Duke Energy Q2 2024 Earnings Call Transcript

Good morning.

Good morning, Constantine.

Thanks, Constantine. It's a great question and one that we continue to be encouraged about. So if we dial the clock back, we were -- a year ago, we were projecting 0.5% load growth CAGR over our planning horizon. And then economic development opportunities began to surface and continue to show-up. And we moved to 1.5% to 2%. And on a base of sales of over 200,000 gigawatt hours a year at Duke Energy, that 1.5% to 2% CAGR was -- it's quite impressive and we're very pleased to see that kind of growth. And I would say that with the economic development pipeline we're looking at today, we're trending to the high-end of that 1.5% to 2%. And as we look at our plans, we're forecasting to update the full financial plan with the load growth and the capital supported along with the earnings per share outcome from those elements in February, which is our normal cadence. We will definitely keep you updated along the way as the economic development pipeline progresses. But I will say that we continue to be encouraged and every time we look at our load update, it deepens as far as the load growth outlook. And most of that growth is later in the decade. So it kind of coincides with as we roll the plan to 2029, and it will make more sense to show that load growth over time.

Constantine, this is Lynn. The only thing I would just emphasize that Brian touched upon is we have continued to see economic development growth. I know the chart that we've shared with you is consistent with first quarter, but we are continuing to see growth in that economic development pipeline. And so our thought is that we will provide a comprehensive update, both on load and capital in February that continue to give you a sense of economic development progress over the balance of the year. So the bottom line is we have a wealth of growth opportunities and feel like we're really well-positioned to take advantage of them.

No, thanks Constantine, I'll take that as well. This is Brian. On the nuclear PTCs, we were hoping to see guidance by mid-year and that obviously has not transpired. The Treasury continues to actively issue guidance on elements of the IRA. We see that week in and week out and we still expect the formal guidance for the nuclear PTCs by the end of this year. But I will say that we operate 11 very low cost remarkable -- new nuclear plants that have delivered extremely well over the first half of the year. And these plants have earned about $250 million of nuclear PTCs through June. That's recorded in our financial statements. And our plans are to test the market on monetizing these PTCs in the third quarter. So you can expect us to report on that later in the year, but we don't feel like the delay in the guidance from our early expectations will have any impact on our credit in 2024.

Thank you.

Good morning Nick.

Thanks for that question, Nick. This is Harry. We're always open to settlement discussions. That hearing is later this month as we get closer to that hearing, we'll continue to look for opportunities to have those discussions. But we also feel very strong about the case that we've put together, strong customer benefits, the investments for the growth in Indiana, and the economic development in Indiana. So we feel comfortable either path on a constructive outcome.

We'll keep you informed Nick, as we get closer to the hearing, but as Harry indicated, a strong case and anxious to move through this process in Indiana.

Thanks Nick. This is Brian again. So as we look through our five-year plan, we definitely see more tailwinds and headwinds, right? This accelerating load growth that's pointed more towards the back-end of the plan clearly provides a tailwind. The consistent investment in critical infrastructure across our jurisdictions that are supported and improved by multiyear rate plans or grid riders for multiple years to come, provide that transparent growth and a stabilizing interest rate environment. Frankly, those three things give us a high degree of confidence in the 5% to 7% at a minimum extending that, but also presents the opportunity to earn at the top-end of that range later in the period.

I will say that the things to watch would be an economic downturn, right? That affects any utility, it would affect our communities that we serve and it would affect our customer demand. So that's something that we've definitely continue -- keep our finger on the pulse with our customers, understanding where they are and what pressures they're seeing. But that probably would -- Lynn, I don't know if you would add anything to that.

You know Nick, I would say we are comfortably positioned within the 5% to 7% and feel like it's strongly positioned when you look at this economic development for a sustained period. We've given you 5% to 7% through '28. As Brian indicated, we see a lot of growth in that '27, '28 period with the economic development pipeline. So that gives us the opportunity to earn at the higher end of the range, if those projects mature at the pace we expect and if we continue to add them, which you know has certainly been our experience here in 2024. So we'll continue to update you every step of the way and are anxious to provide an update in February that will not only capture this economic development we've seen in '24, but also give us a chance to update capital. We've produced a lot of cash flow, the balance sheet is strengthening in 2024 as well. So we're very optimistic about the future.

Thank you, Nick.

Good morning, welcome back.

