Duke Energy Corporation (DUK) Earnings Call Transcript & Summary

[Audio Gap] projects we have secured under ESAs. Growth continues to define our service territories. CNBC recently named Ohio, the top state for business with 4 of our states ranked in the top 10 and North Carolina was recognized as the top economy for its strong economic and job growth. To meet this record demand and to continue long-term value for our customers, communities and shareholders, we're executing on the industry's largest regulated capital plan, deploying more than $1 billion per month. We are laser-focused on disciplined execution and responsible financial stewardship as our priority has been and always will be providing customers reliable power at the lowest possible cost. Moving to Slide 5. We are advancing our strategic priorities, including regulatory execution. Last month, we were pleased to reach a comprehensive settlement with North Carolina Public staff and other interveners in our DEC rate case building on our long track record of collaborating with stakeholders to achieve constructive regulatory outcomes. This agreement demonstrates our commitment to cost effectively serve our customers while continuing to support investments needed to improve reliability and modernize our generation fleet. The settlement includes a 9.8% ROE 53% equity capital structure and the continuation of the multiyear rate plan framework. The agreement also retains the earnings sharing mechanism that allows us to earn 50 basis points above the allowed ROE up to 10.3%. Finally, we agreed to pursue discussions with intervenors to reach a substantially similar settlement framework for the DEP rate case. Discussions are ongoing, and we'll update you on the progress in the coming weeks as we prepare for the hearing scheduled for August 11. If approved by the commission, revised customer rates are expected to remain below the national average, we expect orders on both cases by mid-November. As outlined on Slide 6, we continue to use every tool we can to manage costs for our customers while delivering the high quality of service they expect. Building on the tax credit sale agreement and the DEC, DEP combination savings we highlighted in Q1, we pursued an innovative strategy for the accelerated flowback of tax credit for a Florida battery product that will go online next year. By recognizing the tax credits in 1 year rather than over the life of the project, we're offsetting a base rate increase for customers in Q2. We also submitted an application for Department of Energy loans in May, which could represent billions of dollars of customer savings through reduced interest costs on eligible projects. We recently introduced the Customer Protection Plus commitment, which reinforces the way we've already been doing business with large customers and reflects the terms of large load tariffs progressing in our jurisdictions. Our contracts ensure large users of energy pay the costs of serving their facilities, and these projects are expected to deliver billions of dollars and benefits for existing customers over time. The commitment is built on 3 core priorities: preserve reliability, power responsible growth and produce shared value, and it aligns with the goal of the Ratepayer protection pledge, which we signed in late July, joining many of the hyperscale customers we serve. We appreciate our customers' engagement and the strong alignment across industries on this timely issue. We are also proud of our long-standing track record in cost efficiency, which is driven by a culture of continuous improvement. In 2025, we ranked third amongst our electric industry peers for nongeneration O&M per customer and our efforts to manage our cost structure, strengthen our ability to deliver for both customers and shareholders. We've always put customers first. And through these long-term commitments, financial protections and careful planning, we're working to ensure growth supports reliability and creates lasting value. Slide 7 shows our continued progress on our record generation build, now on track to add 15 gigawatts of capacity by 2031, which reflects additions from our latest 10-year site plan in Florida. Starting with regulatory updates. We recently concluded hearings in North Carolina on the 2025 Carolinas Resource Plan. With newly signed ESAs, the low forecast has increased to the high load scenario, which further confirms our view that all near-term resources in the Carolinas are needed. We expect an order from the North Carolina Commission by year-end. As we look ahead, the Carolinas resource plan underscores the role nuclear will play in our all-of-the-above strategy. As the operator of the largest regulated fleet in the U.S., we continue to see significant value in our existing nuclear fleet as we complete uprates and work to extend the lives of our existing units. We have subsequent license renewals approved by the NRC for 2 of our plants, and we're preparing to file the SLR application for the Brunswick nuclear plant by the end of the year. We are also evaluating the potential for new nuclear to meet future demand. We want to continue to emphasize that additional financial protections are needed before we would propose a new nuclear project. Any structure to advance new nuclear must address first-of-a-kind in supply chain risks, provide financial risk protection for our serotonin our investors and ensure a strong balance sheet during the construction cycle. And lastly, we're executing on the construction of new dispatchable capacity, including increasing the number of gas turbines available under our frame Mark agreement with GE Renova to 26 to align with the next phase of build in the IRPs. The first turbine was delivered to our person County combined cycle site in July and the second will be delivered later this year. Our gas portfolio has approximately 5 gigawatts under construction and an additional 2.5 gigawatts advancing through development. We've contracted with EPC partners, and we're closely monitoring construction milestones enabling us to check and adjust in real time. As we continue to scale, we will work with our EPCs to ensure crews can seamlessly move from 1 project to the next, and we're prepared to leverage operating learnings and efficiencies and built throughout the construction cycle. We're moving with speed and agility to ensure we complete these projects on time and on budget, maximizing the value for those we serve. We have significant construction experience and our scope and scale give us full confidence in our ability to execute the work ahead. With that, let me turn the call over to Brian.

