Q4 2023 Duke Energy Corp Earnings Call
And it'll be awkward.
If you'd like to ask a question during the Q&A you can do so by pressing star followed by one on your telephone keypad.
I'll now hand, you over to <unk> senior Vice President of Investor Relations to begin.
Thank you Linda and good morning, everyone welcome to Duke Energy's fourth 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.
Hello, all and thank you for your patience today's call will begin at <unk> five thank you for standing by.
Actual results may differ from forward looking statements due to factors disclosed in today's materials and in Duke Energy's SEC filings. The appendix of today's presentation includes supplemental information along with a reconciliation of non-GAAP financial measures with that let me turn the call over to Lynn.
[music].
Thank you and good morning, everyone. Today, we announced 2023 adjusted earnings per share of $5 56, finishing.
Finishing the year within our guidance range and demonstrating once again, our ability to exercise our agility in managing our business and meeting our commitments.
We also announced 2024 guidance of $5 85 to $6 10, with a midpoint of 598. This represents 6% growth from our original 2023 guidance and we extended our 5% to 7% EPS growth rates through 2028 off the midpoint of our 2024 range.
We entered the year with significant momentum 2024 marks a fundamental repositioning of our investment proposition with our commercial renewable sale, we've transformed our business to become a fully regulated utility for the first time in decades.
Along with improved regulatory construct replies to deliver on our simplified 100% regulated growth plan.
Our southeast and Midwest utilities operate in some of the fastest growing and most attractive jurisdictions across the U S.
We expect growth in our service territories to accelerate as we move further into the energy transition driving substantial investment. We are now projecting 73 billion in capex over the next five years and 8 billion increase versus our previous plan.
Turning to slide $5 2023 marked another year of outstanding accomplishments across our business building on our compelling growth story as we move into 'twenty four as I mentioned, we completed our portfolio repositioning and delivered multiple constructive regulatory outcomes, while maintaining our commitment to safety and customers we.
We executed five rate cases, and I'm proud of the constructive results the teams delivered.
We received orders approving $45 billion.
And historic and future rate base investments that will provide growth to customers for years to come.
There was also recognition of the rising cost of capital with improving ROE and equity ratios.
And in North Carolina, we implemented forward looking multiyear rate plans for the first time ever.
The performance based regulations authorized by <unk> 951 provides certainty predictability and value to customers and the company. This milestone was accomplished through years of work with policymakers legislators and other stakeholders.
Shifting to operations, our teams performed well throughout the year, serving our customers and extreme weather conditions in restoring power following historic storms in Indiana and Florida.
<unk> safe reliable power in all seasons and circumstances remains our mission.
In fact in 2023, Duke Energy, Florida had its best reliability performance in more than a decade, largely due to our significant storm protection plan investments.
These investments also aided restoration efforts in hurricane and Dahlia saving outage minutes and speeding returned to service.
In the Carolinas, our nuclear fleet continues to generate safe reliable carbon free power, achieving a capacity factor of 96% the 25th year in a row above 90% and underpinning all of this and a hallmark of our commitment to operational excellence 2023 marked our best safety performance in company history.
<unk> as measured by a total incident case rate of <unk> three one.
Safety is a core value of Duke energy and I'm proud of our employees commitment to event free operations.
Finally, the Piedmont team continues to excel in customer service for the second year in a row J D power ranked Piedmont number one in residential customer satisfaction for natural gas services and the southeast.
And our Carolinas electric utilities continued to achieve strong results as well remaining in the top quartile.
Moving to slide six we start the year entering the next phase of our energy transition period of execution and record infrastructure build to meet the evolving energy needs of our customers and communities.
We're working with stakeholders to develop resorts plans to support the phenomenal growth in our communities.
In the Carolinas demand is already outpacing the forecast used in our August resource plan filings and we filed supplemental portfolios in January.
We're committed to meeting this growth with a diverse and increasingly clean energy mix that includes renewables natural gas next generation nuclear and storage resources as well as energy efficiency and demand response tools.
We're also taking steps to build new generation in North Carolina will filed CP.
<unk> for over two Gigawatts of new natural gas generation in 'twenty four we will continue to advance annual solar procurements targeting one gigawatt per year and in Indiana, We will file <unk> for new generation resources around mid year.
These new facilities will add to our diverse mix of resources and are critical to meeting growing customer demand as we reliably exit coal by 2035.
