Q1 2020 Earnings Call
Please standby rocky gap.
Good day welcome to Duke Energy first quarter earnings call. Today's conference is being recorded and not dissimilar turn the conference over to Mr., Brian Butler, Vice President Investor Relations. Please go ahead Sir.
What you there.
Good morning, everyone welcome to Duke Energys first quarter 2020 earnings review and business update.
You know call today is one good cheered president and Chief Executive Officer, along the ski executive Vice President and CFO.
Today's discussion will include the uses non-GAAP financial measures and forward looking information within the meaning of the securities walls.
Actual results could differ materially materially from such forward looking statements and those factors are outlined here and it shows a beach energy that's going to challenge.
A reconciliation of non-GAAP financial measures can be found in today's materials and on Duke energy Dotcom.
Each Nokia agenda for today's presentation include supplemental information and additional disclosures.
I've summarized on slide four during today's call when we'll provide an update on our response to covert nudging.
She will also discuss progress on our strategic initiatives and the company's long term outlook.
Steve will then provide an overview of our first quarter financial results and sure enough data all key regulatory activities.
You also got insights into our economic and world growth outlook before closing with key investor considerations.
Let me turn the call over the one.
Alright, Thank you and good morning, everyone.
Let me open our call today by focusing first on all response because of 19 I know it is top of mind for all of you.
First and foremost toward plots are what those who've been personally affected.
Also one of which that's my heartfelt thanks to the healthcare and government workers as well it says working countless hours to support the frontline professionals.
It's pandemic has there been really should hold me to the wearable country in the states in which we operate is it's all choice or JJ lives from how we interact.
Operating serve our customers.
Despite these dynamic conditions, Duke energy and its employees have listened to the challenge.
Continuing to provide reliable service to our nearly 24 million electric and gas customers.
It takes you don't communities customers and employees is our top priority and we took a number of stops to protect in March we shipped nearly 18000 teammates to remote operations.
14, nascent critical roles that could not work was not we redeployed the best available personal protection equipment increased disinfecting between chefs initiated split operations between primary and alternative locations to limit exposure placed additional restrictions on those accessing our facilities and implemented social distancing policy.
These new safety protocols will particularly important.
During the spring storm restoration in generation colleges.
So far our teams have completed three nuclear outages in more than 30, thoughtful hydro generation outages, all while maintaining focus on safety and delivering on time and on budget.
And in mid April or transmission and distribution teams quickly responded to more than 900000 outages across the Midwest in the Carolinas after severe thunderstorms and tornadoes.
But you can hurt your response has gone well beyond supporting our internal change we were one of the first utilities in the country. It's it's Ben So, let's just connections for non payment and they'd like payment in other fees for our customers. In addition, we donated approximately $6 million for the Duke Energy Foundation to find relief efforts across our jurisdictions and provide.
Critical to eat at several community organizations within all territories.
We also accelerate the pull back a few adjustments and over collections in Florida, resulting in a 20% reduction and what potential bills and day.
And we are working directly with all commercial and industrial customers to provide assistance the payment options for those most impacted by current economic conditions.
Our employees have been steadfast in ensuring our communities have power.
Ultra respond and adapt to these changing times.
The collective work at the healthcare and government professionals as well as utility in other words central walkers demonstrates the power of working together to serve our communities.
Now, let me take a moment to walk you through its like six which summarizes where our company fans financially.
During these uncertain economic times today, we announced first quarter adjusted earnings per share of the dollar 14 inline with our expectations, what reflecting milder weather compared to normal in strong cost. That's what's your totaling approximately 15 cents per share.
We began to take cost mitigation actions in February as we saw the impact of the mild winter and we are building on those actions to address kind of in 19.
Our communities are experiencing a slow down and we're beginning to see the impact of electric load and our jurisdictions and a few minutes, Steve will share more on the customer load friends focusing on the month of April in a range of potential low trends over the balance of 2020.
Your pleasantly projecting a 25 cents to 35 cents reduction in revenue from Cobot 19, which is consistent with stay at home policy sort of mid summer in a gradual economic recovery beginning in the third quarter and continuing over the balance of the year.
In response to the pandemic in recognition of mild weather entering the year. We are executing on a series of cost saving initiatives totaling approximately $350 million to $450 million or 35 sounds to 45 cents per share.
We're also keeping our regulators informed about the specific possibly are incurring related because in my team for example, a potential increase in bad debt expense.
Equally couple of get these porosity appropriate Todd.
Taking these factors into consideration we are affirming our 2020 adjusted earnings per share guidance range of fiber five to 540 pot.
We'll continue to update you as we move forward.
It's important to recognize that we are only two months into this event. We are and we will continue planning for a range of outcomes and we will know more if the economy gets that we serve we open.
The third quarter, which is a live significant want it's also still ahead of us.
