Q3 2020 Duke Energy Corp Earnings Call
Okay.
Energy third quarter earnings call.
Today's conference is being recorded and at this time I would like to turn the call.
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Hi.
Our relations. Please go ahead.
Thank you for that.
Good morning, everyone welcome to Duke Energys third quarter, 2020 earnings review and business update.
We do not call today is one good cheer president and Chief Executive Officer, along with Steve Young Executive Vice President and CFO.
Today's discussion will include the use of non-GAAP financial measures and forward looking information within the meaning of the securities laws.
Actual results could differ materially from such forward looking statements and those factors are outlined here and disclose and Duke Energys FCC volumes.
A reconciliation of non-GAAP financial measures can be found in today's materials and on <unk> passion energy Dot com.
Please note that tend to step. Please note the attendance for todays presentation includes supplemental information and.
Additional disclosures.
That's summarized on slide four during today's call when I'm talking about an update on our 2020 or 2021 L. books she.
You also what's your insights on the company's long term strategies and clean energy investment plans.
Steve will then share an overview of our third quarter financial results.
Well also provide updates on our economic and load growth outlook progress against our 2014 suggestion targets.
An update on our 2021 earnings drivers and Duke Energys long term capital investment plan.
With that let me turn the call over to Joanne.
Hi, and thank you and good morning, everyone. Today, we announced adjusted earnings per share of $1.87 for the quarter favorable to the third quarter of 29 chain by eight cents.
These results were driven by higher earnings at our electric utilities rate case activity strong Oh, what else and other mitigation actions and growth in our commercial renewables business.
I am very proud of our workforce for their consistent focus on reducing costs and driving efficiencies to offset a number of headwinds, especially here, while continuing to provide outstanding service for our customers. In a recent example is hurricanes data.
I want to give a special thanks to the men and women who just this past week responded with outstanding restoration services.
After the remnants of the hurricane caused significant damage in the Carolinas.
Despite the challenges presented by 2020, our team remains focused on serving our customers with excellent.
We've also made great progress with our mitigation actions to offset the impacts of coated delivering 35 cents of benefit through September.
It's Steve will speak to in a moment, we now expect to deliver full year earnings benefits of 40 to 45.
Well, we'll use our size and scale to cure none of these efforts will be next year, a continuation of our successful track record in these areas that's 2015.
What's the third quarter behind US we are narrowing our full year guidance range to five or five to 520 <unk>.
We have successfully offset the impacts of code load and cost weather and storms, including you saw yesterday in beta, but exceptional cost management, giving us confidence that we can deliver results within this range for 2020.
Well the ATP behind US, we are well positioned to deliver on 2021, as well and all pointing to a solid $5 and 15 sounds with upside potential.
We continue to finalize our business plans for the year ahead and consistent with our typical practice, we will provide complete guidance, including detailed capital and financing plans in February.
We operate an attractive jurisdictions that are considering various policy changes to support cleaner energy futures for our communities. We are partnering with stakeholders in each state to find solutions to accelerate carbon reductions while also balancing customer affordability in the financial health of our utilities in North Carolina, the Governor's clean energy plan processes.
Well underway and we along with many stakeholders are in the midst of constructive policy conversations.
The pathways, we outlined in our I R. P service fundamental pillars, demonstrating what it will take to achieve the objectives outlined in the plane energy plan and.
In addition, the detailed analysis in our filings is informing Congress carbon policy discussions we recognize our leadership role in Decarbonising the state and the robust thoughtful portfolios make sure helped shape the past path forward. The carbon policy discussions will be summarized in a report to the governor by year end.
We are also advancing the process around the I R. P itself, we've shared the I R. P with dozens of stakeholders, ensuring we received feedback from a wide variety of interest groups. The approach and modeling we used in the filing add a new level of transparency and set the standard for how to collaborate and seek input we anticipate hearings in the first half of two.
21 in North Carolina, and look forward to working with stakeholders to to find the best pathway to reduce carbon emissions.
We are also advancing the I R. P. In South Carolina will be hearing expected in April and a decision from the commission expected in June.
Will allow us to have more clarity about how our purpose portfolios integrate into the state's policy objectives.
Before I move to the next slide let me make a brief comment on the elections I know some results are still being counted with final results a few days or weeks away, but what I do know is that they are strong bipartisan support for investing in critical infrastructure driving economic growth and job creation for clean energy and resiliency investments our capital plan offers meaningful.
