Duke Energy : EDITED TRANSCRIPT Q4 2018 Duke Energy Corporation Earnings Call

THIS TRANSCRIPT HAS BEEN EDITED FOR BREVITY AND CLARITY.

dfdf

CORPORATE PARTICIPANTS

Michael Callahan-Duke Energy Corporation, Vice President Investor RelationsLynn Good-Duke Energy Corporation, Chairman, President & CEO

Steve Young-Duke Energy Corporation, Executive Vice President & CFO

CONFERENCE CALL PARTICIPANTS

Greg Gordon-Evercore ISI, AnalystMichael Weinstein-Credit Suisse, AnalystJonathan Arnold-Deutsche Bank, AnalystShar Pourreza-Guggenheim, AnalystJulien Dumoulin-Smith-BAML, AnalystPraful Mehta-Citigroup, Analyst

Michael Lapides-Goldman Sachs, AnalystAndrew Weisel-Scotia Howard Weil, Analyst

PRESENTATION

Operator-Good day and welcome to the Duke Energy fourth quarter earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Mike Callahan, Vice President of Investor Relations. Please go ahead, sir.

Michael Callahan-Duke Energy Corporation, Vice President Investor Relations

Thank you, Kevin. Good morning, everyone. And thank you for joining Duke Energy's fourth quarter 2018 earnings review and business update. Leading our call today is Lynn Good, Chairman, President and CEO; along with Steve Young, Executive Vice President and CFO. Today's discussion will include forward-looking information and the use of non-GAAP financial measures. Slide 2 presents a Safe Harbor statement which accompanies our presentation materials. A reconciliation of non-GAAP financial measures can be found on duke-energy.com and in today's materials. Please note the appendix for today's presentation includes supplemental information and additional disclosures.

With that, I'll turn the call over to Lynn.

Lynn Good-Duke Energy Corporation, Chairman, President & CEO

Mike, thank you and good morning, everyone. Before we share detail on our results, I wanted to take a moment to acknowledge that this is our first earnings call since the passing of Jim Rogers. Jim was a transformational leader who served with a boundless passion and helped shape the future of our company and the energy industry. He will be deeply missed.

Now as Jim would've wanted, let's move on to our business agenda. Today we announced adjusted earnings per share of $4.72, closing out a successful 2018. We achieved results in the top half of our original 2018 guidance range while also delivering constructive regulatory outcomes and outstanding operational performance through Hurricanes Florence and Michael. We also announced our 2019 adjusted EPS guidance range of $4.80 to $5.20. The $5.00

midpoint of this range is consistent with our previous guidance for this upcoming year. This growth reflects the strength of our regulated utility franchises, a robust capital plan, and recovery mechanisms that will deliver reliable and affordable energy to our customers and returns to our shareholders.

We are extending our 4% to 6% growth rate through 2023 off the midpoint of our 2019 guidance range. This update in our base year reflects the near-term impact of delays in Atlantic Coast Pipeline which I will discuss further in a moment. We remain confident in the strength of our core businesses and the ability to grow with investments that deliver value to our customers and our shareholders. Our focus remains on execution. AndI'd liketo begin by highlighting our success in 2018.

Slide 4 reinforces our ability to deliver. 2018 marked another year of outstanding performance across the company with strong financial results, constructive regulatory outcomes, and operational excellence. In addition to meeting our earnings commitments, we continued to grow the dividend in 2018, increasing it more than 4%. We also addressed the impact of tax reform. We achieved fair regulatory treatment across our jurisdictions, providing benefits for customers while maintaining the utilities' credit quality. We also issued $2 billion in common equity to further support our balance sheet. We were very active in the regulatory space during 2018. We received constructive orders in our North Carolina rate cases including coal ash cost recovery, and completed rate cases for our electric utilities in Ohio and Kentucky. We also filed base rate cases in South Carolina.

