Duke Energy Corporation (DUK) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to the 2023 Annual Meeting of Shareholders. I'm Abby Motsinger, vice President of Investor Relations for Duke Energy. I'm pleased to welcome our shareholders and others who are joining us from around the world by webcast or via our toll-free number. Today's meeting is being recorded and will be available through our website shortly after the meeting. On today's agenda will be Lynn Good, our Chair, President and Chief Executive Officer, who will call the meeting to order. Lynn will then provide an update on the company, followed by a question-and-answer session. [Operator Instructions] Please be advised that today's discussion may include forward-looking information and the use of non-GAAP financial measures. You should refer to information contained in our 2022 Form 10-K and subsequent filings concerning factors that could cause future results to be different from this forward-looking information. A reconciliation of any non-GAAP financial measures can be found on our website. Now it is my pleasure to introduce Lynn Good.

Abby, thank you, and good afternoon, everyone. Welcome to the 2023 Annual Meeting of Shareholders. We're hosting this meeting online, giving shareholders around the world the same opportunity to actively participate in the governance of Duke Energy. Legal notice of this meeting has been duly given, a quorum is present, and the meeting is now lawfully convened for the transaction of business. You should see a vote button on your computer screen. The polls are now open, and you can cast your ballot at any time. With that, the meeting will please come to order. Like all of you, our directors are participating online, along with our independent auditors, Deloitte & Touche. In addition, Broadridge Financial Solutions has been appointed to act as Inspector of Elections. [ Jan Castillo from Broadridge is participating and has taken the oath of Inspector of Elections. Kodwo Ghartey-Tagoe is our Executive Vice President, Chief Legal Officer and Corporate Secretary. Today, he also acts as Secretary of this meeting. Kodwo will report the number of shares entitled to vote and the number of shares and votes represented in person or by proxy at this meeting. So Kodwo, let me turn it to you.

Thank you, Lynn. As of the close of business on the record date, March 6, 2023, Duke Energy Corporation had outstanding and entitled to vote 770,648,212 shares of common stock. Each of these shares is entitled to 1 vote. They are here represented by proxy 652,124,346 shares of the corporation's common stock, which constitute 85% of the total shares entitled to vote at this meeting. The final report from the Inspector of Elections will include the votes of shareholders voting through the web portal.

Kodwo, thank you. Let's proceed with the matters to be voted on. The first management proposal is the election of the Board of Directors. We have a declassified Board, which means that all of the directors stand for election every year at the annual meeting. Our elections also require nominees to receive a majority vote rather than a plurality to be elected. In addition to myself, these nominees, whose bios begin on Page 13 of the proxy statement, are presented for the purpose of voting for their election as directors: Derrick Burks, retired Managing Partner of Ernst & Young, Indianapolis; Annette Clayton, President and Chief Executive Officer, North America operations of Schneider Electric; Ted Craver, retired Chairman, President and Chief Executive Officer of Edison International; Rob Davis, Chairman and Chief Executive Officer of Merck; Caroline Dorsa, retired Executive Vice President and Chief Financial Officer of Public Service Enterprise Group; Roy Dunbar, retired Chairman and Chief Executive Officer of Network Solutions; Nick Fanandakis, retired Executive Vice President of DuPont; John Herron, retired President, Chief Executive Officer and Chief Nuclear Officer of Entergy Nuclear; Idalene Kesner, Dean Emeritus at Indiana University Kelley School of Business; Marie McKee, retired Senior Vice President of Corning; Mike Pacilio, retired Executive Vice President and Chief Operating Officer of Exelon Generation, Exelon; Tom Skains, retired Chairman, President and Chief Executive Officer of Piedmont Natural Gas Company; and Bill Webster, retired Executive Vice President of the Institute of Nuclear Power Operations. They have been nominated for election as directors for 1-year terms expiring in 2024. There are 4 additional management proposals being presented for approval. Proposal 2 is the ratification of Deloitte & Touche as Duke Energy's independent registered public accounting firm for 2023 as stated on Page 39 of the proxy statement. Proposal 3 is a vote on an advisory basis on our named executive officer compensation as disclosed on Page 41 of the proxy statement. Proposal 4 is a vote on an advisory basis on the frequency of an advisory vote on the compensation of our named executive officers as disclosed on Page 78 of the proxy statement. Proposal 5 is the approval of the Duke Energy Corporation 2023 long-term incentive plan, which is outlined starting on Page 79 of the proxy statement. Also to be presented are 2 proposals we received from shareholders, which Kodwo will now introduce.

