Q1 2023 Duke Energy Corporation Earnings Call
Hello, everyone and welcome to the Duke Energy first quarter 2023, adding co. My name is not yet and I'll be coordinating the call today if.
If you would like to ask a question at the end of the presentation. Please press star one on your telephone keypad.
Now how debit your highest adding more senior VP of Investor relations to begin Abby. Please go ahead.
Thank you Nadia and good morning, everyone welcome to Duke Energy's first quarter 2023 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.
Actual results may be different than forward looking statements and those factors are outlined here in undisclosed and Duke Energy's SEC filings.
The appendix of today's presentation includes supplemental information along with the reconciliation of non-GAAP financial measures.
So with that let me turn the call over to Lynn Abby. Thank you and good morning, everyone.
We announced adjusted earnings per share of $1 20 for the first quarter. These results reflect a 22 cent headwind from weather with January and February ranking among the warmest winter months on record across our service territories.
In fact D E P.
Its warmest January and February in the last 32 years.
In response, we've already taken action activating agility measures across the enterprise, which Brian will walk through with you in just a moment.
With three quarters remaining including our strongest quarters still ahead, we are reaffirming our 2023 guidance range of $5 55 to 575 with a midpoint of $5 65. We're also on track to deliver our long term EPS growth rate of 5% to 7% through 2027 at the midpoint of the 23 range.
Before I turn to our regulated utilities I'd like to provide an update on the sale of our commercial renewables business.
As you know we have separate sales processes underway for the utility scale business and the distributed energy business.
We're in the late stage of the process for both transactions and we'll look to update you in the near future. We continue to anticipate proceeds in the second half of the year.
Moving to slide five we're making meaningful progress on our strategic initiatives in each of our jurisdictions in North Carolina. We recently reached a partial settlement with public staff and sick for it represents D piece of industrial customers and the Duke energy progress rate case with agreements on approximately $3 5 billion of forward looking <unk>.
Capital investments in the multi year rate plan. This settlement represents a significant milestone on our journey to modernize recovery mechanisms in North Carolina.
<unk> well to continue delivering value to customers, while supporting the cash flows of the company.
The settlement also provides clarity on retail rate base of approximately $12 2 billion for the historic base case in depreciation rates that largely aligned with D piece proposal.
Further we reached agreement on performance incentive metrics on residential decoupling.
We were pleased to be able to work with public staff in cig for to narrow the open items in the case.
These settlements are subject to approval by the North Carolina Utilities Commission.
Evidentiary hearings began may 4th and are expected to conclude later this month.
The room rates will be implemented in June subject to refund and we expect permanent rates to be effective October one.
The Duke energy Carolina's rate cases about three months behind the D. E. P case and hearings scheduled to begin on August 21.
Moving to South Carolina, The Commission approved our comprehensive settlement in our Duke energy progress rate case in February revised rates went into effect in April .
We also recently received commission approval to securitize, approximately $170 million of past storm cost at Duke energy progress.
In Florida, The commission approved our fuel capacity and storm costs request in March.
Its were updated in April and reflect recovery of deferred fuel cost over 21 months with a debt return.
We'll recover storm costs associated with Hurricanes, Anna Nicole as well as replenish the storm reserve over 12 months.
We also continue to expand our renewable fleet in the study and responsible manner, adding four solar projects in March and April totaling 300 megawatts with these additions. We now operate 200 megawatts of solar in Florida with plans to continuing adding approximately 300 megawatts a year going forward.
In Indiana, and we've had an active legislative session. The legislature passed several energy bills, including health fell $14 21, which was signed into law in awhile to equip and rate base for natural gas generation. These will support our ability to execute our energy transition in Indiana, while maintaining reliable and affordable power for customers.
We're in the process of finalizing CPC ads, which we expect to begin filing with the Indiana Commission later this quarter.
In Ohio, we reached a comprehensive settlement with the PUC staff and multiple other parties in our natural gas rate case.
Settlement, which is subject to commission approval includes agreement on expanded revenue caps for the capital expenditure program rider.
And evidentiary hearing is scheduled to begin on May 23.
And in Kentucky. The commission is conducting an evidentiary hearing today on the electric rate case filed in December if approved new rates are anticipated to go into effect in July .
We're making great progress on our strategy across our entire service territory meeting our commitments and advancing investments in a balanced way to better serve our customers.
Our strong track record as reflected in our impact reports, Duke Energy's 17th annual disclosure on sustainability topics. This.
This comprehensive report was published in April and includes our goals and progress on a broad range of topics, including the energy transition.