Oh, it's a long term, we maintain our confidence in the strength of the communities, we serve and in our ability to deliver on the 56 billion dollar infrastructure investment plan. It is critical to our customers in communities.
I'll speak more toward this is fundamental to the moment.
Turning to slide seven we remain committed to our long term vision and value creation for community several shareholders.
We're putting our five year 50 to 56 billion dollar capital plan to work as we generate cleaner energy modernize and strengthen the energy grid and expand natural gas infrastructure.
Since announcing this updated played in February we've made progress advancing these schools.
Last September we announced a comprehensive plans to address carbon across our footprint, reaching at least a 50% reduction by 2030.
Let's see were about 20 to 50.
Our updated climate and sustainability report issued in April provide more clarity in detail around the measures will taking to achieve these milestones, including doubling our renewable portfolio over the next five years.
Our climate report outlines our plans over the longer term to retire more coal sort or expand renewable energy storage and natural gas. We also emphasize the importance of research and development focus on load following carbon free resources.
We believe these new technologies are essential to reach or if that's your goal by 2050 and plan to share more updates in this area when we host or E.S.G. day later this year.
On the grid in April we filed on 10 year $6 billion Florida's Storm protection plan. These investments will generate meaningful customer benefits by enhancing reliability, while reducing restoration costs, an outage times associated with extreme weather that.
Further details on the progress we're making in these areas are outlined on the slide.
Before I close let me touch on the Atlantic Coast pipeline, you can reflect the status summary on slide 18 in the appendix.
We expect a decision from the Supreme Court guarding the Appalachian Trail crossing in the coming weeks. We're also awaiting the biological opinion and internal takes statement from U.S. fish and Wildlife service. If they're detailed analysis continues to ensure that adorable permit is issued.
We expect the agency to reissue permit in mid 2020 and to date have not seen any significant delays and the progress of the work from covered 90.
Successful resolution of both of these items will be important to reach our construction.
Importantly, 80, peanuts finalize revised commercial terms with the major pipeline off takers balancing value to customers in the field fair return to project owners.
Finally, we are also closely monitoring developments on the nation wide problem that 12, the recent decision related to the Keystone pipeline by the district court in Montana as potential implications to ATP.
Just yesterday the judge amended his April 15th ruling limiting the picture to new oil and gas pipeline project. You also denied it stayed pending appeal.
We are evaluating this ruling and impact it will have on the existing timing cost or the project assuming the issue is resolved in a timely manner and we can take advantage of the of the November two we marched tree selling season, we believe ATP can maintain existing schedule and cost estimates.
We remain committed to this important infrastructure project in the economic benefits, we expect it will drive for communities in the Carolinas and we'll continue to update you as progress is made.
It's all reflect on our long term strategy I'm confident in our investment priorities. They continued to deliver value capitalizing the complement of nature of our electric and gas franchises and meet our customers growing and evolving energy needs.
Looking ahead in the context to be uncertain economic environment in all countries, who will be thoughtful and the pace at which when deployed capital balancing affordability for our customers value creation for investors.
Turning to slide 18 in the midst of the economic impact does it stay at home orders the fundamentals of our business remains strong importantly, all employees to manage our customers and community shine through during the hardest sometimes it's regenerate and deliver reliable increasingly clean energy costs or service territories. There are several distinguishing factors.
Make a company like do you go long term investment for shareholders first our size and scale and diversity of operations is unmatched, allowing us to deliver consistent short term returns and long term investment opportunities.
Furthermore, we operate and constructive regulatory jurisdictions that overseer operations and arguably the most attractive communities on the east coast and a five year 50, <unk> going to all plans for western cleaner energy grid improvements and other infrastructure. It's critical to the customers of communities, we serve and will create meaningful shareholder value for many years to calm.
These are the strong fundamental to give us confidence to deliver on a long term earnings growth rate of 4% to 6%.
And with that I'll turn it over the steep.
Thanks, Lynn and good morning, everyone I'll start with a brief description of older quarterly results highlighting a few as a key variances for the quarter year.
For more detailed information on various drivers in a reconciliation is important to adjusted results. Please refer to the supporting materials as a company todays press release and presentation.
As shown on slide.
First quarter reported earnings per share or will it go 24, it or adjusted earnings per share with over 40 cents compared to reported and adjusted earnings per share the gold 24 last year.
A difference between the board is an adjusted earnings was due to the partial settlement in the D.C. North Carolina read throughs permitting recur.
2018 seven schools.
It's interesting electric utilities and infrastructure was down six cents compared to the prior year.
We saw the expected benefits from base rate increases in South Carolina in Florida, and higher rider revenues in the Midwest <unk> forecasted regulatory lag in North Carolina.
These fundamental improvement should or shouldn't that results were offset by mild winter weather. All this severe storms that impacted much of the Carolinas.
Shifting to gas utilities, and infrastructure judge, which we show our driven primarily by new retool each in North Carolina and higher margins of deals each suits.
