Q2 2020 Duke Energy Corp Earnings Call
Ladies and gentlemen, good day and welcome to the Duke Energy's second quarter earnings call.
Today's call is being recorded.
At this time.
The conference over to Brian Butler, Vice President Investor Relations. Please go ahead Sir.
Thank you Bobby.
Morning, everyone.
Welcome to Duke Energy second quarter 2020 earnings review business update.
We do know call today, it's Linda Chair, President <unk>, Chief Executive Officer, along with Steve Young Executive Vice President and CFO.
Today's discussion will include the use of non-GAAP financial measures and forward looking information within the meaning of the securities laws.
Actual results could differ materially materially from such forward looking statements and those factors are outlined at year end and disclosed to you can achieve jeffs you see filings.
Reconciliation of non-GAAP financial measures can be found in today's materials and on Duke energy Dotcom.
Please note the appendix for today's presentation includes supplemental information and additional disclosures.
That's somewhere else and slots for today's call will provide an update on her 2020 financial results and rate cases, that's wells insights on the company's long term strategy and investment outlook.
Before then share an overview of our second quarter financial results.
You also offer insight important economic and were booked outlook and long term earnings projections.
In closing that key investor considerations.
With that let me turn the call over Q1.
Brian Thank you and good morning, everyone.
Today, we announced adjusted earnings per share of the dollar eight for the corridor, which is favorable to our internal projections, including coated.
The decline in low during the quarter was less significant than originally anticipated with Philip or states reopening and what the dental usage stronger than expected.
Looking at kind of recognizing the uncertainties that remain including the potential impact of a resurgence in the virus well maintaining our full year projection of about 3% to 5% decline in retail volumes.
We are also closely monitoring the pace of economic recovery and the no more as the year progresses.
We made great progress and mitigating operations and maintenance expense. So I'm very proud of our demonstrated track record and managing our cost structure over many years, but im, particularly proud of the work as a team this year.
Identified and launched significant efforts to reduce cost and 2020 by $350 million to $450 million matching the impact of mild winter weather major storms and the pandemic.
The quarter reflects the portion of those savings and we're on track to deliver the remaining savings over the balance of 2020.
We remain steadfast in our 2020 financial commitment to shareholders and a reaffirming our full year guidance range of five of five to 545.
Progressive approach to cost mitigation, which began early in the year, you're positioned to navigate through the uncertainties of coated and to absorb the watts of earnings from the cancellation of ATP.
As Steve will discuss in a moment our year to date results along with a strong July.
Position us to deliver in the lower half of the 2020 guidance range.
The third quarter, our most significant one it's still a lot about and we will update expectations again during our third quarter earnings call.
Let me also touch briefly on 2021 in July we announced the cancellation of the ATP due to ongoing delays and increasing popped uncertainty, which threatens the economic viability of the project. We are disappointed in the south.
I believe the decision to cancel isn't the best interest of our shareholders need our customers and we are actively pursuing other infrastructure plans to support Eastern North Carolina, It's I will touch on another.
There's a lot to be excited about as we head into 2021, even enter the year with 95% of our future earnings and capital allocation in a regulated electric and gas utility.
Our utility serves on the most attractive jurisdictions in the country. It provides investors with a transparent low risk capital plan.
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We will use every tool available to us to maximize 2021 earnings for shareholders and will remain steadfastly absolutely focused on delivering growth of 46% of the long term grounded in our regulated jurisdictional businesses.
Steve will share more do you Wanna lunch regarding our 2021 outlook.
Before I talk about a recent regulatory activity and investment strategy I wanted to share an update on an ongoing response to cobot.
And social unrest that has crept our communities we are nearly six months into the pandemic.
Unprecedented the downside is required us to create new solutions for customers and employees in short order, we've adapted or what places shifted to remote operations for possible created new processes for customer interactions, a more well, keeping the health and safety or communities and employees Paramount.
Opened 18 reliable service for our customers quickly restored 350000, allergists across Florida, and the Carolinas as a result as the recent hurricane.
Our employees continue to rise to the challenges associated with its been did not get I'm. So proud of our workforce is extraordinary response.
And in the midst of the pandemic our company and indeed, the nation had been challenged by the killing of George Floyd isn't the aftermath issues surrounding racial equity and social Justice are fun center as they should be.
A national movement has been ignited that the man's much more than it did the age it deserves action.