It also outlines our corporate citizenship and the value, we're creating for employees customers and communities from economic development to environmental Justice.
And to re skilling and redeploying workers.
Before I turn the call over to Brian Let me take a moment to talk about our grid investment plan, which is 36 billion and accounts for over half of our five year capital plan. The grid is a critical part of our energy transition and with more than 320000 line miles we operate the largest transmission and distribution system in the nation. The foundation of our growth plan.
Is focused on improving reliability and resiliency preparing the grid for renewables and enabling electrification.
Our reliability and resiliency investments are centered on strengthening the grid against storms and security threats and improving the ability to rapidly restore power. When there is an outage, we're making targeted investments across a variety of programs, including self optimizing grow technologies targeted underground physical and cyber security upgrades.
Operating lines and Substations.
Our investments are already making a difference as evidenced by our response to hurricane Ian last fall, where we restored power and less than half the time of our hurricane Irma restoration efforts in 2017.
As highlighted on the slide we've made great progress in establishing constructive recovery mechanisms across our jurisdictions. These mechanisms will all well also.
Just a recovering grid investments in a timely manner mitigating lag in supporting balance sheet strength, while delivering benefits to our customers.
From grid improvements to installing renewables to advancing policy, we're taking collective action to transform and run into the system for the future. We have a clear path forward and are confident our investment plan will deliver sustainable value and 5% to 7% earnings growth.
With that let me turn the call over to Brian .
Thanks, Lynn and good morning, everyone.
I'll start with quarterly results and highlight key variances to the prior year.
As shown on slide seven our first quarter reported earnings per share were $1, one and adjusted earnings per share were $1 20.
This compares to reported and adjusted earnings per share of $1, eight and $1 29 last year.
Adjusted results exclude the impact of commercial renewables, which is reflected in discontinued operations.
Within the segments electric utilities and infrastructure was down 2014 compared to last year.
As Lynn mentioned these results reflect the extremely mild weather in January and February which drove a 22 cents headwind compared to normal.
This is the most significant weather impact we've seen in recent memory.
In addition to weather lower volumes and higher interest expense were partially offset by lower O&M and growth from rate cases of riders.
Rate case impacts in the quarter were primarily driven by our Florida utilities.
Consistent with our current settlement terms in January we had an annual step up under the multiyear rate plan as well as the impact of a 25 basis point ROE increase as a result of rising interest rates.
Moving to gas utilities and infrastructure results were <unk> <unk> higher year over year, primarily due to growth from riders and customer additions.
Before discussing retail volumes I'd like to take a moment to talk about our 2023 cost mitigation efforts and full year expectations.
We're currently executing the $300 million in O&M reductions that we shared previously which were incorporated into our base plan to address interest rate and inflation headwinds.
As we said 75% of these savings are structural and will be sustainable into future years.
In response to mild weather in Q1, we've already activated agility measures leveraging our scope and scale to identify further savings opportunities.
As we've done in the past, we're looking to tactical O&M efforts and other levers.
These include deferring noncritical work, reducing spend on outside services and limiting nonessential travel and over time among others.
We will be thoughtful about these efforts keeping our unwavering commitment to reliability and customer service at the forefront of our approach.
Looking ahead residential decoupling in North Carolina will be fully implemented by 2024, but until then we will continue to flex the agility muscle that we have done so successfully in the past.
Turning to volumes on slide eight as expected on a rolling 12 month basis load growth is moderated closer to pre COVID-19 trends.
When comparing to 2022, it's important to note that we had a very robust first quarter last year, which saw nearly 6% growth.
In addition, nearly all of the Q1 weakness this year were seen in January and February when weather was extreme.
In these situations that can be challenging to precisely estimate the weather component of total volume variances.
In March and April when weather was closer to normal volume trends were more consistent with expectations, giving us confidence that the full year 2023 load growth will be in the neighborhood of 5%.
Continued strong customer growth in the residential class also supports our confidence in our outlook. The population migration, we've seen into our service territories remains as strong as ever.
In the industrial class, we're seeing some weakness in the textile sector as well as an isolated plant closure by an electronics manufacturer in the Carolinas.
Lingering lingering supply chain impacts also continued to be a factor impacting usage.
With that said fundamental growth remained strong many of our larger industrial customers are expanding and economic development in our service territories continues to be robust.
For example, our recently released impact report highlighted our final economic development results for 2022.
Over the year, we partner with our states to attract over 29000, new jobs, and 23 billion and capital investments to our service territories.
These new customers, which represent several key sectors, such as battery Evs and semiconductors will provide meaningful load growth as operations ramp up.
