Q2 2022 Duke Energy Corp Earnings Call
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad if.
If you would like to withdraw your question again press star.
I would now like to introduce Dr. Joe Sullivan, Vice President of Investor Relations you May begin your conference.
Well, thank you Joanne and good morning, everyone welcome to Duke Energy's second quarter, 2022 earnings review and business update.
During our call today is Lynn good chair, President and CEO , 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 securities laws.
Actual results may be different than forward looking statements and those factors are outlined here in and disclosed in Duke Energy's SEC filings.
The appendix of today's presentation includes supplemental information and disclosures along with a reconciliation of non-GAAP financial measures, so with that let's turn the call over to Jack.
Jack Thank you and good morning, everyone today, we announced adjusted earnings per share of $1 14 for the quarter delivering strong results driven by continued growth in electric volumes and favorable weather.
We remain on track to deliver within our original guidance range and are reaffirming our full year guidance range of $5 30 to $5 60 with a midpoint of 545. We're also reaffirming our long term earnings growth rate of 5% to 7% through 2026 at the midpoint of our original 2021 guidance range.
Turning to slide five I'd like to offer context on our announcement. This morning to perform a strategic review of our commercial renewables business.
Which has been an integral part of Duke Energy's renewable energy platform over the past 15 years.
Since 2007, we built a portfolio of approximately 5000 megawatts of commercial wind solar and battery projects across the U S and established a robust development pipeline.
It represents less than 5% of Duke Energy's earnings we're proud of the fact.
It's among the top 10 largest U S renewable companies.
But as we look forward to the remainder of this decade and beyond we have line of sight to a significant renewable grid and other investment opportunities within our faster growing regulated operations as we execute the industry's largest clean energy transition.
We believe this is the appropriate time to review the ongoing strategic set of our commercial operations as we prepare for an acceleration in capital spending within our regulated businesses. Our strategic review will be thorough yet timely we expect to conclude the review later this year or early next and we'll update you along the way.
Today, our regulated utility operations represent over 95% of Duke Energy's earnings profile and have long been the growth engine of our company, we operate premier regulated franchises and growing service territories with constructive regulatory jurisdictions and robust customer focused investment opportunities.
Our regulated businesses are strongly positioned to grow within our earnings guidance range of 5% to 7%, providing consistent earnings and cash flow and supporting our attractive dividend.
Turning to slide six let me share an overview of the proposed carbon plan, we filed with the North Carolina Utilities Commission on May 16th.
We've already made significant progress in the Carolinas and this plan continues our transition to lower carbon resources, while maintaining affordability and reliability. Our plan contains four portfolios so to achieve the interim 70% carbon reduction target and carbon neutrality by 2050, each portfolio presents a roadmap to lower emissions through an.
Orderly retirement of coal and replacing it with a diverse set of carbon free and dispatch of all resources. The primary difference among the portfolio as it relates to the pace of deployment and availability of replacement resources as part of the filing we requested the approval of a defined set of near term activities related to replacement resources.
Regardless of the past selected this includes new solar and battery storage onshore wind and hydrogen capable natural gas.
We also requested to begin early development of long lead time zero carbon resources, which are needed in the early 2000, three's, including offshore wind small modular nuclear and pumped storage.
Activities help us preserve option value for a broader set of resources.
The results of these development activities will be filed in the 'twenty and 2024 with an updated carbon plant, providing the commission with more information as they consider resource selection as required to meet carbon reduction targets.
We look forward to continued engagement with stakeholders as the N C. UC finalizes the carbon planned by year end our.
Our proposed plan has also been shared with the public Service Commission of South Carolina, and the final plan will be foundational to the next comprehensive South Carolina IOP in 2023.
Moving to slide seven we have a robust regulatory and legislative plan that is underway in the vibrant economies. We serve are thriving jurisdictions were highlighted recently in CNBC annual list of America's top states for business, which ranked five of the states, we serve and the top 15, including North Carolina.
Which ranked number one for the first time.
I can touch on the progress, we're making in each of our jurisdictions to continue providing affordable and reliable energy for our customers.
In North Carolina, we expect to file a D E. P rate case in the fourth quarter and likely a D. C rate case early next year.