From a regulatory perspective, we've announced two rate cases in 2024, starting with GEC South Carolina in early January since.
Since the last case in 2018, we've invested more than $1 $5 billion to improve reliability and resiliency and meet the growing energy needs of our more than 650000 customers.
And in Florida, We notified the commission of our intent to file a rate case in April similar to our current multi year rate plan, which runs through 2020 for this filing will cover three years of investments beginning in 2025.
Our plan will add over 1000 megawatts of new solar and include over $3 billion of grid investments to serve population growth increase reliability and reduced storm related outages.
Finally, since our last rate cases of Duke energy, Indiana, and Piedmont, North Carolina, We've continued to make investments to strengthen our system and we're evaluating the timing of our next filings in these jurisdictions.
In closing I'll move to slide seven which depicts the transition of Duke energy over the last many years did the premier regulated utility than it is today.
The strategic and financial clarity provided by optimizing our portfolio over the last decade has simplified Duke energy to a powerful core regulated business operating in vibrant jurisdictions growing through population migration and strong commercial and industrial economic development our growth potential is the highest.
It's been in decades and is reflected in our 73 billion capital plan.
This plan is driven by grid investments to transform the largest T&D system in the U S and <unk> related generation investments to support our growing jurisdictions and fleet transition and efficient recovery mechanisms allow us to translate these investments into customer and investor value.
In closing, we have positioned Duke for long term value creation and our path forward is clear as we navigate the coming decade of record infrastructure build this pivotal point in our history drives a differentiated low risk total return proposition going forward and I'm confident we will deliver.
With that let me turn the call over to Brian.
Thanks, Lynn and good morning, everyone.
Turning to slide eight 2023, Mark a year of solid growth for our utilities, we achieved full year adjusted earnings per share of $5 56.
Which represents about 6% growth over 2022.
For the year, we saw top line growth from constructive rate case outcomes multiyear rate plans and rider growth across our jurisdictions.
Additionally, we delivered on our cost and agility efforts, which offset record mild weather lower volumes and higher interest expense.
2023, with a year full of significant headwinds and I'm proud of the team for executing on our agility plans, including strong fourth quarter results to deliver on our financial commitments.
Turning to slide nine.
We are introducing 2024 guidance, our 2024 guidance range of $5 85 to 16.
The midpoint of $5 98.
Represents more than 7% growth over 2023.
Within electric we expect normal weather and retail volume growth of roughly 2%.
We also entered the year with updated rates for our North Carolina utilities, including the benefit of the historic base case as well as year one of the multiyear rate plans. Additionally.
Additionally, we have updated rates and Duke energy, Kentucky, and expect updated rates for <unk> South Carolina in August.
We will see growth from year three of the Florida multiyear rate plan currently in effect.
We will continue to see growth from grid investment riders in the Midwest and Florida.
Partially offsetting these favorable drivers are higher interest expense as well as depreciation and property taxes on a growing asset base.
Our gas segment continued to deliver strong growth with investments across all jurisdictions related to integrity management and to serve a growing customer base.
Finally, we expect the other segment to be impacted by higher interest expense and a higher effective tax rate.
We ended 2023 with an ETR of 10%.
Though we continue to pursue a robust set of tax optimization strategies, we expect our 2024 ETR will increase to between 12 and 14%.
Turning to retail electric volumes on slide 10.
In 2023, we saw strong residential customer growth in all jurisdictions highlighted by the Carolinas and Florida at two 1% and 2% respectively.
In fact over the course of 2023, we added 195000, new customers the largest customer increase in company history.
In a continuation of the trend we've seen over the past few years.
As a reminder, residential decoupling in North Carolina began in DDP in October and a DC in January.
This will reduce volatility and align growth with positive customer migration trends.
We have also seen significant growth and economic development opportunities in our service territories as reflected in the recent supplemental Carolinas resource plan filings.
As we evaluate which projects to include in our financial plan, we recognize that site selection processes are often very competitive.
We generally only include the most mature and committed projects.
Focusing on those with letter agreements or in very late stage development.
This gives us upside potential should additional projects progress.
Economic development opportunities in our service territories are diversified across many industries semiconductors, Evs batteries pharmaceuticals, and Datacenters to name, a few which which will provide growth from the projects themselves as well as incremental growth from residential and supplier demand.
These economic development and customer migration trends give us confidence in our one 5% to 2% load growth expectation over the forecast period.