Them to partially offset by the onetime income tax adjustment related to the CP was favorably impacted the prior period and shows.
Our commercial renewable should.
That's true ups expense for the.
The increase was primarily due to ongoing benefits from projects bought all along and 20 million team as well as favorable wind resource inflation this year.
<unk>.
They don't Wilsons for the quarter, principally due to plant possible and roll investment returns and nonqualified benefit plans, causing at a cost so much that shows your.
Such returns on these plan absolutes apportion social LIBOR.
<unk>.
Overall, well first quarter financial results will not materially affect the cool with Nike and them.
Aside from the unseasonable weather wasn't strong calls for the first quarter was consistent with or internal plan.
Given the softer whether you get plenty litigation actions in February and further helps them accelerate.
Full all I'm sure it's crazy like fee.
As described in detail in a few moments.
Turning to slide two we continue to execute a regulatory agenda.
As Lynn mentioned recently filed or store protection plan in Florida provides much needed storm hardening industry.
We also modernize regulatory mechanisms for investments in both Florida Andover.
Providing trying to recur.
For investments in clean generation at a warm water laws.
We currently go through rate cases as.
Due to energy, Indiana case continues as planned hearings were held in January the workers that equation you expect the order loyal movie.
So Duke energy, Carolinas, and Duke energy progress, the written Prehearing record and substantially.
The B.C.J. Muse we reached a portion so look for store in college, allowing us to pursue securitization as wells are drilled tonnage.
Here is for those cases had been do continue to work with all stakeholders to identify and options to safely and efficiently conducted here and we expect to revise procedural schedule to be leaves the company.
Just last week, we filed with the commission a proposal to combine the hearings with the two cases in July which are supported by the public sector.
This procedural schedule is approved it will help to live up to delay in obtaining the general rate case.
It's like the way in the decisions, but those are the most girl and occasions is not expected to have a significant impact although 2020 financial please.
And that commission has a variety of mechanisms are pretty convincing to fill those theaters with customers and sure.
With regard to cope with 90 and expected impacts across her jurisdictions, we are tracking the financial affects although you children's including elevated bad debt expense and waived fees for customers. This is an extraordinary time.
That has and will continue to require or utilities to incur costs on behalf of work customers employees, who operate our businesses.
Similar to what others are doing across the country you work with our regulators to identify the stuff solutions to recover these calls to support begun ongoing financial health of them too.
Well also recognizing unique needs or customers during the summer closer than that.
Shifting now to our response to it because the pen device slide 11 highlights the Waldorf steps from Sig.
For our liquidity in for that you're starting to position us to manage through a variety of potential outcomes.
30, we have a strong available liquidity position of $8.2 billion, which provides the company valuable Phillips. Please.
Plateau remaining capital mortgage transactions and Twentytwenty.
There's divisions within the recently enacted killed.
Regarding meaningful cash benefits and trend.
Celebrating our remaining A.M.T. cribbage little approximately 285 million into the current year.
This additional cash benefit will help to mitigate lower revenues.
And give us added confidence in our ability to deliver or consolidated president mr. towards its for the year.
Finally, or 2020 castle so to answer the plan remains on track, we will closely monitor the capital markets and strategically terrible issuances too cheap the best outcomes possible those are customers and sure.
Moving to slide tool in addition to or large size and scale retail customer mix is diverse anchored or goals or that sort of coaster before.
Southeast remains a very attractive holder because the continues to experience strong growth.
Residential customers at a rate of approximately 1.7% year over you.
With the recent state on Paul's volumes, and I was answering customer class had been stroll, particularly as well.
We expect this trend to continue into the summer currencies.
The higher residential volumes provide partial offsets coupons in the commercial and industrial questions.
And what should the service sector has been closed or limited operational.
Including schools and universities bars and restaurants, another regionals that was.
Certain sectors within the commercial.
Commercial remain resilient such as David said, there was an hospitals. The continued to provide for was services to fight against depends ever.
The temporary closures and curtailments certain industrial customers are beginning to give way to plans to restart production.
States, you know service territories reactions to the old policies and workers are preparing to come back toward gradually.
Turning to slide 13.
Comparable sales equal to the prior year, we're able to see how the full stay at home policies have impacted retail electric volumes across each of our customer classes commercial and industrial usage was down 10% and 13% respectively for the bold, but as expected the higher mortgage.
Unless it does require she was up 6%.
We're all retail sales were down 5% and these results were slightly favorable to our revised forecast for them all.
As a reminder.
The earnings sensitivities do vary across retail customer classes and we've included those here for you looking ahead, we expect a 3% to 5% decline in total retail volumes for the full year.
Forecasting the deepest pause in volumes compared between 19 in both the second and third quarter with a gradual economic recovery beginning in the latter half the third quarter.
Extending beyond me into the year.
