Q3 2022 Duke Energy Corp Earnings Call
Thank you breaker and good morning, everyone welcome to Duke Energy's third quarter 2022 earnings review and business update.
Leading our call today is Lynn good chair, President and CEO , along with Brian Savoy 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 herein 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 Lynn.
Thank you and good morning, everyone.
Before I begin I'd like to take a moment and recognize the work of our team and responding to hurricane Ian.
This powerful and destructive storms in U S history.
Energy mobilized 20000 people working day and night to restore power to over 2 million customers across Florida and the Carolinas.
And what's more impressive is the speed in which we did it but 99% of our customers restored within 72 hours. This is an amazing accomplishment and a testament to our strong preparation the tireless effort of our restoration teams and the value of our grid hardening investments.
Moving to our financial results today, we announced adjusted earnings per share of $1 78 for the third quarter. We continued to see strong volumes from the electric utilities offset by lower contributions from commercial renewables due to fewer projects placed in service compared to 2021.
Turning to the commercial renewables business, we've completed the strategic review and our board has authorized the sale of this business.
I'll provide more context about this decision in a moment, but first I'd like to address what this means for our 2022 earnings guidance.
Beginning in the fourth quarter, we will move commercial renewables to discontinued operations and remove it from guidance going forward.
Bringing focus to our core regulated businesses. We are updating full year 2022, adjusted earnings guidance to a range of $5 20 to $5 30.
The 525 midpoint of this updated range represents our original guidance midpoint of $5 45.
The <unk> contribution we originally forecasted for commercial renewables the regulated utilities remain on track for 2022 with strong operating results offsetting rising financing costs, giving us confidence in achieving earnings within this tighter range.
Turning to slide five in August we announced a strategic review of the commercial renewables business, which includes our utility scale renewables platform at a smaller distributed generation business as part of this review we worked with advisers to evaluate the strategic fit of these businesses and to test the market.
Valuation.
We have received indications of interest for the utility scale business at attractive valuations and this process will continue through year end, we expect to announce a definitive transaction in Q1 2023 and close as early as mid year.
We're preparing the sale process for the distributed generation business, which includes our AC solar and expect this transaction will follow a similar timeline to closing.
The majority of proceeds from both transactions will be used to reduce holding company debt. This will strengthen the balance sheet and allow us to fund our clean energy transition without common equity issuances through at least 2020.
I'm very proud of our commercial team.
Who has remained focused on maximizing the value of the portfolio continuing to expand our robust development pipeline and operating our renewables fleet with excellence.
With this pending change in our business mix I'd like to walk you through our earnings trajectory over the next few years for 2023, we're introducing our guidance range of $5 55 to $5 75, with a midpoint of $5 65.
This reflects a 5% to 7% growth off the updated 2022 EPS midpoint of $5 25.
It also includes the partial year benefit from lower interest expense after reducing holdco debt with sales proceeds.
Turning to 2024 and beyond we expect to grow 5% to 7% off the 565 mid point of our 2023 guidance range through 2027.
The 2023 guidance range reflects what we know today, including the present interest rate environment inflation supply chain constraints and in economic forecasts. The continues to support positive GDP growth in 2023.
The economic outlook remains uncertain and will continue to closely monitor trends.
System with past practices, we will do all we can to control costs to match challenges in our business, while maintaining excellent service to our customers.
As a result, we've increased our 2023 cost mitigation target from $200 million to $300 million.
We expect about 75% of these savings to be sustainable over the long term.
We will keep you apprised, along the way and look forward to sharing our traditional guidance package on the yearend earnings call in February .
Brian will provide more on our 2023 earnings drivers, but I want to underscore the strength of our underlying core utility business, we operate premier regulated franchises and growing service territories with constructive regulatory jurisdictions and robust customer focused investment opportunities.
I have always been the lifeblood of our company and this portfolio transition will fully highlight the strong predictable transparent earnings and cash flows from our premier regulated utilities and strengthen our overall investor value proposition.
Next I'd like to take a few minutes to highlight some of the important strategic work underway throughout our jurisdictions.
Moving to slide six and October we filed our first performance based regulation application under <unk> 951, we filed with the North Carolina Utilities Commission requesting a review of the significant investments, we're making for our $1 5 million, Duke energy progress customers served in North Carolina.