Our company is determined to work toward fear responsible and practical solutions times like these remind me of the importance of our company values, we believe deeply but having diverse backgrounds experiences and skills allows us to serve our customers better innovate and attract the talent we need to be successful now more than ever we are relying on these values to culture.
Beta workplace rooted in diversity and inclusion.
Power the lives of our customers will also continue to advocate for change stand up for Justice and ensure the communities, where we work and live or provided with equal opportunities.
Turning to slide six you can see that we've been active in the regulatory space of the past few months and are engaging stakeholders to reach balance solutions for customers.
In late June the Indiana utility regulatory regulatory Commission issued a constructive order in our base rate case supporting our long term investment strategy for the Midwest.
If you will recall, we filed our case last July marking the first case and D E filed in 16 years.
We received approval for an overall base rate increase of 159 million or 6.2 person average rate increase.
The rate increase which is based on the modernized forward test year it'd be implemented in two stops.
One rate already effective and stuff to rates will be implemented in Q2, 2021 inventory carrying costs to January 1st 2021.
The condition ordered a 9.7% or are we at all requested capital structure of 53% equity.
Well complete with the decisions on full recovery and return on the store coal ash cost and inclusion to be Edwardsport GCC plant in base rate.
Importantly, the commission approved shortened depreciable lives for coal fleet. It keeps up in our transition to a cleaner energy future and consistent with the IR P., we filed in 2019.
Shifting in North Carolina, we recently reached constructive partial settlement, the both or D C and D P rate cases.
Settling parties include a blood glucose meters from large customers to community groups and most recently the public staff.
Illustrated the focus our company places on stakeholder engagement.
He turns to the agreement with public staff included 9.6% early and 52% equity component of the capital structure.
Along with deferral treatment and we turn on approximately 1.3 billion in Britain pretty much from 2020 to 2022.
The settlement terms are subject to approval by the North Carolina utilities condition with hearing such began on August 24.
The delay in hearings provide sufficient time for the parties to review our updates to capital in children data and other revenue requirement inputs for May 31st. These changes will increase the annual revenue requirement requested by approximately $70 million.
And lastly, I'd like to point out or filing to implement interim rate changes for both D. C and D. These temporary rates are designed to protect our ability to earn on investments consistent with the originally reposted Stockton dates while avoiding a rate change for customers. During this interim period. This innovative approach partner.
North Carolina regulatory team was made possible by utilizing the flow back of excess deferred income taxes and insurance, we maintain our financial strength as we make these investments.
We look forward to sharing more updates on a north Carolina rate cases, and other regulatory proceedings in the months to comp.
Now turning to slide seven and eight Duke energy strategy to modernize and strengthen the energy grid generate cleaner energy and expand smart energy infrastructure across our footprint is underpinned by a robust five year $56 billion capital plan.
It also provides clear line of sight tremendous capital deployment opportunities for our communities while past 2024.
Our financial in capital planning process is underway and we continue to see ample capital investment opportunities, including emerging infrastructure needs for the Piedmont natural gas system in eastern North Carolina ongoing grid upgrades and infrastructure to support economic growth and renewable expansion.
An additional solar investments in Florida, and the Carolinas.
We're also find ways or our work on the integrated resource plan in the Carolinas, The IR P, which we will file in early September India, ERP, we will outline alternatives to achieving a carbon reduction goals as well in North Carolina Governors executive order to achieve a 70% reduction by 23.
This IR p. filing follows the comprehensive stakeholder engagement process, which worked to identify the bus potential paths forward to achieve carbon reduction targets also balancing reliability and affordability for our customers.
We are also engaged so let's take or process led by the state of North Carolina, focusing on establishing a clean energy plan for the future. We see this engagement and our IR p. filing its complimentary and they believe they will service foundational elements in our investment planning over the next decade retirement of coal plants and investment a replacement.
Duration, coupled with investments in battery storage, the energy delivery system energy efficiency and demand side management will underpin the state's transition to a cleaner energy future and Duke Energys investment plan for customers and shareholders. We look forward to share more with you see a progressive.
This line of sight to an extensive runway of investment opportunities in the Carolinas as well as our other states gives us confidence to deliver on our long term rate based growth rate of 6% not only for 2024 bid into the next decade.
As I reflect on 2020, and where we're headed Duke energy is very well positioned time and again, we adapt innovative deliver creating value for customers and shareholders alike. As we continue to respond to the pandemic, we're looking to the future and executing on a long term plans advancing a smarter energy future for our community I hope to join us or not.