Julien, thanks. Let me take a shot. I'm sure Harry and Brian will have something to add to it. So as we think about this economic development pipeline over the period that we've shared with you through '28, data centers represent about 25% of that pipeline. But as we get out to 2030 and beyond, that 25% grows. And so we already see a lot of growth in the economic development pipeline for data centers moving into 2030 and beyond. So I would think about this MOU as not only further catalyzing how we might serve customers that are in the pipeline, but our hope also is that those customers will have an interest in expanding in our service territories as we find a way to continue to meet their needs on sustainability, but also bringing resources on. So the discussions are early. I think there's a clear understanding that we are trying to do a couple of things here. We're trying to meet the load. We're trying to meet their sustainability goals, we're trying to do so in a way that protects retail customers, we're trying to meet their time lines. And I would say the discussion is very constructive. And the notion of risk sharing is something that we're very clear on and have lots of experience in talking with customers about. And so I think those -- that element of the discussion is going well as well. So we'll keep you informed as we start to mature some of these agreements into something that's more definitive, there will be disclosure and we'll continue to update you on the economic development pipeline as we go. So I'll pause there and see if Harry or Brian has anything they'd like to add.

I would just add Julien, the MOU as really amped up the constructiveness of our discussions with these customers and real -- a lot of excitement on their end for these ace tariffs, the clean energy piece of it. So I think this is going to pay dividends as we work with them closer into the future.

Yeah, so Julien, when you talk about nuclear, there are a number of structures that we're talking about. They have an interest, obviously, in carbon free generation and nuclear represents an around the clock option. But we all recognize we're in the early stages of development. So is there a structure? Is there a premium pricing? Is there some method of equity investment? Is there some structure that would encourage the development at a perhaps a more rapid pace or sooner because of the partnership? So all of that is being explored as we talk with them and we're anxious to continue to develop it.

I think the other thing I would note, which Julien, of course, you're aware of, this generation plan is moving through the Carolinas. A lot of discussion already on carbon free generation like the SMRs. We would also expect that every element of the agreements that we would reach with the tech companies or Nucor would also go through a commission process to make sure that they're comfortable with the structure. But they have been very positive on the fact that we're exploring these discussions because it's a win-win for economic development for bringing clean energy to the states and also for doing so in a way that reflects protection of retail customers.

Thank you Julien.

Yeah Jeremy. So we guided to 2% load growth in 2024, and we're tracking on top of that. The residential growth has been robust. We've added more customers in the first half than in any first half we've looked at in any kind of recent years, about 80,000 retail customers added to our system in the first half of the year, which is putting residential kind of right in line with our 1.5% to 2% growth for 2024. Commercial has been higher than our expectations. And we came into the year thinking a modest growth in commercial, but we've seen much more in the commercial sector. And this is a combination of data center usage, healthcare, universities, just a broad mix of commercial companies that are -- have higher demands and largely supporting this higher population that are in our regions.

Industrial sector has not rebounded as fast as we anticipated. We continue to be in dialogue with our industrial customers and they're just taking a cautionary stance. And the fear of recession is out there, you don't want to get overextended. The labor market has been tight. So there's been a challenge to get all the shifts staffed appropriately. So some of our customers have taken the opportunity just to pull back a little bit. They're still signaling a rebound later in '24 or maybe early '25, but we feel like the mix might be a little different, but the growth in '24 is on top or better than our expectations.

Jeremy, the only thing I would add to that is this industrial rebound kind of pushing into later '24, '25 has also been influenced by interest rates, it's what we're hearing from customers. And it's primarily, what I would call, our legacy industries of textile and paper that are feeling the pressure and we continue to track with all of that industrial volume we're expecting from economic development that is exactly on track. So it's a little bit of an old industry, new industry story that we're seeing in the Carolinas, in particular, and a little bit in Indiana. But overall, we're tracking to the growth for the year. And as we've said many times, feel bullish on the economic development pipeline.

You know Jeremy, no matter what happens in November, our objective is the same, which is to keep serving our customers well with reliable, affordable and increasingly clean energy. We don't expect that election to have an impact on the rulings we would receive in the Carolinas or in Indiana or Piedmont case. And you should know and just reaffirming that we believe a bipartisan approach working on both sides of the aisle for energy policy has served our companies well -- every utility well over time, and that will continue to be our posture as we move into this election. So Harry, would you add anything on IRP progress?