Thanks, Harry, and good morning, everyone. As shown on Slide 8, we continue to execute our strategy at an accelerated pace while delivering strong growth with reported and adjusted earnings per share of $1.38 and $1.43, respectively, compared with $1.25 for both reported and adjusted earnings per share in the prior year. Electric Utilities and Infrastructure was up $0.15, driven by continued customer growth as well as infrastructure investments to reliably serve our growing jurisdictions. These drivers were partially offset by higher depreciation expense associated with our growing asset base and higher interest expense. Gas Utilities and Infrastructure was largely flat year-over-year, consistent with expectations in the shoulder quarter. Finally, the other segment was up $0.03 compared to the prior year, primarily due to the expected benefit of lower interest expense resulting from the Tennessee and Florida transaction proceeds, which have reduced holding company financing needs as well as higher market returns. Favorable weather has also contributed to our strong results through midyear with a colder-than-normal first quarter, then quickly shifting to a hot second quarter. Our generating assets performed well during these periods of high demand contributing positively to our results. As we look forward to the back half of the year, we may have the opportunity to reinvest some of the weather benefits back into our generating facilities to ensure these assets continue operating well for our customers. This would be consistent with our demonstrated ability to exercise O&M agility in both directions over the past several years. The robust growth in the quarter is a result of accelerating execution of our strategy, and the strength of our fully regulated utility model, which serves attractive jurisdictions with vibrant economies and constructive regulatory environments across the Southeast and Midwest. Overall, we are extremely pleased with our performance through the first half of 2026 and are firmly on track to achieve full year results within our EPS guidance range. Turning to Slide 9. We continue to progress additional large load projects through the pipeline. We have now secured 7.8 gigawatts of electric service agreements with data center customers. The Customer Protection Plus commitment we announced in July reinforces the foundation from which we engage with large load customers. The EDs we signed, protected existing customers today and deliver value for everyone over time as fixed costs are spread over a larger base. Beyond data center activity, we continue to see strong interest from a diverse set of commercial and industrial sectors, including life sciences and advanced manufacturing. In just the first half of this year, we've secured economic development wins representing $5 billion of investment supporting over 9,000 jobs across our service territories. This broad-based economic development success provides us with increasing confidence in our long-term loan growth projections and underscores the need to bring additional generation onto the system to reliably serve our customers. Moving to Slide 10. Our teams are working with prospective customers to advance large-load projects. And we continue to expect the remainder of the 15.4 gigawatt pipeline to be converted to ESAs by the first half of 2027. As Harry mentioned, the contracts we've signed to date in the Carolinas have increased the load forecast to the high load case. We continue to advance our late-stage pipelines in other jurisdictions as well. As additional contracts are signed, there was $5 billion to $10 billion of upside to our current 5-year capital plan to support additional generation and transmission needs, particularly in Indiana and Florida. Our first priority will always be to protect existing customers and ensure large loads provide value to the system. We look forward to sharing more as the pipeline advances over the coming quarters. As you can see on the right side of the slide, customers are also making strong progress building their facilities with several moving to vertical construction. We continue to expect these customers to begin taking energy as early as the second half of 2027 and into 2028 and ramp into their full contracted load through the early 2030s. And Infrastructure to support these customers is on track. As a reminder, our contracts contain minimum take provisions, which serve as the basis for revenue growth projections. This is just one of the many ways we are protecting existing customers while ensuring the growth ahead provides shared benefits for all. Turning to the balance sheet on Slide 11. We -- we are on track to achieve our FFO to debt target of 14.5% for the year. Longer term, we expect to reach 15% FFO to debt as additional proceeds from the DEF minority interest investment are received. This FFO to debt target has substantial cushion to our downgrade thresholds, provides financial flexibility and serves as a solid foundation as growth accelerates later in the 5-year plan. We've also priced $600 million under the ATM program so far this year, which will settle at the end of 2027. We are taking a proactive approach to equity funding, locking an attractive pricing today to derisk our future equity needs. Finally, we understand the importance of the dividend for our investors. In July, we increased our quarterly dividend payment, marking over 20 years of consecutive annual dividend increases. The 2% increase is consistent with growth in recent years and shows our ongoing commitment to growing the dividend. Let me close with Slide 12. We are executing our strategy to seize growth opportunities, expand our generation fleet, work with stakeholders to reach constructive regulatory outlines that support critical investments while keeping costs as low as possible. We are on track to achieve our 2026 EPS guidance range of $6.55 to $6.80 and 5% to 7% EPS growth through 2030 and with confidence to earn in the top half of the range beginning in 2028. We have an extensive runway of capital investments that continue to produce value for customers and position us to deliver on our growth targets, which combined with our attractive dividend yield, provide a compelling risk-adjusted return for shareholders. With that, we'll open the line for your questions.