The rate increase would cover upgrades, we've made to improve grid reliability and resiliency and to facilitate a clean secure energy future.
Our application contains a traditional base rate case based on historical investments and known and measurable changes projected through April of 2023, our request is mitigated by a reduction in annual operating cost of over $100 million.
Since our last rate case.
In addition to historic investments our application includes gradual customer rate step ups over the next three years to recover future investments, we will make through the multi year rate plan. This consists of roughly $3 8 billion of capital projects.
Our projected to go into service by 2025, approximately 75% of which is related to transmission and distribution investments.
Evidentiary hearings are expected to begin in the May 2023 timeframe consistent with past practice, we intend to implement temporary rates in June for the historic base case subject to refund.
If approved we expect year, one revised rates to be effective by October one 2023.
Turning to slide seven our focus on providing customers with affordable reliable and cleaner energy continues to advance across each of our jurisdictions.
In North Carolina carbon planned hearings concluded in late September after almost three weeks and we submitted our proposed order at the end of October .
During the hearings, we presented strong testimony that confirms the need for our near term development activities <unk>.
You see we will make a final decision on the carbon planned by the end of this year we.
We expect to file a Duke energy Carolina's rate case with E&C UC in early 2023.
In South Carolina, we filed a rate case for Duke energy progress in September as we continue to work on increasing system reliability, and resiliency and enhancing the customer experience to ease the impact of these investments on customers' proposed rates would go into effect over two years beginning in the first half of 2020.
Three.
In Florida, the public Service Commission approved our storm protection plan update in October over the next 10 years, we expect to deploy $7 billion in capital investments through this rider.
Shifting to the Midwest in Indiana, we are updating our integrated resource plan. We've held the first of three public information sessions with stakeholders to share information about plans under consideration and we anticipate filing <unk> for new generation resource needs with the commission beginning in early 2023.
And in Ohio, We completed a hearing in October for our electric distribution rate case, we expect to receive a final order by the end of 2022 or early 2023.
Moving to slide eight I'd like to update you on our ongoing review of the clean energy provisions under the <unk> legislation.
High energy costs are top of mind for our customers and the Iras clean energy tax credits present, an opportunity to help address those issues. We expect to qualify for a variety of PTC and ITC that will generate billions of dollars in tax credits over the next decade. These.
These tax credits will be returned to our customers lowering our overall cost of service and providing for a more affordable energy transition.
We will continue to evaluate the impact of the corporate minimum taxes, new information and guidance from Treasury becomes available.
Because of the credits generated by our substantial clean energy infrastructure investments, we do not expect this to have a material impact on our cash flows.
In closing we are advancing our strategy across our jurisdictions balancing the progress of our clean energy transition, while preserving affordability and reliability for our customers and communities I am confident in our long term earnings growth and ability to execute our strategy moving forward as I look ahead, we're well positioned to deliver exceptional value to our <unk>.
Customers stakeholders and investors and with that let me turn the call over to Brian .
Thanks, Lynn and good morning, everyone.
I'll start with a brief discussion discussion on our quarterly results highlighting a few of the key variances to the prior year.
As shown on slide nine we had reported earnings per share of $1 81, compared to $1 79 last year.
As Lynn shared we are moving forward with the sale of our commercial renewables business and we will move those results to discontinued operations in the fourth quarter.
For presentation purposes going forward, our focus will be on the strong earnings profile of our core regulated operations, which delivered $1 78, and adjusted EPS in the third quarter.
And on a year to date basis, our core operations generated earnings of $4 15, compared to <unk> 10 for 2021.
Please see our non-GAAP reconciliation included in the earnings release for more details.
Within our core business segments electric utilities, and infrastructure was up six cents compared to the prior year, driven by higher retail volumes and lower O&M.
Partially offsetting these items were higher depreciation costs on a growing investment base.
We continue to be encouraged by the sustained retail load growth in the post COVID-19 environment and I will provide more on the volume trends in a moment.
Shifting to gas utilities and infrastructure results were once and higher than last year due to increases in riders and the North Carolina Piedmont rate case.
And in the other segment, we were <unk> <unk> lower primarily due to higher financing costs timing of tax expense and lower returns on investments.
Turning to slide 10, I'll touch on electric volumes and economic trends.