Turning to slide 11, Duke's proven track record of cost management will support our ability to execute an energy transition that is rooted in discipline and our commitment to safety for our employees and reliability and affordability for our customers.
As I mentioned before we delivered we delivered on our significant O&M and agility targets for 2023 in response to macroeconomic headwinds and unfavorable weather.
In 2024, we expect O&M to be largely flat to 2023.
Offsetting inflationary pressures with sustainable efficiencies.
And we will continue to target a flat cost structure over the five year plan.
Duke energy is a leader in the industry when it comes to cost efficiency driven by our culture of continuous improvement we consistently rank in the top quartile across a variety of O&M measures and our ability to manage our cost structure create significant value for our customers and shareholders.
Turning to slide 12, I'd like to provide an overview of our five year 73 billion capital plan.
It has increased $8 billion over our previous plan.
About half of the incremental capital as a result of rolling the planned 40 year to include 2028.
The update reflects an early estimate of the supplemental Carolinas resource plan filed in January as well as approved spend in the North Carolina multi year rate plans.
Over time, our capital plan has steadily increased as we move further into the clean energy transition supporting a seven 2% earnings base CAGR through 2028.
Grid investments represent 50% of our five year capital plan and will improve the reliability and resiliency of our system.
Significant generation spend ramps up in the latter part of the plan as we add more renewables and storage assets extend the life of our carbon free nuclear fleet and make prudent investments in cleaner natural gas to better serve our growing customer base.
Looking ahead about 90% of the electric investments in our capital plan are eligible for efficient recovery mechanisms, which is critical to maintaining a strong balance sheet mitigating regulatory lag and smoothing customer rate impacts.
Moving to slide 13.
Our ability to execute our robust capital program is underpinned by healthy balance sheet, and we remain committed to our current credit ratings.
With that in mind, we are introducing modest equity to fund the increase in capital plan, we announced today.
We expect to raise $500 million annually over the five year plan, starting in 2020 for using at the market and dividend reinvestment programs.
Turning to <unk> that we have provided a walk up showing the path to achieve to achieve our 14% target by the end of 'twenty four.
Compared to 2023, we expect improvements from normal weather rate case activity. The collection of remaining deferred fuel balances the monetization of nuclear Ptc's and equity issuances under the drip and ATM programs.
These credit supportive drivers give us confidence in achieving 14% <unk> to debt in 2024, and a minimum of 14% over the long term.
Yeah.
Let me talk a bit more about the nuclear PTC.
An important element of the inflation reduction act that will provide substantial savings for our customers over time.
As an operator of 11 low cost nuclear units in the Carolinas, we expect to qualify for several hundred million dollars per year of nuclear PTC beginning in 'twenty four.
We intend to monetize the credits in the transferability markets established by the IRI.
In North Carolina, we work with the public staff on the settlement regarding the treatment of nuclear Ptc's that was approved in our <unk> rate case order last year.
We will flow back the benefits to customers over a four year amortization period.
This treatment allows customers to benefit from bill reductions over time and is supportive of the utility's credit metrics.
Moving to slide 14, our robust capital plan strong customer growth in constructive jurisdictions provide a compelling growth story.
And our commitment to the dividend remains unchanged, we understand its importance to our shareholders in 2024 marks the 98 consecutive year of paying a quarterly cash dividend.
We intend to keep growing our dividend balancing the payout ratio with the need to fund our capital plan.
Over the next five years, we anticipate a steady decline in the payout ratio and we are adjusting our target payout ratio to 60% to 70% from 65% to 75%.
This updated range provides additional financial flexibility minimizing external equity needs over time and is more consistent with the company investing in our current pace as.
As always dividends will be subject to approval by the board of directors.
In closing <unk>.
<unk> 2023, with a year of execution and we have tremendous momentum as we head into 2024.
The fundamentals of our business are stronger than ever giving us confidence in our ability to deliver sustainable value and 5% to 7% growth through 2028.
With that we'll open the line for your questions.
Thank you.
Followed by the number one if you'd like to ask a question and then Julie devices, Amit you'd likely limit you attentive bank.
Change your mind. Your question has already been answered you can withdraw your question by pressing star followed by the number.
Our first question today comes from Sean <unk>.
Guggenheim Partners. Your line is open. Please go ahead.
Hey, guys good morning.
Good morning Shar.
Good morning.
The capex expectations, the $8 billion increase reflects quote unquote, obviously, an early estimate of the Carolina AARP filing at the end of March can you just maybe elaborate on what you mean by early so what scenarios embedded is there room for upside and then to what extent does the plan include <unk> you'll be filing this.