I would like to remind shareholders that the statements of the proponents are their own. They do not represent the views of Duke Energy. The first shareholder proposal identified as Proposal 6 in the proxy statement, beginning on Page 88, relates to a request that each voting requirement in our charter and bylaws that calls for a greater than simple majority vote be replaced by a requirement for a majority of the votes cast for and against such proposals or a simple majority in compliance with applicable laws. John Chevedden is the proponent. Operator, please open Mr. Chevedden's line so we can hear from him.

Hello. This is John Chevedden. Proposal 6, simple majority vote. Shareholders request that our Board take the steps necessary so that each voting requirement in our charter and bylaws that calls for a greater than simple majority vote be replaced by a requirement for a majority of votes cast for and against such proposals or a simple majority. This means the closest standard to a majority of the votes cast for and against such proposals. This proposal is important because it was approved by 98% of Duke Energy shares that voted in 2021. Shareholders are willing to pay a premium for shares of companies that have excellent corporate governance. Supermajority voting requirements that will be replaced by this proposal have been found to be 1 of 6 influencing mechanisms that are negatively related to company performance, according to "What Matters in Corporate Governance" by Lucian Bebchuk of the Harvard Law School. Just a fraction of 1% increase in the value of Duke Energy's stock price would be a $250 million increase in the Duke Energy stock price. There is nothing to lose with this proposal compared to a potential $250 million increase in the Duke Energy stock price. Adoption of this proposal will make Duke Energy more competitive in its corporate governance. Currently, a 1% minority can frustrate the will of our 79% majority in an election with 80% of shares casting ballots. In other words, a 1% minority could have the power to prevent shareholders from improving the governance of Duke Energy and its stock price. Please vote yes. Simple majority vote, Proposal 6.

Thank you. Shareholder Proposal 7 begins on Page 90 of the proxy statement. It requests that the Board of Directors charter a new committee on decarbonization risk to evaluate the risk and drawbacks of attempting to meet demands for company decarbonization. Ethan Peck is acting as a proponent on behalf of the National Center for Public Policy Research. Let's hear from him now.

Considering that Duke Energy is an energy company, which I unfortunately have to reiterate for the Board who seems to have forgotten that, and that the company's primary product is servicing customers with fossil fuel-generated electricity, it's safe to assume that it's in the best interest of the company and its shareholders not to religiously demonize fossil fuels and that the company, again as an energy company, would be less likely to mindlessly adopt the decarbonization agenda. Or at the very least, it would do so in the most judicious way possible by first weighing all of the risks and drawbacks of pursuing an agenda that would completely revamp the company, if not put it out of business completely. But yet, Duke Energy, just like every other publicly traded corporation that has been captured by BlackRock, Vanguard and State Street, has pledged its unwavering allegiance to decarbonization, specifically to achieving net zero carbon emissions by 2050 and net zero methane emissions by 2030. And the company assures us that it is "moving aggressively to make these goals a reality." And the company has adopted these anti-fossil fuel goals that are antithetical to the company's main business without making any effort at all to report to shareholders about the risks of doing so. There are many such risks to consider. First, that there is no scientific evidence that total decarbonization is even possible for a single individual, let alone a large energy company. Second, that participating in climate change hysteria has a negative impact on the affordability and availability of reliable energy, thereby making everything more expensive for everyone. Third, that attempts at decarbonization are meaningless when developing countries don't attempt to as well. Fourth, that there are geopolitical consequences to contributing to the movement that has made the U.S. reliant in other nations for energy. Fifth, that it's not technologically feasible to produce the same amount of energy with alternative energy sources. Those are just some of the many risks to consider, none of which the company has weighed or at least reported to have weighed in its decision to completely shift the company's primary business away from fossil fuels. Since SEC regulations forbid us to request that the company drop its damaging net zero illusions altogether, we are forced to settle for much less. All our proposal requests is the establishment of a committee to evaluate the risks of attempting decarbonization. That's it. If decarbonization is so necessary and so grounded in science, then there should be nothing to lose by weighing the risks compared to the benefits, right? And since the company is so eager to confidently remind us that these goals are central to its operations, then there should be nothing for the company to hide, right? Then why has the Board advice shareholders to vote against our proposal to audit these goals? Fellow shareholders, whether you personally support decarbonization or not, it's nonetheless reasonable that the company weigh the risks involved in pursuing such a company-altering agenda. That is what our proposal seeks to achieve.