With these forecasted wages and all the weather normalized basis, we are forecasting that full year 2020, Mega bps impact of 25 to 35 cents.
Our communities are they getting those reopening you're hearing from a large number of all industrial customers that they are planning to increase their level of operations in the mid to late may timeframe at the same time.
Spare tire residential volumes you just stay at home Poles and fully utilized.
Moving now to slide 14, Youve activated several initiatives to mitigate the impact was killed and 19.
Oh and rolled out a lighter owner budget is nearly 5 billion.
Warm or whatever to address really again.
Mitch you get on litigation plans is that we're in a greatly expanded those efforts with the code at night to answer.
For the past five years, we have demonstrated a core competency managerial immune absorbing increases for inflation.
Well it was nearly 300 million of older and associated with the Piedmont acquisition.
We've also demonstrated the ability to strategically manage cost between years, taking advantage of strong years in some strong feelings and some years just straight computers watch that these calls rose.
Based on the tremendous focus and commitment of our teammates we are confident we can reduce or o'neill than other expenses by approximately 350 before them 50 million in 20 Jordan.
Target is not merely aspirationally, but its underscore that just shoot discrete actions, which we have clear line of sight that already taking action.
For example, as are generating assets are expected to loveless during the year, though we're optimizing the timing in schools that were 2020 plant outages.
In addition, we are aggressively managing all expenses, including our contract labor overtime, though in the central budgets in a broad range of discretionary spending.
We're also suspending abstral higher.
Sharing existing resources in the virtual that are in order to optimize labor costs are they do clear we're highly confident as our ability to deliver on the school was 350 to 450 million of 2020 cost reductions.
Although we were still early in the year based on the forecasted whereas work and all that.
Getting this.
And the significant cost mitigation actions that we were put into motion, we are reaffirming or 2020 targets to deliver with it or original earnings per share guidance range.
Finally, we understand the value of the dividend to our investors approximately 40% more retail investors and many of whom carried on our visit.
The source of income during these uncertain times 2020 marks the 94th consecutive year famous quarterly cash dividends.
We're out the past nine debt.
Including during the financial crisis in 2008 in 2000, though.
Protesters or quarterly cash dividend.
Our excellent businesses that operate in some of the best jurisdictions in the country give us confidence to continue paying and growing the dividend consistent with a long term target payout ratios of 65% to 75%.
Before we open it up for questions. Let me turn to slide 15 are attractive dividend yield coupled with a long term earnings rose from investments are regulated utilities.
At a compelling risk adjusted return for shareholders.
As a company, we're well positioned and confident barberton growing communities, where we showed strong if at all that road as we emerge from this pembina.
With that let them along through the course.
Thank you and ladies and gentlemen, if you'd like to ask your question. Please signal by pressing star one on your telephone keypad and if you're using a speaker phone. Please make sure. Your mute function is turned off to layer signal to return equipment again that star one to signal for question.
We'll take our first question from sharper recent with Guggenheim Partners. Please go ahead.
Hey, good morning Gosh.
Hi shareholder.
So we can keep mitigation plan that was announced talk she's a 35 to 45 cents you sort of see method and it's cold weather is more protracted in your current 3% to 5% low degradation.
Incremental leverage.
You have this fall.
This will also sees you can add a we have definitive plans for the 35 to 45 cents, a sharp as well as upside potential.
And I think at some point, depending on how this economic downturn plays out.
We will continue to go more aggressively not only of the cost categories, we've identified but really within a broader context of transformation a and this is where we'd be more bus will allow corporate center around outsourcing real estates and print digital tools early plant retirements, just a variety of things and that work is.
Already underway.
So this is something that I'm, particularly proud of is we've demonstrated the ability to understand our crops and cost drivers significantly over the last five years. We've also put infrastructure in place to drive transformation.
And the plans are underway for a range of economic outcomes.
Got it and then then just focusing on on the on one side of the 350 to 450 million mitigation plan can you touch on how much of this could be ongoing perpetual nature as you sort of thinking about the shaping of your own them Cobalt post 2020.
Sure I would say there will be elements of the cost reductions that are sustainable and they'll be elements that move with timing. So an example would be you know when you put a hiring freeze in place we will enter 2021 with a lower headcount than we would have originally projected and then we.
Well again, bringing skills and at the appropriate timing pace, depending on the needs of the business.
I think outages, because we're running our asset swaps, we've been able to defer some of those but we'll be thoughtful about maintaining assets are important to customers and feather those backend as needed. A we're also spending a lot of time on what we've learned around when those work.
And the activity underway from kind of at 19, and I believe there will be permanent savings from the way we are using resources and we're trying to get our hands around quantification of that as we look at during the fourth policies and as we look at our real estate footprint and you can expect to hear more about that as we think about 2021 and beyond.
Steve would you add to that.
No I think when.