On a 12 month rolling average basis total retail volumes were up one 7% in line with our 2020 to load growth forecast of one 5% to 2%.
In the third quarter higher year over year volumes were driven by residential customer growth of one 7%.
We continue to see strong and steady migration to our service territories and continued expansion in the commercial class, including higher data center usage.
This was partially offset by lower industrial volumes isolated to a few automotive customers experiencing supply chain constraints.
We are closely monitoring how these factors and other potential economic dynamics are impacting our customers usage, but we continue to expect 2022 volume growth to land within our one 5% to 2% range.
Our economic development achievements to attract jobs and capital investment to our service territories were recently recognized by site selection magazine.
Which named Duke energy, a top utility for economic development for the 17th consecutive year.
We've continued to accelerate this work into 2022.
We partner with our states to win record setting projects in North Carolina with semiconductor manufacturer Wolf speak in South Carolina with BMW to entry into the EV market.
And in Indiana, with a still onto Samsung EV battery plant.
These projects and others announced throughout 2022 involve capital investments exceeding $20 billion.
And we will bring more than 24000 jobs to our growing service territories.
We'll begin to see topline growth from these business expansions as we progressed through the five year plan.
When you breakdown the outlook for the fourth quarter on slide 11.
We are well positioned to achieve our updated 525 of adjusted EPS midpoint for 2022.
Year to date, our core regulated business has generated earnings adjusted earnings of $4 15.
We expect a solid finish to the year with continued strong performance in our regulated utilities. We have good line of sight to the remaining dollars 10 in the fourth quarter. So let me take a moment to highlight some of the key drivers.
Beginning with the electric segment.
We expect year over year revenue favorability from higher volumes, which were impacted by the omicron variant in 2021.
A return to normal weather.
In the Florida multiyear rate plan and other riders.
Turning to gas, we will benefit from rate cases, and our integrity management rider.
We will see lower O&M across our electric and gas operations the.
The timing of plant outages in shaping of O&M led to higher O&M in the first half of 2022 as compared to 2021. We saw this trend began to reverse in Q3 and expect it to accelerate in Q4.
Finally, we expect the other segment to be unfavorable to the prior year, primarily due to higher interest expense.
Moving to slide 12.
I'll highlight the key growth drivers for 2023 that support our $5 55 to $5 75, EPS range for the year.
2023 reflects the acceleration of investments in our clean energy transition across our service territory.
And the implementation of key provisions from House Bill 951.
Beginning with the electric segment will enter 2023 with load that is 2% higher than pre pandemic levels.
Going forward, we expect load growth to be back in line with our pre pandemic assumption of flat to 5% growth per year.
This will be offset by weather, which has been favorable year to date in 2022.
Shifting to rate cases, and riders, we have an active regulatory calendar across our jurisdictions.
This includes three rate cases in the Carolinas and two rate cases in Ohio.
In Florida, we will move to the second year of our multiyear rate plan with an updated 10, 1% Roe.
Finally, we see growth through continued investment in our electric and gas riders.
Macroeconomic conditions remain dynamic and as Lynn mentioned earlier, we are exercising our business agility by increasing our 2023 cost mitigation target from $200 million to $300 million.
We have a strong track record of pulling both structural and tactical levers to flex our costs to meet business challenges head on and are confident we can achieve these savings.
Lastly, we will enjoy a partial year benefit of interest expense savings from reduced holdco debt with proceeds from the commercial renewable sale.
Before we open it up for questions, Let me close with slide 13.
With the pending sale of our commercial business will transition to a fully regulated business business with robust investment opportunities roughly $145 billion over the next decade.
This also positions the company with a de risks earnings profile, giving us confidence in achieving our 2023 adjusted EPS guidance range of $555 to $5 75, and 5% to 7% growth rate with.
With that we'll open the line for your questions.
Thank you.
Got it.
Uh huh.
One on the clinic, Thank you Pat.
If you change your mind Dotty.
We have the SaaS question on the phone lines from.
So all plaza from Guggenheim Partners. Your line is now open.
Hey, good morning, guys.
Hi, good morning.
Good morning, Sean.
You guys put out of 23 guidance figure out there without a commercial deal actually being announced I know, obviously, you see robust interest, but the ultimate transaction multiple here matters a lot when can you maybe touch a little bit on your sort of level of confidence here ahead of selecting a bit or do you have some firm offers that's giving you.