Solutions to these and other needs of the communities, we serve I want to congratulate Governor Cooper on his reelection and thank him for his leadership of North Carolina. We are proud to be headquartered in North Carolina and look forward to working with his administration and the incoming members of the General Assembly.
I also want to congratulate Indiana Governor hole on his victory, Indiana has a bright future as we transition our generation fleet and made critical investments in the grid. We welcome the opportunity to continue engaging with the governor and the General Assembly in Indiana as well as all of our jurisdictions in which we operate.
Before turning it over to Steve Let me reiterate our value proposition, we operate in premium utilities across the southeast and Midwest and our service areas continued to benefit from strong growth in residences and businesses move into our service territories, we are positioned to deliver 95% of our earnings from lower risk regulated electric and gas.
Ladies and our growth profile is driven by a robust five year $58 billion capital plan.
The past year has made our great company, even stronger and more agile and we look forward to a strong finish to 2020 and to carrying our momentum forward into future years, our clean energy vision is transforming juice, providing clear benefits to our customers and to our investors for this reason we are confident in our ambitious investment plans and our ability to deliver the top end of our.
Growth range.
With that let me turn the call over to Steve.
Thanks, Lynn and good morning, everyone I'll begin with a summary of our quarterly results highlighting a few of the key variances to the prior year for more detailed information on earnings drivers and a reconciliation of reported to adjusted results. Please refer to the supporting materials that accompany today's press release and presentation.
As shown on slide eight we announced third quarter adjusted earnings of $1.87 per share compared to adjusted earnings or the dollar 79 per share last year.
Within the segments on an adjusted basis electric utilities and infrastructure was up six cents quarter over quarter driven in large part by rate case activity in North Carolina, Indiana in Florida, and Kentucky that contributed seven cents in the quarter earnings also benefited by eight cents from our industry, leading litigation efforts, which I will.
Speak to more in a moment lower tax expense and contributions from our wholesale contracts also contributed to our favorable results whether came in slightly above normal. This quarter represents an eight cents headwind this year when compared to the third quarter of the prior year. We also had higher depreciation and amortization expense as we can.
We continue to grow our asset base and as expected electric volumes were down due to the pandemic or gas utilities and infrastructure results were five cents lower primarily due to the cancellation of HCP.
Our LDC gas businesses continued to produce outstanding results contributing a penny a growth in the quarter and nine cents year to date in 2020 the.
The commercial renewable segment was up three cents largely driven by new projects brought online this quarter, including the 200 megawatt Rambo solar project in Texas.
Finally, other was favorable five cents for the quarter, principally due to lower income tax expense and financing costs and higher investment returns.
In non qualified benefit players.
Overall, we are very pleased with our year to date results. We took swift action to mitigate the impacts Cove 19 weather storms and the loss of HCP earnings and this dexterity has positioned us well to deliver in our narrowed 2020 earnings guidance range of $5.05 to $5.20.
Moving to slide nine our third quarter electric retail electric volumes were down 2% compared to the third quarter 2019, which was slightly favorable compared to our original post code that expectations over 3.5% decline for the quarter.
And while total volumes were better than anticipated the improved customer class mix was more heavily weighted to see anti customers and less to residential and thus the EPS impact was mostly in line with our expectations for the quarter.
Despite the continuing effects of COVID-19, the economies in our jurisdictions have shown a level of resiliency with approximately 85% of our largest commercial and industrial customers resuming operations by September.
While the Pandemics effect on the economy still bears close monitoring we are updating our full year curve that load forecast to a decline of approximately 2% to 3% in total retail volumes compared to our previous estimates of a 3% to 5% decline. This.
This revised load forecast equates to approximately 20 to 25 cents of earnings per share impact and when coupled with waive fees and non deferred drove it cost results include related earnings headwinds of 25 to 35 cents and 2020.
And the mix of the pandemic, we are encouraged by the strong customer growth across all of our jurisdictions year to date, we've seen a 1.8% increase in new electric customers and 1.9% growth for LTC.
As we continue to see more population migration to our desirable service territories, we believe Duke Energys long term load growth fundamentals will be some of the strongest in the industry.
Let's move to slide 10, I'd like to highlight our strong progress on achieving our 2020 financial commitments. Despite challenging headwinds we have faced impacts from covidien, the cancellation of HCP as well as unfavorable weather and significant storms, including Hurricanes data, which came through the Carolinas in October time.
And again, Duke energy has demonstrated the ability to pivot mitigate impacts and advance our strategic investments for short and long term value creation for customers and shareholders and 2020 is a Prime example, as I've highlighted many times cost mitigation the ability to respond quickly to unforeseen circumstances has become a core.
