Duke Energy Corp (DUK) — Q3 2015 Earnings Call Transcript

Thank you, Jeff. Good morning, everyone, and welcome to Duke Energy's third quarter 2015 earnings review and business update. Leading our call is Lynn Good, President and CEO, along with Steve Young, Executive Vice President and Chief Financial Officer. Today's discussion will include forward-looking information and the use of non-GAAP financial measures. A reconciliation of non-GAAP financial measures can be found on our websites. Please note that the appendix to today's presentation includes supplemental information and additional disclosures to help you analyze the Company's performance. As summarized on Slide 3, Lynn will cover our third quarter highlights and provide a summary of our recent strategic and growth initiatives. Then Steve will provide an overview of our third quarter financial results and an update on our economic activities within our service territories, as well as an overview of our earnings growth prospects as we move into 2016 in the future. With that, I'll turn the call over to Lynn.

Good morning, and thanks for joining us. This morning, we reported third quarter 2015 adjusted EPS of $1.47 per share, above the $1.40 per share in 2014, as favorable weather and growth in the regulated utilities supported our results. Our regulated businesses have performed well throughout 2015, delivering solid financial results. As we look to the fourth quarter, we are narrowing our guidance range to $4.55 to $4.65 per share. This range reflects mild October weather, as well as storm expenses, unfavorable foreign currency trends, and the potential for extending bonus depreciation. The extension of bonus will modestly increase our effective tax for the year. Earlier this year, we increased the growth rate of the dividend to approximately 4%, reflecting our confidence in the strength of our core businesses. The growing dividend supports our commitment to deliver attractive long-term returns for shareholders. Our financial results are made possible by the efforts of our people who work every day to keep our plants safe, efficient, and reliable, providing our customers with valuable services. Our regulated generation fleet continued to deliver for customers during the critical summer months. Our nuclear fleet achieved a 97% capacity factor during the quarter, and our growing regulated gas fleet continued to deliver value for our customers, taking advantage of the low natural gas prices. In fact, our utilities have burned more natural gas in the first nine months of 2015 than they did in either of the two prior full years. The Edwardsport IGCC plant continues to operate well, achieving a third quarter gasifier availability factor of around 80%, surpassing the first quarter’s record. Additionally, in July, the facility achieved a record month of net generation. In early October, we experienced heavy rains and flooding in the Carolinas, resulting in 500,000 customer outages. We were well prepared and mobilized our crews in advance, speeding the restoration of service. Like others in the industry, we are making progress towards a safe, cost-effective closure of our ash basins in the Carolinas. Basin closures are underway at six sites, and we are working through the approval of closure plans at our remaining basins. I’m proud of the way the Duke team has responded to this important industry issue with excellence and leadership. We are systematically and strategically increasing our regulated business mix through a series of acquisitions and divestitures as highlighted on Slide 5, as well as the portfolio of investments I will discuss in a moment. Last week, we were very excited to announce the plan to acquire Piedmont Natural Gas, which will add a well-established natural gas business and platforms to the Duke portfolio. From a strategic perspective, we see this acquisition as the foundation for establishing a broader gas infrastructure platform within Duke, building upon our recent gas pipeline investments and complementing our existing gas business in the Midwest. We plan to leverage the scale of Duke with Piedmont’s well-regarded management team and excellent operational capabilities. Piedmont has long been recognized as a premier operator of low-risk regulated gas infrastructure. We have partnered with them over many years, as they have built and operated the critical gas infrastructure that serves natural gas generation in this region. Piedmont is experiencing robust customer growth and is investing in projects that have constructive regulatory mechanisms, providing a strong base for organic growth. These investments are expected to grow their rate base by an average of around 9% over the coming years. This acquisition is expected to close by the end of 2016 and be accretive to our earnings in the first full year after close. This will increase our total regulated business mix to over 90%, firmly supporting our earnings and dividend growth objectives. We will keep you updated as we progress through the approval process. Turning to Slide 6, we are also focused on creating long-term growth and value for our customers and shareholders, with investments that will modernize our system, both our generation and our growth for the benefit of our customers. We continue to introduce more diversity to our fleet through low-cost natural gas. Construction has begun on a combined-cycle natural gas plant at the lease site in South Carolina, while preconstruction activities will commence on the Citrus County combined-cycle plant later this year. Both projects represent a total of over $2 billion in investments and remain on-time and on-budget. Our Western Carolina modernization project also remains on track. You may recall that we decided to retire our coal unit in Asheville and replace it with a combined-cycle gas plant and a new transmission line to improve reliability and support growth in the Asheville area. After working through a comprehensive stakeholder engagement process over the course of the summer, we announced yesterday a modified set of resources to support this project, eliminating the need for a new transmission line. Rather than building a 650-megawatt gas plant, we will build two 280-megawatt combined-cycle natural gas units with the option for a 190-megawatt simple cycle unit by 2023. This totals an estimated investment of just over $1 billion. This modification allows us to maintain our 2024 retirement schedule while reflecting important input from our customers and communities. Further, earlier this year, we acquired the NCEMPA asset, a project that is a win-win for our customers in the Eastern region of North Carolina. Our two gas pipeline infrastructure projects, the Atlantic Coast Pipeline and Sabal Trail, will provide critical access to additional low-cost natural gas in the Southeast, helping to meet growing demand for the fuel from our generation portfolio, as well as to serve our customers’ needs. These projects continue to move through the regulatory approval and siting processes. The formal FERC application for ACT was filed in September and we expect FERC approval in 2016. Once FERC approval is obtained, the project can begin construction activities, with an expected COD in late 2018. At Sabal Trail, FERC approval is expected in early 2015 with the pipeline operational in 2017. In Indiana, we are revising our grid modernization plan under state legislation, and we plan to re-file our plan by the end of this year. We’re also making meaningful progress growing our renewable investments both in our regulated footprint and in the commercial business. On the regulated side, we’re on track to complete construction of 128 megawatts of utility-scale solar in North Carolina by the end of this year, and we're moving forward with investments in both South Carolina and Florida. Our commercial renewables portfolio also continues to grow, with demand for wind and solar projects throughout the U.S. supported by renewable portfolio standards and growing customer demand. We have a number of commercial wind and solar projects slated to come online later this year, which will increase this portfolio to over 2,700 megawatts of capacity. Overall, these growth investments total $20 billion through 2019 and provide the foundation for growth in the coming years. Steve will provide additional perspective on 2016 and beyond in his remarks. In conclusion, we continue to execute very well, providing safe, reliable, and affordable power to our customers. Our growth prospects remain strong as we deploy significant capital and critical energy infrastructure investments. This establishes the foundation to provide clean modern energy to our customers and our communities for decades to come. Let me turn it over to Steve.