This kind of visibility into 'twenty, three and to have this type of an EPS range or recent deals in New York a good proxy have you narrowed down the bidders I guess, just some more visibility on this pending deal thats kind of embedded in your 23 guide would be really helpful and if theres any conservative Ben to your thanks.
Thanks sure sure.
I would start by saying.
Sure we have a lot of experience in dealing with portfolio transactions. If you think about the history of Duke and as we began the strategic review process. A lot of work has been done not only to challenge our strategic assumptions, but also to do work in the market hiring advisors.
Understanding the range of potential valuations, including soliciting feedback from the market and feedback.
Feedback from credible Counterparties. So we do have indications of interest robust indications of interest from credible Counterparties and have a high degree of confidence that we will transact on this business all of that went into our decision to announce the sale.
So thats kind of consistent with the way we would approach anything of this magnitude and this type of decision to do our homework before we announce so when we look at the guidance range for 2023.
Not only have commercial renewables contemplated with a high degree of confidence, we'll execute but we have strong regulated growth and we also have strong cost mitigation already in place and ready to go in light of some of the headwinds that we're all experiencing.
And the economy, so I feel like we've put together a very credible guidance range.
For a company that represents one of the strongest regulated utility in the industry. We feel like 2023 is off to a strong start.
Got it and then just tax leakage I guess, you guys have enough and plan to offset any kind of leakage there for Michelle.
We believe we can manage within this range chart, we wouldn't have put it out there if we didnt clinic, we could do that so.
High degree of confidence in executing in a high degree of confidence in the range.
Okay, Perfect and then lastly, turning to the carbon plant. Obviously the commission has been very clear with hearings and then filing said.
That intends to meet that December 31 deadline to have a final order in an initial plan in place I mean, obviously you guys highlighted last week you filed a proposed order on the docket supporting a real wide range of different technologies, but everyone seems to be kind of in different directions. It doesn't appear we have a lot of consensus among.
Over a dozen parties that are involved so it's a little bit more contentious than we would've thought I guess, how does the commission bridge. These gaps it seems to be a little bit of a tight timeframe by year end. Thanks.
Sure sure what I would say to you is the feedback and this process is something that.
Looks reasonable and somewhat predictable to us so the solar industry is interested in more solar the industrials are interested in low prices.
Low income or interested in the impact to low income.
Harney General in the environmental community want us to go as fast as we can to reduce carbon.
So as we look at how the hearing.
Rolled out the testimony that was presented the case that we put forward. We felt like all of those positions were well understood where well discussed in the hearing and didn't find them surprising in any way frankly.
But that's what creates kind of the fertile ground for the commission to make decisions and the good news is in the near term.
All about solar and battery and we have time on the long term to make decisions about some of the more.
Difficult.
Pumped storage FMR offshore wind and so we think there is a strength to our recommendation to use. The next couple of years to look at development on those key technologies. So that we're prepared by the middle of the decade to make the decisions about where to go.
So I would say a very good process, a very transparent process not surprising in any way on where the parties.
Put forward their positions and I think the commission has a lot of good information on which to make their decision and we expect them to do so by the end of the year.
Got it terrific guys. Thanks, so much and now we've seen about a week I appreciate it.
Thanks Shar.
Your next question comes from the line Julien Dumoulin Smith of Bank of America. Please go ahead gentlemen.
Hey, good morning, Lynn and team. Thank you guys very much.
Hey, good morning.
Just following approval shortly the question maybe a couple of details tied to it.
Again, the discount off so can you talk a little bit about the partial year assumption of lower interest expense just with the timing assumed there I know people are looking very carefully at 20 Green numbers. So just if you can elaborate there and then related actually I'll just ask it.
The follow up would be can you elaborate a little bit on the.
Secondly, the 30 <unk> of cost reductions of the $300 million, how does that square with the earlier sensitivity you provided against interest rates at this point effectively where are you on.
'twenty three and beyond assumptions.
Sort of effectively fully often.
Yes.
Sure in Chile, and I think for planning purposes, we are thinking about the commercial renewables transaction as being mid year.
And we'll know more as we get into the final round of bidding et cetera, and hope to be able to give you more feedback in the February call, but I think mid year.
Partial year would be the right planning assumption.