Both cases, we'll introduce the modernized ratemaking tools approved an H benign 51, including multi year rate plans performance incentive measures and residential decoupling.
The MCU see hosted a T&D technical conference in late July .
D E P presented to the commission and stakeholders and discuss key transmission and distribution investments that enhance grid resiliency and flexibility and expand the use of renewables and distributed energy resources on our system.
In South Carolina Storm securitization legislation was signed into law in June this creates a valuable tool to recover prior and future storm restoration costs, while saving customers millions of dollars compared to traditional recovery mechanisms we.
We expect to file an initial application with the public service Commission of South Carolina in August and expect to issue storm bonds in late 2023 early 2024.
Earlier. This week, we gave notice of an upcoming D E T. South Carolina rate case, our first case to be filed in South Carolina. Since 2018, we expect to file the case in September and anticipate rates to go into effect in the first half of 2023.
In Florida, we have placed three out of four solar projects planned for 2022 online and we remain on track to install a total of 300 megawatts of solar by the end of this year.
Shifting to Indiana. The commission approved our $2 billion Cheetahs plan, which includes grid modernization investments and improve reliability and resiliency.
We will begin executing in 2023 following the completion of our initial Tito's planned this year.
In May we received a robust response to our request for proposals for generation resources in Indiana or.
Valuing the proposals now and we'll incorporate the results into our CPC and filings later this year.
And turning to Ohio, our electric distribution rate case continues to move forward and the hearing is scheduled to begin in mid September and June we filed in Ohio gas rate case, which is our first detailed review of gas and base rates since 2012.
Moving to slide eight I'd like to touch on the inflation reduction Act was announced this week, Duke energy has always advocated for policies aligned with our mission to deliver affordable reliable and increasingly clean energy to our customers and the clean energy tax provisions of this draft legislation do just that.
If past the clean energy tax credits will lower our cost of service, which in turn reduces the cost to customers of our energy transition.
The more the transferability provisions can help direct the intended value of these credits to our customers more efficiently.
The Bill also recognizes the important role that existing nuclear place with nuclear PTC is awarded to operators of highly efficient nuclear station.
Duke Energy operates the largest regulated nuclear fleet in the U S. With some of the highest efficiency measures as such we would likely qualify for significant nuclear production tax credits.
Also to the benefit of our customers in the Carolinas.
We're pleased to see the strong support of the clean energy provisions in this draft legislation and we look forward to tracking those progress and we'll keep you informed along the way.
In closing we have a clear path ahead of us as we execute our energy transition and I'm confident in our ability to continue to deliver value to customers and shareholders.
Before I hand, the call over to Steve I'd like to comment on some important organizational changes we announced earlier this week.
Effective September one freind Savoy currently executive Vice President and Chief strategy, and commercial officer will become executive Vice President and Chief Financial Officer 60, succeeding Steve.
Brian's deep financial acumen, and broad business experience have prepared him well for this role, allowing for a seamless transition.
Steve will become executive Vice President and Chief Commercial Officer, one of Steves main priorities will be to oversee the strategic review of our commercial renewables portfolio that we announced this morning.
Steve is an exceptional leader.
And during his 40 year career has played an instrumental role in transforming Duke energy and does a strong company. It is today. He has been an extraordinary partner of mine and a trusted counselor and his commitment to our company customers communities and employees is deeply appreciated and recognized by all of our stakeholders.
Bryan also shares this commitment and will play a critical role in advancing our strategy, while delivering sustainable value to our customers and shareholders. The depth of leadership at this company is impressive I would say, it's second to none and these changes will further position us for success as we execute the industry's largest clean energy transition.
And so with that thanks to Steve and let me turn the call over to him.
Thanks, Lynn and good morning, everyone I'll start with a brief discussion on our quarterly results highlighting a few of the key variances to the prior year.
As shown on slide nine we had reported and adjusted earnings per share of $1 14. This was compared to reported and adjusted earnings per share of 96 and $1 15 last year. Please see our non-GAAP reconciliation included in the earnings release materials for more details.
