Duke Energy Corp (DUK) — Q3 2019 Earnings Call Transcript

Thank you, Derek. Good morning everyone, and thank you for joining Duke Energy's third quarter 2019 earnings review and business update. Leading our call today is Lynn Good, Chairman, 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. Slide 2 presents the safe harbor statement, which accompanies our presentation materials. A reconciliation of non-GAAP financial measures can be found on duke-energy.com and in today's materials. Please note, the appendix for today's presentation includes supplemental information and additional disclosures. As summarized on Slide 3, during today's call, Lynn will provide an update on the quarter and progress on our strategic initiatives. Steve will then provide an overview of third quarter financial results and insight about economic and load growth trends. He will also provide an update on our regulatory and financing activities this year before closing with key investor considerations. With that, let me turn the call over to Lynn.

Bryan, thank you and good morning everyone. Today we announced strong results for the quarter with adjusted earnings per share of $1.79 compared to $1.65 in the prior year. This represents 7% growth through the first three quarters, giving us confidence that we will look to the rest of the year. We have narrowed our 2019 EPS guidance range to $4.95 to $5.15, raising the midpoint into the upper half of our original range. We also reaffirmed our long-term earnings growth rate of 4% to 6% through 2023, at the midpoint of our original 2019 guidance range. 2019 has proven to be a solid year of growth for Duke Energy as we transform the customer experience and deliver value for our shareholders. We continue executing our strategy, making significant investments in the energy grid, cleaner generation, and natural gas infrastructure, and the fundamentals of our business remain strong. Let me highlight several operational accomplishments in the quarter on Slide 4. First in early September, Hurricane Dorian, a historic Category 5 storm with an unpredictable path devastated the Bahamas before sweeping across the East Coast. Our thoughts remain with the people of the Bahamas as they continue the long journey to rebuild their communities. In the days leading up to Dorian’s potential landfall, weather forecasts and models projected significant outages to our Florida and Carolinas service territories. In response, we mobilized nearly 8,000 resources in Florida and over 10,000 resources in the Carolinas as we braced for the storm. While Dorian’s track shifted, it caused nearly 300,000 outages in our service territories. Our teams’ preparation, commitment to our customers, and focus on our operational excellence enabled us to restore more than 95% of the outages within 24 hours. Also, our systems and employees performed well in the face of some of the hottest days on record in September and early October. Despite these temperatures, our fleet performed well and served customers with the energy they demand. In the quarter, Duke Energy was named one of the top sustainable companies in North America by Dow Jones for the 14th consecutive year. This is a testament to our climate strategy, sustainable practices, and ongoing investments in cleaner generation. In addition, Duke Energy received the U.S. Transparency award, which recognizes the quality and transparency of information the U.S. companies make available to investors. Duke Energy was awarded Best Corporate Disclosure for the utility industry. I'm proud of our employees and our operational execution during the quarter. From storm preparation to industry recognition, we continue to demonstrate the strength of our business and excel in our operations, which is fundamental to achieving our long-term strategy. Turning to Slide 5, in September, we announced a more aggressive comprehensive strategy to reduce carbon emissions. By 2030, we will cut carbon emissions by at least 50% from 2005 levels, and aspire to attain net zero carbon emissions by 2050. Our commitment for 2030 includes plant retirement, operating our existing carbon-free resources, investing in natural gas infrastructure, renewables, and our energy delivery system. Our recent rate case filings in Indiana and the Carolinas are consistent with this accelerated approach. As we look beyond 2030, we will need additional tools to continue our progress. We will work actively to advocate for research and development of carbon-free dispatchable resources that includes longer-term energy storage, advanced nuclear technologies, carbon capture, and zero carbon fuels. We will also pursue second license renewal for all of our nuclear assets to maintain this low-cost, carbon-free source of generation. The journey and timeline for achieving our targets will be different in each state. And we're committed to working with our regulators and other stakeholders to design the right path for our customers and communities. Making our energy system cleaner and more sustainable means we must transform the way we operate, and we're facing that challenge head on. We've made great progress, and our acceleration in this area will position the company to provide customers with a cleaner, smarter energy future. The investments shown on Slide 6 are also consistent with our climate strategy. Our Asheville combined cycle plant is on track to be completed by the end of the year. This plant is part of our $1.1 billion Western Carolinas modernization project that supports this growing region. Also in North Carolina, the second renewable energy RFP under House Bill 589 launched in mid-October. The RFP seeks another 680 megawatts of solar projects, which would bring the total renewables under the program to almost 1,200 megawatts. We look forward to participating in this next phase of the process. As a reminder, in Florida, we will be installing 700 megawatts of solar by 2022 as part of our multi-year settlement agreement. Today, the Commission has approved the recovery of 344 megawatts under the solar base rate adjustment mechanisms. Focusing on our commercial renewables business, we had another impressive quarter. So far this year, we've announced over 1,500 megawatts of new wind and solar projects, including nearly 400 megawatts announced in the third quarter. Given our pipeline of investments, we have line of sight for nearly all of our growth prospects for 2019 and 2020 and 70% over the five-year plan. Shifting to our gas business on Slide 7, let me update you on the status of the Atlantic Coast Pipeline. In early October, the U.S. Supreme Court accepted our petition to review the Fourth Circuit Court of Appeals Appalachian Trail crossing decision. This is a very encouraging sign and provides the path forward to resolve this important issue. We expect the Supreme Court will schedule arguments for early next year, with a final decision no later than mid-2020. As a reminder, the Solicitor General has joined our appeal, and we are supported by a broad coalition of stakeholders, including 16 State Attorneys General. We believe the law, in fact, is on our side and look forward to moving toward a final resolution. We also continue to work with