Mild spring weather combined with an approximately $1 billion impairment on the sale of the company’s commercial renewables business dented Duke Energy Corp.'s second-quarter results, but the company has plans to mitigate those challenges.
"This record mild weather we've experienced in the first half of the year, it's been an opportunity for us to exercise business agility," Duke CFO and Executive Vice President Brian Savoy said in an Aug. 8 interview with S&P Global Commodity Insights. "We feel like we're going to manage this near-term headwind, but the long-term fundamentals could not be stronger, and the growth is very clear for many years to come."
Duke on Aug. 8 reported a second-quarter GAAP net loss of $248 million, or 32 cents per share, compared to GAAP net income of $893 million, or $1.14 per share, in the prior-year period. Those results include an impairment of $1.23 per share from discontinued operations, related mostly to the sale of its commercial renewables business.
On an adjusted basis, Duke reported second-quarter non-GAAP earnings of $714 million, or 91 cents per share, compared to $851 million, or $1.09 per share, in the second quarter of 2022. The S&P Capital IQ consensus normalized EPS estimate for the quarter was 98 cents. The company attributed the lower adjusted results to unfavorable weather and sales volumes as well as higher interest expense and depreciation.
To help offset those negative factors, the company is working on operations and maintenance savings such as deferring noncritical work and limiting overtime not necessary for customer service as well as deferring outside spending and putting off information technology projects that will not impact customers in the near term, Savoy said.
Those cost-saving measures represent "more tactical levers, not structural," Savoy said, adding that such deferments and other changes are not necessarily sustainable over the long term.
"We expect about 20 cents of mitigation from these measures weighted toward the fourth quarter," Savoy said.
Duke already had a $300 million operations and maintenance reduction in place coming into 2023, Duke Chairman, President and CEO Lynn Good said on the company's earnings call. "We are working every possible lever."
Absent weather impacts, Duke had growth from rate cases and riders and from lower operations and maintenance. The company reaffirmed its full-year adjusted EPS guidance range of $5.55 to $5.75 and long-term adjusted EPS growth rate of 5% to 7% through 2027.
Duke previously took a $1.3 billion impairment on the commercial renewables business, executives said in February, ahead of deal announcements in June and July.
The sales of both commercial renewables business segments are expected to close by the end of the year, transitioning the company to a fully regulated electric and gas utility serving about 10 million customers in the Southeast and Midwest.
Transitioning to a fully regulated utility also allows the company to focus on its 10-year, $145 billion capital plan centered around transitioning to net-zero emissions power generation and grid modernization, according to Duke management, which also supports the company's roughly 7% earnings base growth.
Offshore wind
North Carolina Gov. Roy Cooper said Aug. 4 that he was disappointed the US Bureau of Ocean Energy Management excluded the state's coast in finalizing central Atlantic wind energy call areas. Call areas are locations identified for consideration of possible commercial wind energy leases.
Duke Energy and TotalEnergies SE won the bidding in May 2022 for two offshore wind lease areas covering 110,091 acres off the coast of the Carolinas, with successful bids totaling $315 million. Duke Energy Renewables Wind LLC won a 55,154-acre lease in the Carolina Long Bay federal auction for $155 million.
While Savoy said Aug. 8 that offshore wind remains a valuable long-term potential option for Duke, "our state commissions will determine if offshore wind is an appropriate resource for our customers."
So far, Duke's parcel of the Carolina Long Bay lease area is in "very limited initial development," according to Savoy, including topographical surveys to determine if the utility will move forward with the project.
"We are moderating our investment to ensure we are in lockstep with the commissions and the states we serve," the executive added. "It's a matter of when and what pace with the states we operate in."
Cooper, a Democrat, set a goal in 2021 for North Carolina to reach 8 GW of offshore wind generation by 2040. The governor's administration urged the Bureau of Ocean Energy Management for more than a year to identify regions of the central Atlantic wind energy call areas off North Carolina's coast.
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