Within the segments electric utilities and infrastructure was up three sales compared to the prior year results were driven by favorable weather higher retail volumes and rate increases partially offsetting these items were higher O&M, including timing of outages as compared to last year and higher depreciation cost on our growing investment phase.
Shifting to gas utilities <unk> infrastructure results were two cents lower due to timing of O&M in our commercial business, we were flat with higher wind resources offset by fewer projects placed in service and then the other segment. We were two cents lower primarily due to lower market returns on benefit trusts.
Turning to slide two I'll touch on electric volumes in economic trends, we continue to see strong volume growth in our results for the second quarter were approximately one 5%.
Were up approximately one 5% year over year.
On a rolling 12 month basis volumes are up two 6% slightly higher than volumes for 2019, the last full year prior to Covid. We continue to expect our rolling 12 month volume growth rates to moderate throughout the year, but now forecast 2022 loan growth between one and a half to two.
Percent above our original guidance of one 5%.
Looking after the customer classes residential volumes were up one 2% bolstered by year over year customer growth of one 8% and the continuation of remote and hybrid work for many office workers for.
Our commercial and industrial classes, both increased one 7% within commercial we saw the benefit of returned to normal business hours and in industrial our load growth was driven by a continued rebound for existing customers coupled with new load for companies attracted to our service territories, we remain encouraged by our.
Volume recovery, which is supported by the vibrant economies we serve.
Moving to slide 11, I'd like to go over timing considerations for the second half of the year.
Third quarter adjusted earnings per share will be slightly lower than 2021, mainly due to favorable weather in the prior year higher interest expense tax timing and lower contributions from commercial renewables. This will be partially offset by higher revenues from rate cases riders in wholesale.
In the fourth quarter, we expect to see favorability from several drivers, including normal weather higher load lower O&M and higher revenue from rate cases, and riders as we discussed on our first quarter call. We expect to hold O&M flat for the year absent our first quarter storm cost I'd like to take a moment to the.
<unk> several initiatives, we're working on to respond to rising interest rates of inflation through.
To address these macroeconomic headwinds, we're targeting cost mitigation of $200 million across the enterprise beginning in 2023.
Key areas, we're focusing on our employee driven productivity and cost savings initiatives digital automation, leveraging our size and scale to reduce cost through our supply chain tax optimization, and reducing regulatory lag through capex timing.
We believe much of this will be sustainable similar to what we achieved in 2020 in response to Covid over the long term. This effort will benefit our customers and help enable our energy transition is lower O&M will moderate future rate impacts for every dollar of O&M, we eliminate we can invest about $7 of capital.
Without increasing cost to customers.
Work is underway for each of these initiatives and will provide additional details as we move through the process.
Before we open it up for questions. Let me close with slide 12, we're off to a strong start in the first half of the year and are well positioned to achieve our 2022 adjusted earnings per share guidance range of $5 30 to $5 67, with a midpoint of $5 45.
And this marks the 96th consecutive year of paying a quarterly cash dividend and the 16th consecutive annual increase as Lynn discussed earlier, we are undertaking a strategic review of our commercial renewables business. We will keep you updated on any decisions from the evaluation and any impacts that may have on our future financial.
With that we'll open the line for your questions.
Yeah.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad well pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Shar <unk> with Guggenheim Partners. Your line is open.
Hey, good morning, guys.
Sure.
So starting on sort of the commercial news, there's a lot of renewable assets out there for sale right now I guess what prompted the process. Why now did you get unsolicited offers and may be just fine tune any sense on timing as we're thinking about presentation packages being sent out in data rooms being setup.
Sure sure what I would say on timing as we have been looking at this for some time.
I think you have known us to review our portfolio and make strategic decisions about the future a number of times in our history and this is no exception to that.
As we look at the.
Line of regulated investment that is in front of us over the next many years. We believe this is the right time to step back and really look at the strategic fit of the commercial business, because theres going to be competition for capital at Duke.
And we think we operate a very strong commercial business that can grow and grow well in the future and we want to take the opportunity to evaluate is there a better strategic owner at this moment.
And as I think about other portfolios in the market I believe there will be a robust market for these assets given that it is not only operating assets, but also a development pipeline of platform a team of very capable developers and operators.
<unk> have the potential to add a great deal of value.