Thanks, Lynn. Today, I’ll review our third quarter financial results and provide a brief look into 2016. I would also discuss the economic drivers in our regulated service territories and the low growth experienced in the third quarter. I’ll ramp up with the discussion of our financial objectives. Let’s start with the quarterly results as highlighted on Slide 7. For more detailed information on segment variances versus last year, please refer to the supporting materials that accompanied today’s press release. We achieved third quarter adjusted diluted earnings per share of $1.47, compared to $1.40 in last year’s third quarter. On a reported basis, 2015 third quarter earnings per share were $1.35, compared to $1.80 last year. As a reminder, last year’s third quarter results included a $0.43 favorable adjustment for a change in the estimated value of the Midwest generation business. A reconciliation of reported results to adjusted results is included in the supplemental materials to today’s presentation. Regulated utilities' quarterly adjusted results increased by $0.07 per share, driven largely by warmer weather and strong margins in our wholesale business, including the new NCEMPA contract. As we expected, these positive drivers were partially offset by higher O&M related to the timing of outages, increased costs related to NCEMPA, and higher storm costs. International’s quarterly earnings declined by $0.02 over last year. Continued weakness in foreign exchange rates in Brazil and lower margins at National Methanol were partially offset by lower purchase power costs in Brazil. Additionally, we recognized an asset impairment in Ecuador during the quarter. Our commercial portfolio incurred $0.08 of lower adjusted earnings as a result of the absence of prior year Midwest generation results due to lower wind resources this year; earnings from our commercial renewable business are expected to be around $75 million for the full year versus our original expectation of $100 million. Commercial’s results will be favorably impacted in the fourth quarter by tax credits related to over 300 megawatts of wind and solar generation scheduled to come online. And finally, other was up $0.06 due to favorable tax adjustments in the timing of tax levelization as a reminder due to income tax levelization, other reflects projected benefits related to renewable tax credits ratably during the year. Once the projects become operational, these benefits are reallocated to the commercial portfolio. Lastly, our quarterly results benefited $0.04 from the accelerated stock repurchase completed earlier in the year. Moving on to Slide 8, I’ll now discuss our retail customer volume trends. Across our jurisdictions, weather-normalized retail load growth has increased by 0.3% over the rolling 12 months. Within the residential sector, we are seeing some positive trends. We continue to add new customers at an annual rate of approximately 1.3%. And we’ve now experienced two consecutive quarters of relatively flat usage per customer. We also continue to see favorable key indicators for the residential sector, including employment, personal incomes, and spending, as well as household formations. The commercial sector continues to grow modestly, benefiting from declining office vacancy rates and expansion in the restaurant and real estate subsectors. This growth was partially offset by lower governmental and retail store sales during the quarter. The industrial sector, while strong for most of the year, has recently slowed; we are continuing to see transportation and building materials gain momentum. In particular, residential construction activities remain strong in the Southeast. During the quarter, we began to experience some weakness in the metals and chemicals subsectors. This slowdown is due to a pause in industrial activity, driven by a deceleration of consumer, business, and government spending, a reduction in inventories, and the strong dollar, which has reduced global demand for U.S. products. Our economic development teams remain active, successfully helping to attract new business investments into our service territories. So far this year, these activities have led to the announcement of $2.4 billion in capital investments, which is expected to result in nearly 7,200 new jobs across our six states. With rolling 12-month weather-normalized load growth