We're proud of these accomplishments, which support the communities, we serve and give us further confidence in our long term economic outlook for our service territories.
Moving on to financial activities on slide nine we had a productive first quarter completing around 60% of our planned 2023 issuances.
We've also been opportunistic taking advantage of market dynamics, which made convertible notes an attractive option.
In April we issued $1 $7 billion of these notes to reduce our commercial paper balance and lower interest expense.
Importantly, we made good progress on fuel proceedings during the quarter as well in Florida, We received approval for a full recovery of the 2020 to deferred fuel balance with rates updated April one.
We also filed in February for recovery of approximately $1 billion of deferred fuel in <unk> North Carolina.
We expect to receive an order in August and for rates to be implemented in September filed.
Filings over the summer, we'll round out the Carolinas addressing the remaining uncollected costs.
In addition, we continue to expect proceeds from the sale of commercial renewables in the second half of this year, which will be used for debt avoidance at the holding company.
Combined we expect these two items fuel collections and the completed sale will positively impact <unk> to debt by 50 to 75 basis points by year end.
I know the balance sheet is top of mind for investors and credit is at the forefront of our planning as well.
In fact, our efforts and commitment to the balance sheet were recently recognized by Moody's.
In April following our annual meeting Moody's reaffirmed our current credit ratings and stable outlook at the holding company.
This is further evidenced that we have the right plan in place and are taking appropriate steps to maintain our strong balance sheet as we advance our energy transition and execute our capital plan.
Moving to slide 12, we remain confident in delivering our 2023 earnings guidance range of $5 55 to $5 75.
And growth of 5% to 7% through 2027.
We operate in constructive growing jurisdictions and the fundamentals of our business are strong.
Our progress on key initiatives in the first quarter positions us well to deliver on our commitments as.
As we execute the priorities that are important to our customers communities and shareholders.
With that we'll open the line for your questions.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad to withdraw your question. Please press star, but it might change.
Pat can I ask you a question he didn't you'll find it that makes it nicely.
Our last question today go to shop right that of Guggenheim Partners Shah. Please go ahead. Your line is open.
Good morning, guys.
Good morning Shar.
Good morning.
Just to confirm the the short term cost cutting measures Brian touched on those are incremental to the $300 million figure. That's out there are any of them potentially structural in nature and I guess the key.
This is where do you I guess, where do you guys stand within the 23 EPS guidance range under that normal weather assumption for the rest of the year are you still kind of comfortable within the range at this juncture.
The answer to that is yes, shar and let me let me talk about the various cost initiatives that are underway. The 300 million that we identified for last year I would call largely structural when we talk about 75% of this being achievable, it's because we're making fundamental changes and the way we're completing works.
Staffing work prioritizing work et cetera when.
When we talk about the actions we're taking in response to weak whether I would call those more tactical. This is deferral. This is.
Reducing noncritical work third party spend expenses.
Those types of things that we've done so many times as you know and so the combination of all of these activities as well as the fact, we enter any given year expecting a range of outcomes and establishing contingencies in our planning in case something doesn't work out exactly as planned.
We are confident in reaffirming the range of $5 55 to $5 75, and so we will continue to update you as the year progresses, but.
Clinton reaffirming at this point.
Okay, Perfect and then just inland commercial obviously, the commercial sale being in late stage is new language and you obviously took another $175 million charge.
This is the obviously the second charge to date can we maybe just elaborate why are the expectations on the sale of come off more.
What's driving the second revisions of capital markets buyer interest to us.
Some sense, there and then I guess.
I guess when can we see something announces it <unk> is it closer to year end. Thanks.
Yes sure I appreciate the question and we are.
Continuing strong progress we're in the late stages and expect to be able to provide more information shortly on where we are.
Given the fact that we have placed the business into discontinued operations, we continue to evaluate them.
Whether we have the right recognition of net book value on the financial statements and did take an additional impairment charge representing further progression of the process I would say to you, though that the estimated value that we see in this process remains within our planning assumptions. So there is nothing here.
Here that I would point to as a surprise for us as we've moved through the process.
As we have continue the negotiations the marketing complete we're in discussions with select bidders.
And we have made a decision to separate.
The process involving for example, two projects that we are a minority owner of and concluded that the natural owner is the majority owner based on discussions and negotiations that progressed. So you should look at all of this is demonstration that we're nearing the end of the process and we'll be anxious to announce.
And give you further feedback as soon as that is appropriate.
Okay perfect I appreciate the extra color. Thanks, guys have a good morning.
Thank you.