Your old E.S.G. analyst day on October nine to learn more about our Carolinas I or p. filing long term strategy in specific focus around the environment social issues and governance. We've included more information on slides 27 to 28 in the appendix, which illustrate our strong progress on transitioning our generation portfolio.
The carbon free resources, including renewables. These are important topics and we look forward to further discussions with you at the yesterday.
With that let me turn the call over to Steve.
Thanks, Good morning, everyone I'll begin with a summary of our quarterly results highlighting a few of the key variances to this or.
For more detailed information on earnings drivers in a reconciliation of reported to adjusted results. Please refer to the supporting materials would accompany today's press release and presentation.
As shown on slide nine we reported the second quarter all should the dollar so cheap who share and adjusted earnings for the dollar per share. This is compared to reported and adjusted earnings per share of about 12 last year. The difference between reported and adjusted earnings and the current period is due to the cancellation and wide all the Atlanta.
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Within the segments electric utilities, and infrastructure was down eight cents quarter over quarter, whether it was the primary driver because it was eight cents favorable in the prior year and closer to normal. This year. We also have higher depreciation and amortization expense as we continue to grow or else answers and as expected electric volumes were down across each of both.
Sure. It was church was due to the pandemic. However, these headwinds were offset by significant cost mitigation based rate increases in South Carolina, Florida, and higher water revenues in the Midwest or gas utilities and infrastructure results were once again hard driven by new retail rates in North Carolina as well as possible.
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You see gas businesses continue to produce outstanding results contributing knowing since it would've been 2020.
Commercially noodles <unk>, who is also up ones.
The increase was primarily due to benefits from new projects brought on one this quarter.
Finally, other was up three cents for the quarter, principally due to lower income tax expense and higher investment returns and oil and coal supply.
Overall, we're very pleased with results in the quarter, we took swift action to mitigate the impact of code at night gene and weather on year to date results and this dedication across the entire enterprises positions as well to deliver the lower affable 2020 earnings guidance range. Despite the loss of 13 cents you learnings from HCP.
As we think about earnings drivers in the second half of the or we expect solid growth over 20 like GE from new base rates in Indiana, North Carolina, Kentucky, and people as well as continuing benefits for Florida them also you laid plan showboat investments.
Our impressive cost mitigation efforts in the quarter have created momentum, but we will build on doing when they go to the year.
We're also pleased to see July results coming in favorable to our player. We had a very warm or strong operational performance in July sales volumes continued to trend favorable she was close to the expectations.
We expect lower retail electric volumes rose lorries CP earnings of 13 shows to partially offset these groups.
Moving to slide to lower second quarter retail electric volumes were down 6%. This was favorable compared to our original postcode expectations over 9% decline for the quarter.
There were a few favorable toward trends that we continue to watch first we have experienced strengthened the residential sector across our service series is in excess of original expectations.
In addition, or commercial and industrial volumes are recovering reasonably well with nearly three fourths of our largest customers resuming operations.
Adding to these data points July 2020 weather normal volumes were also favorable by 3% to 4% compared to two with updated forecast.
The then fuel volumes were particularly strong into law Ginger was up approximately 6.5% compared to July a year ago.
As we look ahead and you're still watching the pace of the ethanol the considerably because each of our service territories or just our expectations as we were more or volume expectations for the whole your continued to be a retail people 3% to 5%.
Earnings headwinds at 24 to 35 shows.
Well recent results have been favorable.
It is clearly a dynamic situation and warm we closely monitor.
And the mix or the pandemic, we continued to see strong customer growth across each of our jurisdictions.
To date, we've seen a 1.7% increase in new electric customers and 1.5% growth and gas distribution customers.
Beyond organic moving towards rest of service areas, we continue to proactively seek out and support the economic though.
Current economic challenges and uncertainties multiple corporations are those decisions to locate new facilities or expand existing facilities within our service or towards they've not only committed significant capital investment, but there's also committed to expanding jobs at all communities.
Is that simply a fortune 50 company announced an east coast regional headquarters and technology spend or in Charlotte the plans to invest approximately $2 billion. They create Jordan two other jobs over the vegetable.
As most vulnerable all this largest economic development projects in North Carolina system.
As we continue to see more population migration into more desirable service territories, we believe Duke Energys long term load growth fundamentals, maybe some of the strongest in the industry.
