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Affirms 2020 earnings of $5.05-$5.45/share

'Clearly a dynamic situation': CFO

New York — The cancellation of the Atlantic Coast Pipeline and the coronavirus pandemic flipped Duke Energy's reported results to a loss of $817 million, or $1.13/share, in the second quarter, from earnings of $820 million, or $1.12/share, in Q2 2019.

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However, the pandemic's impact in Q2 was less than Duke projected earlier, and Lynn Good, Duke's chairman, president and CEO, reaffirmed expectations that the large power and gas utility would earn in a range of $5.05/share to $5.45/share in 2020, mostly by cutting operations and maintenance expenses.

After adjusting Q2 earnings for the extraordinary $1.6 billion expense related to the cancellation of the ACP, Duke earned $1.08/share for the quarter, "which is favorable to our internal projections, including COVID," Good said.

"The decline in load during the quarter was less significant than originally anticipated, with some of our states reopening and residential usage stronger than expected," Good said during Monday's earnings conference call. "Looking ahead and recognizing the uncertainties that remain, including the potential impact of a resurgence in the virus, we're maintaining our full-year projection of a 3%-5% decline in retail volumes."

Steven Young, Duke's executive vice president and CFO said, "While our [Q2] retail electric volumes were down 6%, this was favorable compared to our original post-COVID expectations of a 9% decline for the quarter."

Volumes by sector

Residential sector power demand was stronger than expected across Duke Energy's service areas, Young said in the earnings call.

"In addition, our commercial and industrial volumes are recovering reasonably well, with nearly three-quarters of our largest C&I customers resuming operations," Young said. "Adding to these data points, July 2020 weather-normalized volumes were also favorable by 3% to 4% compared to our COVID-updated forecast. Residential volumes were particularly strong in July, up approximately 6.5% compared to July a year ago."

Duke Energy separates commercial from industrial classes in its power volume trends. The commercial segment — non-manufacturing business and other nonresidential customers — had year-on-year Q2 decreases in each of Duke's utilities, with the largest at Duke Energy Indiana at 6.5%, Duke Energy Progress at 4.6%, and Duke Energy Florida at 4.4%.

The industrial segment showed an increase of 0.7% in DEF, but decreases of the following with Duke's other power utilities:

  • Negative 6.9% in DEI
  • Negative 5.4% in Duke Energy Carolinas and Duke Energy Ohio/Kentucky
  • Negative 3.2% in DEP

The number of residential customers has grown across all jurisdictions, with 1.7% more electric customers and 1.5% more gas distribution customers, Young said.

Expectations for future

One factor in the most recent quarter's weaker adjusted earnings was milder weather in Duke's jurisdictions, with 308 heating degree days and 412 cooling degree days, compared with 127 HDDs and 632 CDDs in Q2 2019, according to Duke's earnings news release.

"Our volume expectations for the full year continue to be a retail decline of 3% to 5%, with earnings [per share] headwinds of 25 cents to 35 cents," Young said. "While recent results have been favorable, this is clearly a dynamic situation and one we will closely monitor."

Looking to the future, Good said she expects Duke's full-year 2020 earnings to be in at the lower end of the range of $5.05 to $5.45/share, but would update analysts further during the third-quarter earnings call in October or November.

Duke plans to file its integrated resource plan for the Carolinas in early September.

"In the IRP, we will outline alternatives to achieving our carbon-reduction goals, as well as the North Carolina governor's executive order to achieve a 70% reduction by 2030," Good said, adding that the IRP would address the possibility of adding offshore wind generation to its portfolio.

Duke Energy also is involved in the stakeholder process for North Carolina's clean energy plan, with a full report expected by the end of the year.

Duke has a $56 billion five-year capital investment plan, about which the company plans to update analysts in February 2021.

"I do think that fleet transition is something that represents an opportunity for us to add capital in the Carolinas," Good said, but added that offshore wind "probably has greater potential toward the end [of this decade] to the next decade."