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Duke CFO sees equity needs on track to support credit metrics

Duke Energy Corp.'s CFO is confident the equity issuance plan the utility giant has laid out can meet its needs over the next five years.

In February, Duke Energy said it will issue $2 billion in equity this year to compensate for the near-term hit to its balance sheet and credit metrics caused by the federal corporate tax rate cut.

The company completed a $1.6 billion equity offering March 9 and issued $50 million through its dividend reinvestment plan, or DRIP, in the first quarter. Duke Energy plans to issue the remaining $350 million in equity through its DRIP and at-the-market programs this year and will continue to issue $350 million in DRIP/ATM equity annually from 2019 through 2022.

"We've executed on the block equity trade and we'll continue with the DRIP and the ATM, and we think that's the right amount of equity for us," Duke Energy Executive Vice President and CFO Steven Young said in a May 10 interview with S&P Global Market Intelligence shortly before the company's first-quarter 2018 earnings call.

The company is targeting funds-from-operations-to-debt metrics of 15% to 16% in the 2020 to 2022 time frame.

The 2017 federal tax overhaul lowers the corporate income tax rate to 21% from 35% beginning in the 2018 tax year.

Young said in February the lower tax rate would lower the tax shield at the holding company, negatively impacting earnings.

The CFO, however, said the company will be able to "recapture those earnings" over its five-year growth plan as its earnings base or rate base grows.

Duke Energy on May 10 reaffirmed its long-term adjusted EPS growth rate range of 4% to 6% through 2022, anchored to the original 2017 adjusted EPS range midpoint of $4.60.

Young noted that overall "tax reform is going to be a very useful tool for us" with the company evaluating how to pass along benefits from the lower tax rate to its customers.

"This is a unique opportunity for us to pass on benefits to our customers in the near term and to also use the benefits of tax reform to help offset future potential rate increases that we might see for the various investments that we're lining up to help our customers," Young said.

Duke Energy Florida LLC in January dropped its request to recover $513 million in Hurricane Irma restoration costs from ratepayers as a result of savings from tax reform. The utility will also use some of the benefits from tax reform to offset the accelerated depreciation of aging coal plants.

Duke Energy plans to explore similar offsets in other regulated jurisdictions.

"We're certainly focused on how we can utilize this situation to help our customers and I think we're on the right path with that," Young said.

For the first quarter, Duke Energy on May 10 reported adjusted earnings of $1.28 per share, a gain from $1.04 per share in the prior-year period.

Duke Energy affirmed its 2018 adjusted EPS guidance of $4.55 to $4.85.

"It was a good quarter. No real surprises there," Young said. "Businesses are operating as intended, making good investments for our customers and progressing along on our strategic fronts."