And on the cost reduction I think youll recall that back in the second quarter, we had undertaken in something that we call. The work reduction initiative really focused on ways. We can simplify work use digital technologies.
In order to streamline our governance processes, our reporting processes et cetera, and we were targeting $200 million.
We were also at the same time looking at supply chain and looking at other things that we could do to potentially more tactically move O&M out of 'twenty, three and we were able to increase that $200 million target to $300 million, we have five that Julian to give us confidence around the macroeconomic trends so when I look at <unk>.
Interest rates for example.
We are in a position with the with the work that we've done to be able to hit this guidance range. Despite the headwind of interest rates and as we look ahead beyond 2023.
Modest amounts of maturities.
And 24, and we also see the benefit of the IRS showing up more materially in 2024, I think we've talked about the nuclear PTC has been consequential for us we see IRA is not only benefiting customers by being credit positive cash flow positive to the utility.
So we feel like we've got good plans in place here and are really pleased that we.
Got after cost reduction as you know we always do early enough in 2022 that we have a high degree of confidence for 2023 and beyond we think of the $300 million, 75% of it is sustainable.
Got it.
Maybe just to continue with that thought.
Unsustainable piece that remaining 25% is that order of magnitude pretty comparable to the interest savings that you get from the tailwind in the 'twenty four.
The first half of the year with the commercial renewables.
Having.
Our run rate impact on the sale.
Julian I haven't thought about it I haven't thought about it that specifically because the way I approach every years looking for way to save money.
We may have come up with some new ideas in 2023% for 2024.
The continuous improvement mindset at Duke runs pretty deep and we're always trying to find ways to reduce costs.
Got it.
The cash flow uplift on the nuclear side.
Credit metrics just to elaborate on that if you can I know I don't think so.
Plus a bit but if you could quantify that.
Yeah, Julian it's several hundred million dollars. We believe we believe our regulated fleet qualifies and we operate very low cost.
Very low cost nuclear units.
So we will be working with our regulators on the appropriate way to recognize those benefits.
And those scenarios could have a range of passing it back over two years three years five years and in the meantime, we have the opportunity to strengthen the balance sheet.
Or the cash flows if you will.
Those from those credits.
Thank you again good luck.
Thank you.
Thank you.
We now have the next question from the line of Steve Fleishman of Wolfe Research. Please go ahead.
Good morning.
Okay.
Hi, Glenn.
Just I think.
Just answered this on.
Julians question, but just to maybe ask a little differently.
So obviously the cost cutting offsets.
Lot of pressures in 'twenty three 'twenty.
24, and beyond as you mentioned the cost cutting moderates.
It goes through regulated rates also.
At the Holdco debt.
Refinancing itself continues assuming rates stay high.
But it sounds like what you're thinking is that the.
The improved cash flow.
Performance at the utilities.
The offset is that.
How do you think about beyond 'twenty three.
Steve I would maybe expand the thinking to be a little broader than that so we also use tools like interest rates hedging, which you would expect us to we have $1 billion of proceeds from GIC coming in we have the commercial renewable transaction, we have cost mitigation, we've sized it at $2 to 300 in this.
Year that will carry forward and we'll continue to look for ways to drive costs out of the business. We also have the IRA coming so I feel like we've got a variety of tools and as we look at sort of the profile into 'twenty four.
Even in this present environment, we don't have a lot of additional headwinds because of our relatively light maturity period.
So I would think about all of those factors together.
Recognize that we are working very strategically to minimize these costs and to manage the business effectively.
Okay great.
And then just.
In terms of thinking about kind of dividend growth.
Should we given that there is some kind of reset a little bit on the earnings.
Should we assume you continue.
Kind of a rate below the earnings growth for <unk>.
Another couple of years before you move it up into the earnings growth range.
Steve It's a really good question and one we're looking at closely we had set a target of being in the 65% to 70% payout range and in this five year period, we will be well positioned in that range.
So our expectation would be to recommend a dividend increase at the right time in the five year period to match something closer to the growth in the business, but I think 2% is a good planning assumption for 'twenty three.
We will look at it again in 'twenty four and beyond but this is something that's getting a lot of attention in light of the derisking of the business in the light of the strength of the capital the cash flow we were anticipating.
And the work that we've done to moderate the payout ratio.
Okay, great. Thanks, so much.
Thank you.
Thank you Steve.
