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Duke CFO stands by international sale, says rooftop solar nonfactor in Piedmont deal

Q2: U.S. Solar and Wind Power by the Numbers

Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August


Duke CFO stands by international sale, says rooftop solar nonfactor in Piedmont deal

Whilehydrology conditions in Brazil and earnings from the international segment haveimproved, Duke Energy Corp.Executive Vice President and CFO Steven Young said the business is still the "properthing for us to do."

DukeEnergy said in February that it was consideringa sale of Duke EnergyInternational LLC, which owns 4,400 MW of mostly hydro generationin Central and South America. The potential sale will not include Duke's 25%equity investment in Saudi Arabian methanol producer National Methanol Co.

"Westill are committed to exiting the business," Young said in an interviewMay 3 following Duke Energy's first-quarter 2016 call. "We did have a goodquarter in international. The hydrology has improved in Brazil [where DukeEnergy International has a lot of assets], and that's helpful. We found sometax optimization that we could utilize that also helped internationaloperations in the first quarter. And these things certainly help our resultshere in the first quarter of 2016, but we still believe that exiting thebusiness is the proper thing for us to do, strategically.

"Theinternational business has performed well. It is a , as we said earlier,but it's not consistent with our overall strategy, moving to regulated energyinfrastructure. So, we'll continue the process of selling the assets, but we'repleased that they're performing better and hopefully, that will be seen by theprospective buyers as well."

Youngsaid the company has received interest from strategic and financial buyers inAsia, Europe, Latin America and North America.

"There'sa wide range of interested parties in the whole of the assets, or in pieces ofthe businesses in Latin America. So, we're encouraged by that," Youngsaid, adding that he's "not in a position" to discuss valuation.

MorganStanley Research analysts saidin April that the total equity value of Duke Energy's international business isapproximately $2.1 billion with a potential sale resulting in 3% to 4% EPSdilution, or approximately 17 cents per share. Guggenheim Securities LLC hassaid the sale could generate net proceeds of $2.4 billion.

Gas impact

Stateside,Young said Duke Energy is positioning its portfolio to take advantage of thelow gas price environment, while maintaining diverse fuel sources to offset apotential spike in gas prices or changein the U.S. EPA's carbon regulations.

"Certainly,the very low natural gas prices that have been in existence now for severalyears and appear to be baked in for a while at least have impacted the industryand Duke Energy significantly," Young said.

As aresult, Duke Energy has been expanding beyond electric infrastructure andmoving into gas infrastructure, through investments in combined-cycle gasturbines, the Atlantic Coastpipeline and SabalTrail, on top of its pending acquisition of PiedmontNatural Gas Co. Inc.

"TheEPA regulations on carbon virtually push utilities towards natural gas as thegeneration of choice as we go forward," Young said. "We're alsoinvesting heavily in renewables to provide some diversity. [Duke Energy is]heavily committed in the Carolinas and Florida to building regulatedrenewables, primarily solar, there to provide some diversity. We havesignificant nuclear assets in the Carolinas that have performed for decades,very well at providing diversity of a fuel source as well. We will look atrelicensing those facilities and whether or not that's feasible as we goforward to provide some additional diversity as we think about our natural gasgrowth in our jurisdictions."

TheCFO also dismissed a suggestion by CreditSights analysts that the onlong-term electric deliveries and revenues was a hidden driver behind itsdecision to purchasethe Piedmont Natural Gas LDC.

"Ireally don't think that's been a significant factor in our strategic moves,"Young said. "The rooftop solar that we've seen in our jurisdictions, inthe Midwest and in the Southeast, has been quite small. However, we areconscious of it. We're monitoring it closely. If it becomes feasible, then we'llbe ready to accommodate it and there will be grid investments necessary aroundthose types of devices, and we're getting prepared to deal with that. But wehaven't seen enough penetration at this point. It really hasn't been a factorin our overall strategic moves."