Sure in Indiana, Kentucky. Thanks.
Sure. Thank you.
An early estimate would say we've begun to contemplate what the January IOP includes and I think you've seen us demonstrates that we've not only seen an increase in megawatts, but frankly, we've seen an increase in price for certain of the resources that we're adding.
But we believe that capital plan is.
Subject to continued refinement not only as we move through regulatory process and the Carolinas, but we will introduce more around Indiana. We have a 10 year site plan that we're filing in Florida. This year. So refinement will continue with our capital plan, but what I would leave you with Shar is we have a wealth of opportunities.
I mean, there is growth that is strong throughout all of our service territories, and we will be making along with our regulators the decisions on reliability affordability and increasingly clean as we move through these iron piece.
So just a really strong growth story for Duke.
Got it okay. So more to come and then just on the nuclear PTC. It's a material driver of that <unk> I guess, what are you seeing in sort of that transferability of market from a demand perspective, what discounts are you seeing and then like we're getting questions. On this all morning, it's like how do you price in the risk of an IRA repeal.
And in the worst case scenario can you make up that lost <unk>.
Yes, so a couple of things on the transferability market Shar, we have begun to test that market we had a.
Pilot Transferability transaction in 2023.
Just count on the Transferability was right within our planning range. So very strong response to that initial test in.
The Treasury group and team are already working on how we might execute in 2024 as well. So we do believe the market is developing and I think around the industry you've seen similar transactions executed in an effective way.
On a potential repeal what I would say to you is we continue to be very engaged with policymakers at the federal and state level.
Around the need for infrastructure is the as we continue to pursue growth onshoring of U S manufacturing leadership in artificial intelligence battery manufacturing EV et cetera, and we believe theres a lot of support to continue to build that infrastructure.
And to build it at a price that's affordable and the point I would emphasize for us on tax credits around infrastructure.
It goes directly to customers it reduces price over time to customers a dollar for dollar and so I believe both of those messages continue to resonate with policymakers and we will continue to make them I think it's essential that we keep moving on this infrastructure build in order to.
Serve the growth that we're seeing in our service territories.
On the impact of credit metrics.
Our goal <unk> is to be minimum of 14% so even in the event that the the credits could be.
Impacted in some way over time, we still believe we will have time to adjust we'll look at our overall plans and continue to run our business with our commitment to our balance sheet and with a strong balance sheet to pursue the growth.
Okay, Great Fantastic. Thank you guys see you next week.
Thank you.
Yes.
Our next question comes from Julien Dumoulin Smith of Bank of America. Your line is open.
Hey, good morning, Lynn and team.
Thank you.
Look I just wanted to follow up on the last question, a little bit and the same.
Focus on the nuclear Ptc's here, just as much as can you discuss the reductions.
The forecasted rate base, obviously, an increase in capex year to date, and obviously, there's some timing related matters as it pertains to the nuclear PTC impact rate base, but can you talk to what other factors might be impacting rate base not just in the near term here, but through the forecast as you think about the puts and takes here.
Yes, so maybe a couple of things on the capital side Julian much as Sean described we will continue to refine these with the wealth of opportunities I do believe we'll have an opportunity to continue to introduce really strong capital in all of our jurisdictions, but.
But on translating to rate base growth, but we show you with rate base is capital offset by tax attributes. So the nuclear PTC, because we're amortizing them over a four year period and a very credit supportive way, we have a reduction in rate base as a result of that.
So this is <unk>.
An opportunity for us to do both grow and maintain the strength of the balance sheet and we feel like we have developed a very constructive settlement in north Carolina to achieve exactly that.
Yes.
That makes sense and there's nothing else that's impacting that.
And then can you discuss the revised low growth outlook right I get 2% is a real acceleration from the 5% or 1% from last year and ultimately get that last year had downloaded you all sorts of new starting point, but just to reconcile a little bit of the logo commentary, especially.
Considering the commentary from the last call here, what is sort of reaccelerate. It how do you think about both the near year end the longer term here. If you will just a little bit more.
Yeah. Thank you Julien I'm going to turn to Brian.
Discuss load.
Yes, good morning, Julien So when we look at 2020 for the setup on load growth is really underpinned by three main <unk> main point. So you start with economic development visibility that we have in 2024 projects that are in late stage construction that are coming online and we've got that on one of our slides.