Got it very well I'm very confident that were working walk through this a pandemic about how to work remotely how to use technology tools.
We didn't really realize what we had that will serve us wells. We go forward couple that with the digital capabilities that or business transformation shudders utilizing and data analytics.
I think we would be able to we have found a new avenue a neat half of another body of efficiencies.
What we're learning to schools of 19 and then.
Sure for guns, Congrats on on the plan that was announcements good execution. Thanks short thank you.
Thank you. Our next question comes from Stephen Byrd Morgan Stanley. Please go ahead.
Hi, good morning.
Good morning want it.
Hope you all in your family's you're doing are doing well through this through this range on Stephen into Pope for yours as well.
Thank you.
I wanted to touch just first on on HCP and.
I think we expect kinetic many expect that you will be victorious at the Supreme Court.
From there I guess I'm thinking about the Montana litigation and potential impacts.
In terms of decision to to restart the project or ability to restart the project I think there's a chance there that that litigation could be fairly extensive how does that factor into sort of the decision making around restarting work on HCP.
Yes, Stephen it's an important consideration and as I said in her remarks, you assuming that we can get gets resolved to hit the tree felling season will be in position to move forward maintaining cost and schedule a given the fact that that ruling happened yesterday, you're catching us at a very early time in our evaluation.
We would expect a the army Corps Indio, Jay to appeal and will be monitoring that closely as I know others won't be in the industry and other infrastructure companies and we'll of course more and more from the Army Corps, India Jay as we go forward. So it's something to keep on the radar screen and we will continue to monitor an update as more and more.
Understood and so you know it is clearly relevant just as you're thinking about the overall plan for the project.
Yes.
That's a certain killing it.
Understood and then maybe just a quick one on the credit statistics, Steve that you'd laid out are laid out kind of you're pretty clear path I may be sir over thinking or just looking at the the discussion here in terms of the 15% of soda debt level that you're targeting versus I'm sort of the 15% to 16%.
Level, which might just touching again on on dialogue with rating agencies. Your overall sort of sense for where you where you want to be over the next several years in terms of your episode of debt.
Yes, sure our targeted range for credit ratings is to have if it FFO in the 15% to 16% range.
Taken steps.
To to make that happen in our plan and then the pass we have good dialogue with the rating agencies Moody's reaffirmed our rating.
Some Pete.
Pulled the entire sector onto a negative outlook and everybody's looking out the impacts of this.
And then Mike.
So we'll continue at dialogue, we're seeing some erosion of topline revenues.
And that affects AFFO, but you can see the mitigation impacts that we have put in place.
Moves and the opposite direction.
So we'll continue that dialogue.
We continue to work shoot to meet or financial plans.
Both earnings and on the credit side, a couple of things that are unique to us. We've got these AMC credits.
Accelerated modernization helps is quite a bit here. We're also taking advantage of deferring.
Corporate portion of payroll taxes.
<unk> million dollars cash flows over to our pension plans really good shape in terms of funding and so forth and build on a cash taxpayer until.
2027, and a significant voice so we've got some some solid strengths that our balance sheet.
That help us.
And then that continued regulatory activity of getting cost as a central there.
So we'll continue that dialogue with the rating agencies and Ah.
We'll keep them abreast of what sports moving forward.
That makes makes total sense and just last weeks I could just on the own and cost control impressive results in terms of being able to Ah. It's got costs and it's an interesting point about sort of some of the learnings that that you're engaged in when you think about sort of the dps growth guidance.
The longer term that you've laid out in the trajectory is there potential that some of these learnings that or you know.
The could could last and can be beneficial because that other meaningful benefit in terms of as you think about your overall trajectory or is it a little too early to say how are you. How are you thinking about what you've been able to to learn here.
You know season, I think Oh, NIM agility, and the ability to lower cost structure is a tailwind to gross.
'cause it puts us in a great position to deploy capital without raising price to customers and so I do think about it is something that's important to the long term growth at the company.
Understood and then it sounds like we used a portion of.
These cost savings or are things that could be more permanent in nature and be beneficial longer term, whereas others are you know things like.
Outage timing or a far more you know more transitory in nature. So it sounds like it's a mix of the too.
I I think that's right, Stephen but but I think it's important that you're hearing from us that lowering our cost structure, it's not only a core competency of ours, but a strong objective and we think particularly in a time when you've got economic uncertainty to move early and aggressively as a smart thing to do and that's how we are positioning ourselves from 22.
20, and also for 2021 and beyond.
And we earned and techniques to utilize our workforce much more efficiently and the situation, we can virtually shift engineers with him functions.
We have shifted financial pieces.
From budgeting to accounts into audit services.
Hi, T. people two different functions.
The virtual capabilities as we learn more about when they're going to help us utilized or work force more efficiently.
<unk> I think that's going to provide longer terms savings capabilities.
Very good thank you very much.
Thank you Susan.