And as always, we remained focused on safety. We maintained our industry-leading safety performance for yet another year as well as operational excellence in the face of significant damage from Hurricanes Florence and Michael. Between the two storms, we restored 3 million outages and responded to flooding at many of our facilities due to historic rainfall. With our extensive preparation work and quick response efforts, we kept our infrastructure well protected. And despite the safe shutdown of the Brunswick Power Station during Hurricane Florence, our nuclear team achieved a capacity factor above 90% for the 20th consecutive year. This exceptional response was recognized by our industry as we were awarded EEI's Emergency Recovery Award, and I'm very proud of our employees' resolve and tireless effort to restore power to the most devastated areas across the Carolinas and Florida.

Finally, last month, we were named to Fortune Magazine's 2019 list of the World's Most Admired Companies for the second consecutive year, underscoring that we're on the right path as we deliver value to customers and shareholders.

As we look ahead to 2019 and beyond, slide 5 emphasizes the strength of the Duke Energy portfolio and the growth profile we have ahead of us. Our diverse, highly-regulated infrastructure investments are at the core of our robust capital plan. Over 90% of our growth capital will be spent over the next five years across our regulated electric and gas businesses, driving strong earnings base growth. These investments are consistent with our strategic vision for our company in this period of transformation.

Slide 6 depicts the strategic framework that we began sharing with you two years ago, and since then, we've made meaningful strides to modernize the grid, generate cleaner energy and expand natural gas infrastructure. We've engaged stakeholders to find solutions as the pace of change in our industry accelerates. And we continue our work to modernize cost recovery mechanisms to better align with our investments. Our focus in these areas, as well as maintaining our history of strong safety and operational performance, enables us to transform the customer experience and deliver value to shareholders.

Let me share an update on the progress we've made executing our strategy. Moving to slide 7, we continue to modernize our grid, which is the largest T&D system in the U.S. with over 300,000-line miles across our service areas. We have outlined grid improvement plans in each of our jurisdictions to increase reliability, improve security, offer moreoptions to customers and enable distributed generation.

From smart meters to self-healing grid technologies, we are establishing the foundation for a more intelligent delivery system that provides more information-such as usage and outage alerts-and minimizes power interruptions. More than 62% of our customers across all six states now have smart meters, keeping us on track to meet our goal of 100% installation by 2021.

We're also making greater use of battery storage. We announced plans to invest $500 million in storage in the Carolinas over the next 15 years and will maximize the versatility of this technology. Beyond storing and dispatching energy, we will include other system advantages such as supporting electric vehicles. We have an EV pilot program in Florida and are advancing programs in other jurisdictions.

For regulatory treatment of our grid costs, we have rider mechanisms in the Midwest and a multi-year rate plan in Florida, both efficient methods for recovering our investments. We are also making progress to modernize how we recover costs associated with these investments in the Carolinas.

In South Carolina, the commission approved our deferral request for certain grid investments. We have since filed rate cases for our DEC and DEP utilities. Our request includes multi-year rate plans to efficiently recover our grid improvement investments while providing rate certainty for customers.

In North Carolina, the DEC rate case order provided additional guidance. It stated the commission encourages ongoing grid investments and staying up to date on the latest technology, but they lack statutory authority to approve our requested grid rider. This feedback is useful as we continue our stakeholder engagement during the legislative session of the General Assembly currently underway. We are committed to advocating for reasonable solutions. And we look forward to working collaboratively with stakeholders over the coming months. Our customers want a smarter energy future and our grid improvements will deliver just that.

Moving to slide 8, let me share an update on how we're reducing our environmental footprint. We have outlined plans to reduce our carbon emissions by 40% by 2030. This target is consistent with a pathway to achieving a 2-degree scenario, and we are well on our way to meeting our goal. We've retired more than 6 gigawatts of coal generation since 2011 including two Crystal River units in Florida retired in December.

Over the next six years, we plan to retire another 1,200 megawatts of coal generation and replace it with lower-carbon alternatives such as renewables and natural gas-fired facilities. In 2018, we put both our W.S. Lee and Citrus County combined cycle plants into service. And our Western Carolinas Modernization Project is on track for a late 2019 in-service date. These plants enable us to serve our Carolinas and Florida customers with cleaner, more efficient energy.