That represents a little under a 1% growth as we look into 2024.
On the residential side of things.
You've seen this normalization coming out of Covid have returned to the office right. During Covid, we had a lot of residential usage at homes as return to the office you saw this kind of lower usage at homes more on commercial businesses.
In the back part of 2023, we saw that level out. So we will start growing residential more in line with customer migration trends, which has been really strong 171, 8% in recent years and so residential growth we expect to be on an upward trajectory and then lastly, the existing C&I.
<unk>, where we saw reduction in load in 2023, and when we talked about it throughout the year.
Those customers are very optimistic in 2024.
Scene.
A rebound happening maybe mid ish year. So those three factors give us confidence that 2% load growth in 'twenty four is definitely definitely in our in our sites.
And over the long term Julien.
All of the things that Brian talked about Hey, we're going to continue to experience customer migration, our existing customer base continues to demonstrate some strength over the five year period, but probably the most new or significant driver is this economic development load and we've given you a range of what we're seeing.
And what we're what we've put on the slide are the things that we believe have a high degree of confidence.
Being achieved so dirt is moving letters of agreement had been signed and we're moving forward and so the combination of our existing base population migration and the strong economic development.
Gave us confidence to raise the long term growth rate.
Got it excellent so it sounds like things have reaccelerate here, even just quarter over quarter just on the market.
Well and I think Julian we were continuing to grapple with this economic development all through 'twenty three.
Came to our filing here in the Carolinas in January.
Reckoning with where we think this is going so we have continued to mature our own thinking working with our customers working with the prospects coming to the area and believe this represents a really solid range and when we're looking at that range. The growth is going to come along with it on Mega.
Megawatt hours and Thats, what youre seeing in our update.
Great. Thank you guys.
Thank you.
Our next question comes from Steve Fleishman of Wolfe Research.
Please go ahead.
Yes.
Thank you David Good morning, Brian.
Just one more on the nuclear PTC.
Any sense on when we're actually going to get it right.
Details from the Treasury.
Getting it.
Right there.
Yes, Steve our best Intel is the first half of the year. So you can kind of sometime in Q2, we would get the final guidance from Treasury and I think thats the general consensus.
Okay, and obviously you would need to then go do that.
Monetization.
Sure.
Sure Yes.
Okay.
On <unk>.
On the financing the equity plan, the drip and ATM.
Any kind of color on how much of that can be done through brick.
Relative to ATM.
Yes, So Steve you should think about Europe, as being about $200 million a year.
It's about 40% of it.
Yes.
And then just.
On the on the gas plant filing.
And the <unk>.
Carolinas Wynwood.
When would these when would you be roughly targeting for these plants too.
They come online.
So 'twenty eight 'twenty nine.
Steve.
Combined cycle plant two in 2008 or I'm, sorry, <unk> two in 2008.
Ccs, one and 28 million in 2009.
Okay.
And obviously some from the capital and would be hitting.
The FTC within May.
You can start to see it.
The largest capital spend is in the last couple of years as construction and as you know from history on these but youll see us beginning to ramp up.
Well within this five year period.
Okay, Great. That's it for me thank you.
Alright, Thank you Steve.
Our next question comes from David <unk> of Morgan Stanley. Please.
Please go ahead your line is open.
Hi, David.
As we think about the one and a half to protect low growth I was just curious is that concentrated in certain service territories more than others are you seeing certain states growing faster.
Others in your footprint.
David.
I would think about the Carolinas have seen the largest.
A portion of the economic development prospects, we see but we do see healthy growth across our jurisdictions.
Deanna with this re shoring of manufacturing has really seen economic.
<unk> growing Florida continues to grow and a really strong way at 2% customer migration trends as well as the commercial businesses are supported so.
I would say Carolinas is slightly ahead of the others, but all of really really good growth.
Okay got it not several percentage points faster than any in any specific states, but fairly fairly tightly grouped around there.
Yes, David I would say building on what Brian said residential growth has been stronger in the Carolinas and Florida.
<unk> industrial in the Midwest has been good.
And it's also been good in the Carolinas.
So.
The the growth kind of varies by customer class.
But I would go back to where I commented a moment ago, we have a wealth of opportunities and.
And these are not only good for Duke Energy's growth, but they are good for our state its capital investment and job creation supply chain is coming with a lot of these manufacturers. So.
It's good for the service territories that we are serving.
Understood that's helpful.
