and timing around what this could result in terms of incremental capex.
Sure and probably going to that Florida has been and environment that has recognized the need for grid investment and we have been investing in hardening of our grid for some time right now it's part of our multiyear rate plan, we have over $1 billion of investment underway and that plan runs through 2021.
So we would see the potential to take advantage of this additional storm hardening as we look at resetting our multiyear rate plan for 2022 and forward, which gives us an opportunity to really put additional investment to work in Florida.
Gotcha. Thanks, so much guys.
Thank you have to do.
Thank you we'll next go to Julien Dumoulin Smith with Bank of America.
Hey, good morning line and team.
Hi, Florida and.
Hey, so I'm going to try to follow up on some of the prior questions here a little bit more specifically I believe in your prepared remarks, you talked a little bit more about additional distribution and infrastructure spend resulting from the equity raise as well as dealing with HCP and I understand that HCP is to a large extent at least at present.
A timing related issue can you elaborate on potential opportunities on that side in tandem with this capital raise to kind of think about and I know, we're a little bit ahead of the for Q cycle to discuss that but I just wanted to kind of dig in a little further on sort of the twin purposes at least disclosed.
For the capital raise and understand also maybe at the same time.
Relative to that 15% of FFO to debt, where do you stand and how much latitude you haven't your metrics to see some of that cash flow degradation at the outset that you described from the Delaney CP.
So let me talk about grid investments first isn't we couldn't get to metrics Julien.
You know what am I would say on on great investment as we see an increasing interest in investment in the grid throughout our service territory, Florida, We talked about a moment ago profit had questions around the Florida legislation. We also referenced Ohio, There's a house bill to 47 this moving through in Ohio, You know we've got.
Ttrsc a in Indiana.
That has been a an important investment opportunity and then the clean energy plan that will progress in the Carolinas. In 2020 also has a specific focus on modernizing the grid to support clean energy resilience and other initiatives. So we feel like there's just a lot of policy discussion.
And around the grid that will give us an opportunity to continue to add capital.
In a way that delivers benefits to customers and also benefits to shareholders I think the timing of how that rolls out will be jurisdiction by jurisdiction I would think about Florida is being 2022.
Hi, O I think we have to get the bill passed a yet to see where that's going to lie and then will progress on the clean energy plan. During 20 in the Carolinas and have a better sense of where that capital will will be deployed within our 37 billion. We already have a fair amount of capital. That's underway will of course continue to execute that.
On metrics, we should close to 2019 at 15% and Steve When you talk about what you see in 20 and 21 right, we should be a 15% a and the as we move forward, we'll be in the 15% ish range and the equity issuance and the advancement of.
Other efforts and rate cases should start to drive us north of 15, as we move into a 2021 and beyond and that's our goal is to be in the 15 to 16 range that would give us sufficient headroom to deal with the types of things that pop up such as hurricanes or other issues.
We think that will give us a sufficient flexibility in our financial plan with this equity and as we said earlier you know if things can work out with a Atlantic coast pipeline coming on we have the opportunity to ramp back on the ATM or to invest in the type of infrastructure that limit.
Alluded to.
Theres a lot of opportunities out there. So that's basically the plan to get north of 15, and the 15 to 16 range and we'll be doing that as we move through 21 and beyond.
Got it can you quickly elaborate just in terms of the 20 dynamics the specifically.
You alluded to flat clean infrastructure of renewable contribution next year and I think if I understand it right that the equity capital should have a minimal impact next year as well just based on timing, but I don't want to put words in your math on that.
And then maybe them so minimal dilution in 20 commercial renewables will be flat and the drivers and see that line.
I think its slide 14, Chilean are very comprehensive so I think you can track through those in a way that gives you a lot of confidence on 2020.
Okay got confidence as in the current you guys.
Yes, yes, yes.
Great. Thank you. Thank you.
And next we'll go to Michael Lapides with Goldman Sachs.
Hey, guys couple of questions first of all on the commercial renewables side, how much how are you thinking about.
Divestment going forward, meaning in 2021, I get you'd love to do more at the utilities I'm just curious trying to get my arms around.
Your plans from your thinking about the next couple of years.
Well.
We will rollout and update our capital plan in February as you know Michael but.
We had laid out last Friday February about two and a half billion of capital through 2023.
As I mentioned earlier, we're doing about a billion this year it'll be lesser amounts going forward.
I think we'll be deploying at amount of capital over keep the earnings profile.
Relatively flat and the 200 million ish range is what we're looking at I had mentioned earlier that to to keep that profile going forward, we'd need to land to 300 megawatts.
Year of projects.
Given the earnings profile and so forth so I don't see the capital.
Proportionally growing in this particular segment as we go forward, but there will be capitals, we land.
You know a few new projects each year and then my goal like Florida Solar is directly in the regulated capital plan. So the 700 megawatts that we're building there and to the extent, we build any of the CP Ari and the regulated utility in the Carolinas that capital would be in the a regulated capital plan.
No. Thank you for that just one follow up though can you how much of a benefit.
Occurred in 2019 earnings so far that are impacting packs that are related to ITC benefits you took for projects that came online this year.
Well a lot of the growth that we saw in the and targeted for commercial renewable source from solar projects and those that profitability is driven by the tax benefits and when we close tax partnership.
Arrangements there you recognize a lot of the tax benefits. So we've got 139 million of net income. So far this year, we've got a combination of some wind and solar projects the solar projects in particular.
Hit the earnings early.
Michael I think it's important to recognize that these projects are locked in for 1920.
And we are.
Committed to a flat trajectory around $200 million of net income over the five year period, and 70% of that is already committed in our pipeline.
So I you know, it's an important part of this business, but I think in terms of the volatility or any volatility you could expect this is an area that we feel like we have very well.
Developed and manage and I would also add that the projects that will be what landing prospectively. Starting in 2020 will utilize a structure that we believe we'll have a more of the spread of earnings recognition over three to five year type periods.
No. Thank you know I appreciate that I was just trying to think about is there Rob.
I don't know like an S not cliff, but any P.S. downdraft, if you do fewer projects and the next couple of years, then you're doing this year in 2019, and therefore, you have less kind of onetime tax benefits in those future years.
I think you should including your model roughly 200 to 220 million net income for the next five years, because that's what we have an ours there were committed to deliver right. Okay. And then one final up final final I'm just curious given this new kind of financing need how you're thinking about.
M&A I mean, obviously, there's some situations that are very public out there you know municipals are cooperatives being sold in both Florida in South Carolina, but does the the balance sheet constraint in the in the credit metric.
Requiring the new equity does that change your view it all on kind of broader sector M&A or asset M&A.
Yeah, we think about what we talked about today, Michael is within the construct of a very robust organic glut Atlanta.
That includes strong regulated investment $37 billion of growth capital.
I think you're talking about Santi Q4, perhaps G.A.
We are involved in those processes, but we know both of those assets well and we would evaluate those on whether or not it makes sense to be a part of that process going forward and whether we believe we can deliver value to shareholders. So we think about that as a separate and distinct distinct analysis that we will you know accomplishing.
Okay that makes sense.
Got it thank you and thanks, Steve much appreciate you all.
Thank you.
Thank you, ladies and gentlemen, does conclude or time for questions today I'd like to pass the conference back over to Miss Lynn Good for any additional for closing remarks.
Great well. Thank you everyone for your questions and your interest in investment and do we look forward to seeing many beauty I in the next few days. So thanks again.
Thank you and that does conclude today's call again, we thank you for your participation you may now disconnect.
Yeah.