of 0.3%, we expect to thin towards the low end of our original 2015 expectation of 0.5% to 1%. Moving to Slide 9, let me layout our key earnings drivers as we begin thinking about 2016. As has been our normal practice, we will provide our 2016 guidance range and updated financial plans in February. For our regulated businesses, we plan for normal weather. We expect growth from rider recovery and AFUDC on major capital investments, along with a full year impact of the NCEMPA transaction and modest growth in retail load. With respect to our cost structure, we continue to build upon the success of our recent merger integration activities. Cost management is an ongoing effort. And we are finding ways to reduce O&M below current levels to match modest sales growth. We expect growth in the commercial portfolio, as we continue to add contracted renewable generation and expect the return of normal wind patterns. The loss of the Midwest generation’s earnings contribution is a headwind, but it is partially offset by the accelerated stock repurchase. We expect international earnings to have stabilized in 2015 and have the opportunity for modest growth in 2016, largely driven by an expectation for improved hydro dispatch. Over the past several months, we have begun to see higher water inflows and lower market power prices. Further, meteorologists are forecasting a strong El Niño weather pattern through early 2016, which could lead to increased rainfall in Southeastern Brazil. Currency exchange rates are expected to remain volatile, but the inflationary provisions in our contracts in Brazil can help to mitigate some of the currency devaluation. We also expect Brent crude oil prices to stabilize in 2016. Now moving to Slide 10, I want to step back and discuss our overall earnings growth objectives. Since 2013, our regulated and commercial segments, representing 90% of Duke Energy, have delivered 5% earnings growth. As we look at 2016 and beyond, these segments are expected to continue to grow within our 4% to 6% growth objective as we deploy significant capital and critical gas and electric infrastructure investments, including the acquisition of Piedmont, as well as renewable investments in our commercial business. We will also see the potential for rate cases in the Carolinas in the coming years to provide timely cash recovery of these important investments. The remaining portion of the company, the international business, has experienced a decline, contributing earnings of $0.67 per share in 2013 and 2014 to about half that in 2015. About half of this decline is due to the three-year drought in Brazil, while unfavorable exchange rates and lower crude oil prices comprise the remaining half. From this point forward, we will believe that international earnings have stabilized and are positioned for modest growth, consistent with our past practice, we will provide more specific financial guidance in February. We plan to reset our base to 4% to 6% long-term earnings growth off of 2016. This reflects continued strong growth in our core businesses, as well as a more realistic base year for growth in our international business from 2016 onward. Moving on Slide 11 outlines our financial objectives for 2015 and beyond. For the reasons Lynn mentioned earlier, we are narrowing our guidance range for 2015, from $4.55 to $4.75 per share to $4.55 to $4.65 per share. We have made significant progress in advancing our strategic growth initiatives, both in our regulated and commercial businesses, providing strong support for our long-term earnings growth objective. Our objective is to grow the dividend annually at a rate consistent with our long-term earnings growth objectives. In the near term, our payout ratio will trend slightly above 70%. We are comfortable with that higher range based on the strong growth in our core regulated and commercial businesses, and the cash flows we are repatriating from international. Our strong investment-grade credit ratings are important to us, as they help us finance our growth in an efficient manner. I am pleased with our results for 2015. We have successfully executed on a number of key strategic initiatives and delivered strong financial and operating results. Helping to offset the weakness in international, we remain focused on finishing the year well. With that, let’s open the line for your questions.