I'm not sure. If you gave this level of color, but just going forward as youre thinking about all of these other capex opportunities to add to the plan. How are you thinking about financing that is there a rule of thumb for how much incremental equity.
You would need kind of per dollar of Capex as you are.
Expanding the investment going forward.
David I think it's premature to talk about that because the first thing that will do is run through capital optimization and allocation, putting the capital in the area that <unk> delivers the most customer value and is delivering the best returns.
And I think we'll have more on this refinement of capital as we move through IRB approvals in the Carolinas. This year and then Indiana next year 10 year site plan as well. So we'll continue to keep you updated and our commitment remains to growth and a strong balance sheet.
Okay, Great I appreciate the color. Thanks, so much thank you.
You.
The next question comes from Nicholas Campanella of Barclays.
Please go ahead.
Hey, Thanks for taking my questions today.
Morning.
<unk>.
Hey, good morning, So I guess, just the payout ratio youre, taking that down obviously, which seems very prudent I know you've already been kind of growing into a lower payout ratio overtime to dividend growth has been lower than than the EPS growth year. So just I'm kind of wondering just how to think about your 5% to 7% EPS CAGR now like where you are.
In that range are you at the high lower our mid point of that and then when do you get back into this kind of 60% to 70% payout ratio and the plan. Thank you.
Yes, so nick pulling that altogether, we're very confident in our 5% to 7% growth rate.
We have been building the capital plan to accomplish that as well as the regulatory mechanisms for several years and so what we're putting in front of you. We have a high degree of confidence on and as a result of that we see the payout ratio declining over the next five years will be under 70% in 2024.
And so as we look at.
Our commitment to the dividend we intend to continue growing it we're committed to the dividend as we have been for a long period of time, but believe in this moment with the level of capital that we have.
Introducing some financial flexibility and our range. So that we can make good choices around dividend.
Dividend capital and growth is just prudent and so as you know we will look at dividend every year. The board is involved in that approval process, but given the the total composition of growth and dividend, we believe that 60% to 70% payout ratio is appropriate at this point.
Okay I appreciate that and then I guess just I know you just recently filed in Florida, you have a history of.
There is a history of settlements in that state and constructive outcomes is just anything kind of changing and regulatory strategy that wouldn't allow you to pursue another settlement in the future.
No Nick.
What we have accomplished so far as procedurally, what we need to do to provide notice them in the filing would follow late March early April as you know, we have a history of engaging with <unk>.
Intervening parties in all of our jurisdictions as part of the regulatory process and we will do endeavor to do that in Florida as well.
We'll keep you posted every step of the way.
It's a very constructive jurisdiction in Florida understanding the need for infrastructure to balance the growth of the state is maintaining or.
Achieving and also maintaining critical infrastructure investment for reliability storm response et cetera.
So we'll look forward to keeping you updated on on the rate case.
Thank you.
Thank you.
Yeah.
The next question is from <unk> Chopra of Evercore.
Your line is open. Please go ahead.
Yeah.
Hey, good morning, Thank you for.
Good morning, Lynn maybe just.
Thank you.
The equity $500 million a year.
Two and a half totaled for the plan versus the Capex raises towards the low end I think you might have said, 30% to 50% funded with equity in the past so maybe just a little bit more color.
Kind of what puts you at the low end of the range.
Since we discussed this in November last year.
Yes.
I think about all of these variables the capital.
The regulatory outcomes the equity issuance the fact that we see.
Nuclear PTC and.
Is something that we've been able to negotiate in a credit supportive way you've got all of those variables that we evaluate and establishing.
The plan that we have in front of you and believe that at this level that 30% ratio gives us the best match between the growth, we're trying to achieve as well as the strength of the balance sheet.
And so that'll be that's always our goal is to achieve both for investors and we believe we've accomplished that.
That's helpful and thank you.
And then the rate base is when I look at year over year growth rate in rate base, it's pretty healthy.
It's within your 5% to 7% EPS long term EPS growth guidance, when we think about annual EPS growth rates within that range as well in that 5% to 7% range or is that more kind of a CAGR approach and back end weighted.
No Youre geis we.
We endeavor to hit it every year every year.
And that's how we plan our.
Our investments that's how we plan our strategies around regulatory and otherwise.
And so that's.
That's how I would share with you year over year.
That's very clear thank you and I appreciate the time thank you.
And our next question is from Rafael <unk> of UBS. Please go ahead.