Your next question comes from Steve Fleishman with Wolfe Research LLC. Please go ahead.
Hi, good morning, I am warning.
So just to.
Could you are if you don't want and just remind us kind of the North Carolina rate cases.
Where do you expect outcomes and just if that does get delayed further or how much we have to worry about the timing of.
Exactly in terms of.
Your range for this year.
No. So Steve we need a filing maybe a week ago few days ago, suggesting a recommending the consolidation of the two cases in the Carolinas at supported by public stay off putting hearing in July of this year and so we think that condition because that's what close considering.
Cash and that'll put us close to the timing me to which we plan.
So we feel like we've got some flexibility within our financial plan for 2020 on a on that timing I also think it's fair to say that their tools with these cases, whether its you know.
Deferrals accounting orders get back of Ah Ah Dupree deferred income taxes interim rate a variety of tools that could be used to support the health of the utility. So we'll be evaluating all of those considerations as we go in those tools.
Many of those tools are available to the commission she now.
Okay.
Any updated thoughts on whether you have.
Control likely to pencil to settle those cases are expected to be.
What we would do the to them.
Steve we've entered into a subtle lunch on a handful of items and the D.C. case will do I have similar discussions on DP and between now and July will continue to keep lines of communication open.
With the parties to see if there are other opportunities I think this is a Mrs and important time as you recognize customers of course working through the economic downturn, but the health of the utilities are also extraordinarily important and I'm not sure. If there's been another time when the essential nature Nate.
Nature of our service has been underscored more than enough.
And so we'll continue to have discussions it's hard to forecast whether or not we'll get to any further settlement a at this point the we'll keep you posted.
Okay, and then lastly, I think you mention that there's been the.
The initial meeting and B.
Ah Ah North Carolina Energy plan or American citizens held meetings there could you just.
Good color on where that stands and where we might start seeing many outcomes from that.
Sure.
The there been two stakeholder work stream, Steve and 2021 focused on climate policy.
So this is a group of stakeholders focused on retirement of coal Seo two markets clean energy standard and they've continued to meet even remotely talking about these various items.
We would expect a draft front porch from those discussions in the second quarter public draft for third quarter, and then a recommendation going to the governor by the end of the here you may recall that the objective is to get to at least a 70% carbon reduction by 2030.
And it's actually greenhouse gases not carbon and so there are some alignment around base years, another things going on to figure out exactly how to do the counting.
Well, we're comfortable with its objective you know from our climate strategy worried at least 50%.
By 2030, so you know that string of work is very engaged.
We have also been two meetings on a stakeholder process focused on modernized regulation performance based rate, making in other tools.
The discussion there is a quarterly I'd say just I think there was one meeting and person one remote meeting.
The objective there are trying to find ways that carbon reduction can be incentive distributed energy resources and so that is moving it perhaps it slightly slower pace, but good discussion in dialogue there as well.
So I think on both of these will have more feedback as the year progresses, and determine whether or not there's any specific push coming out of either of these processes for legislation and 2021.
Okay, great. Thank you.
Thank you.
Thank you we'll next go to Jonathan Arnold with vertical research. Please go ahead.
Hi, good morning, there's a lot.
Morning, John I'm worrying [noise].
So no quick questions that on the guidance reaffirmation of the cost savings.
The question you feel titles.
Is it reasonable to assume that the where you'll sitting today, if those things play out as a new outline the recognizing there's a lot of variability of the you would be sort of solidly in the range or are we kind of holding in the millennials as any other color you can give us though.
And Jonathan I appreciate that you know who don't plan and are executing a plan that matches.
The covered 19 expectation as well as the first quarter weaker weather, which really gives us an opportunity to.
The land solidly within the range and you know as we talked about we have a track record of being able to manage own yemenis fashion and we have a high degree of confidence that we can do that.
But we also recognize we're only a couple of months ended the third quarter are still ahead of us.
Our wide range of assumptions on how this economy, it's going to play out or states are just beginning to reopen you know we could have the milestones around Atlantic coast pipeline that we've talked about the SCOTUS decision and also biological opinion. So we'll continue to update on all these things this year progresses, but the actions that we.
Put into place right now are designed to place us solidly within the range.
Thank you for clarifying that another if it's one of the when you talked about keeping regulators and pool and don't incremental Carl.
But.
Are you actually buffering certain items and.
Where are you willing for them to flow.
And potentially orders out of conditions allow me to do that.
So you know for the first quarter, Jonathan minimal impact because we were just sort of starting into this this process and the various policies with customers, but we are reporting and tracking all of these costs to our various conditions in either.
Good to see filings around deferrals or accounting orders and other things I think Ohio in Indiana already underway.
And as we get more of that feed that going then we will reflect appropriate accounting entries at the right time.
Steve How would you add here that's correct, we're preparing filings in the Midwest and it'll show in Indiana.