So this morning, you reiterated your 4% to 6% growth, but also higher yet to be determined 2016 base year, and you did drop that footnote you had in the second quarter around DEI potentially being a swing factor in your outlook. Steve, is this sort of like what you meant when you mentioned that Piedmont deal would enhance growth trajectory? Is it less concerns around DEI or sort of what’s driving this increased confidence?

Well, I think what I would refer you to Shar is the slide we discussed on Slide 10. Where we looked at our core businesses; when you isolate international, with our core businesses they have grown consistently at 5% from 2013 through ’15 and we would expect that to continue. The international business has evolved, which moved from a $0.60 per year business to $0.30. And that’s been the challenge we’ve had to deal with in 2015, that’s difficult to overcome. So we believe rebasing in ’16 makes sense in light of what international has done.

And it included Piedmont, right?

We expect to close Piedmont, Shar, towards the end of ’16 into ’17. You may recall from our announcement a week ago that we laid out a calendar. We will work as aggressively as we can to close it, but I think a year is a good planning assumption.

Okay, got it. And then just one last question on international, it’s good to see the currencies becoming a little bit less of an issue and the hydrology is improving. We haven’t heard much on this lately. Is there any sort of incremental datapoints around the Brazilian government potentially looking at providing some sort of a relief to the hydro generators or is this sort of a dead movement?

There has been a lot of activity in this area, Shar. Recently there was a technical note that was issued by an arm of the government and that’s really just a document that summarizes discussions to-date. A number of discussions are occurring. The government is targeting issuing effectively an executive order this calendar; it remains uncertain exactly when, but that’s their target. And what that order might say is not certain at this point either. So there is more work to be done here. I would say that in general the views of the people in the government and the regulators have been constructive with regard to generators in our position. So there is more to come there; in the meantime, the injunctions are still in effect and that has provided some relief to us.

Hi, just taking up on Slide 11. When you guys made the comment about the dividend trending higher than the target payout ratio, but also you are wanting to keep with the long-term EPS growth rate. Can you just maybe translate what you’re trying to signal in those comments which seem to be a little bit in conflict?

Dan, I would go back to Steve’s comments on Slide 10, with the intent to rebase off of 2016 and move to 4% to 6% from that point forward. We see the dividend trending slightly above 70% in the very near-term. And so if I look at the strength of the dividend, it is really driven by the underlying core business, which is growing quite well and given the investments we have put in place, we believe that it will continue. And so we have confidence in growing it at that rate and allowing the payout ratio to trend out modestly in the short-term; we think it’s a smart decision.

Okay. And then on O&Ms, you guys have done a good job as far as bringing down costs since the Progress acquisition. What kind of reductions do you see from here as you are a part of that ’16 drivers, the idea of bringing cost out, is it a substantial reduction in ’16 versus ’15 or is it more just absorbing inflation at this point?

We are still at work, Dan, on our plans, and we’re targeting to absorb inflation plus, and we think that's going to be a combination of a number of things that we build upon a strong foundation. As you said, we are going after productivity and efficiency, and the company has demonstrated a great ability to control costs, and we see even more potential into ’16.