Competency, Duke energy on a year to date basis, we have achieved approximately $350 million in mitigation, representing approximately 75% of our full year target and we are highly confident in our ability to deliver $400 million to $450 million of earnings benefits for the full year. These efforts position us to.
Mitigate a large portion of the headwinds weve experienced in 2020 and durable earnings within our original narrowed guidance ranges.
With that let's move to slide 11 at.
We had a strong outlook for 2021, and our significant investment opportunities service growth drivers for the year ahead.
In Florida, we will continue to recover grid investments through the third base rate increase in our multi year rate plan. We also expect growth from additional solar projects recovered under the solar base rate adjustment mechanism.
And starting in 2021, we expect to begin delivering rhythm best improvement investments to our Florida customers under our strong protection plan approved earlier in the year and the Carolinas, Indiana and Kentucky, We will have a full year benefit of the new base rate adjustments that went into effect earlier. This year also in Indiana.
And Ohio will continue to invest in transmission and distribution upgrades that are recovered under a rider programs to drive consistent earnings growth each year.
Additional drivers and electric utilities, and infrastructure will come from load growth and own and management as I mentioned earlier, we continue to see impressive increases in our number of customers and that along with the continued recovery of the economy is expected to lead to an overall uplift in margins in 2021.
Our current estimate of load growth off of 2020 as approximately 1% to 2%. We continue to monitor the pace of economic recovery and will provide an update in February.
With respect to own them another mitigation actions some of the tactical efforts that we are achieving in 2020, our sustained beyond the current year and thus, we expect a modest up tick and own and cost in 2021 as compared to 2020 revised timing and scope of outages is an example of mitigation efforts not sustainable year over year.
Nonetheless, our operational teams in industry, leading business transformation group are in the process of utilizing our digital and automation playbook to turn some of these initiatives into even lower cost operational model to benefit future years, we will share more on this front in the upcoming months as the team makes progress on their work.
Shifting to the gas segment, we expect to see a full year benefit from our Tennessee or rate case filed this year as well as our South Carolina rate stabilization adjustment that was recently approved by the commission at a 9.8% ROI additional growth in the LDC business will come from customer additions and our integrity management investments.
Which are recovered through riders and provide steady predictable earnings per share growth year. After year, our commercial renewable segment will be largely flat to slightly negative to Tony Tony given our strong performance and delivery of completed projects. This year. Our plan continues to target an annual net income of 200 to 250.
Ian through the five year plan.
On the financing front, we expect to settle that $2.5 billion equity forward by the end of this year, which will result in approximately 13 cents dilution net of holding company debt interest savings.
As stated during our second quarter call with these drivers and ongoing co that uncertainty we expect to Rebase. Our long term earnings per share growth rate off of 2021 with a mid mid point initially pointing to $5.15. We believe this is a solid number with upside.
We are close to finalizing our 2021 through 2025 financial plans and we will provide complete detailed guidance in February as we normally do.
As Lynn mentioned, we have great confidence in delivering at the top end of our 4% to 6% earnings per share growth rate through 2024, underpinned by our $58 billion capital plan, an industry, leading cost reduction program.
As we discussed on MSG Investor day, or clean energy transition will drive significant growth for at least the next decade as you look at slide 12, the left hand side of it but the evolution of our five year capital plan over the past several years and on the right hand side, we show the expected growth in our earnings base.
As you will recall, our five year capital plan, just a year and a half ago was at $50 billion.
In February we increased the plan to 56 billion to address pressing infrastructure needs of our communities, including more renewables on our system and room food.
Here in the later half of 2000, twentys become evident that the cleaner energy transition of our jurisdictions will necessitate additional capital deployment, resulting in our current five year capital plan of $58 billion.
Looking at the second half of the decade, we estimate a five year capital plan of $65 billion to $75 billion.
We made some assumptions here about the amount of renewables investment.
We would be able to rate base as those details have not yet been determined as I mentioned, the DSG day under Nei ARPI portfolio chosen in the Carolinas, We will have a significant role to play in the clean energy transformation in the two states. We believe the assumptions include the year very reasonable based on what we've seen around the country and within our.
Service territories.
$65 billion to $75 billion capital plan for 2025 through 2029 includes clean energy generation and transmission investments across the Carolinas, Indiana, and Florida as well as an estimate of the distribution investments that will be required to enable renewables battery storage and other distributed energy generation on our system.
Our confidence in a growing rate base over the long term is rooted in the strong capital plans our rate base grows from $77 billion in 2019, the roughly 105 billion by the end of 2024.