That concludes our presentation of the proposals before us at the annual meeting. If you have not already voted your shares or if you'd like to change your vote, you may do so by clicking on the voting button on the web portal and following the instructions there. The polls will remain open for the next several minutes until the Q&A session begins.

Kodwo, thank you. And before taking questions from our shareholders, I wanted to provide a brief business update as 2022 was a remarkable year for our company. During a tumultuous time of supply chain constraints, extreme weather, rising interest rates and increasing fuel costs, our more than 27,000 teammates seized every opportunity to deliver value to our stakeholders and grow our business. For our investors, our customers and communities, we managed through headwinds with great agility. We minimize high fuel costs by hedging [ exposure ] and engage in long-term supply and transportation contracts. We took advantage of fleet diversity to dispatch generation in a way that created cost savings and ensured fuel security. We work with state regulators to mitigate bill impacts and provide customers with resources to help them. This included working with community assistance agencies to connect customers in need with nearly $300 million of financial assistance over the last 2 years. We navigated winter storms and another above-average hurricane season, restoring nearly 2 million outages within 72 hours in Florida and the Carolinas following Hurricane Ian. And we built on our strong track record on cost management, identifying $300 million in savings opportunities for 2023, 75% of which are sustainable. This focus allows us to deliver financial results within our updated guidance range for 2022 and continue paying our dividend, which we have now done for 97 consecutive years. Importantly, our stock outperformed the Philadelphia Utility Index by 1.4% and the S&P 500 by 20%. But we did more than respond to a challenging environment. We made meaningful progress on our clean energy strategy and took decisive action to position our company for the long term. We expanded our net zero goals to include Scope 2 and certain Scope 3 emissions, becoming one of the first in the industry to time more than 95% of emissions to a net zero commitment. We set a target to exit coal by 2035, subject to regulatory approval, and expect coal to represent less than 5% of generation by 2030. We announced plans to add regulated renewables at an ambitious pace. We project we'll have 30,000 megawatts on our system by 2035, which is 5x more than we operate today. We advocated for policies that help us deliver affordable, reliable and increasingly clean energy, including the Inflation Reduction Act, which we estimate will generate billions of dollars in savings for our customers over the next decade. We filed our first proposed carbon plan with the North Carolina Utilities Commission, incorporating input from more than 500 stakeholders and outlining multiple portfolios designed to achieve some of the nation's most ambitious goals while balancing affordability and reliability. In December, we received a constructive order from the NCUC recognizing the value of an all-of-the-above approach. We continue to modernize the grid and increase reliability and resiliency in all of our service territories, including approvals of our $2 billion 6-year grid investment plan in Indiana and a $7 billion 10-year storm protection plan in Florida. We applied our expertise and knowledge to move next-generation technologies forward, serving as a driving force to launch the Southeast Hydrogen Hub coalition and securing an offshore wind lease near Wilmington, North Carolina. And we increased the capital plan for our regulated businesses to more than $145 billion over the next decade. It's one of the largest in the industry, and 85% will fund investments in the grid and our clean energy transition. As we increase our capital plan to fund our clean energy transition, we conducted a strategic review of our Commercial Renewables business and made the decision to sell. This decision will strengthen our balance sheet and allow us to focus on the significant investment opportunities within our regulated operations. Commercial Renewables has served an important role in our company's success over the last 15 years, and I'm proud of what we accomplished. This sale will best position Duke Energy for the long term and position the renewables business for continued growth. Whether it was restoring service after a historic hurricane, leading the way on decarbonization or finding ways to mitigate cost for customers, we rose to the occasion last year. We delivered on our commitment to customers that advanced our strategic priorities. And as we look to the future, our strategy will continue to deliver consistent and lasting benefits to those we serve. Already in 2023, we're achieving constructive regulatory and legislative outcomes, including the approval of fuel and storm cost recovery in Florida, Duke Energy Progress rate case settlement in South Carolina, net metering reform in North Carolina, a new legislation in Indiana that supports modern recovery mechanisms and our generation transition. We're progressing our resource plans across our service territories while managing an active regulatory calendar, and we continue our strong focus on affordability and cost management. These developments give us even more optimism in our ability to earn within the 5% to 7% growth rate through 2027. We are excited for the opportunities that come with leading the nation's largest clean energy transition. And we look forward to building on our success navigating the transition in a responsible way that continues to preserve affordability and reliability while delivering sustainable value for our investors, our customers and our communities. Kodwo, now that the polls are closed, I'd like to ask you to provide the Inspector of Elections report before I answer questions.

