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Duke reports slight earnings drop in 2015

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By Matthew Clark
Published Feb. 29, 2016

Duke Energy officials said its core businesses, regulated utilities, as well as its commercial portfolio of renewables and gas infrastructure contributed to an uptick in its 2015 earnings, however, a weaker year for the company’s Latin American business offset the gains made by its domestic businesses.

The company, which is the parent company for Duke Energy Carolinas, reported adjusted diluted earnings per share of $4.54 in 2015, which is a $0.01 drop from the $4.55 reported in 2014. However, its 2015 adjusted segment income for regulated utilities, its strongest business, was up from $2.8 billion in 2014 to $2.97 billion in 2015.

“I’m pleased with the solid performance and operational execution of our core regulated businesses,” said Lynn Good, Duke Energy president and CEO, to a group of investment analysts.

A mild winter in the Carolinas and the Midwest did contribute to a drop in earnings of 12 cents per share, which was offset by increased pricing and riders and increased wholesale net margins.

A downside to the company’s earnings was its International Energy operation in Latin America. The company reported adjusted income for International Energy at $225 million in 2015, a significant drop from the $428 million in 2014, prompting Duke Energy officials to tell analysts they plan to sell off the company that services Argentina, Brazil, Chile, Ecuador, Peru and parts of Central America.

“This business has been an important part of the Duke Energy portfolio over many years providing both earnings and cash flows,” Good said. “However, the returns over the last two years are inconsistent with our commitment to investors to provide predictable, stable earnings and cash flows.”

The company reported income growth in its commercial portfolio following the April 2015 sale of its Midwest commercial generation business to Dynegy Inc. for $2.8 billion. Proceeds from that sale were used to repurchase approximately $1.5 billion in Duke Energy common stock, pay down holding company debt and fund capital investments.

Looking to 2016, officials said there will not be any “significant base rate increases” and the company plans to invest $1.5 billion in renewables in various pipeline joint ventures. Steve Young, Duke Energy executive vice president and CFO, told analysts the company is planning for 4% growth in its core businesses in 2016 and an earnings range of $4.50 to $4.70 per share. He added the company is estimating a 5% to 6% long-term growth rate, helped by the acquisition of Piedmont Natural Gas.

Young said Duke Energy also plans to invest up to $8 billion through 2020 on expanding its electric grid infrastructure, another $8 billion in new generation, including natural gas and renewable energy, and $3 billion on environmental compliance, led by its continued closure of coal ash basins in the Carolinas.

“Our earnings growth from 2016 to 2020 is strong, but not linear, due to the timing of capital deployment and subsequent rate recovery,” Young said.

When asked by analysts about cost recovery for its coal ash basin cleanup, Good said she believed the costs are recoverable, but the focus now is moving through basin closure planning.

“Our intent would be to seek recovery in connection with a general base rate increase,” Good said, adding that increase would not come until the “latter part of this planning period.”

Young reiterated that the cash cost, “to the extent that it is outside of rates, can be incorporated at some point in time in any fashion that the (North Carolina Utilities Commission) deems agreeable to do so.”

In late 2015, Duke Energy abandoned plans to expand its electricity grid through the addition of new power lines from its Asheville coal plant to a new substation located in Campobello. After meeting community resistance in Western North Carolina and areas of Greenville and Spartanburg counties, Duke officials decided to halt the line expansion in favor of retiring the Asheville plant in lieu of a natural gas-fired plant in its place.

Duke said it plans to have the new plant operational by late 2019. The cost of the new plant is approximately $1.1 billion, roughly the same cost estimate as the original line expansion proposal. The plan is pending review from the North Carolina Utilities Commission.

Duke Energy is based in Charlotte and serves approximately 7.3 million electric customers and 500,000 gas customers in the U.S.

Reach Matthew Clark at 864-235-5677, ext. 107, or @matthewclark76 on Twitter.

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