Our focus at the moment on the pipeline we have you know.
Again to a gig and a half of near term projects that could be quite valuable in 2020 for 2025.
In addition to what we had planned for 2023.
So when we think about our timing for execution.
We commented that we will be completing this strategic review by the end of 'twenty two into early 'twenty three we.
We will move quickly to get information into the market.
There is an interest in these types of assets from a broad range of buyers and would hope.
Shar to have more to share as we think about third quarter E. Die and then moving into February of next year.
Got it and just from a numbers perspective, I know you've highlighted that there could be a time in the future where you could need some equity to fund the incremental regulated capital growth opportunities that are out there for you could this potential sale I guess provide enough balance sheet capacity and threshold improvement.
It's where future equity needs are off the table, even as capital growth opportunities accelerate and just remind us what the base is in tax leakage is on the assets.
Yes.
Sure. It's a really good question and as we look at our potential to accelerate and we believe the potential from this transaction represents we do think it would postpone equity into the future.
But I think we're getting a little bit ahead, because I don't want to comment on value. We have giving you an indication that we think are right bias right now is to use the proceeds to avoid that the.
High interest rate environment inflation in a variety of other uncertainties around the economy, but I do think it strengthens the balance sheet at a moment when we see accelerated capital and that would lead to a period in which we could delay any further equity issuances.
Tax leakage let.
Let me turn to Steve just to make a comment on that yes sure a couple of comments here.
The book value of this body of assets is approximately $4 billion and that would include about $1 billion of tax attributes and we don't see any significant tax leakage, if a transaction were to occur.
Got it and then just one last one for me and I'll jump back in the queue. Steve is there is there is a viewpoint that you may need to Rebase I mean is that a scenario or do you feel that just given the robust nature of the process and the demand for renewables that you could more than sort of offset sort of that lost earnings and maintain the current <unk>.
Thanks.
Yeah, you know Shar I don't want to comment on 'twenty to 'twenty three guidance at this point I feel like the.
The processes early we're going to be testing the market on value. We have given you a sense of how we're thinking about use of proceeds at this point.
But what I would point you to is if we are successful in executing a robust transaction, which we have every confidence we will.
And then Duke energy lessens volatility, we increased transparency, we draw focus and attention to this regulated business, which I would say is one of the strongest franchises in the U S with 5% to 7% growth and an ability to earn at the top half of that range as we deploy capital and moves through the regulatory modernization that sits in front.
And so I think thats the real takeaway I will keep you informed on this process every step of the way in bringing guidance at the right time.
But I think there's.
Just a strong pipeline of investment and strong confidence in our ability to grow 5% to 7% on a regulated business.
Great Fantastic. Thank you guys I'll pass it to someone else I appreciate it.
Thank you.
Your next question comes from the line of Julien Dumoulin Smith with Bank of America. Your line is open.
Hey, good morning team. Thanks for the time I appreciate the opportunity.
Good morning.
Hey, good morning.
Congrats Steve again.
Thank you.
Absolutely.
Keep going on this thought process I mean, obviously this is seemingly been in some thought for a little time, how do you think about the accretion dilution and the commitment to pursuing this through and then related to that just again given some of the use of proceeds considerations is there a potential that this ends up.
Taking some time.
To align with some of your Capex needs through the course of the day.
Thinking about some of the parameters here.
Yeah, and Julien I'm, not going to comment on value.
I think we're too early in the process, we're testing the market, but we do believe we have a very strong set of operating assets and development pipeline et cetera, and we've given you an indication of use of proceeds so.
I'd like to leave the comments there.
As the process progresses, we will move forward and give you more information.
The second part of your question.
Lots of the train.
So I was just thinking about use of proceeds and perhaps you know you on getting it to align with your Capex again more of a pushing you on the parameters that you alluded to a moment ago, yeah. So use of proceeds.
You know as I said in my comments to share our bias right now would be to you.
Use of proceeds to avoid that.
But julien as we as it is.
Review progresses, we get a better sense of the market where sometime in 'twenty three likely.
We will finalize that decision and keep you informed every step of the way.
And as I think about the way. This this will work when we reach a decision we will likely move the the business to discontinued operations. So the commercial business would come out.