Moving to slide 11 made tremendous progress across the organization to identify and implement substantial cost mitigation divisions.
I'm extremely proud collaboration and focus of all employees and management team to deliver all their 2020 shareholder earnings can that despite the significant headwinds we disclosed we set an aggressive cost mitigation range of 350 to 460 million 20, Twond, we began to tackle disposing scoping and billings and generate.
Unplanned outage, making risk informed decisions about the schedule moving forward. Additionally, we are retraining and redeploying our own workforce to perform projects historically executed contract labor and taking advantage of natural attrition.
With regards to employee expenses paused any trouble that was not business critical moderated with all discretionary spend.
Year to date basis, we've already achieved 70 million in cost reductions, representing 40% or full year toward it.
We'll build on this momentum we're confident in our ability to reach the high end of the range if necessary.
Cost litigation the ability to respond quickly go unforeseen circumstances become a core competency, Duke energy operational changes and industry, leading business transformation group continually utilize or digital and all the automation playbook to turn many of these changes in work practices and even lower cost structure.
To benefit future.
We will share more of this falls in the coming loves to mix for the progress on the war.
Let's move to slide 12, I'd like to provide some early considerations for 2020.
Prior to the cancellation of Emcp built the financial plan is trending toward an EPS midpoint of approximately $5.50. In 2020 War included in this projection was a 35 cent contribution so they see too.
The best Airport points is to around $5 in 15 ships that are regulated utilities commercial removals operations remain on track for 2020 War.
We will be refining this 2021 earnings estimate as we move to the rest of the year considering regulatory proceedings of our analysis of economic conditions. We believe the 2021 electric load will be impacted by longer term economic infections Coke at night team and we expect to manage our all in cost you all ship this impact as we have.
2020.
Although we cannot immediately replace the AHGP earnings we have identified incremental capital projects across our businesses Bill will provide growth over the five year period.
Reset earnings base, and 2021 and deliver growth of 46%.
Low risk regulated capital investments over the long term.
We will provide 2021 earnings drivers in November.
Earnings guidance range in February along with an updated five your capital poised.
As I mentioned, we use every tool disposal to maximize shareholder the 2020 war and our strong stage for <unk>.
They stay who will provide a transparent lois plus for 4% to 6% long term TPS wrote off of that 2021 bridge.
Turning to slide 13 are strong balance sheet underpins, all 56 billion dollar capital.
After we announced the cancellation led occasionally.
Both S&P and Moody's maintain current rating and stable outlook at the holding company or stable outlook is supported by EUR $500 million drift.
ATM program, and 2023 2022, and the proactive 2.5 billion dollar equity offering that was price last November to mitigate all potential is actually CP.
We believe this amount of equity is adequate to support our balance sheet and capital. Please.
Finally, we understand the value of the dividend to our investors this year more seasonality fourth consecutive year of paying quarterly cash dividend and the 14th consecutive annual increase reached an increase of 2% is consistent with our strategy to grow the business.
But also moderate our payout ratio within a sustainable age 65, 75%.
Finally, let me wrap up on slide 14.
Are attractive dividend yield coupled with a long term earnings growth from investments in our regulated utilities provide a compelling risk adjusted return for shareholders, we're well positioned to manage to cope with 19, we remain confident in our ability to deliver a little over half the earnings guidance range between equally overcoming signal.
You can hit.
As we expect to enter 2021, all of the most valuable and low risk shareholder investment propositions in the industry and we look forward to sharing more with you in the coming.
As Lynn mentioned, we look forward to share more details about our E.S.G. vision and long term strategy during our U.S.G. day or total level.
With that we'll open the call for the questions.
Thank you.
I'd like to ask a question please.
Your telephone.
Yeah.
Speakerphone, please make sure.
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Again Scott.
Ask a question.
Our first question.
Right.
I see Glenn how you doing good morning Lauren.
Okay.
Great can you.
Talk about some of the the main things that you're looking at that will affect the 2021 guidance and how you're thinking about reducing their 4% to 6% going forward you know.
It off the bad you know you everybody can see the the impact of the VCTS definitely factor.
19, how long that lasts a factor or maybe the coal ash settlements or coal ash.
Proceedings, that's probably a factor out at all these things.
Way in your minds right now, it's you're thinking about twice what it.
Sure, Mike and I appreciate that question I think it's on everyone's mind, and we really worked hard and our remarks and with our slide today to give you some visibility into what we're thinking about.