That's a 6.5% earnings base Cagar for the latter half of the decade, you'll see that growth accelerating to 7% with significant investments to enable this transformation.
Abbas strategy also balances the need for investments with affordability for customers as we transition out of coal, we expect to have lower fuel cost and non fuel oil and costs and we will continue our business transformation model in pursuit of efficiencies across our footprint.
Finally, we operate in states that are experiencing strong customer growth, particularly in the Carolinas and Florida.
Which also helps keep customer rates competitive.
Finally, let me wrap up on slide 13, our attractive dividend yield coupled with our long term earnings growth from investments in our regulated utilities provide a compelling risk adjusted return for our shareholders. We are well positioned to manage through COVID-19 and are confident in our ability to deliver in the narrowed earnings guidance range in 2020.
And then our ability to achieve the top end of our 4% to 6% earnings per share growth rate off of the 2021 base. We expect to enter 2021 with one of the most valuable and lower risk shareholder investment propositions in the industry and we are positioned to deliver sustainable value into the future.
We look forward to speaking with many of you next week during the EEI conference with that we'll open the line for your questions.
Thank you and if you would like to ask.
Your question please.
Thanks Star one on your telephone.
You May ask your phone please make sure that Jeremy.
Please turn off your line.
Eric.
Again that is star one question.
Our first question will come from Stephen Byrd with Morgan.
Hello.
Hi, good morning.
Hi, Stephen volume.
I wanted to follow up when you get a great update.
Sure the clean energy transition I thought slide six I think.
Calculated it pretty well and I just wanted to explore the Carolinas a bit you lay out on this page the.
In North Carolina.
The governor by the end of the year and then in.
Those data and I are p. hearings.
You've laid out pretty clearly sort of the trade offs different approaches.
To your future energy mix, how do you anticipate sort of this decision making process evolving do you see for example sort of.
Heavy direction from.
From the Governor in these cases or is it more sort of a collaborative hearing process, where many constituents are going away in and then ultimately it's sort of a more of a commission driven decision. How do you how do you kind of think about.
Where you where you're headed there.
Sure and Steven Thanks for that question I think the governor.
It's been very clear about his expectations in the form of his executive order that set a target in the 70% carbon reduction by 2030.
He has been directing the stakeholder process throughout 2020 through his cabinet Secretary Regan.
Oversee it and I would say that that stakeholder process has been a robust one broad range of people involved.
And has made significant progress over the course of the year identifying and aligning around common goals for transitioning the generation fleet over time, developing regulatory mechanisms that would incent that transition and.
And so I also believe that kind of points to broad support for critical infrastructure investments that will drive jobs and economic development of course, cheap carbon reduction and achieve resiliency from a state.
So I believe the next steps on this will be a shaping and updating and energy policy in North Carolina. If you look historically about the way that has happened Stephen it's always been led by stakeholders coming together to achieve common goals and a bipartisan way governor of course weighing in with his expectations takeover shaping the.
Way to get there and we see that process maturing in 2021.
And expect that we of course will play a pivotal role.
And implementing an energy policy in a way that needs all of these objectives I.
I think the IR key is very complementary to that stakeholder process because it puts in front of the commission a variety of options on how those policy objectives could be achieved and we would expect every view by the commission and of course any input or feedback that they would have and I think the combination of both of these processes.
Give us more clarity in 2021 on how we will move forward, but.
I would emphasize again the alignment of stakeholders to achieve common objective has always been the foundation of movement on energy policy in North Carolina, and we would accept the same to be the case here.
That's very clear and I guess at a high level looking at this page you kind of have a lot of add backs in terms of the possibility of additional capital spending and I just want to make sure I was clear look let's say that the Duke is fortunate enough to have the opportunity for even more renewables spending as spending whatever it might be just a refresh.
Cash in terms of your thinking of incremental Capex, and how you would finance that incremental capex.
And so you know Stephen as you know, we put some incremental capex and the five year plan really underpinned by what we're seeing here in this generation trends transition we have not changed the financing plans that we shared with you in February.
We continue to plan to issue drip and ATM equity in 2021 in 2022 as we get to the back end of that five year plan and really build the momentum to accelerate rate base growth I would expect for us to have a modest level of drip ATM equity.
And the plan, we think that coupled with cost mitigation regulatory support and other elements that drive cash flow and balance the needs of shareholders and creditors. So.
We will provide that complete update on financing in February by your mind should go to the modestly direct ATM level. If we think about the way we underpin this credit investment going forward.