We now have.
David.
With Morgan Stanley .
Hey, good morning, Thanks, so much for taking my questions.
Morning.
I was wondering if you could just maybe elaborate a little bit more around the load growth backdrop that you are seeing.
It sounded like flat to half a percent growth assumed into 2023, what are the puts and takes there is a conservative based on what you've seen so far this year and then would be just curious on that industrial.
Slowdown that you've seen do you expect that to continue.
Into 2023 reasonable is that factored in.
And David I'll make a couple of comments and then turn it over to Brian .
We use a conservative load growth assumption in our planning we size our cost structure to be consistent with that.
But when I look at the strength of the economy that we are enjoying right now and the volumes that are that are coming through we have we're very well positioned.
And Brian made a comment in his remarks that we're already 2% above pre pandemic levels, which I think is quite an extraordinary rebound, but Brian how would you add to that and maybe talk a little bit about the industrial trends.
So first on the general economy, David we continue to see migration into our territories and it's driving both the residential and the commercial class.
So that those growth profiles are strong and as Lynn said, we use conservative assumptions as we look out in future years to really size of our business.
On the industrial side.
We've seen.
Some companies with planned plant shutdowns this quarter. So we don't feel like its a trend thats going to linger. It was it was planned as well as.
Some of the supply chain bottlenecks that continue to show up in different pockets of industry. The automotive sector was one this quarter that.
Showed surfaced, but.
Again, those things are worked out over time and nothing nothing systemic so we're still bullish on all three sectors.
David some of the statistics, we shared with you on economic development are also noteworthy and that's not even a complete list of what's happened in 2022, North Carolina was rated number one for business for a reason.
Which low tax environment.
Good workforce, Great University system, and we have had an extraordinary year.
From an economic development standpoint, and we expect that to show up over the five year period.
Got it thanks, so much that's helpful.
And then.
Was interested in just expanding a bit more on the cost reduction outlook into 2023, what are you seeing for inflationary pressures right now in the O&M budgets, obviously the backdrop.
It has been tough in terms of inflation pressures, but youre expanding beyond cost reduction aspirations into next year I'm wondering just how achievable that looks and what pressures you're seeing in the current environment.
And we do see some inflationary pressures I would point to materials I would point to labor, but all of that David was a part of the analysis that went into our cost reduction efforts. So I don't see anything happening in the inflation environment that's impacting our.
Commitment to drive these costs out of the business.
And the other thing I would point to a lot of the material.
Inflation is showing up in our capital plan and so we're monitoring that as well to make sure that we're spending capital in a prudent way to benefit customers.
Okay understood I appreciate it thanks, so much thank.
Thank you.
Okay.
We now have Nick Campanella.
That's credit Suisse. Your line is now Nathan.
Hey, good morning, everyone. Thanks, Hi.
Alright, so I guess just.
Thanks for thanks for.
The updates on the CAGR. It sounds like you are now kind of including the inflation outlook going forward. So that's great and I recall him just previous calls and talking about the CAGR.
You kind of talked about.
Getting to the higher end of the range.
As the multi year rate plan kind of coming to effect.
And you kind of execute on this on this carbon plant. So I'm just curious if you could just update the investment community.
If that dynamic still exists as we get to the out years here and the new CAGR. Thank you.
Yes, Nick Thanks for that question.
Let me start by saying, we believe our regulated business with this clean energy transition to $145 billion of capital over the 10 years has the potential to achieve at the high end of the range.
But given the dynamic economic environment that we're in right now we believe 5% to 7% is the right range.
To use for the planning assumption and know that we will work every year to be as well positioned within that range as we possibly can and we've talked about many of those puts and takes.
IRI benefits, reducing O&M all of these things represent opportunities as the plan unfolds and then further this very meaningful regulatory activity. That's underway is another key ingredient. The first multi year rate plan filing for <unk> for this year, we're expecting another one.
Another filing for <unk> in the coming year. So we are putting pieces in place and trying to address the macroeconomic environment at the same time and we believe all of this given the premier regulated utilities that we offer is a very strong value proposition for investors.
Thanks for that and then I just wanted to pivot to renewables quick acknowledging that you are moving away from the commercial segment.
As you mentioned Youre doing.
A ton in the regulated arena.
Maybe just a general state of the state on what Youre seeing in the renewable supply chain at this point.