[Operator Instructions] Your first question comes from the line of Shar Pourezza with Wells Fargo.

Harry, obviously, you guys are highlighting additional CapEx up to $10 billion. You've got 15 gigawatts in late stages. You're already sort of at the top end of the EPS care. I guess how are you thinking about the 3Q update? Is there a point where we could see some upward pressure in the CAGR? And how -- I guess, how are you thinking about messaging around that, especially as many of your peers are now focusing on the plus part in their growth ranges. Can you maybe provide an out-of-cycle update as we're heading into Q3, like some of your peers?

Yes, Shar. Yes, we have a high degree of confidence in the 5% to 7% in the top half of that range, starting in 2018 when some of these loads start coming on and ramping. As you know, this is a very dynamic environment that we have. We feel very good about our 15 gigawatts pipeline. They're advancing. But these negotiations are taking a little longer at times because they're very complicated transactions. So we want to continue to work through that. We feel very confident we'd be able to land more of those. We're looking at landing all of that 15 gigawatts by the first half of next year, and we're on track to do that. And we'll continue to evaluate where we need to be on our earnings per share growth rate, and we typically update that in the fourth quarter. But if anything changes materially, like we did last year, we'll update you on that as we see fit. But our focus right now is to continue executing getting those large loads signed to ERAs, making sure they're protecting our customers and paying their way as they go forward.

Got it. That's helpful. And then just maybe sticking with Diana. There's been obviously a lot of rhetoric in the state around affordability. You've seen what's happening in the commissions. So I guess with the potential opportunities that you guys have to serve that large load would you guys consider Janco type structure just given the benefits around maybe bypassing the CPCN process and flowing the savings back to customers a lot more visibly? I guess how are conversations evolving around that structure?

Yes, Shar. Affordability is top of mind. Our customers are struggling with gasoline prices, rent prices, health care prices. So we share a commission as well as the governor's focus on affordability and making sure that customers are protected from these large loads and that we're providing reliable service and low-cost service to our customers, and we'll continue to do that. On the Genco side, we are looking at that. We have looked at that in detail in the past and didn't feel like we were needing that to accomplish what we're doing. But as these large loads are signed, that may be something that we're going to revisit in the future to be able to provide financing as well as another layer of protection for our customers. So we'll continue to monitor that. And as these pipelines advance, we'll look into that deeper.

Your next question comes from the line of Nick Campanella with Barclays.

Just on the potential of $5 billion to $10 billion of additional capital for the large load in Florida and Indiana. I guess just as you guys or as we prepare for the roll forward in another 5 years? Just how much of that do you think is eligible for like a 5-year plan versus being kind of well into the mid-2030s. How much of the $5 billion to $10 billion should we be thinking about to make its way into the roll forward?