Youre tracking cost in all of our jurisdictions.
And at the appropriate time, we'll we'll make a various filings.
The work with our regulators on appropriate deferrals nothing's been buffer at this point.
Applications are getting prepared tracking is moving forward.
And we'll continue to to look at this and see what makes no sense.
Okay.
And how you treat without giving guidance I guess.
[noise], so Jonathan we're assuming that we won't get appropriate.
Treatment of the incremental Pos and I'm, focusing on things like bad debt expense.
You know the timing of when that occurs in terms of cash collections will depend on the jurisdictions, but for incremental costs. We are assuming that will get appropriate regulatory tree.
Okay. Thanks.
Because I think what's going on public paprika. The recent executive older about yeah, no cool thing equivalent accrue.
Aggressively nation.
You have any initial so there's a high level you haven't provided impact.
Your your food.
Clamato grew with for example, Oh, you know just keep getting any color I realize it doesn't yet have to be defined but it seems to be neutral or tomorrow.
Yeah, we're closely following yet.
Jonathan I think you had the spirit of it is to address cyber risk, which is something we strongly support.
There was a similar executive order issued a former lead you know a few years ago for the telecom industry.
And so we will factor in as we learn more these plans into our investment plan, but as you know you're making investments in T. N D. A intended to address cyber and physical risk as well as renewables and customer programs all of that is squarely within our strategic investment plan.
So we will adjust it actually one more.
And you know applaud a focus on cyber risk and around the ball power system.
I would add but we are broad supplier base.
Across our footprint.
As you said, Jonathan there's more to work is.
Whose specifically being targeted here, but.
We looked at our vendor base.
And try and diversified as much as possible Susan move in different directions as necessary.
Great. Thank you very much so theyll, probably maybe John here.
Thank you we'll next go to Julien Dumoulin Smith with Bank of America. Please go ahead.
Hey, good morning.
Well in more ways.
Hey, good morning so.
Hi, Susan part, but I want to come back to little bit how we've not seen ability of the cost cuts beyond the current period, obviously, it's a dramatic number so not necessarily expected, but how do you think about the cadence of that against the need for perhaps is evolving rickys time.
One.
And even within that number that you talked about this year as a follow up question. How are you thinking about that complements in your cost cutting efforts to mitigate.
Impacts from coal ash, if that makes sense as well.
Yeah, So I'll take a stab and Steve you can Ah you can build on it.
Yeah, we have developed to plan Julian to.
Match, what we see as 'cause it risk as well as mild weather.
So you've got economic downturn as well as you know week start to the year and we've identified from a range of things operations corporate some tour employee expenses hiring sleeve contractor contingent workers overtime variable compensation a variety of tools.
We will use to go after that.
You know as I commented a moment ago. The fact that will only a couple of months into this and learning about the opening and learning about what might.
Might unfold over the balance of the year. We're also looking at each of those cost categories for potential upsizing of them as well as living into what I would call more transformative changes, what we might look at real estate and early retirement of certain assets and so on so there's a lot of planning going on because the.
Future is uncertain.
You know, it's I'd look at that range of Clos or some of them will be sustainable I'm not prepared to give you a percentage or a specific number on that but I do believe that some of them will be sustainable. The example, I gave a moment ago, you know hiring freezes going to put us into 2021 with a smaller workforce.
And we will monitor as we go how to convert to a sustainable lower cost structure, if we find ourselves in the longer gallon turn.
I think as you talk about things like coal last you're talking about regulatory risk and you know the rate case outcomes and how battle factory on.
We have a range of assumptions in our financial plan as we think about Oh wait cases, and that is always part of our thinking and developing the size of mitigating actions and so I won't point to a specific item on that but I will say anytime you put a financial plan together youre evaluating a range of outcomes.
We feel strongly that recovery of coal ash costs and recovery will return it's important.
We believe it's important for any health of the balance sheet. When you take about a cost of this nature and they will be prepared to strongly defend that when we're on the stand later this summer.
If I might add Julian that because we think about or regulatory cadences.
The ability to to generate fees or NIM efficiencies is a very useful tools, the or gives us headroom to make needed capital investments on behalf of four customers those alluded to earlier and minimize any rate impacts to customers. So there's capital optimization around or.
One m. optimization.
In sync with the regulatory cadence.
Is very important part of what we're trying to put together it we've got flexibility in the capital plan. So we can move that capital around to fit under a lot of efficiencies to help our shareholders as our customers. So those are the types of dynamics, we're trying to put together across your footprint.
Actually if you can I just saw its a very briefly here how are you seeing what the shaping here by quarter of these cost cuts and having manifest themselves.
Relative I suppose to the reductions as loan.
It sounds like you were rapidly able to identify these cost cuts I'm sorry, such as you think about twoq or threeq et cetera, and then when if I can clarify you specifically said that you did not yet a lot for instance, a voluntary retirement programs as part of this 400 million dollar number.