I see that you're still kind of executing.
In Florida with the 300 megawatts that went into service in 2022 as planned, but just general kind of comments on supply chain and ability to kind of get things done in the five year window.
Nick Thank you for that and I think as we've talked over the last year.
A year with some of the challenges in the supply chain, we have always lead to a regulatory regulated business and make sure we have adequate supply and we have extended our purchasing.
Purchasing relationship with our suppliers to extend on a multiyear periods. So that we have confidence around supply into 26 and beyond with options to continue we're putting similar arrangements in place for battery storage. So we are confident in our ability to execute the regulated plan and have just soma.
Any opportunities as we pursue this clean energy transition we are.
Working to make sure we've got the supply chain, the labor et cetera, and had been successful so far and see that continuing.
Yeah.
Thanks, a lot when you soon.
Thank you.
Thank you.
Your next question comes from Doug <unk> with Evercore ISI. Please go ahead when you're ready.
Good morning, Hey, good morning, good morning Lynn.
Just had a quick follow up hopefully a quick on the.
Interest expense into 2023.
Any color, Brian that you can share as to what level of rates interest rates are.
Are you using as we look out through 2023.
Particularly related to your variable debt.
We can kind of.
Do the sensitivity.
If you look out to the interest rate outlook here.
Yes, our cash.
Sensitivity of a 100 basis points, representing about 12.
Is probably the best and cleanest without getting into specific detail on commercial paper and long.
Long term debt recognizing the tenor can fluctuate I think that's a really good proxy for you.
And.
I would point you there.
Okay perfect. Thank you I appreciate it.
Thank you.
Thank you.
We now have safety costs.
Please go ahead your line is open.
Hi, Good morning. Thank you for Marty is another question.
Yes, so a couple of questions here if I may.
They're looking at new business.
Business.
Presenting an opportunity for you to have conversations with rating agencies about got you and then maybe you can talk with your corporate credit rating.
What impact will it have on your borrowing cost.
Yes, so we keep a close relationship with the agencies and by that I mean sharing with them all of our plans.
What we expect in terms of this transaction the derisking of the business I Wouldnt expect though given the magnitude of the Soviets only 5% of the business that it would have an impact on downgrade threshold or anything of that sort.
But it gives us an opportunity to derisk. It gives us an opportunity to bring in some cash and all of that is.
It is important to the agencies and we'll keep them apprised every step of the way.
Got it. Thank you and then on the cost cutting initiatives you're talking about.
Cognizant Youre talking about the screening process, especially given the inflationary environment that we're in.
Oh, some of your peers that cargo into control right now.
Could you just maybe share from.
For example, I don't know about what you plan to do there. So we can get a better sense.
What's your insurance.
With cost controls to ensure those on the ground.
And Sophie I appreciate that and the one comment I would make is.
This is where our size and scale matters.
Because we've had an opportunity to drive costs through the supply chain as a result of that size and scale that has been helpful. But also a variety of other projects. We've been working on this over the course of the summer.
Looking at work reduction efforts and Brian you might have some perspective that you would share on specific examples maybe some of the reporting the governance the digital.
Yes, certainly Sophie and good morning so.
We really took a fresh look at the entire corporation and said how are we going to get the work done we need to get done we prioritized certain roles over others. So we said some roles had.
<unk>.
More purpose five years ago, and now they need to be re repositioned, we looked at our real estate footprint and said how can we optimize the real estate in this post Covid world. So there was an opportunity there to really.
Reduce.
The amount of corporate real estate, we operate.
And we flipped it.
Governance across the company and making sure that we maintain our controls, but while while running a leaner organization and it was really a grassroots effort, where we got input from all of our teammates to try and figure out what are the best areas to execute on we have over 200 initiatives. So it isn't it isn't a one shot.
It's <unk>.
Many many small.
Singles and Bunts singles that are going to add up to this $200 million.
We've upsized to $300 million as we've looked at the opportunity set.
Sophie One example, and bryan's area that I would share.
If you look at the amount of.
Reporting that comes out of finance at Duke Energy, there's a lot of it not all of it results in decision, making so we've used this as an opportunity to sweep through what kind of information do we give our <unk>.
Operating leaders in order to manage their business similarly in it.