Would give you very clear guidance on the regulated business and we will give you a sense of use of proceeds. So we can put all of those various pieces together.
And we will do that when we have progressed far enough in the strategic process to have a sense of how to guide you into 2023.
But I would point again to this gives us an opportunity to really draw great focus and attention on the regulated business, which is poised to continue to grow at a very healthy pace.
Okay.
Got it actually I'm, sorry, sorry to keep going on some of the cooperations here just with respect to some of the other moving parameters at present.
Any initial thoughts on the AMC impacts from from IRI again, I guess, that's a moving target itself and then related obviously continued success on cost mitigation and kudos Steve.
Just with respect to that again feel fairly good about the outlook 23 onwards, and some of the earlier comments that you've made again I get that the gross level of inflation is potentially accelerated against what you guys had previously thought and establishing your EPS Geiger.
Yeah, Julian we feel very confident in our ability to execute on cost mitigation and I think if you track back.
Covid and even prior to that dating back to 15 and 16, we have consistently managed our O&M trajectory in a way that's not only been helpful to investors, but it's helpful to our customers and that's been part of keeping our prices low in all of our jurisdictions.
We are looking at the inflation reduction act and we see a meaningful benefits to customers from the renewable tax credits the recognition of nuclear the incentives around critical infrastructure, we will be.
Be impacted by the corporate minimum tax.
But we will also benefit from the credits, which will pass to our customers. So we're in the early analysis of this is I know so many others and we'll be tracking it closely as you would expect us to.
Right now I'm not ready to quantify given the moving pieces et cetera, and load of debt and cash flow. Okay excellent all the best to speak to you guys soon.
Thank you.
Your next question comes from the line of Nicholas Campanella with Credit Suisse. Your line is open.
Hi, Nick.
Hey, Thanks, Thanks for taking my question today.
And congrats to Stephen Brian on the new rules.
Thank you.
Just wanted to ask.
Go back to CEB quick and I'm just thinking to.
I think about contribution and total like what is what is EBITDA for that business and then also last last quarter. I think you commented that CEB in 'twenty three would be somewhat flattish to 'twenty. Two so we've had had some relief.
Via EV CBD.
There. So I'm just trying to think of what is the ultimate loss earnings for those assets and 23, how we should be thinking about that.
Yeah, Nick. Thank you for that are you know our target for 2022 is around $150 million of net income.
Which we kind of step down the contribution at the end of last year as we saw some of the challenges in supply chain and panel availability et cetera.
We also in the last call said, we see a trending more in line with that for 'twenty three because despite the favorable executive action the delay and uncertainty that was created during that period of time.
Really pushed execution of of projects from 23 into 'twenty, four and so I I'll leave it there I don't know, Steve if you would add anything to that no I.
I think that's correct, we had stepped down the contribution for those years and in light of the supply chain issues.
And we had.
Kind of cap the earnings throughout our plan prior to that in the $200 million type range per year and stepped it down for the.
The recent supply chain issues. So that's I would think about it in that fashion.
Okay. So just run with the $1 50 and then.
Are you do you have EBITDA for that business that you're willing to disclose or.
I'll leave it at that the $1 50, and you know Nick Jack and the IR team are available for any further follow up on specifics.
Great no. Thank you I appreciate that and then I guess, thanks, so much. Thank you.
Alright. Thank you. Thank you again.
Your next question comes from the line of Jeremy Tonet with J P. Morgan Chase Your line is open.
Hi, Good morning Tomorrow Night Army.
Okay.
Just wanted to.
Look forward to the ESG day October 4th are there any kind of updated metrics or any other kind of messages, we should be looking for at that point in time.
Hello, Jeremy we're really looking forward to ESG day, because we've had over the course of this year a chance to give you some visibility into.
New targets right.
So we added scope two and scope three emissions. So you can expect to hear more from that we also filed our carbon plan.
We've also continued to progress our integrated resource plan in Indiana and have continued to build solar in Florida. So we will give you an update on what all of that could mean, you can expect ranges of capital.
To be discussed as we kind of take all of these plans into a more a financial perspective at ESG day, and then of course will comment on some of the social issues around environmental Justice Jos Transocean affordability.