I think there three important points that I would emphasize here a first of all with a regulated and commercial renewables businesses remain on track.
And I think what's important there as we talk about rate case outcomes coal ash recovery et cetera, We always plan for a range of outcomes that was contemplated in the projected 550. It's also contemplated in the projected 515 that Steve walks you through the map on.
The second important point is that we are committed to mitigating co that economic in tops as we get in 2020, we don't yet know how much they're going to be a you know we're looking at a range of economic forecasts, but our commitment is that the declining lawyers would be offset with odell.
And then the third thing I think it's important news we've already begun to identify.
Capital a additional capital projects that will fill in the roughly 2 billion that had originally been plan for HCP and we've reflected a few ideas for you on slide 12.
So we're trying to give you that sounds that's just the visibility. This is what we're looking at regulated utilities on track, hoping to be mitigated capital plan untapped.
And so over the balance of the year, we'll continue to monitor what's going on with the economy, we should receive orders from the M.C. you see on the pending cases.
We're also going to be closely following the IR p. and clean energy planned resolution and feedback because those two initiatives represent opportunities for us to continue to identify capital.
That will spend over the next five years and the next decade. So we will give you more visibility on always things in the third quarter, including drivers and then of course, the complete capital cash flow earnings range in February as we historically.
Right.
One more on coal ash.
If a if you were to receive let's say this.
Moderately negative order on coal ash or negative weren't coal ash would that require any additional equity of water to the insurance or secondary equity I know you said that not needed for HCP cancellations.
For sure.
And I just as an important question, a and won't really be the centerpiece of testimony on the implications to crowded might go coal ash recovery I've talked about the earnings implications contemplated in our plan and put on Kashagan metrics, we will be on withstand August 24 talking about the importance.
I have a strong balance sheet important store customers not only for growth, but for potential disruptions in the market goes back to the customers lean on our balance sheet during hurricanes and cultivate another things and I hope and expectation is that given the magnitude of this issue that you.
And the fact that we have a very strong well reasoned order from 2018.
The will receive fair and appropriate treatment.
From the commission on this item the North Carolina conditions husband constructive, but for many years and we will put a very strong case in front of though.
But I think it's important to focus specifically on coal ash and if he worked to receive an order consistent with Dominion.
And absent any other provisions within the order that would be part of supportive our balance sheet would be weakened.
And moving it has been very clear on the treatment of coal ash, if there's no return that would be a direct.
Reduction or deduction from FX so Doug.
And frankly, we believe there are no viable options to with well over 100 basis points impact FFO to debt, which is basically the impact to that that ruling would have it's too big to solve with equity issuances, it's too big to solve with operational responses.
And I don't save it's likely we don't want this outcome, we don't tickets in the best interest to customers over the stage.
It is and I can never speak for the agencies, but I think the consideration will not only be the quantitative math I just walked you through but the qualitative assessment.
Is this order constructive and it's the downgrade threshold for due at the appropriate level.
So we we look at this is an important issue as I said, a centerpiece of our testimony in August we have reached a settlement with the stayed on the method of closing we saved customers money. We're meeting all the deadlines, we're delivering consistent with the rules and regulations.
Our hope and expectation is for a constructive Warner.
As you noted.
And your comments about equity we believe the amount of equity in the plan is adequate to support our capital and our balance sheet.
That's the way we're approaching it at this point [noise].
Okay, So just to be clear.
It doesn't sound like you'd be.
You'd be inclined to issue additional equity even in the events of.
Some kind of a negative water on bullish recovery.
Well you know like we will evaluate the whole the order because I think it'll be important to look at what else is in the order are there any other part of supportive elements.
But we stand by the equity that we've included in our plan is adequate to support our credit in our capital plan and we don't believe a that equity will solve potential quantitative and qualitative assessment on coal ash.
So as I said, we'll put a strong case on we expect a and hope for fair treatment from the condition.
And we'll continue to keep you posted as we move to these proceedings.
Okay, well, thank you very much I'll cede the floor.
Thank you.
Our next question.
Okay.
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Hey, it's actually going toward longer star good morning.
Good morning building.
So just to follow up on the last question just wanted to get a better sense of the moving pieces here I know you aren't in a position. So again, it's worth 21 guidance, but.
And your capital spending got its no need to raise equity.