Thank you. Based on the proxies received, each nominee for director has been elected by over 92% of the shares voted. The ratification of Deloitte & Touche as Duke Energy's independent registered public accounting firm for 2023 has passed with approximately 96% of the vote. The advisory vote on our named executive officer compensation has passed with approximately 93% of the vote. The advisory vote on the frequency of an advisory vote on the compensation of our named executive officers with the option of every 1 year as the preferred frequency has passed with approximately 97% of the vote. The approval of the Duke Energy Corporation 2023 long-term incentive plans has passed with approximately 92% of the vote. Shareholder Proposal 6 regarding the simple majority vote standard has received approximately 79% of the vote. And finally, Proposal 7, requesting that the Board of Directors charter a new committee on decarbonization risk has failed to receive majority support with approximately only 3% of the vote.

Kodwo, thank you. The final reports of the Inspector of Elections are ordered to be filed with the minutes of this meeting. The meeting is adjourned. And now I'd like to answer some of your questions. So Abby, I'm going to turn it to you.

Thanks, Lynn. For the past several weeks, we've invited our shareholders to submit questions in advance. But we also welcome you to submit any questions you have during the meeting as well. It's important that your voices are heard, and we value your engagement. So I'm going to read the questions exactly as they were submitted. All of the questions we received along with answers will be posted to the Investors section of our website after the meeting. So Lynn, we received a number of questions in advance on a variety of topics. Let's dive right in with a question on nuclear. This shareholder asks, "Has management considered playing more of a leading role in the movement to build out next-generation nuclear generation? Next-generation nuclear designs from vendors such as NuScale and TerraPower appear to be on the path to regulatory approval and have the potential to deliver abundant carbon-free electricity at reasonable prices and with the fraction of the land and resource impact of renewables and storage. Has Duke considered playing more of a leading role in this movement in order to help drive it forward?"