Good morning, Good morning, Brian how are you.
Good morning, Ron.
So first one maybe to follow up on Nick's question, just shifting back to Indiana Harbor, how are you thinking about the timing and what considerations should we be thinking about.
The rate case.
So Ross we.
We evaluated as you know periodically where we are with our capital investment rate case cycle.
And in Indiana.
We have a lot of investment in riders, but some of those riders are 80% of the investment. So we need a general base rate case to pick up the other 20%.
We also have in front of us in Indiana <unk> for generation that are in our regulatory mines, our regulatory calendar. So we will continue to evaluate what is the right timing when do we go and how does that relate to other things that we're trying to accomplish in Indiana.
<unk>, obviously, which seems very prudent I know you've already been kind of growing into a lower payout ratio over time that dividend growth has been lower than the EPS growth here. So just.
And by flagging. It for you in this call, we're indicating that its under review and we will keep you posted as we get closer to a final decision.
I am kind of wondering just how to think about your 5% to 7% EPS CAGR now like where you are in that range are you at the high lower our mid point of that and then when do you get back into this kind of 60% to 70% payout ratio.
Great I appreciate that very much and then maybe one for you Brian.
And the plan. Thank you.
Excuse me little under the weather today, but as I as I look.
Yes, so nick pulling that altogether, we're very confident in our 5% to 7% growth rate.
At the bridge to 2024.
We have been building the capital plan to accomplish that as well as the regulatory mechanisms for several years and what we're putting in front of you. We have a high degree of confidence on and as a result of that we see the payout ratio declining over the next five years will be under 70% in 2024.
Over 40% of that is coming from this 12 other than I think I get the higher interest rates impact and maybe can you scale or scope of the other things in there for me there is a lower tax rate and then as return from investments.
That's probably coming from either in pricing on the insurance side or the <unk>.
And so as we look at.
Our commitment to the dividend we intend to continue growing it we're committed to the dividend as we have been for a long period of time, but believe in this moment with the level of capital that we have.
She's shopping in Saudi Arabia, or petrochemical or how do I think about that as I look at my 2024.
Yes, I would point to the tax optimization Ross.
Introducing some financial flexibility and our range. So that we can make good choices around dividend.
2023, we had an opportunity for an item and tax optimization that was I would say outsized from our normal tax optimization work that.
Dividend capital and growth is just prudent and so as you know we will look at dividend every year. The board is involved in that approval process, but given the the total composition of growth and dividend, we believe at 60% to 70% payout ratio is appropriate at this point.
That was part of our agility efforts to which you would expect us to do because we had record mild weather.
Looking at.
Every opportunity to to offset that.
We look forward in 2024.
Okay I appreciate that and then I guess just I know you just recently filed in Florida, you have a history of.
We're seeing a more consistent level of tax optimization that we had in previous years. So.
Let's see the other major driver in the other section.
There's a history of settlements in that state and constructive outcomes is just anything kind of changing and regulatory strategy that wouldn't allow you to pursue another settlement in the future.
But we still have a robust set of tax optimization in our tax team is doing a fabulous work on that front, but.
No Nick.
What we have accomplished so far as procedurally, what we need to do to provide notice in the filing would follow late March early April as you know, we have a history of engaging with <unk>.
That's what I would point to and we signaled our agility of $300 million that we were pursuing in 2023 about half of it will be sustainable.
And I would point to that tax optimization as about that half that's not sustainable.
Intervening parties in all of our jurisdictions as part of the regulatory process and we will do endeavor to do that in Florida as well.
Okay. Okay. I got you. Thank you. Thank you Brian for that clarity I appreciate it very much.
I'll keep you posted every step of the way.
It's a very constructive jurisdiction in Florida understanding the need for infrastructure to balance the growth of the state is maintaining.
Thank you.
This concludes our Q&A session for today, So I'll turn the call back over to Lynn good for any closing comments.
Achieving and also maintaining critical infrastructure investment for reliability storm response et cetera.
Well, let me close by just thanking everyone for participation today I know when we do these annual updates we give you 40% 50 slides to digest. So were also available.
So we'll look forward to keeping you updated on on the rate case.
Thank you.
Thank you.
For questions and comments, the IRR team, Brian I'm available and really appreciate your interest and investment in Duke Thanks, So much.
The next question is from <unk> Chopra of Evercore.
Your line is open. Please go ahead.
This concludes today's call. Thank you for joining you may now disconnect your lines.