Yes, and healthy rate case outcome of the Carolinas upcoming filing for the on I'm lovers, and additional projects and move HCP given your gas needs is there any reason to believe that when you issue that's more than 21 guidance, though it implied growth lower than the historical midpoint before 6%.
So what we are pointing to in the analysis is we were targeting 550.
He is worth about 35 cents.
So the now points to about Fyfifteen and that implies the Reg business and commercial renewables on track implies a bit offset any economic deterioration, which I will now and also implies that we'll continue to rebuild that capital from ATP. So that's the way I went to respond to it Steve would you add anything to that you know.
Or rate basis rose 6%.
For our businesses. So I you know I think we'll get a robust growth.
Four to six range hopefully the potential to high end of the range from where we reset in 2020 War.
Got it okay. Thank you very quickly looking forward to be yesterday, Dupont on providing the incremental long term capital spending opportunity associated with the Carolinas RFP at that point or will you take or whole capital plan up and that's where it's a role in any capex.
You know I believe February is gonna be better timing for that and the reason is the IR P is filed in early September the clean energy plan reaches its natural resolution in the form of a report to the governor at the end of December.
So I think what will be able to do a share some of the scenarios within our IR p., what the capital would look like in that scenario, it's what the impact customer rates and it'll have everything from you know meeting at least a 50% carbon reduction to a 70% carbon reduction which is you know the targets at the Governor has said in his executive order, but I think.
To fully reflect all that in our capital plan, a 2021 February but be it started and like people even learn more beyond February.
The process continues here in the Carolinas.
I do think that fleet transition is something that represents an opportunity for us to add capital in the Carolinas cheap reference just a moment ago and well keep you informed along the way we know more.
Great.
Thank you. Thank you.
Okay you too.
Well take our next question from Julien Dumoulin Smith with Bank of America.
Hey, good morning, Thank you been fine.
So for clarity.
Morning.
A clarification of the capital spending plan and I was reconciled our.
With that a few potential items you're offsetting.
But it doesn't necessarily get up a wider potential.
Full year that you might be getting out in the RP one.
You can discuss nor have we are.
How about my reconciled with the revised 6 billion dollar Capex.
And your Julien it's a very good question and then what we've shared with you on slide 12 for incremental investments really does not contemplate.
The full potential from the IR p. and the clean energy plan over the next decade instead, the scenarios that we just talked briefly about in the slide deck.
On a slipping here at slide eight.
We believe will accelerate realization of clean energy by accelerating coal retirements it'll have a range of replacement generation options, including of course, more renewables and battery storage it'll present.
And at least 50% carbon reduction, which I think you know has been our goal across our system certainly here in the Carolinas as well it will also present, what's necessary to get to at least a 70% carbon reduction.
So those fleet transition opportunities are not fully reflected in our capital plan, but they will be if we know more and that's we align more specifically with the policy a that'll be finalized here over the next year.
And I will update you as we got.
Got it just just newkirk working with Maria.
Next year, what's the timeline to getting clarity here if I can answer just a step further.
So we will take a stab at this Julian in February with our updated capital.
But I would expect when a clean energy plan record as they should at the end of December it's going to take a little time for that to Oh find its way in terms of ongoing policy is legislation necessary. It's a commission going to be involved our IR piece. The more Lee will start to get reaction from that we've been in stakeholder process.
But it'll be filed in September and so I think it will take a little bit of time to feed those ideas and turned that into a more dependent that policy and I will take a stab at it in February but continue to build on that because what we're really talking about is a decade of investment through 2030, and then beyond.
Got it aren't clarity work you you're going to give us a first time it after that it remains ongoing and potentially.
Experiences.
That's right I think doesn't fair way to think.
Thank you.
Thank you.
Well take our next question from Steve Fleishman.
Research.
Yeah, Hey, good morning.
Hey, when ER.
Just a follow up question on the collection issue are you mentioned in your reorder no other credits supportive elements.
No sorry, I'm getting a return on it.
Do you have you proposed other credits border elements.
Well Michael.
No I think its cash flow, Steve you know Weve reached a settlement at 9.6 and 52 I think it would have to be higher than that.
And you know, there's accelerated depreciation which is a cash flow element of so I think it would be a combination of thing, but we feel strongly about to recovery of the return on and of the coal Ash. We received treatment in that regard and 2018 as you know, but I'm just.
You know providing that feedback to say anytime you get an order from the condition you have to look at the whole of it.