Yes, Nick, it's a great question. And when we bracketed the $5 billion to $10 billion, we contemplated this is within the current 5-year plan. So we're going to roll for the plan in February, which, obviously, capital is accelerating as we are investing more into the late part of the decade than we are right now. But this is incremental to that. So think about this as the 4 years left in the 5-year plan that we're executing today as capital upsides. And that will be triggered when the ESAs are signed and the requisite generation and transmission is modeled for those contracts.

Okay. Great. No, I appreciate that. And then I guess just maybe on the execution side, you're already kind of executing and constructing 5 gigawatts of gen projects and I guess many in the industry are going to be doing similar things in the coming years. So just any bottlenecks or issues you're seeing and how you're addressing those and kind of looking forward to the gas gen build that we're going to see what should we be prepared for?

Yes, Nick, building things has always been in Duke's DNA, and we're really good at it. We've never stopped building things throughout the last couple of decades. We've been building gas plants and other facilities. So we feel this is a strength for us and a competency for us. But we've been planning for this generation build cycle for many years. We've put in programs, programmatic ways of doing this with EPC contracts where we're using 1 EPC vendor in the Carolinas to be able to move the resources from site to site -- we're buying the same materials so the sites are identical, which gives us opportunities for synergies and how we build these things, both on the cost side but also on making sure that the schedule is met and the quality is met. So we feel really good about our plan and our ability to execute as well as the oversight that we're putting in using AI tools to monitor construction deadlines and progress. So we feel really good that we're going to be able to deliver reliable service for our customers and also do it at a low cost way.

Your next question comes from Julien Dumoulin-Smith with Jefferies.

Maybe just to kick off a little bit more on Indiana. I set expectations if you can? Obviously, we're having some hearings later this week on the backdrop of affordability and implications. I'd just love your open-ended comments on that front, if you can hear just at the outset. I really love to hear a little bit more on that specifically, if you can, especially given you guys are earlier in the slate of contemplated cases.

Yes. Good question, Julian, like I said earlier, we share the commission and the governor's focus on affordability and transparency for customer communications. What came out of their their hearings that they had and their listening sessions. We have the same goals in mind. We want to make sure that we support our customers with reliable service. We want to do it at the lowest cost possible. So we're looking like we always have to collaborate with the commission and other intervening parties as we go through the affordability report, and we plan for our upcoming MRP filing. We start in a strong position. We have great reliability. We have great storm response. We have low cost in Indiana. We're very active in economic development in the state and been successful in bringing jobs and other tax benefits to the communities that we serve, and we continue to do that. We feel the governor and the commission and other intervening parties want to continue Indiana's business environment, a productive environment and make sure that they're bringing in jobs and economic development. So we feel like we're going to be successful because we all have the same goals in mind.

Awesome. And I know you commented a little bit here about the new nuclear efforts here. But can you expand a little bit on how you all see us coming together. Obviously, you articulated the near-term progress on the application, et cetera. But how does this come together practically? Again, I know folks are really at times myopically focused on the subject, but I want to hear you guys on set expectations to road ahead a little bit especially from a commercial perspective here of late. And we've seen a few different headlines, especially out of the administration. Just saturate on how -- from your vantage point, what we should be expecting?

So Julien, we're focused on 2 things. Obviously, we're focusing on maximizing our current assets. We're doing about 300 megawatts of uprates to our current units, and we're extending the licenses to an additional 20 years to 80 years life. We have 2 of them already approved by the NRC and filing the third 1 by the end of this year. So that's our focus. On the nuclear side, we're focused on working with government officials, state officials, hyperscalers and other stakeholders to see what can be done to offset the risk, the financial risks and overrun risks that are out there from a new project. And we will not move forward until we have a good plan on how we can offset that risk to protect our customers as well as our investors from any overruns that we have. So those discussions are continuing. The federal government has been very open to discussions and creative solutions, and we'll continue to have those discussions as we move forward. But we're not in a position yet to make a decision on new nuclear.

Excellent. And the time line and even seeing commercial outcomes there. I mean, again, there's all sorts of noise in the system around this, if you set any kind of expectation on this. And obviously, you're doing the uprate successor, but on the corn and nuclear?

Yes. We're focused on going through the process and making sure that we can offset that risk no real time line and we're not putting ourselves under pressure of a time line. We want to make sure that we offset the risk first and foremost. SP541324311 Excellent. Nice said. I appreciate the guys. See you soon, all right, all the best.