Understood. So if I'm sort of thinking about this correctly then.
You already sort of thinking about some incremental capex, which you've described before I mean these hearings and these prices are going to take a while anyway. So it's not as if it's an immediate impact to your your financing needs and some of that was already sort of factored in so it feels like even if you get good responses in the states. It first is going to take while for that Capex actually transpire.
Secondly, some of that was sort of already contemplated.
And so it's not as if we're likely see a fairly significant change your plans I am not so.
Massive new additional equity needs over and above what you've already laid out.
That's very fair Stephen if you are on the.
Slide that Steve walked you through we updated capital from 50 to 56 in February and that financing plan underpins that 56, which is really the foundational element of the spending this additional two and then ramping the 65 to 75 toward the back end is where were really be.
Yes on your question initially and where we will be updating that you should be thinking about the modest drip and ATM as first place we would get a support that accelerated growth towards the back half of the plant Gary.
That's very clear that's all I had thank you.
Thank you.
Our next question will come from sharper as ever with Guggenheim partners.
Hi, sure sure Hey, good morning, guys.
Good morning, Corey just just a couple of quick questions here first.
You know around the 515 number 21, obviously is.
This is sort of a worst case outcome as we think about costs et cetera, and I know you talk the talk a little bit more about it in February and you have some drivers in the slides, but maybe you can provide a little bit of a sense on some of the incremental items that could put you higher than that 515 is a lot of moving pieces here.
Musharraf point to three things that we're watching and Steve can add to it.
That load.
We are continuing to look at but his word growth look like in the 2021.
Is there a second wave are there more economic shutdown.
Shutdowns and so on or does the economy bounce back more strongly.
As we said in the second quarter and that continues to be our profile, we intend to offset cobot impact with Elena.
So that we lessen the impact of that but understanding where that economic forecasters and how that matches up with cost would be something that we're watching.
Maturing our cost management productivity to see how much of the savings that we've been able to drive out in 20 can continue into 2021 that work continues we will start the year with a lower head count.
You know we have the technology in different ways, we dispatched crews in different ways. There have been so many opportunities and were looking for ways, we can create even more sustainability.
That represents a potential item and then of course rate cases.
We have set the fyfifteen to absorb.
The diminutive outcome on coal ash.
And we will learn more toward the end of this year early next on the DTC order in particular.
We will also hear from the Supreme Court, we believe in 2020 on the the prior rate case. So those are a couple of other things that we are monitoring but.
We have.
If I look at 2021, there is so much clarity where they'll have all of this behind us the uncertainty that has been a challenge for us and we're excited about the ability for the utilities to demonstrate the growth. We know they are capable of without ATP without rate case ever hand, without coal ash et cetera, and so we've been.
There is incredible opportunity in 2021, and then growth beyond that Steve would you add anything to that you know the only thing I might add is that we'll look to see the impact of the customer growth. We are seeing the highest customer growth numbers, we've seen in several years in the Carolinas and Florida. So.
Perhaps that can you give us a pickup as for some of these new Yorker coming down and the other thing.
Yes.
I am on my way I'm only way.
Yeah.
And then obviously.
Highlighted the Supreme Court pushed out that rolling until December of 11 can you just maybe Len would that delay talk a little bit about sort of the settlement strategy. How do you think discussions are going are they more or less constructive and you've been obviously variable or be impacted not earning a return on their expenditures maybe be just helpful to refer.
Yes, your thoughts as we think about credit metrics and how we should think about potential equity or not.
Again the order.
And to Charlotte together the last part of the question first and that is if we do receive the dimming order from the end CSC, we do not intend to issue equity to.
Secure the impact of the difficult rate order.
So that is the headline answer to that question I think.
And we will wait to hear from both of these parties the Supreme Court and the MCC on coal Ash in December early January I do not expect that we will be reaching settlement on coal ash I think all parties are interested in hearing what the court and commission has to say.
But as I've said, many times, we believe that coal ash as a recoverable coffee and tea do you see that as well.
We also believe that we are entitled to earn a return on costs that are collected over a long period of time consistent with the.
The press on separate making in the state and also consistent with the requirements of strong credit from utility.
And we will have acres ruling.
For this year.
Got it and then just lastly on just a follow up on Stephen's question around the alternative regulation group.
It sounds like its going to mature in 21, do you sort of anticipated build forming in 21.
And just remind us like a bill that sort of the Max potential are we bands or PBR is does that sort of really act to minimize some regulatory lag or could that be sort of incremental or accretive to your current growth trajectory or the profile of how you're talking about growth.