Okay. And then I guess maybe the last one, just on you kind of just calibrated the commercial business and not to get too far ahead on ’16, but commercial is now coming in below where you guys thought the normal baseline would be. Do you still feel comfortable with $100 million as your run rate from the residual commercial?

This year, we’ve been impacted by wind resources, Dan, and I think that's a theme that you have seen with others that have significant renewable exposure. So we expect our restoration of that to more normal levels as part of our planning for ’16, and then we do intend to continue to deploy capital in a way that meets our return expectations, so we would expect to see some growth. I think, over the long-term, the cash spreads and other things will have to be evaluated, but we see ongoing momentum around renewables.

And we have committed projects for 2016 lined up as well to keep the growth going there and also in our commercial portfolio. As you move forward, we will start to see earnings from our pipeline investments kick in as well.

Okay. So just one last one, on the load growth trends, you may have had a—you are below, at the bottom end or a little bit below where you thought you’d be. Even the customer growth seemed pretty good this year. Are you having to reconsider kind of what that long-term growth rate is, is it 0% to 0.5% or do you think there are some discrete usage trends maybe around multi-family housing or something like that, that is explaining why usage has been that much of a drag relative to customer growth?

Dan, I think we’ve been working with a 0.5% to 1% for some time, and I think 0.5% seems to be the range that we’re in. And I think it’s all the things you talked about; it is synergy efficiency, it is housing patterns, and even volatility in industrial. We had strong industrial growth when you dial back in this quarter. So what we are focused on, as we kind of link this discussion to our cost structure, is planning a cost structure that can absorb that variability and also be positioned for modest very low load growth if that's the direction things continue to head.

I just would like to understand a little better when you are talking about this rebase on 2016 and Steve, I’m not quite sure whether I have you right. Are you saying you anticipate growing at the 4% to 6% through 2016 and then also off of 2016 or implicit within this concept, the rebase seems to be the idea that maybe you weren’t or you want to reposition the range a little bit. I just want to understand what you are saying on ’16 when you made that statement?

What we are looking at, Jonathan, is we will set a base year or anchor year off of 2016 and then you would see 4% to 6% growth from there. And we think we’ve got to do that given the changes in international; we think it’s stabilized and it’s moved from again a $0.60 business to a $0.30ish business going forward. So where we base with ’16 as the anchor, we see a 4% to 6% growth there underlined by the strong core business growth and the track history that it shows, and some potential modest growth in international from that new lower level.

And so what I would add to that, Jonathan, if you could look at Slide 10, you see the regulated and commercial portfolio, the blue bar – that's the bar that's growing at 4% to 6% and then you have an international business, which is about $0.30 in ’15, so it would add to that and grow modestly. So that’s the direction that we are trying to provide here with expectations for ’16, and then we think from that base, we are in a position to grow at 4% to 6% going forward.

Okay. Understood. Thank you. Could you maybe just—do you have an expectation currently on what—how pension will look as a driver for next year just specifically, or is it a little early to tell?

It's a little early to tell on pension. You got to take a look at the discount rate right at year-end, and who knows where that will go. If the Fed raises rates or something, that could have an impact on it. I don't think it would be any huge change that we’re looking at in pension expense at this point, but again with it being so sensitive to the discount rate, we would—it’s a little early to say precisely.

So a couple of questions. I just, these international pressures are not new and in the past you talked about trying to work on a plan and things to offset the international pressures. It just sounds to me like, just not—you just kind of changed to, they just are what they are, we’re just resetting the base and then growing off there because these are just—became too much. Is that fair to say what happened?

Steve, I would say slightly differently. In 2015, I think the team has done an extraordinary job of offsetting what has happened in international. We started the year with an expectation that they would deliver $345 million and they’re delivering just north of $200 million. And that’s execution on strategic initiatives more timely, and that’s been running the business slow and taking advantage of good weather and other things that have developed. As we look forward, we did not have an expectation earlier in the year of weather, international would rebound, the depth of the currency issues were difficult to forecast at that time, the economic implications. And so as we sit here closing the year, we see a rebound on water conditions in hydrology, but we continue to see headwinds on currency and economic growth. And so we think it’s appropriate in light of what we see today to establish a baseline of about $0.30 for ’15 on international. And then we do believe it’s stabilized and we see an opportunity for modest growth from there. I think what is important is that the 90% of the business regulated in core has demonstrated strong growth over the period of ’13 to ’15 and we think that will keep going as a result of all the investments we have put in place and our ability to execute.