Thank you. The next question guys, Hey, Julien Dumoulin Smith of Bank of America. Julian. Please go ahead. Your line is open.
Hey, good morning team. Thank you guys very much I appreciate it.
Look Julien Brian actually.
Good morning.
Brian I wanted to go back to some of your comments.
You, specifically said credit is at the forefront of many many people's minds.
And the last question that was brought up about expectations evolving on the renewable sale here just want to be crystal clear about this I mean, especially following the affirmation barring any changes in Capex here, which you obviously do in a fairly annual cadence can you just.
Elaborate a little bit on how youre thinking about the balance sheet seems like you've got a target here to get back to 2014% you talked about the 50 to 75 basis points, but very specifically here your comfort level with the plan and the need to address any further equity or equity like.
Considerations to expedite getting to that long term target.
No. Thanks Julien.
It's the right question and it is top of mind for us and for investors.
Speaking about what was the pressure we felt in 2022. It was really focused on deferred fuel under collected nearly $4 billion deferred fuel we also.
Had storm restoration costs of around $5 billion, so the balance sheet more for $5 billion of.
Costs that we didn't plan for as we moved into 2022.
We're starting to recover that deferred fuel at DCP, and Duke Energy, Florida, Duke Energy Carolinas will happen later this year and we put a chart in the slides to show that that balance come off over the next two years and as we.
Recover those deferred fuel balances along with the proceeds of commercial renewables, we feel like the balance sheet is where it needs to be the tar.
Target of 14% <unk> to debt is the right target with the right cushion to deal with contingencies that come year end and year out and positions us for no equity through 2027.
Excellent. Thank you for hitting that clearly and good progress on the fuel.
And then separately.
If you can comment here I mean, obviously a lot of different.
Utility assets moving around potentially changing hands here would love to hear your thoughts more specifically there and as you think about the options you've got obviously a full plate in some respects on the lot of novel Ingalls, especially in the Carolinas here, but can you elaborate at least your latest thinking around.
Perhaps evaluating further assets here.
Julian I would say our primary focus at Duke is executing what we think is one of the strongest organic growth plans around if you look at the.
<unk>.
Clean energy transition going on in the Carolinas, Indiana is beginning transition of generation as well with <unk> coming yet this year, Florida is continuing to deliver strength with not only solar development, but also grid investment from the storm protection plan. So we feel like we've got just a robust capital.
Plan moving forward and strong jurisdictions.
Our primary focus is on organic growth as you know so assets to do become available from time to time, we will look at them.
If they make sense for us.
But we will do so in a disciplined way that maintains a focus on our balance sheet maintains our focus on growth maintains a focus on constructive jurisdictions that recognize the right balance between utility health and customer value.
And I'll just leave it there.
Excellent and then if I could clarify earlier, just super quickly with respect to the Indiana obviously.
This RFP out there.
Curious if that could change your capex intra year and B. If you have any further thoughts about what that could look like here.
It's a really good question.
Julian because we have continued to update the AARP in Indiana.
Our core retirement profile remains largely the same but we are seeing increase in renewables as a result of the IRI and we're also seeing the impact of MISO as new planning assumptions in how we ought to be addressing that over time.
So we are.
On the verge of CPC and filings that will include both intermittent and the non intermittent resources, we will update the <unk> again in 2024 and continue to evaluate whether we're moving at the right pace.
Around the energy transition.
I would say as we get into the back part of the decade, there probably is more potential in Indiana around that transition, but wed like to work through this process to get it started in a way that makes sense for customers.
And the state so more to come on Indiana really pleased with the progress we're making.
Excellent. Thank you guys talk soon.
Thank you. Thank you.
Thank you. The next question guys, Hey, Steve Fleishman of Wolfe Research Steve. Please go ahead. Your line is open.
Hey, good morning. Thanks.
So just on the North Carolina settlement agreement.
Is there any.
Other parties in the case are they.
Opposed to it or are they on are they just not taking a position wears.
Kind of other parties if at all.
Yes, Steve I would say, we're really pleased with public staff in the industrials too important.
Parties in the case in Indiana, the attorney general be there as well as.
Some of the consumer groups environmental groups et cetera, but we feel like the settlement is very strong with public staff in the industrials.
We also have a settlement on the performance incentive mechanisms allocation on transmission. There are a host of things included so we.
We believe it's a demonstration of strong progress where on the sand starting I guess it may for us last week.
And feel like we have a very strong case.
Okay. So I can't speak to the other party.
Yes, and what they May think about what we've put together, but I believe the strength of the settlements public staff in Singapore is noteworthy.