To evaluate implications and we'll do exactly that.
Okay, Great and then.
On.
DCP in terms of just.
Thoughts on how you're actually going to replace.
Yes, but not the capex, but the gas.
Oh that you needed to your when will we know more about that.
Sure you know, Steve we've been working on contingency plans for some time for both the LDC. So this is the Piedmont system.
On the need to get more gas and more pressure into the eastern part of that states. There a range of options will be looking at the lowest cost option for customers and we believe some capital expansion will be necessary to achieve bad enough. That's reflected on slide 12.
Oh for the electric business. The IR P will be the first step in that process has been planning along the way, but you the implications to replacement generation will be begin to be a draft in ERP and they are also will be weighing Pos.
Completion with a variety of options that would be available to support the electric business I think we've talked about the fact, the gas supply into the Carolinas is currently constrained, particularly in winter. So we'll need to look for ways to address that over time and a as we finalize these options and the can.
Situations will talk more about them.
Okay, Great and then one last question the in the slide.
In the appendix, where you showed a kind of your long term renewables.
Oh, I think are doubling for 2025.
But could you just give more color like.
How much of that has to come through the North Carolina the Carolinas.
Our key processes.
For some time for that or.
Nor you certainly didn't get her outflows.
That's good errors are coming from no, Florida commercial or.
Things like that just a little more color on that number you know and you do see that is based on historic I or piece of the Florida play on the CPR rate in the Carolinas. It includes some additional renewables, but we would intend to update all of that.
Following the IR P and further work right I think there's significant renewables that come on the regulated so it through.
The P. Ari and in Florida.
Also including renewables that we could go up and just purchase from Israel or the Carolinas as part of that number because.
Both there and then the commercial business, we've got through our five year plan.
About 2 billion of capital that represents landing about 300 megawatts a year. So that's a piece of it as well, but I I think there's a lot of reviews as potential continuing in Florida and the Carol.
I think Steve this represents what we included in our climate report this year. It did not fully contemplate what we're saying in the IR paying a clean energy plan. So we will update this.
As we know more.
Okay, great. Thank you very much.
Q.
Our next question from Michael.
Hi, guys. Thank you for taking my question I'm like.
What do you guys are doing well I've two questions one about Florida, one about the Carolinas in Florida.
The potential to significant upsides, the amount of megawatts or gigawatts of utility scale solar that you built in Florida.
I compare your program relative to the other really large utility state the size and scale for instance, or dramatic I didn't know what Google something physical about the different systems that drives that difference between bear rolling out 10, Gigawatts of 14 years, and you're doing that dramatically smaller amount.
That's my first question. My second question is what Rolls is offshore wind play in North Carolina, or and both Carolinas and how will know whether offshore wind.
We ended up your investment strategy.
So Michael let me take Florida for Ah. So what we have shared with you in Florida is only a five year plan I mean, there's a slight playing in Florida that give some more visibility, but I would think about us as working within that five year period, giving you more specifics.
Well on our way to the 750 megawatts that we announced a year or so ago.
A young half ago. We've also recently announced a clean energy connection plan for another 750 megawatts and as you look at the close to see flush. It was after asking about a month ago. There's over a thousand of saw in total in Florida over that five year period, I do think they will be more renewable opportunities and.
Florida, and so we will continue to update as we see more potential and as we roll out of different additional programs on behalf of customers. We are in a multi year rate plan that will finalized at the end of 21, you achieved gave the choice because that would be another opportunity for us to provide updates on.
Capital and so on so I think I think renewable so we'll continue to be a story a in Florida.
And I would add.
Part of our growth plan in Florida was citrus County, combined cycles and that was two very large combined cycles.
Service, so that influence the amount of solar that we needed. During this period I think as we go forward will be ramping up your though so that we're putting in place is little alluded to.
And Michael on offshore wind I think we will address offshore wind in the upcoming I or Pete.
And where we think it might fit into the portfolio I would think about it is something that probably has greater potential toward the end to the next decade.
You may remember the history here in the Carolinas, there was a wind moratorium so no wind up through the end of 19, so it hasn't had as much visibility to that as I think it will.
Coming through this IR p. and the clean energy process. So it represents a future investment opportunity and we'll know more as a as this policy gets finalized and as we made further progress on the fleet transition.
Got it. Thank you guys much appreciated. Thank you. Thank you.
Well take our next question from Jonathan.
Research.