And the updated guidance for the international, you are now—are you using kind of current forwards for currency in oil and the like or?

Yes.

Yes.

And essentially are you—okay, great. And then just thinking about Piedmont, and the context for the 4% to 6% of this 2016 base now, just would that—you talked on the deal announcement of that enhancing the 4% to 6%. So if there was no Piedmont, would you still be 4% to 6% or not? Could you just kind of clarify now that you have this new base?

Yes. So the growth rate is not dependent on Piedmont. We believe the base business itself, the investments that we’ve outlined, the way the business is executing is capable of growing at 4% to 6%. So we see Piedmont as incremental to the growth rate.

But still in the 4% to 6%?

Yes.

Okay. And then just on the dividend growth and earnings growth comment. Because you're saying, we’re going to grow the dividend in line with earnings, but then we’re above the payout ratio. So, kind of by definition, you just switch to end up saying about the payout ratio if that is what you actually do? So could you just kind of clarify your communication there?

Our dividend is growing about 4% now. I believe that we’ll move above the 70% target level for a while. But as we grow, we believe we’ll return back to our target level.

Real quick question, just when you think about the renewable business. You have had the earnings benefit in the last year or so. Can you quantify and Steve, you touched on it. I want to make sure I understand it. Can you quantify the total EPS benefit of the tax credits? And then how you think about replacing that if solar development slows post 2016 and tax credits don’t actually get extended?

Michael, right now, a lot of the net income bottom-line benefit from the renewables, the commercial renewables business comes from the tax benefits. There is some profitability on the non-tax side in the ongoing margin, but the bulk of the earnings comes from the tax benefits. So your question is when these tax benefits when and if they expire what happens there? I think based on what we have seen and heard now, there will still be a market for renewable power as no states are backing off RFP standards, and that’s a basis for a lot of the growth here—responding to RFPs to meet these requirements. The PPAs and the contracts may have to change with the absence of the tax benefits. And the pricing may have to change, but we will still structure this business to provide profitability here. I would also add that the cost for renewables is going down which will help offset some of the tax benefits that exist.

Got it. And just how much were those tax benefits as part of your 2015 guidance. Is that the full piece of commercial, that $75 million or just some portion of it?

It’s the majority of the $75 million.

Got it, okay. The other thing can the O&M cost savings offset the $0.17 impact of positive weather this year?

Michael, we are not getting that specific on how each of these drivers impact, so what I would direct you to is think about our O&M spend and we are at work to not only offset inflationary impact to drive those costs lower in ’16. So I think about weather and we always start by planning normal weather and then we’re building up with investment earnings as well as cost control.

Hi, my questions have been answered, guys.

I got to put my dead head on for a second here. Can you just talk a little bit about how much cash flow is upstream from the regulated utilities to the parent level every year on an annualized basis?

I think we will probably take that question offline. Jim, I’m not sure we’ve got a cash flow statement sitting in front of us here.

Right, I don't have that with me; we’ll have to work on that a bit, Jim.

Lynn and Steve, just listening to your comments, just so that I’m clear, with normalized weather next year, international being modest, some cost savings and then the rebasing, just directionally it appears that ’16 is pretty much flat to maybe modestly down from ’15. Is that fair?

I think we’ve given you the drivers. If you look at the slide on Slide 10, to grow the base business at 4% to 6% and add to it international with modest growth, and so I think we’ve given you a pretty good sense of where we think it will be, and of course, we’ll give you more detail in February as we finalize our business plans so that you can understand more specifically how much of it is coming from O&M and how much is coming from each of the business segments.

Okay. And more near-term in 2015, when you locked off $0.10 from the higher end of the range, is that all because of commercial? Is it international being worse? Can you just kind of elaborate on the change in ’15 guidance?