Yeah. Those are good questions Sharon I do believe that.
Legislation could spring from this clean energy processing, the recommendations coming out of the report.
To not only set some parameters around.
Transitioning the fleet, but also those regulatory reform changes that you're talking about.
The objective of the regulatory reform would really be to incense in April the energy policy in the state and to the extent it reduces regulatory lag it is good.
It is good for customers. It is good for investors and that will be an objective as we talk about.
The way regulatory reform would play out I think about grid investment in particular, it's so important to this transition and great investment needs a different regulatory model than what we have here in North Carolina, and there's a lot of the discussion going on about that as part of these processes.
Congratulations guys on a good morning.
Thank you Sean.
Our next question will come from Michael Weinstein with credit Suisse.
Go ahead.
Hi, guys good morning.
They are.
On the is the upside for 515 2021 is that only applied to 2021 in other words would you intend to keep the base at 515.
Even if you were able to find some savings.
Next year.
I think we'll cross that bridge to come to a benign.
I appreciate that that question.
You know I do feel like we've got a lot of uncertainty behind us we've got a clean picture for 2021.
But just like any business here, you have things to tap over to tackling covert and own them and we're also working to progress the clean energy plan. So Steve would you add to that anyway.
You're right, we don't have that specificity now, but you know whatever we anchor to we're going to have a growth trajectory from that point forward that I think is going to be very clear.
Throughout the period that we're projecting forward.
Certainly the rate base growth.
Yes, it does.
As a player Thats correct, yes.
And Steve when you when you were negotiating after the attacks.
Tax rate reductions off two years ago.
And you were negotiating with regulators to keep cash was intact from what would be the outcome of a higher tax rate going forward, but you.
You think there will be room for additional FFO to debt improvements there.
So if something were to happen going forward.
Yes, I think that will ultimately happen what you'd see here. If you saw an increase in the federal tax rate people talked about moving some 21% to 28%.
It would just move in the opposite direction of what we did in 2018.
You would see the holding company tax shield be more beneficial to the tune of five or six cents per share.
Operating company levels.
Once enacted the higher tax rate, we would start deferring the additional.
Income tax expense and then we work with regulators on increasing.
The rates to reflect the increase in the tax expense, which is the opposite of what we did back in 2018 through 2020.
And.
That would result result in an increase in the cash flow and would help.
FFO there.
We estimate that type of.
Impact would be in the neighborhood of 2% to customer rates, but they've seen larger decreases as we've implemented.
The the 2018 Reform Act. So I do think it provides cash flow benefits in that fashion.
Great. Thank you very much that's all I have for now thank you.
Thank you Mike.
Our next question will come from Julien Dumoulin Smith.
Bank of America.
Hey, good morning.
Atlantic some time ago.
Okay, Alright first perfunctory question, just wanted to see I haven't heard anything strategic here, but the following media reports in recent weeks and months anything you can offer on a strategic remarks ups I'll just leave that open ended.
And then I've got some more.
More substantive questions if I can.
I'd say Julian are you talking about market rumors on M&A.
Yeah I just wanted to see if there's anything that you would you would offer on that okay, Alright, I'm sorry was that this far.
Yeah. So you know I you know bill.
Building on your comment about you know a strategic.
Strategic things for the company our focus is on the strategy of clean energy transition.
It's on the strategy of building a stakeholder support in the Carolinas to move forward on regulatory reform and infrastructure investment and so our focus is on driving that organic growth such where we believe it is extraordinary not only in terms of rate base investment that customer growth and thriving jurisdictions. So that's what I would say our focus is on.
Julian and we feel like the feature as bright as we've laid out here and we'll continue to build on as we give you more insight in February.
Oh no I appreciate that just wanted to make sure all right so back to perhaps more substantive measures.
Perhaps.
Think about the transitioning here from the clean energy plan the reports the governor.
What he sees on resonating with guests can tell thus far with that stakeholder group, but I know, we're still squeeze way, but that's it.
Turning to attempt to try to capture the preponderance of different views here.
What are those regulatory buckets for reform that are still on the table versus perhaps those that means less relevant today, which you can try to capture that.
Hi, Mike.
Yeah, you know.
It's a good question Julien because a lot of things have been discussed and I think it's been a good exchange of information feedback education point of view being shared I think at the top level. The regulatory reform is really focused on how can we and sent.
The development of this credit critical infrastructure and the associated reduction in carbon.
