Duke Energy Q1 2024 Earnings Call Transcript

Good Morning, Shar.

Hi, Shar.

Good morning.

Shar, I'll take that. We continue to be encouraged by the pace of economic development opportunities. I mean, every time we do a new load forecast, we see more opportunities and that's demonstrated by what we showed this morning. We typically update our full financial plan in February. And we feel like updating load without updating the capex to support the load might be a bit disconnected and not so the full picture. But we do see clearly more tailwinds than headwinds as we look at growth over time. All of this sign is good -- all of this points to a good sign of long-term EPS growth.

I would point to on the EPS side of things, load growth. The capital opportunities for the energy transition, all this gives us a high degree of confidence in our 5% to 7%. And as we look throughout the plan, probably later in the plan, pushes us in the higher end of the range, but it gives us the opportunity if all this transpires. We are taking a very calculated position on our load growth and we want to be smart about updating the plan prematurely before we put the capital to support the new load.

Shar, one thing I might add is just to give you a metric on this, 1,000 gigawatt-hours represents 0.1% increase in our load growth. So we are trending to the higher end of that 1.5% to 2%. And we'll continue to update you during '24 if we see more opportunities materialize. And as Brian said, we'll do a comprehensive update in February. I think the other thing I would note, given the size of our Company, I believe the move from about 0.5% load growth to 1.5% to 2% is quite strong and we're proud of that and we'll keep going. But I think that metric of 1,000 gigawatt-hours being about 0.1% should help you get a sense of how we're moving.

No, it's a good question, Shar. It's clearly in our financing plan to address that perpetual preferred. And we're going to look at all the options available in preserving the balance sheet support that, that product presents as well as what the market is paying for. We saw some deals yesterday that are encouraging. We'll look at those and other tools as we move towards September, but repricing the preferred at the current rates doesn't make a whole lot of sense. So we're looking at ways to take that out and use other tools.

Thanks, Shar.

Thanks, Shar.

Good morning, David.

Good morning, David.

David, thanks. I'll take that. To your point, we're looking very carefully at the rule, but also looking very carefully at how we meet the growth in our service territory continue to decarbonize, and maintain an eye on affordability and reliability. We have CPCNs in front of North Carolina right now. And those processes will continue over the course of 2024. They're very public, we think that will be a great opportunity to really present the case for how we can meet this wood with an all of the above strategies. We are also in the process of doing an IRP in Indiana and will reflect the implications of the new rule in that IRP. So I would I would indicate that we're continuing to study what this might mean. We're a week into it, looking at everything from gas to co-firing to conversions, all with an eye on reliability and affordability, and recognizing the meetingless load addressing an aging coal fleet is a part of the formula that we'll consider.

I think litigation is something that's also being looked at across the industry because there are a number of questions within the rule and we're evaluating that as well.

David, this is Brian. I'll take that. It's a really good question and one we evaluate every single day here in Duke Energy. As we find a way to serve our customers in a reliable and affordable way, we know we're going to need more resources, because we're seeing more demand on the system. And it's -- like -- to your point, it's not just generation, it's T&D investments too. And the teams across the -- Duke Energy evaluate how we're going to put the loads in the best places, as well as when we talk about economic development opportunities, we present customers with the places that have generation capacity and T&D capacity to support them or the modest upgrades that we need. As we look out in time, we see an expanding capex profile. We've guided $73 billion for five years, but over the 10-year plan, $170 billion to $180 billion.

And that contemplates higher resource needs to serve this increasing loan. And we're going to do so that drives growth for our investors as well as preserves a strong balance sheet. And I think it's -- like I said to Shar's question, we want to bring all this together in our next financial update as we roll the plan to 2029, that we'll have a fulsome view of both capital, load demand, as well as how we're going to finance all that.

David, the one thing I would add, we have been really successful over the last many years in developing modern regulatory mechanisms for grid investment. And those grid investments are running in every jurisdiction to really prepare for this generation transition and that will continue. So you look at our next five years, largely grid investments. And so we'll keep that going at a pace that makes sense. And to just emphasize Brian's point, we have such a wealth of opportunity here in both generation and grid investments, that we see sustained growth out of our jurisdictions in a very constructive way, delivering returns to shareholders over a long period of time. So we're excited about what this growth potential represents.

So, Harry, you want to talk about the CPCN and IRP process in the Carolinas? And Durgesh, I'll take the second question. Those CPCN investments are in the capital plan.

Yeah, so Durgesh, good morning. We're in the process of our IRP proceedings. We expect a hearing in July in North Carolina and in South Carolina in September. We expect an order later this year in December and November for each of those states. And we proposed three different pathways, path one, path two, and path three with the preferred path being path three. This is showing a 2-gigawatt increase from our supplemental filing in January from our previous filing.

We're still focused on making sure that we have an affordable and reliable plan for the customers in North Carolina while meeting our needs for our carbon reductions. The plans still show that we're going to be out of coal by 2035, and it's adding additional resources, particularly solar and batteries and new gas as well. We've been through some of the hearings and the proceedings will continue this summer, but we feel very comfortable in what we're putting forth to the commissions and look forward to defending our case and talking through it with stakeholders.