So Ali, we have really been working throughout ’15 to offset weakness in international and have been successful in doing that through a variety of things including favorable weather, as well as early closings on the Eastern Power Agency and the stock buyback. As we look to the fourth quarter, though, we always plan for normal weather; we started out with October being mild, we have storm expense sitting in October, we have a slightly weaker currency as a result of some of the movements that occurred in September, and then we also talked about the extension of bonus depreciation. We don't know for sure, but it feels to us like that will likely get extended, and if it does, because of our cash position, it results in a modestly higher effective tax rate for the company. So all of those things considered we think $4.55 to $4.65 is an appropriate range at this point.

Steve, and on the bonus depreciation front, Lynn, I mean the talk is that if it gets extended, it’s a two-year extension. I’m just curious if that's how you guys are seeing it, and if so can you just quantify the bonus depreciation and extension impact for Duke?

We’ve heard various guesses at how long it will be extended; we think there is a good likelihood of at least one year. A two-year extension is possible as well, and the impacts for 2015, for a one-year extension is in the range of $0.04 for us. If you go beyond into a two-year extension, it could be a similar number; it just depends on our overall tax positioning. The issue for us is we’re toggling in and out of an NOL position, which makes us perhaps unique in the industry. If you are deeply within an NOL or outside of an NOL position, this extension doesn’t have an impact and it depends a bit on when we come out of that NOL position, which depends on other factors. So it's a little hard to predict beyond ’15.

And of course all the cash flow. Cash flow is positively impacted if it is extended, so let’s see if this is giving you as earnings for certain.

Absolutely. Last question, Lynn, so on the international operations is the mindset now look, sort of hunker down and sort of work with the portfolio flat to modest growth? Is that sort of the planning now and not really being more proactive and saying, hey, does this really fit in the portfolio?

Our focus has certainly been this year, Ali, trying to run the business as efficiently as we can. We focused on cost; I think the international team has done an extraordinary job in a difficult market. We think it stabilized, and hopefully, we’ll see a slightly better picture in ’16. I think the portfolio is always under review. The fact that we added Piedmont is consistent with our view that we wanted more natural gas in the portfolio. So that’s an ongoing review; in the meantime, we’re also taking advantage of the international cash, as you know.

In your release, you indicate that for the quarter, weather was a $0.09 pickup at the utility and then when I look at Slide 19 in the deck, I see that last year it was $0.06 below norm, but this year is basically short of normal. Just trying to reconcile that?

Yes. I think that your statements are correct; there is some rounding in some of these schedules I believe is the difference in your sense. But we’ve returned to normal weather this quarter; last year, it was mild weather.

And Paul, the other thing I would note the share count is going to have a difference between ’14 and ’15, because of the share buyback.

Okay. And then kind of given the pending Piedmont acquisition, what’s going to happen to proceeds from securitization, should that just sit on the balance sheet when you use that cash when you close the deal?

Yes. So we would expect securitization to move through the process in ’16, Paul. So we don’t come into the cash flow as a company and be used for investments or $4 billion debt in the short-term. But we do see it as the cash flow item that over a long-term basis could be used for long-term investments, Piedmont being one of them.

When do you expect that cash?

We would expect to be able to close the securitization in the first to second quarter of 2016.

And then just lastly, your latest thoughts around filing rate cases in your regulatory jurisdictions?

We’re looking at filing in, I would say, in the late teens. It depends upon investment plans and other factors there that we’d look at jurisdiction by jurisdiction. But generally, we’re looking at rate cases in the Carolinas in the late teens.

And then lastly, just a clarification on the payout ratio discussion, if you were to look at your ’15 payout ratio, what would you use as the numerator and denominator? I guess $460 would be denominator?

I’m sorry, ask that again. I’m sorry, I’m not.

I just want to make sure how are you thinking about the payout ratio? What is it, the indicated dividend at year-end, or is it the dividend paid during the year?

It’s the dividend paid during the year as it grows over the annual earnings.

So it’s kind of a mix of two years of dividends, because change at mid-year?

So there is nothing fancy about this, Paul. Whether you use an annualized number or whether you use what is paid out, I think it’s all a matter of small rounding. I would calculate the payout ratio the way you typically do for every other utility.

So thank you everyone for joining us today for your interest and investment in Duke Energy. Our fourth quarter earnings call, which will also include our updated financial forecast, will be held in February, and we look forward to seeing many of you in the coming months and at the EEI Conference next week. Thank you.