So things like multiyear rate plans are being discussed decoupling is being discussed and we believe there's a lot of interest and those types of tools and.
In order to to move that forward performance based rate, making would be another thing that I would point too because you can tie achievement of certain outcomes to performance based rate making.
So those are the things I would point to at this point and as the process continues you may recall there in two pieces carbon policy in wind regulatory reform and the other carbon policy, we will find its way to the governor staff by the end of the year regulatory reform will also be kind of wrapping up in that timeframe.
And as a as we reach critical milestones will update of course, along the way.
Got it sorry, just one quick clarification on again.
With respect to your confidence on hockey.
Good to be bigger burden.
Hi, guys. There are we the Carolinas gross.
Sure.
Yeah. So if you look at our track record on earning our allowed rate of return join it's been very good.
And we expect to be able to earn.
Our leverage return going forward. It seems like you add to that yes, I think.
Absolutely we've got a long history.
Utilizing various levers whether its own and cost control expanding wholesale sales.
Just working optimizing our regulatory schedule.
To earn.
Allowed return or growing rate base and so we'll continue to employ those tools as we go forward regardless of any particular rate outcome.
Right exactly are perfect. Thank you guys and best of luck here. Thank you Julien.
Our next question will come from Steve Fleishman with Wolfe Research.
Got it.
[music].
Thanks, Good morning, Hi, Mike Hi, Lynn.
So just a little bit more follow up on North Carolina. The I think you did mention.
Are you kind of work well with both sides of the aisle I think the governor.
One Democrat, but the legislature state Republican.
Just thinking about trying to turn these working groups and do a law how much is that going to be a challenge.
And 20.1.
Let's see I would say that historically energy policy in North Carolina has moved in a bipartisan way too and the benefit of having diverse stakeholders together issue have voices from.
Business community from the manufacturing community from low income from the environmental constituents, you've got the administration at the table as well.
And I believe a critical infrastructure focused not only on environment, but I'm job creation has a durability or an appeal to both sides of the aisle and I believe will play a role and working with both sides to bring that bring that intersection together. So we.
We approach this with great optimism and enthusiasm from the alignment we have been able to be a part out and 2020.
And well keep the conversations going.
Great and I guess.
Outside of getting registration can some of these.
Okay changes being implemented without that just respond the commission directly.
Well you know it's interesting I mean, if you look at the yeah. If you look at the IR P. We've got everything from a base plan to the more aggressive early retirements of coal and so on that base plan can be executed immediately.
Because it's within the regulations in North Carolina has renewable investment that has.
So large investment in a variety of things. So there's a lot that can be done without any changes I think as we.
Look at some of the more new technologies like offshore wind and other things like that having some legislative support around achieving those targets and embracing new technologies I think would be helpful to any investor in the state as well as to this it to the commission. So you can think about that I or p. is providing a menu.
The options that we can get going even absent changes.
On a on the transition up to I think that the base plan is a 50% to 55% carbon reduction.
He under existing statutes.
Right. Okay. Thank you very much that's helpful. Thank you.
Our next question will come from Anthony Crowdell listening now please.
Hey, good morning, good morning, and good morning, Tony.
Good morning.
Thanks, so much for all the information on this slide I just have a two quick ones on related to slide 12 and.
The growing capex.
Capex profile I guess first.
How much of that.
Capex is maybe why are eligible and when the company is kind of winding down hopefully resolution luck on are ones that are waiting cycle, how much could that get including rates without a rate filing and are you entering.
Other raking cycle under my follow up would be.
It appears that the service territory has a significant amount of investment opportunities, especially the back where the other other companies or what's the limitation. There is a balancing is it rate impact and I'll leave it at that.
So in the Carolinas Anthony the regulatory structure is so our rate base rate case type structure I think as we think about the.
Regulatory reform multi year rate planning decoupling performance based rate, making are in the conversation and our hope and expectation is there will be some adjustment to that regulatory process. We have not laid out any specific timing for rate cases, we've just finished a rate case here in 2020 so.
He would not expect us to come in you know in the short term.
On right and I'd agree with that is that the Carolinas were working to.
Put it to place some mechanisms that help them sense as Larry said of this growing investment profile that we have going forward or gas businesses.
And in the Midwest and Florida, we have mechanisms in place and they worked very well for us.
Whether it's right or mechanisms are multiyear rate planning or decoupling on the gas side. So we're very familiar with those were advancing the ball in the Carolinas with this dialogue and.
I think we'll we'll make some progress as we move forward.
And on the second part of the question around constraint Anthony we always plan capital.