And Durgesh, on the CPCN, we would expect the IRP hearings to occur and the CPCN hearings to follow. So the timeline that Harry just outlined, would have all of this in front of the commission in the second half of this year. And so we'll keep you informed every step of the way.

Yeah, Durgesh. Well, the way this works is the IRP is a multiyear view of generation. And it includes renewables and batteries, energy efficiency, demand response of all -- the entire collection of resources necessary to meet load. The CPCN is a process to achieve approval of unique and discrete assets. So these gas plants that are included in the IRP go through a separate proceeding so that we can share cost estimates and the timeline for when we would build those assets. So you should think about the filings as complementary.

Thank you.

Not fair, Anthony.

I guess you just take through some for the rest of the series.

It's a good question, Anthony. And as we've mentioned in the Q4 call, 14% FFO for 2024, 14% plus as we look out in time. So we're not going to stay put at 14%. We're going to continue to improve it over time. And, guiding through that, we've got the benefit of the North Carolina rate cases this year. Next year, we'll have the benefit of all the other jurisdictions, Florida, Indiana, Piedmont, South Carolina, all these rate actions are underway that will continue to support top-line growth, which also then supports the credit. As we look out in the plan, I think the potential to earn at the higher end of the range also gives us opportunity to continue to strengthen the balance sheet. So I think we're going to take a balanced approach that provides growth for investors, as well as protects a strong balance sheet over time.

Thank you.

Thank you.

Carly, thanks for that question. As we've worked the capital plan and all the supply chain challenges since COVID, it's kind of been issue by issue. I would say a couple of years ago, solar panels was a hot area and we entered into framework agreements over a long period of time to secure our solar panel needs. We also had transformers last year that was a really hot spot. It's still a tight market, but we've been able to work through these with the size and scale of Duke Energy and really partnering with OEMs on how we're going to work with them multiple years in a row. And as we look to build generation at scale, we're looking at areas like EPC contractors, turbine manufacturers, and other components to support the generation build.

And we're going to take a similar approach. But I think what we've learned is that we must partner with one or two suppliers over multiple years to give them certainty on the revenue side, give us certainty on the components and labor on our side. So it's been a successful model and it's one we want to replicate as we advance the transition.

And I would add, Carly, it is getting better, but we've been able to put some processes in place using our scale and to be able to pre-plan and pre-order to really make sure that we have what we need when we need it to keep our investment plans going. And as we look forward, we're going to continue to do that and partner like, Brian mentioned with our vendors to be able to stay ahead of the curve. But things are getting better and we're staying ahead of the curve there.

Carly, we've really update the FFO once a year, but we are making progress with the rate cases from North Carolina being the largest single driver of improving FFO year-over-year. Deferred fuel recovery is also on track. Those rates were updated. The last one happened in December for DEP North Carolina. So all the deferred fuel is on track to be fully recovered by the end of this year. We were issuing the equity, the ATM, and DRIP. We did $100 million in Q1 and we'll continue that throughout the year to get to $500 million by the end-of-the-year. And lastly, in the second half of the year, we expect to monetize tax credits from the IRA, and that's the last component. So we are tracking exactly where we want it to be at the end of first quarter and is looking clear in sight.

Thank you.

Thank you.

Hi, Jeremy.

Good morning.

Jeremy, thank you. Making sure that we have adequate supply for any new source of generation is a part of the assignment. And so we have been at work over the course of 2023 and putting in place agreements that we believe will not only continue to strongly support the existing gas in our area, but also allow us to expand. And this is something that is closely monitored by the North Carolina Commission and will be by Indiana, as well as we continue diversification there. But we feel like we've got a credible plan in place and it will be executed over the number of years, fully recognizing, that it takes a lot of work with stakeholders to not only build the generation but working with our partners who are putting pipeline infrastructure in place to make sure that those stakeholder concerns and needs are being met. And so we're confident we've got a plan in place we can execute.

Jeremy, it's a good-- good item to talk through. And on the -- on the commercial growth, we saw strength across our regions in the commercial sector. Datacenter growth was a key driver in that in the quarter, and we expect that to continue throughout the year. On the industrial side of things, we have some plants that are retooling for new products. So they're offline in the first quarter and they signaled to us that, look, this is a temporary thing and we're going to be changing our lines. And by Q2, mid-Q2, late-Q2, we're coming back on in full. And we're talking to these customers on a frequent basis to ensure we're there to meet their needs when they needed and they're tracking on our plan. We kind of expected this trend to continue, because we saw this lag in industrial last year. And we thought by mid-2024, we'd see the tight turn.

And then lastly, the economic development projects that are coming online in 2024, those were slated for the second half as well and those are tracking as planned. So we are on track for our 2% growth in 2024, and we'll keep you prized as we learn more.

Lydia, thank you and thanks to all of you. Thanks for your interest in Duke Energy. As always, we're available for follow-on questions and appreciate your investment. Thanks for joining today.