Hi, Good morning, guys I talk on boarded.
Just tying a couple of these things together and then when you.
Think of the fleet transition and investments related to it as something that extends your runway Oh.
Yeah.
Got it or within the whole Sussex trajectory that youre talking to us about Oh potentially.
Just just curious.
<unk>.
How they're all the things that you fall off a little bit on.
It's about.
Yeah, you know Jonathan I think it does both.
It's certainly provides a long term run way because you think about you know, we're talking about fleet and sleep mean long term.
So were you know underpinning generation in the Carolinas for decades, but I also think it it has the potential impact of this five year plan.
To provide more investment opportunities and we'll always look at investment within the context of price to customers because it needs to maintain you need to maintain affordability.
And so I do think it it has the potential influence both periods one of the great things about the expertise that we've developed on cost is that gives us headroom for capital and we think about ongoing reduction of our cost structure as a way to continue to add capital for the benefit of customers. So I would say.
It does it helps both things.
Thank you.
And then Steve.
That's one or more of a July view from Revpar residential load.
Tracking.
Here.
A little bit more.
From a minute pools, I don't see side as well.
AH, Yes, we continued to see see ally below a again in July we saw Wes residential.
Higher than last year's jewel, so six for that for sure.
But we still saw the drops.
Commercial and industrial compared to last year.
Even though in the magnitude of all the low double digits that live to.
Overall, we're about wanting to have two ships or below.
Last year's July so that was boosted by the residential obviously, we are projected to be about 5% below last year low all in.
But we were better than that primarily driven by residential so we still saw a decline in commercial and industrial from last year industrials climbing out of things, they're starting operations as I mentioned three quarters of those larger customers or back it operations some of them not fully loaded there so that they're working their way there.
Smaller commercials for the more but overall, we're still tracking better than what we've had initially forecasted.
And we'll keep an eye on a month by month.
It goes down but seem to see numbers you gave us the Q2.
A little bit more low double digit towards the end of it yeah.
For the quarter effectively.
But skills, so still double digits kinda.
I think that's correct I don't have to see at all right in front of the here, specifically, but they're obviously pulling down.
All symbol residential being off so I suspect there are still down.
You know a fair amount, but again, the larger shale or something else.
The overall.
You know, which is less negative impact and we did see again in July as it was resolved the second quarter.
Oh, we'll keep an eye on a little suggesting a improvement, particularly in the fourth quarter. So we'll see how the second wave.
Perhaps the economy as we go forward.
Thank you.
Thank you Jonathan.
Our next question from <unk> from Evercore ISI.
Good morning, saying, Hey, good morning learn things getting my question just maybe.
I'll, just where a dog and left at all.
This is a small but wouldn't last communication was lower end of the 21 guidance.
And now you're saying that were lower half. So so am I right in assuming that that you're trending higher than perhaps you were a few weeks ago, we might sort of understanding that correctly.
That's correct that's correct.
So it's a it's really built on the success of the cost savings, we've been able to generate rapidly.
It's well is the strength that we saw in the month of July not only on weather normal volumes, but I'm letter because you may recall to rush we had.
Very mild winter weather that was dragging us early in the year and we've seen some moderation that weather impact on a hot summer.
Understood to be helpful. And then just broad spokesman ER configured mortgage deal on the Capex pontocom, but broad strokes and we think about sort of given to you can be a capex whole if you will.
Fair to assume that but the timing of that and recovery of that capex deserving, we'd like to all that is back end border of the five year plan.
[noise] you know I would think of that maybe way ugly because as we think about see incremental LDC investment will get started as soon as we can and will you know work toward completing it. So I would think of it kind of ratable, perhaps beginning as early as 21.
On the Florida, a solar investments we are in front of the condition actually today, we reached a settlement August 4th with O peace tea on that and we would begin introducing that investment as soon as possible. After commission approval and then I would also think about incremental investments in the bread, whether in the Carolinas or other jurisdictions king rate.
All as well.
Got it so it was a wearable broadly speaking for the for the thought you'd be undertake thank you. So much guys. Thanks for taking my question here.
That's it.
To turn the call back to good for any additional or closing remark.
Well, thank you and I appreciate everyone saw interest and participation today, we look forward to further discussions with you and it's always see IR team is available.
For any clarification following today's call. So thanks again for joining us.
And ladies and gentlemen, once again this concludes today's call and we thank you for your participation you may now disconnect.
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