Lots and lots of applications right do we need all of them do we have applications that are only used for a handful of people and can we transfer them with that you've got license fees, you've got cyber security expense you have people, who maintain those systems. So it's things like that where you're just standing back and looking at all of those corporate functions of service levels were offering.
And determined is there a way to do it leaner and more efficiently using technology and as you would expect when you look every few years.
Those things opportunities arise.
Thank you so much for that color very helpful.
Thank you.
Thank you.
Do you have on that.
From the line of.
Michael Peet with Goldman Sachs. Please go ahead can you maybe hi, Michael.
Hey, Ren Thank you for taking my questions and Brian .
I think this is your first earnings call, leading and CFO . Congrats I may be wrong, I may be getting seen island areas.
Michael Thank you.
No.
Remember their first call Mike.
I could imagine you could sort.
Could give out trophies or something like that.
To give that out.
Hey.
Questions. One can you remind me.
One short term a little bit when one's long term can you remind me the cadence and scheduled for filing both the north and South Carolina, Duke Energy Carolinas That's question one.
<unk> two is kind of thinking much longer term, which is many of the stakeholders in north Carolina in the carbon plant in <unk>.
Have expressed support for offshore wind.
And yet if you look at the companies developing offshore wind in the U S. You've got one company on the East coast that is trying to back out of its PPA signing contracts.
That they signed less than a year and a half ago.
Got a large European operator, and developer of U S based offshore wind win its earnings call. This week.
Returns.
And the progress of the.
Eloping installing offshore wind is facing headwinds can you just kind of talk about your views of some of the I don't know.
I'll call offshore wind still a bit of an emerging technology, but just kind of how you're thinking about the risk reward Purdue relative doing something as significant as bad.
Yes, Michael Thank you and let me I'll do first rate cases.
So Duke energy Carolinas North Carolina.
Will be filed in early 2023, you may recall that the sequence of these things you hosted a technical conference to talk about the capital and the multi year rate plan that occurred this week or last week.
Recently.
And then the rate case will follow we have not yet announced timing or plans for a D. C case in South Carolina, so more to come on that.
We will keep you updated along the way.
Offshore wind is something that we believe is an option.
Over this 2000 22000, 32000 40050 period here in the Carolinas.
It represents a diversity of supply.
It is a renewable resource, but as I say all of that we also recognize it's expensive it has transmission requirements, particularly here in the Carolinas, where you've got to get the power to the load centers that are you know.
Further west than the coast.
And so the approach that we're taking is one of studying and learning more.
And also allowing the commission and stakeholders and the community that could be impacted by.
Both the offshore and the onshore transmission to be involved as well, we will not move first and.
And we will not move outside of the regulated business. So the risk reward for investors and customers has to be appropriate in order for us to move forward and so I would say we're in evaluation mode. We think it's an important resource.
We think it is important over this clean energy transition, but we're being deliberate and thoughtful and cautious as we move into it.
Got it and then last question just on energy reliability.
Just curious how youre thinking about the near term, meaning next three to five years for your coal generation.
Given the uptick in demand that you and some of your peers in the southeast are seeking as well as in the Midwest.
And just some of the details like in the Midwest ice, though it elsewhere.
Grid operators and others have put out concerned about near term reliability constraints.
Michael It's a really good question and what I would say to you is as we contemplated the various scenarios we presented in the carbon plan as we contemplated the integrated resource plan in Indiana and in fact, we're updating that integrated resource plan in India to include the new planning assumptions that MISO requires.
With those reliability concerns we will not present, a plan that does not maintain reliability and we will not retire assets that are needed to maintain reliability and so that's something that is being closely monitored our regulators completely understand and support that and so I think we just have to work our way through.
It.
Making sure that we have replacement generation and transmission ready to go.
The combination of resources ready to go so that when we retire our customers can expect reliability.
That is our commitment and that's the way, we're planning and executing.
These are these transition plans.
Got it. Thank you Brian much appreciate it alright, thank you Michael.
Thank you.
I would now like to hand did that come in for some final remarks.
Very good thank you and thanks to everyone who joined.
We will see you in a week.
We'll get to do this again.
A small ramsay EI. So we'll look forward to seeing you then thanks again for your interest your questions and look forward to seeing it.
Okay.
Thank you that does conclude today's conference call. Thank you again for joining you may now disconnect your line.
Yeah.