Yeah, you know we wrapped up the Carolinas IRP yesterday. In July, we entered into a very constructive settlement with public staff and some other intervening parties. And I think that helped speed the process up. It was very efficient. I got to spend some time there last week and the commission was very engaged in providing this energy transition affordably and reliably to our customers, which aligns to what we're doing. So we feel like our plan that we set forth meets the needs of our customers in North Carolina, and we'll work to see an order later this year on that.

Thank you.

Good morning Anthony.

Anthony, thank you for appreciating that. When I think about regulatory outcomes, it is an absolutely every day assignment of Duke Energy because it includes operational excellence that we serve our customers well reliably and affordably. It also includes work in the legislature to make sure that energy policy is clear and that we have an expectation of how to go in the future. It's stakeholder engagement that includes customers, that includes policymakers, that includes community leaders, etc. So I think you saw us undergo a bit of an organizational change a few years ago where we put CEOs of the Carolinas and CEOs of Midwest and Florida, Alex and Julie in place to really continue to fine tune our approach around stakeholder engagement and clarity around roles and responsibilities in the regulatory area. And it's been a long standing history at Duke Energy, but appreciating this complex and often polarized environment, we think that additional focus has been helpful to us. And we take the responsibility of serving customers well every day very seriously and that's the first job at Duke Energy. And if we do that well, we believe the company will be treated fairly and constructively in the regulatory environment. And we have the deepest respect for those for the oversight of our commissions and policymakers and work hard every day to serve our customers well and to please those that have that awesome responsibility to keep energy policy moving in our states.

It's a good question, Anthony. We have a pretty frequent cadence already on IRPs, which in the Carolinas, it's every other year; Florida, every year and a 10-year site plan and then in the Midwest, there's various time horizons that are pretty frequent as well. But I think that what we did like in Carolinas this year, we had an August filing. We updated it in January because we saw increasing load growth and we felt the commissions need to see this in real time. So maybe not a full IRP filing each and every year, but we could see more frequent updates as we learn more about load growth over time to plan the appropriate resources because you do need plenty of lead time to gear up these generation plans and execute them.

The only other thing I would add [Speech Overlap] okay.

Thank you Anthony.

The only other thing I would add on that notion of updating the IRP is we work very closely with the states on economic development, so it's a partnership between Duke Energy and the economic development engines of each state and so there's a lot of understanding on a part of the state of what's coming and that gives us an opportunity to have on the ground discussions about what's needed with transmission and generation and then the IRP, so like the regulatory filings that follow that. So we intend to continue to stay really closely linked with our states as we go forward.

You know Carly, I appreciate that question. I think it's a little early to tell. We're still in the middle of a procedural schedule in South Carolina, where rebuttal testimony is due in a week or so, there's a server rebuttal process that goes on in South Carolina and then hearings occur in mid-September. And as Harry indicated, we believe the plan that we've put forward in both states meet the requirements of the objectives that both states have set out and as we've said many times, our objective is to give both states the opportunity to put their fingerprints on this plan in a way that serves their needs and continues to deliver the benefits of scale that Duke Energy has offered to customers over a long period of time. So we'll keep you informed as we get deeper into the procedural process, but South Carolina is lagging a bit.

Carly, the SMR is included. Harry, do you want to talk a little bit about how we approached it with the IRP?

Yeah, absolutely. In North Carolina, we have included that in our near-term action plans for these long lead item projects like SMRs. We have it slated in our IRP to come online 600 megawatts in 2035 at our Blue Creek station. So we're waiting for approval from the commission to move forward with those actions, to continue the development as we work through technology selection as well as other construction needs, but we have a site selected, and we're working through that process. And this IRP filing has all that in there, and the public staff and the settlement has agreed to those items.

And Carly, I would just add, I think you appreciate that Duke has a long-standing nuclear history here in the Carolinas, 11 units. We also have customers in both states that are interested in a sustainable future. We have states who appreciate the economic development that nuclear investment has represented for the communities. So we will work through this in a thoughtful way, but do believe that continued expansion of nuclear here in the Carolinas could make sense as we get into the 2030s and beyond. And frankly, we're hearing some conversation in Indiana as well on whether nuclear at some point could fit into that program. That, I would say, is probably lagging a little bit on timing, but I think there's a recognition that nuclear could be a part of the future, and we'll manage it in a very disciplined way.

Thank you.

Well, thank you, and thanks, everyone, for your questions today and for your investment in Duke Energy. We're available, Investor Relations and members of the team for questions, if there's any follow-up that we can provide and really appreciate the engagement today and appreciate, as I said, your investment in Duke Energy. Thanks so much.