Which is increasingly important and then of course governance you can expect to have a member of our board joined the conversation. So I think it'll be a great day to really hone in on the clean energy transition story that we have here at Duke where not only making good progress, but we have good plans and targets in place in all of our jurisdictions to continue that work.
Got it. Thanks, that's very helpful. There and just want to pick up with the carbon plant a little bit more if I could if you could just give us a little bit more flavor on stakeholder conversations.
Some some stakeholders might have different kind of concerns about the proposal just wondering if theres any sticking points or alternative pathways around that to get a sense on how that's all going.
Yeah, and you know Jeremy it's been a robust stakeholder process and I would say to you as we have been engaged.
In so many meetings and discussions there there are a wide range of topics being discussed, but it's nothing that we would say is surprising.
And one of the reasons that we put together multiple pathways is really to get all of the topics on the table. So that we can have the kind of discussion. The commission can have the kind of information they need to to make decisions. So you know if I were to just comment briefly on the types of things that are under discussion there's a lot of agreement on retirement.
Of coal, there's a lot of agreement on near term actions, particularly solar storage wind a lot of agreement on energy efficiency demand response being a part of the conversation a lot of agreement on the need to accelerate integration of renewables.
Because it's not just a matter of naming megawatts as a matter of getting them interconnected.
And then I think if I were to talk a little bit about our areas of.
Different points of view some are more aggressive in how quickly solar comes down some are more optimistic on the pricing of storage and pricing of offshore wind.
I believe we could do more onshore wind than what we considered.
And then of course, a lot of discussion on the attributes of natural gas the assumptions on price and the role that natural gas should play so.
Price I put price.
Top of mind.
Consideration on the minds of our industrials as well as customers in general.
I think this just provides a fruitful.
Menu of of items and discussions that will result in a in a thoughtful plan I think as you know we have asked for authority to move on the no regrets elements of the plan not to lock into any specific one allow things to continue to mature our prices on certain technologies to continue to decline.
And.
I think there'll be just a really good discussion hearings are scheduled for mid September we will be filing testimony and in late August so there'll be more data points along the way that we can share with you as this process continues.
Got it that's very helpful. Just a last one if I could just wanted to touch on nuclear a bit here.
Your understanding of the nuclear Ptc's and is it just the supply to regulate to cure and level of benefits you see there and just also if you could update us on Duke's involvement in <unk> and any thoughts on that technology going forward.
Sure and you know Jeremy we're digesting, what we know about the inflation reduction Act at this point. We believe regulated plan are included in that consideration and you know frankly, we're really pleased to see nuclear being recognized as a critical part of the clean energy transition, we're a believer of that they do.
And as we look at the credits we believe there is value for those who are low low cost producers and Duke certainly is.
So we'll learn more as this law progresses and have an opportunity to share more with you as we know more and of course, you know the bill has to pass before we can give you any truth specifics.
On the SM ours and advanced nuclear.
We are working on both technologies I would say in an advisory capacity and our capacity to understand more to lend our operating expertise.
We do not have an intention of being version one of anything first first of a kind we would like to see a broader adoption of the technologies a broader understanding of not only operating characteristics, but the commercial attributes of price ability to construct them within a time.
Frame that we're comfortable with and so we see the decade of the 2000 Twenty's is an important one to continue that work and if it progresses as we all hope it does we would be in a position to potentially invest in one to come into service in the early twenties thirties.
So more to come on that this will be a fruitful area of discussion in front of the commission I think you know that we operate in the Carolinas for 50% of the power today comes from nuclear so it's an important part of the equation in the Carolinas and if theres a way to add to it in a in an economic way to supportable to other customers and fits with the expectations of our.
Our regulators, we would welcome the opportunity to do that.
Got it that's very helpful. Thank you for that I'll leave it there.
Thank you.
Your next question comes from the line of.
<unk> Chopra with Evercore Your line is open.
Good morning, good morning.
Good morning, Lynn and Steve and Steve Congrats and thank you for your very patient CFO . Thank you for answering all of our very detailed annoying questions over the years and I appreciate it.
Youre welcome Justin just a maybe just really quickly.