Okay.
Good and then just in terms of thinking about.
A lot of.
The issue North Carolina over the years is just dealing with lag in the multiyear plans.
Kind of help hopefully deal with lag, obviously ROE cap structure still need to be finalized but is it fair to say.
The parts that you agreed upon here are kind of.
The pieces that would address.
Kind of lag regulatory lag.
In North Carolina.
Your line on this settlement.
I feel like it.
Really key step in that direction, Steve because for the first time, we have approval of forward capital.
In a way that gives us some confidence and the construct of the legislation is such that we have an opportunity to adjust price as that capital is spent in a way that.
As you know is really new and new in the Carolinas and will reduce regulatory lag.
So I think starting back with the legislation, we've been making progress toward modernization and now with the settlement have approval of that capital or have a settlement around that capital of course commission to approve.
In a way that we feel like we're making strong progress.
Okay, great. Thank you.
Thank you thanks, Steve.
Thank you as a reminder, if you would like to ask a question. Please press star.
Followed by one on your telephone keypad. Our next question, David I'll call Ray of Morgan Stanley . David. Please go ahead. Your line is open.
Hi, Thanks for taking my question.
Hi, David.
Good morning, let's see I wanted to check in gist.
On the Florida 10 year site plan I just wanted to.
Confirm whether there could be upside to the capex outlook now that you've gotten that.
<unk> filed.
Yes.
Yes, David I would say, we're continuing with our progress of about 300 megawatts a year.
And as we get deeper into the plan I think we will consider whether we're moving quickly enough.
The multiyear rate plan for Florida runs through 'twenty five.
24, the team is signaling me here so effective.
<unk> five will kind of reset.
That expectation in Florida, and we'll continue to look at whether we're.
Delivering the right amount of capital and customer value as we go always focused on not only continuing to <unk>.
Develop renewables at a pace, but also delivering value to customers along the way.
Okay got it. Thanks, and then also just wanted to follow up on the Carolinas settlement I was just wondering what your current thoughts are about potentially achieving a settlement at the Duke energy Carolina's rate case now that you have.
<unk> been successful in getting the partial settlement at progress.
David I think.
Our posture is always to look for ways to achieve settlements.
The if you think about the calendar of.
Are the procedural calendar of any rate case typically parties filed their positions and then you have an opportunity to sit down and discuss we will of course pursue that in the GEC cases, we did in this one and we will keep you updated as the summer for process.
Okay, great. Thanks very much.
Thank you.
Thank you. The next question guys, Hey, Bill Kelly of UBS. Please go ahead. Your line is open.
Hi, Good morning, just was wondering if you can get some color around the sales.
Good morning.
Some additional color around the sales trends I know you commented that when you have the extreme weather it can distort the weather normalization trends, but maybe.
Maybe just some more color around why you feel.
You know better about the trend you saw in March and April .
Brian you want to.
Hey, Glenn.
Thanks for the question.
Yes.
I want to remind you that Q1 of 2022 was a robust quarter, we had 6% year over year growth that quarter.
Strength in all sectors as we were coming out of the Covid rebound that was the the peak point and so we're comparing to a high watermark and <unk>.
Volume trends normalize to.
Our expectations over the course of 2022.
And when we looked at it this year with extreme weather in January and February as I mentioned, it's really hard to pinpoint what the true weather normalized volumes are in those situations and when we <unk>.
<unk> analyzed March and April results, whether was close to normal in both of those months and the volume trends. We are on track with our expectations for the year. So.
We do feel like this is bracketed into January and February as far as the weakness.
And.
We feel confident that our 5% load growth in 2023, and the long term outlook around 5% is right for us because of the customer growth, we're seeing at one 7% as well as the industrial expansions and economic development activity in our regions.
Okay, great. Thank you and then just one other quick follow up on the corporate and other there was an 8% pick up year over year.
I know you cited some investment gains can you just provide some color on that.
Yes.
Bill, we have investments and benefit trusts and other.
Types of investments like that are captive insurer in market returns go up and down we obviously had a strong first quarter. The S&P was up around 8% and that was reflected in the market returns in that section.
Okay, great. Thank you so much.
Thank you.
Thank you we have no further questions I will now hand back to Lynn good chat president and CEO for any closing comments.
Well, thank you and thanks to all of you who joined today and for your interest and investment in Duke we're available for follow on questions. After this call and look forward to talking sense. Thanks, so much.
Yes.
Thank you. This now concludes today's call. Thank you so much for joining you may now disconnect your lines.
Okay.
Yeah.
Yeah.
Yeah.
Yeah.