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Duke Energy estimates $650M in storm costs as it touts grid modernization

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Duke Energy estimates $650M in storm costs as it touts grid modernization

Duke Energy Corp. restored 3 million outages and incurred about $650 million in costs as two deadly hurricanes swept through its service territories less than a month apart.

Hurricane Florence made landfall Sept. 14 as a Category 1 hurricane near Wrightsville Beach, N.C., leaving 2 million customers without power while flooding power plant sites and ash basins.

"We restored over 1.8 million outages in less than 10 days with 93% restored in five days," Duke Energy Chairman, President and CEO Lynn Good said Nov. 2 on the company's third-quarter 2018 earnings call. "Despite extensive flooding, the environment around our facilities, including ash basins, remained well protected."

The L.V. Sutton combined-cycle gas plant still has not resumed full operation after being taken offline in late September, a Duke Energy spokesman confirmed.

"We estimate total O&M costs for Hurricane Florence of approximately $450 million with the majority of the costs at our [Duke Energy Progress LLC, or DEP] utility," Duke Energy Executive Vice President and CFO Steven Young said on the call. "We will request permission to defer approximately $370 million of incremental costs for recovery in the next DEP rate case."

Hurricane Michael made landfall Oct. 10 as a Category 4 storm just northwest of Mexico Beach, Fla.

"Michael triggered over 70,000 power outages in our Florida service territory before moving north and causing over 1.1 million outages in the Carolinas," Good said, adding 90% of the outages were restored within three days. "All customers who could receive power were restored in five days in the Carolinas and eight days in Florida. The work continues in Florida as we rebuild our infrastructure in the most devastated areas."

Duke Energy's "preliminary O&M cost estimate for Hurricane Michael is approximately $200 million," Young added. "The costs from this storm, which primarily impacted our [Duke Energy Carolinas LLC] and [Duke Energy Florida LLC] utilities, will be recorded in the fourth quarter. As with Florence, we will also request to defer the majority of these costs for future recovery."

Despite the widespread devastation, Good noted that the "benefits of modernizing and hardening the grid were clear during the hurricanes" with infrastructure improvements and new technology helping to reduce outages.

"Those storms have been a significant issue here in the Carolinas, just the impact on the eastern part of [North Carolina alone], and there is a lot of interest to invest in infrastructure to support that region and to make smart investments to position the state for the future," Good said. "So, I think hardening and resiliency is something that makes a lot of sense and we are, of course, developing projects that we believe would support the infrastructure in the state, taking lessons learned from these storms but also looking at other areas of our grid that we think modernization could benefit customers."

As part of its grid modernization efforts, Duke Energy plans to file rate cases before the end of the year in South Carolina.

"I would think about the South Carolina cases mirroring in many ways what we tried to accomplish in North Carolina," Good said. "So, the same drivers and approach — trying to focus on grid investment, but also receiving recovery of historic investments."

DEP also could file another rate case in late 2019 in North Carolina as part of its Western Carolinas Modernization Project and once the Asheville combined-cycle natural gas plant comes online.

Duke Energy's grid modernization plan includes spending $1.1 billion from 2019 through 2021 at Duke Energy Florida to enhance reliability, reduce outages, shorten restoration times, and support the growth of renewable energy and emerging technologies.

These investments, especially in North Carolina, also are an "important part" of Duke Energy's 4% to 6% earnings growth rate target through 2022.

"[W]e believe we have parallel paths to pursue, a legislative path or increased frequency of regulatory filings, in order to achieve our financial results," Good said. "We do believe with the value proposition that grid investment represents, including the storm hardening that we just talked about, that a recovery mechanism that is certain over a two- to three-year period with predictable investment and predictable impact to customers, with value that goes with those predictable increases, is a compelling business proposition. And we'll continue to pursue, as I said, in both the legislative and regulatory process."

Outside of grid investments, Duke Energy in late September said that it is considering the sale of a minority interest in its commercial renewables business.

Duke Energy Renewables Inc. owns and operates nearly 3,000 MW of renewable energy projects, including 2,300 MW of wind generation and 600 MW of solar.

Duke Energy is seeking a minority partner as it looks to "recycle and reinvest capital from these assets," Good said.

"We will continue to be a majority owner and operator of the portfolio and intend to retain nearly all of the tax benefits associated with the projects," Good said. "It is still early in the process, but we are seeing strong interest."

The CEO added that it is "too early to talk specifically" about the use of proceeds from any transaction. "We haven't earmarked proceeds for any specific purpose."