Is there any debt on the on the renewable assets.
We are pursuing a strategic review on.
Yes, there is theres about $1 6 billion of project debt on the commercial renewables assets.
And that's included in the 4 billion number that you gave us the value I wasn't sure if that was the equity value worthy.
Enterprise value.
Yes, that's correct.
Okay. Thank you and then just lenders just wanted to get your thoughts on the conceptually on this.
<unk> for your ability topic.
Obviously this words into the plan doesn't have direct pay but has transferability how would you compare and contrast, this where since tax equity and you know just as a concept.
What's the market.
For for these credits just any color you could share there would be appreciated.
Josh we have been spending some time thinking about this.
You know what we like about transferability as we do believe there could be some efficiency in the market to move cash.
Which would be valuable to our customers. It has been a concept that has been used for certain state tax attributes.
But the market I think will be quite different if we introduce credits of this level.
So I think trying to forecast how the tax equity market would react to the introduction of this market and who shows up to be a counterparty for transferability is something we're spending some time on I don't have all the answers.
But we do like the introduction of another technique that more efficiently moves cash with a hope and expectation that illiquid market develops at a level that would monetize these credits for our customers.
Got it thank you so much.
Thank you.
Your next question comes from the line of Michael Lapides with Goldman Sachs. Your line is open.
Hey, guys. Thanks for taking my question, Hi, Michael actually Michael Hey, ran say, Steve and Steve Congrats on the new role and same to your successor as well.
Thank you.
Regulated capital spend that you've laid out your fourth quarter deck.
Relative to what we know today.
Just on the regulated side can you talk to us about the puts and takes about what maybe has moved around maybe had some upside to it maybe has some downside to it when we think about that capital spending directional guidance.
Yeah, Hey, Michael.
What I would say to you on regulated spend I'm going to focus on the Carolinas shut for a moment, we used one of <unk>.
2020, I RP scenarios to develop that capital plan, recognizing that we were going to put a carbon plan in front of the commission that needed to be reviewed.
So there will be a fine tuning of Carolina capital.
Coming out of carbon plan we.
Also we're on this chapter.
Technical conference on the multiyear rate plan and put forward a recommended range of transmission and distribution.
That will be filed in connection with the cases that are upcoming so there could be some fine tuning there and then I think about you know just around the corner, we will be opening up 27, when we come to the street in February and I think we've talked to you about the fact that we see an acceleration of capital in the back half of the year as we get deeper into the multi year rate plan deeper into coal.
<unk> deeper into replacement generation. So we do see that capital trending up and we'll have an opportunity to give you some perspective on that ESG deck.
Got it and in fact capital trending up is that more of a post 2025, and maybe 2025 doesn't move a lot yeah I would think about it as post 2025, because honestly Michael 2025 is tomorrow for us.
When you think about you know large infrastructure build.
The other thing I would point to is there will be some fine tuning of capital in Indiana as a result of the integrated resource plan, the CPC and process that we plan to file later this year. So that's another update that you can expect from US again, it'll be more in the back half of the of the decade as we move more deeply.
Into our clean energy transition in Indiana.
Got it and then one final one Lynn just curious on coal generation retirements, both in the Carolinas and Indiana.
Given supply chain issues.
For battery and a little bit for solar panels as well as just given high commodity prices does that have you rethinking the timeline for coal power plant retirements.
Yeah, Michael that's a good question because there are puts and takes on that question from every direction and what I mean by that you've hired the highlighted supply chain issues on the replacement side. You also highlighted fuel prices for natural gas generation, but frankly coal the supply.
Call the logistics of getting call from point, a to point B or also a challenge.
And so we cannot assume that there's some steady state perfect.
Perfect situation here, we have to manage all of this and so trying to find the right balance between timing of coal retirement and replacement generation is something that we're spending a lot of time and attention to and also trying to ensure for the period of time with our coal assets are with us that we have a reliable supply.
Hi.
There have been labor shortages and the railroads labor shortages in the mining community and the global market has impacted coal and pricing.
So I would just raise that is another dimension to your question that we're also working on.
Got it thank you and much appreciate it thank you.
Your next question comes from the line of <unk>.