Hey, good morning. Thank you for good morning, Lynn maybe just.
I think the.
The equity $500 million a year.
Two.
What I have totaled for the plan versus the Capex raises towards the low end I think you might have said, 30% to 50% funded with equity in the past so maybe just a little bit more color.
Kind of what puts you at the low end of the range.
Since we discussed this in November last year.
Yes.
I think about all of these variables the capital.
The regulatory outcomes the equity issuance the fact that we see.
Nuclear PTC and.
Is something that we've been able to negotiate in a credit supportive way you've got all of those variables that we evaluate and establishing.
The plan that we have in front of you and believe that at this level that 30% ratio gives us the best match between the growth, we're trying to achieve as well as the strength of the balance sheet.
And so that'll be that's always our goal is to achieve both for investors and we believe we've accomplished that.
Speaker Change: That's helpful and thank you.
And then the rate base is when I look at year over year growth rate in rate base, it's pretty healthy.
Speaker Change: It's within your 5% to 7% EPS long term EPS growth guidance do we think about annual EPS growth rates within that range as well in that 5% to 7% range or is that more kind of a CAGR approach and back end weighted.
Speaker Change: Net cash we.
Speaker Change: We endeavor to hit it every year every year.
And that's how we plan our.
Our investments that's how we plan our strategies around regulatory and otherwise.
And so that's a.
That's how I would share with you year over year.
Speaker Change: That's very clear thank you and I appreciate the time thank you.
And our next question is from Ralph <unk> of UBS. Please go ahead.
Ralph: Good morning, Good morning, Brian how are you.
Ralph: Good morning, Brian.
Ralph: So first one maybe to follow up on Nick's question, just shifting back to Indiana Harbor, how are you thinking about the timing and what consideration should we be thinking about where the Indiana rate case.
Ralph: So Ross we.
Ralph: We evaluate as you know periodically where we are with our capital investment rate case cycle.
Ralph: And in Indiana.
Ross: We have a lot of investment in riders, but some of those riders are 80% of the investment. So we need a general base rate case to pick up the other 20%.
Ross: We also have in front of us in Indiana <unk> for generation that are in our regulatory mines, our regulatory calendar. So we will continue to evaluate what is the right timing when do we go in and how does that relate to other things that we're trying to accomplish in Indiana and by flagging. It for you.
Ross: This call, we're indicating that its under review and we will keep you posted as we get closer to a final decision.
Speaker Change: Thanks, I appreciate that very much and then maybe one for you Brian.
Speaker Change: Excuse me little under the weather today, but as I as I look.
Brian: That the bridge to 2024.
Ross: Over 40% of that is coming from this 12 centers are there and I think I get the higher interest rates impact and maybe can you scale for <unk>.
Brian: <unk> other things in there for me, there's a lower tax rate and then there is returns from investments and I think thats probably.
Ross: Coming from either pricing on the insurance side or the NMFC shopping in Saudi Arabia, or petrochemical or how do I think about that as I look at my 2024.
Speaker Change: Yes, I would point to the tax optimization Ross.
Speaker Change: 2023, we had an opportunity for an item and tax optimization that was I would say outsized from our normal tax optimization work that.
Speaker Change: That was part of our agility efforts to which you would expect us to do because we had record mild weather. We were looking at every opportunity to to offset that as we look forward in 2024.
Speaker Change: We're seeing a more consistent level of tax optimization that we had in previous years. So.
Speaker Change: Let's see the other major driver in the other section.
Speaker Change: But we still have a robust set of tax optimization in our tax team is doing fabulous work on that front, but that's what I would point to and we signaled our agility of $300 million that we were pursuing in 2023 about half of it would be sustainable.
Speaker Change: And I would point to that tax optimization as about that half thats not sustainable.
Speaker Change: Okay. Okay. I got you. Thank you. Thank you Brian for that clarity I appreciate it very much.
Speaker Change: Thank you.
Speaker Change: This concludes our Q&A session for today, So I'll turn the call back over to Lynn good for any closing comments.
Lynn: Well, let me close by just thanking everyone for participation today I know when we do these annual updates we give you 40 50 slides to digest. So were also available.
Lynn: For questions and comments, the IRR team, Brian I'm available and really appreciate your interest and investment in Duke Thanks, So much.
Speaker Change: This concludes today's call. Thank you for joining you may now disconnect your lines.
Lynn: Yeah.
Lynn: Sure.
Lynn: Yes.