In addition, our 11 nuclear units are fundamental to providing carbon-free generation to our Carolinas customers and essential to our long-term carbon reduction goals. As we look forward, we are evaluating subsequent license renewal for these facilities for an additional 20 years to continue serving customers with the reliable service they expect.

And finally, we have a strong commitment to renewables and continue to invest in both our regulated and Commercial Renewables businesses. In Florida, we are building up to 700 megawatts of solar under our existing settlement agreement including our Hamilton plant that came online in late 2018. New rates were effective in January as approved under the Solar Base Rate Adjustment mechanism.

In North Carolina, we are actively participating in the ongoing RFP process for 680 megawatts of solar energy underHouse Bill 589. Our regulated and Commercial Renewables businesses submitted competitive bids, and we expect to be notified of the results in March. Projects will be placed in service by January 2021.

Beyond the opportunity in North Carolina, our Commercial Renewables business is seeing strong demand for utility-scale wind and solar projects across the U.S. and is well-positioned to capture a meaningful share. We have visibility to a strong pipeline of future projects, including over 1,000 megawatts in late stages of development. This includes the recently announced 100-megawatt Lapetus solar project due to come online in the fourth quarter. The business successfully began using tax equity financing for new projects, including our Shoreham Solar facility in New York that went into service last July. We will continue using tax equity to finance future projects.

We also continue to seek a minority partner for our existing wind and solar portfolio as we look to recycle and reinvest capital from our assets. We have received interest from many bidders, and if we are able to reach an agreement, expect to announce the transaction this spring and close this summer. We expect to use proceeds to displace future debt issuance needs.

Moving to slide 9, natural gas will play a major role in a cleaner energy future, and we are leveraging the overlap between our electric and gas businesses to provide better service to our customers. Our LDCs have strong customer growth, and with decoupling and other non-volumetric mechanisms in place, this growth translates into higher margins. The gas utilities also have solid capital investment opportunities. Consistent with our priority to deliver safe, reliable service, we continue to invest in integrity management. Piedmont is also providing the infrastructure to deliver gas for our dual-fuel projects at the Belew'sCreek and Marshall coal-fired facilities, which are expected to be completed over the next three years. We will use co-firing of natural gas at these plants, as in a similar project recently completed at the Rogers facility, to reduce our carbon emissions and increase our flexibility to manage costs.

Finally, we begin construction this year on our $250 million Robeson LNG facility which we expect to begin serving customers in 2021. These projects demonstrate the complementary nature of our franchises and advantages of joint planning to provide savings to customers.

Moving to slide 10, let me update you on the status of the Atlantic Coast Pipeline. We remain committed to this project and the critically important benefits the pipeline brings to our region. Our Carolinas service territories are currently served by only one major interstate pipeline. ACP will bring needed diversity of supply by adding a second interstate pipeline with access to lower cost Marcellus and Utica gas. It will provide system pressure to Piedmont's distribution network in the eastern part of North Carolina, allowing for cost-effective service to new customers. And ACP will provide important infrastructure in an underserved area, increasing economic development in this part of the state.

Over the last year, we have made significant progress working with state and federal agencies to complete permitting for the project. In 2018, we received major permits from the North Carolina and Virginia Departments of Environmental Quality. We also recently received the air permit for the Buckingham compressor station in Central Virginia.

In the fourth quarter of 2018, there were many developments that impacted the project's schedule and cost. These developments include rulings from the Fourth Circuit Court of Appeals on the biological opinion and the permit to cross under the Appalachian Trail. We are working diligently with our project partners to resolve these specific issues in the federal courts to resume construction as soon as possible.

We expect the hearing at the Fourth Circuit related to the biological opinion to take place in May. It is possible this issue could be resolved by the third quarter, allowing construction to resume on phase 1 of the pipeline route.