Dale with Mizuho Your line is open.
Hey, good morning, Glenn Good morning, Steve.
Yeah.
Congrats on the new position, Brian and Steve Wish you best of luck.
Just two quick just two quick questions.
When one.
I understand the size of the renewable business relative to <unk>, but do you think the sale of the renewable business will have any impact to like the ESG ratings that Duke energy has such as maybe they're not as focused on ESG as previously.
So Anthony I appreciate you asking that question because I want to unequivocally say no.
Because when we talk about our carbon reduction targets.
And what we're trying to accomplish by 2030 in 2050, it's all within our regulated business. So we have not taken credit for any commercial renewables.
And our clean energy targets that we have shared with you.
It will mean that we'll have a fewer number of megawatts of renewables so until that regulated renewable growth accelerates in the back part of the decade cause we'll sell some of them, but our commitment around carbon reduction of the clean energy transition is unchanged all of our targets are on track and this will give us.
Opportunity at ESG day to really zero in on that even more and make it very clear, but I. Appreciate the question because it's an important one.
And just lastly on load trends it looks like you are coming in maybe above your original 2022 guidance of one 5% I'm curious what do you see long term it seems that maybe the electrification of the economy is accelerating than maybe we previously thought maybe.
Maybe a couple of years ago, we were talking about flat is the new up.
Do you think going forward, 1% or 2%, maybe the new norm as well.
<unk> work and all these other things come to benefit the electric utility.
You know Anthony we look at that very closely and you know back in February we had projected.
After 'twenty two.
Pretty flat or growth through the rest of our five year plan electricity sales, whether normal was pretty flat.
And we're keeping an eye on energy efficiency.
<unk> that are getting rolled out in addition to electrification.
And these are variables that we do look at as we project our load.
We'll be updating that as we move forward, but right.
Right now we're going to stick with.
Pretty flat load growth throughout our planning horizon and hope for that upside on that.
And Anthony what I would add to that is we like you know we believe the discipline around cost management is really grounded in the fact, we're not putting in.
Overly optimistic.
Optimistic assumptions envelope. So we we manage our cost structure consistent with sort of a flat expectation on load growth.
But you know when I look at some of the trends around in migration in the southeast I look at these economic development numbers in the business ratings of our states. We do have some head some tailwind on growth right.
That I think we will enjoy for a period of time.
But we continue to believe this flat to 5% is the best way to manage the business.
And always hope to be surprised to the upside.
Okay. My last question, Steve you brought up about energy efficiency as maybe a headwind.
Demand growth do you think as we.
We had big energy efficiency gains in appliances.
Home construction over the years and we've just reached maybe.
Peak of these energy efficiency gains and right now it's just all really small gains that you're going to get with upgrading a refrigerator, a new appliance and that will be the pivot in demand.
Well, we'll continue to monitor that we do.
See a desire to increase energy efficiency as part of carbon reduction plans youll see that as an increasing area of for example, our North Carolina plant.
One of the things Thats helpful to us as we move forward is we're also going to have a residential unbundling as part of our multi year rate plan.
And that it takes away the volatility for that large customer class on usage, whether it's weather or just just growth as well so.
I think we've got.
Protection there if we saw economic.
Issues or energy efficiency coming along to affect the top line demand.
And Anthony the only other thing I would point to is energy efficiency hasn't been uniformly adopted across all of our customer classes. So we do have an opportunity, particularly with low and common vulnerable customers to continue to drive energy efficiency and I also believe that home energy management technology time of use rates other things that give us in.
Ability to help a customer move their usage around.
And minimize Ah is is an opportunity that a lower price to customers over time, giving us headroom for these clean energy investments.
Great. Thanks for taking my questions. Thank you. Thank you.
There are no further questions at this time.
I'll now turn it over to Lynn good to conclude the call.
Great. Thank you and thanks to everyone, who has joined US today, a strong quarter a lot of promise ahead were available. This afternoon for questions. As we always are and again, congratulations to Steve and Brian on their new roles. So thanks again for your investment in Duke energy.
This concludes today's conference call you may now disconnect.
Okay.
Yeah.
Okay.
Sure.
Okay.
Okay.