Within a what I would call a reasonable expectation that the impact to customer price.
So you know as we talked about in the integrated resource plan discussion. The base plan is about a 1% increase in customer rates per year as you get more aggressive it could go up to 2.5% that includes the offsets for fuel and own and so on that would be a part of the transition. So yeah, we always keep an eye on price.
And in addition to those tools of fuel and own and that will come naturally from transitioning. The generation. We also continue to very aggressively drive costs out of the business sort of digitization for changes in process.
All forms of automation and that'll continue to be a an objective to keep prices low for customers.
Great. Thanks for taking my questions and looking forward to connecting with the guy with the team.
Thank you again I appreciate that.
Our next question will come from Jeremy Tonet with JP Morgan.
Go ahead.
Good morning, Hi, good morning, good morning audit.
I think you've touched on 2021 on M. a bit here, but just thinking about that a bit more is the timing of 2020 point outages kind of main driver of higher 2021 on M. are there other factors to think about it here and how should we think about 2021 on m. versus 19 as a base.
Here in kind of what does that trajectory look like longer term as the pandemic subside.
Sure.
You had mentioned.
You mentioned outages as as being one thing that potentially could put some upside.
Pressure on old and going forward, we'll also look at variable compensation, that's another area of it.
We have a flex on that so could see an increase or a 2021. So we'll continue to look at that I'd say those are a couple of areas. There. When you think about our own NIM trajectory as a whole we started back in 2015 at $5 billion of.
Non recoverable oil and Jim if you will and in 2019, we that was at 4.9 billion and that included absorbing 280 million to 300 million at Piedmont, because they were acquired during that period of time that gives you an idea of the savings that we've been able to generate through this very concerted effort.
Business transformation.
We're going to come in lower in 2020, because of all of the tactical efforts that.
We put in place to replace the topline revenue loss.
With that we'll move up in 2021, but I suspect the downward trajectory is going to continue.
In 2021 over 2019 will be for me that up as we go forward, but our sustainable reductions will continue I.
I do believe that.
And what we're trying to do is share me as we've said a couple of times is load continues to represent a you know a headwind and 2021, we do not see it quite back to 2019.
Based on our projections, although were we would be delighted to be surprised to the upside.
We'll keep costs under control consistent with that weakness in the top line as we think about 2021.
Great. That's very helpful. I'll stop there. Thanks. Thanks.
Thank you Jeremy.
Our next question will come from Jonathan Arnold with vertical research partners.
Hi, how are you.
Good morning.
Mike Let me.
No comment because I just could you talk a little bit about what youre seeing in the renewables development space from the commercial business and just remind us where were not sort of fits into are you talking about the growth outlook.
Yeah, Jonathan we continue to just see a lot of project opportunity and a pipeline of contracts and projects under development.
We have targeted 20 $200 million to $250 million net income over the five year period.
And we have a clear line of sight to achieving that during the during the five years or.
So we feel very good about the business you know when you couple that expertise with the renewables that we're building in the regulated business I feel like the team has done a good job of understanding integration as the resources, how to develop and build them cost effectively.
And so thats, what you can expect kind of a 200 to 250 contribution from commercial renewables going forward.
Great. Thank you and then just the run rate.
Your comments about seeing upside potential to supply 50, I. Just curious if you could I know this has been covered but I did not incremental yeah.
Something that you developed some too.
You put that number out that really just articulating because in the past you already own.
Really.
Yes, probably a little bit more comfort Jonathan in that you know we've got three more months behind us on coated our forecast for that have been pretty accurate in terms of net income.
But we'll be watching whatever November in December with a second wave and the rate cases have always been out there is something that represents an opportunity.
And then we talked about cost management.
And sort of everything we've done in 2020 to challenge, whether it's a cheap on 2021.
And that work is part of our normal process that seed leads in connection with the five year plan, so probably a little more confidence because weve got three more years three more months of experience, Steve How would you have yeah I'd agree with that the.
Or starting to firm up what we came up where we were from coated on cost reductions and will continue to drive that out and that's always helpful to our plan. So we'll we'll be continuing to push on this and drive.
Drive more details we go forward.
Great. Thanks for the update.
All right Jonathan Thank you.
And that will conclude our Q and a session for todays call at this time I'd like to turn the call back to linger for closing remarks.
Thank you Anthony and thanks to everyone, who joined we're looking forward to talking with many of his not all of you next week in our virtual E meeting. So thanks again for joining and thanks for your investment and took action.
And this will conclude today's conference. Thank you for your participation and you may now disconnect.
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