Abby, I welcome and appreciate a nuclear question because I think anyone who follows Duke Energy understands how important nuclear is to us today, but also how important it is to our view of a clean energy transition. And I would suggest to this investor that we are playing a leading role. We are actively engaged in a second license renewal process that has begun with one of our plants, and we'll continue through the fleet because we believe these plants are foundational to our success. And we're also very active with the new technologies, many of which were referenced in the question with a dedicated team that is focused on small modular reactors. In fact, an SMR was included for discussion in our North Carolina carbon plan. We're beginning to think about the development of an early site permit. We're actively engaged with TerraPower, actually with some dedicated resources working with that team, lending our operating expertise because we believe that technology that is coupled with storage could be very important in the 2030s. And so we think about this technology of nuclear and really all of the new technologies that will be a part of the clean energy transition in 2030 and beyond. It's something we need to be lending our expertise to, our operating expertise, our advice, our counsel in this decade so that hopefully, they're getting to that commercial scale in the 2030s, so we can construct them that there's a supply chain, that the price is affordable for our customers, so they can operate with the standards of excellence that we expect. And we are committed to continue our pursuit of nuclear as part of that solution.

Very good. Thank you. Okay. Shifting gears a bit. Our next question is related to the dividend. This shareholder asks, "When should we expect to get another increase in the dividend? Have you given any thought to paying a monthly as opposed to a quarterly dividend?"

Abby, I appreciate how important the dividend is to our investors. And I think I said in my remarks, 97 years or something crazy long time. We understand how important it is. And my recollection is that we increased dividend in the summer last year. It will be taken up by our Board kind of in that similar time frame. And we are targeting a dividend in the range of 65% to 75% of earnings and understand that continuing to increase that at a pace that makes sense for investors is an important commitment. I believe we'll continue to pay on a quarterly basis. That's kind of the industry standard. I appreciate the question about monthly, but you can expect us to continue to pay quarterly.

Okay. Next, let's go to an area we received a couple of questions on, and that's political contributions. This question reads, will you please stop funding GOP candidates?

I appreciate the political question. And I know there are a lot of voices in the conversation and politics today. But what I would suggest to all of you is that energy is a conversation that is going on at both the state and federal level because it's so important to our economy, to economic development, to our aspirations around clean energy. And so it's important that Duke Energy be a part of that. We represent our customers, our investors, our communities, our employees as we enter into these discussions and believe we have a unique voice with operating expertise around many of these conversations. And so we donate and are involved in the political process on both sides of the equation, both Republicans and Democrats really looking for those members, candidates, et cetera, that are involved in a constructive discussion about energy policy, finding the right balance with affordability and reliability. And I would just conclude by saying the governance around political contributions is something we take very seriously at Duke. And there are layers of approvals necessary, including up to our Board of Directors, so that we have the right level of governance on that important contribution. But being a part of the energy conversation is really important for our customers and our investors.

Absolutely. Okay. Shifting back to operations. Our next question is on grid demand and I think speaks to a lot of the work we're doing improving the grid. This shareholder asks, "Given the current energy demands and the proven vulnerability of the electrical grid system, what plan is Duke making for future expansion and development?"

Abby, I appreciate that. We operate a system that our customers count on 24 hours a day, 7 days a week every season. And when I hear the question about what are we doing to strengthen that conviction and commitment that we have, it speaks to not only generation and how are we making sure we have adequate capacity as we go through this clean energy transition, but also what are we doing on the infrastructure that connects its transmission and distribution system. And as I look at our plans over the next decade, 85% of the capital that we'll spend are focused on these 2 things, generation and grid and infrastructure. In generation, it's part of the transition to clean energy. There will be more renewables, battery storage, some natural gas, talked about an SMR as a possibility as we go over time. And in the grid, we think about it 2 ways: reliability and resiliency. So that's undergrounding, that's self-fueling technologies, things that make us capable of reducing outages. But it's also modernizing so that we can accommodate electric vehicles and renewables and batteries and 2-way flows of power. And so investment is going there as well, really trying to get the infrastructure ready for the new technologies that will come in the future. And so our commitment around making those investments in the infrastructure is something that is important to do, important to our customers, and we're actively pursuing it in every jurisdiction.