Now I'll take that one there is no assumption of a voluntary retirement program and the numbers.
Children, and then on on the shaping Julian.
What's the most.
Most of it to be in the second half of the year.
A lot of old generation outage work will be in the fall generation season.
As our.
Head count freeze kicks in that kind of build during the year, we have budgeted increases or the workforce, we'll certainly see some in each quarter.
But the rest of the year, but specifically usually a generation outage work.
It'll be a bit more in the second half of a year.
Excellent. Thanks for the patients got festival. Thank you Julie do.
Thank you we'll next go to Michael Weinstein.
Credit Suisse. Please go ahead.
Hi, guys.
Hi, I'm well.
They are through <unk>.
Couple of quick a couple of club coupons are on Capex and all of them. So the Florida. Good grip hardening plan to file that already reflected in the five your Capex plan I think it is good it's going to confirm that.
So Michael we updated in February about a billion in half into Florida, or Florida, five year plan and that is consistent with what we filed and the grid hiring plan you will see incremental capital beyond the five years. Because this has followed a 10 year plan and well provide those updates in two years for glass.
That's right are you worried capital plan, it was increased 12% and though the Florida.
Grid models, a significant part of the increase.
Right and just the beat a dead horse on the on the on M. reduction deserve a ballpark estimate that you could give us for how much is deferral into the current maintenance and how much is.
More permanent 25% of it more permanent.
Permanent.
Yeah, Michael at this point I don't have a range to share with you I think that's been a topic of interest and a you know as we go into the second quarter and began or war Ernest planting for 2021, I'll think I think we'll be in a better position to talk about that.
But our objective will be to make as much sustainable if we can in this environment, but I don't have a specific on deferral versus sustainable at this point, Yeah. I think we want to look at all the assets operates.
And then think about though.
What are their performance under the though.
Revised operations and so forth, where we're headed so the impact of Israel.
The a related question. Steve you mentioned you know the deal that you have headroom from lower on them for more capital improvement.
You see the opportunity to convert so these opex cuts or not and what's the crosses over into a higher rate base.
Capex for fun.
Well, we certainly always look at putting our financial plan together.
Keeping in mind impacts on customer wage.
And so to the extent you can do show it in cost that does give you that headroom there we have a world that robust.
Dataset of capital off of it as its return capital away.
Each year, when we go through or budgeting process.
So you know given our scope and scale.
The breadth of our grid.
We have plenty of opportunities to do those kinds of things Mike.
And also since the progress rate case, and still have a record that still open is it possible to incorporate some of these cobot cost deferrals and recovery mechanisms or anything else you're thinking about their problem will incorporate that into that please.
So Michael we're looking at the appropriate way to handle the Carolinas and why did the fact that Ah the cases have yet to go to hearing.
I don't have anything specific to share I'm, not playing right now, but we all reporting the cost but to the North Carolina condition and to the state into South Carolina and will make.
Nick the appropriate filings and incorporate in the wake case, if that makes sense or handle in whatever way makes sense just too early on that one.
Gotcha, Okay. That's all I have a female so they've got it. Thank you very much.
Thank you. Thank you.
Thank you we'll next go to Jeremy Tonet with JP Morgan. Please go ahead.
Hi, good morning, I can't really.
Just want to come or what I'm side with the if one of the decremental I guess, if our call. It seems like a spreading them out in such a vegetation management has accelerated in Fourq. You 19. So just trying to think through how much cost savings just kind of Banca last year, a that could be used against a this year and was any of that contingency you kind of already.
Wise in the first quarter.
But you're right and took 2019.
Our agility programs worked and the other direction, we have a favorable year.
We accelerated some are useful expenses into 2019.
We had better management.
It was one area, where we had about four cents that we pulled into 20 like team as I recall.
That was baked into our plans at our forecast and so forth a and the ability to to do those kind of things is very useful tools, that's already baked into the numbers that you're seeing at this point.
That helps us achieving a dip into our range that's dexterity biju between calendar years.
Got it that's helpful. That's it for me thanks.
Thank you Jeremy.
Thank you and ladies and gentleman that does conclude or time for questions and answers My turn the conference back over to Miss Lynn Good for any additional for closing remarks.
Well, thank you Derek and thanks to all he joined today for your interest in faster than Duke energy and I just want to take this opportunity to thank the employees at Duke energy I'm extraordinarily proud of the work that.
Then underway with new safety protocols to do the business as usual, but also to serve our customers well and the commitment of this leadership team and our employees to.
Excellent customers and in maintaining a financial health of our company is truly extraordinary so thanks to the Duke energy employees and thanks to all of you for a joining today.
Thank you again that does conclude today's call. We do thank you for your participation you may now disconnect.
[noise].
Uh huh.
[noise].
And.
[noise].
[noise] Oh.
HM.
[noise].