project partners and the Fish and Wildlife Service on the biological opinion, an incidental take statement, to resolve the issues identified by the Fourth Circuit. Based on early discussions, we now expect the permits to be issued in the first half of 2020. While this is later than previously anticipated, all parties are keenly focused on delivering reissue permits that are robust enough to minimize the potential for further appeal. This timing also aligns more closely with the expected Supreme Court decision, providing more clarity before we pursue full construction activities. Given this timeline for the resolution of the Appalachian Trail crossing and the biological opinion, we are no longer pursuing a phased approach, but are now planning for mechanical completion of the project in late 2021 with full in-service in the first half of 2022. On the customer front, the ACP project partners have advanced discussions on the project status and costs, and we expect to reach an agreement in principle by the end of this year balancing price and project returns. We believe this pipeline remains the best option to meet our customers' needs. We remain committed to the Atlantic Coast Pipeline and the significant benefits that will bring to our customers and our region. It will provide much-needed natural gas to an underserved area of the Southeast and allow us to retire coal units and replace them with cleaner burning natural gas-fired plants to help meet our carbon reduction targets. In addition, it supports critical resiliency needs for some of the country's most important military outposts. At the same time, as we execute on our $37 billion growth capital plan that underlies our 4% to 6% earnings growth rate, we have consistently stated our commitment to a strong balance sheet. Given ACP progress and clarity on important milestones, which includes the delay in project revenues until early to mid-2022, we are increasing the amount of equity in our plan. We plan to monitor market conditions and issue approximately $2.5 billion opportunistically by the end of 2020. This additional equity allows us to absorb a wide range of outcomes associated with ACP while also offering greater financial flexibility to the company. For instance, after ACP comes online, we will have the ability to moderate our current assumptions of $500 million per year in DRIP and ATM issuances. Additionally, we see emerging infrastructure needs for our expansive energy delivery system, which may require incremental investments, which would drive additional growth beyond our existing $37 billion growth capital plan. We believe this issuance keeps us moving forward as we deliver value to our customers and results for our shareholders. We remain confident in our ability to achieve 4% to 6% earnings growth through 2023 given our healthy franchises and strong investment growth profile. Steve will discuss more details about our growth drivers in a moment. Circling back to ACP, I'm pleased with the progress we've made to advance this important infrastructure project. While this is a lengthy process, we're committed to the project and its completion, and we will continue to share details as we learn more. Moving to Slide 8, let me share a few updates about recent legislative developments. Earlier this week, Senate Bill 559 was enacted into law in North Carolina, enabling the Utilities Commission to approve storm costs securitization. This important mechanism will save customers 15% to 20% on storm costs and support our balance sheet. We’re pleased with the General Assembly's unanimous vote on securitization, and also the bipartisan support for other costs recovery mechanisms that we advocated for, such as multi-year rate plans and ROE band. While the final bill does not include these other provisions, Governor Cooper's Clean Energy Plan speaks to the potential for modernized recovery mechanisms for the State. We are encouraged that these important reforms are part of the broader energy policy dialogue, and we will actively participate in the 2020 stakeholder engagement process related to the Clean Energy Plan. Changes to the regulatory construct are a vital part of achieving North Carolina's energy objectives in the long term. We are focused on advancing modern mechanisms and the customer benefits they provide. In the near-term, our attention will be on the execution of frequent rate cases and pursuing solutions to reduce regulatory lag. Both are important to delivering customer benefits and meeting our earnings objectives. We have operated in North Carolina for more than a century providing our customers with safe and reliable power. The state is thriving with a strong economy and increasing demand for new energy infrastructure. As we look ahead, we share many of the state's objectives and will partner with stakeholders to develop innovative solutions and thoughtful energy policy. Energy policy discussions are also advancing in many of our other states, and stakeholders are embracing the value of improving the grid. In Ohio, Health Bill 247 is progressing through the legislature. This bill would further grid modernization, distributed generation, and other investments to benefit customers. And in Florida, recently enacted legislation promotes grid hardening investments that will improve the resiliency of the grid against extreme weather events while establishing rider recovery for the investments. The Florida Public Service Commission is finalizing rulemaking, and we expect to file our storm protection plan in 2020. With over 300,000 line miles across our utilities, our transmission and distribution network is the largest in the nation, and the demands in our energy delivery system have never been greater. This requires significant capital investment to ensure our communities keep pace with the energy transformation occurring across the nation. We’re excited to work with stakeholders across all of our electric and gas service territories to ensure the pace and scale of our investments align with customer needs. Before turning it over to Steve, I want to reiterate our strong confidence in our long-term strategy and our continued ability to deliver on our commitments. We're taking necessary steps to maintain the strength of our balance sheet advocating for solutions across our jurisdictions and making progress as we advance our investment priorities to benefit our customers and shareholders. As we move into the fourth quarter, we look forward to closing out a very strong year. With that, I'll turn it over to Steve.

Thanks, Lynn and good morning, everyone. I'll start with quarterly results on Slide 9, including our adjusted earnings per share variances to the prior year. For detailed information on variance drivers and a reconciliation of reported to adjusted results, please refer to the supporting materials that accompany today's press release and presentation. On a reported basis, 2019 third quarter earnings per share were $1.82 compared to $1.51 last year. Third quarter 2019 adjusted earnings per share were $1.79 compared to $1.65 last year. The difference between 2019 reported and adjusted earnings was due to a reduction in an open impairment charge originally recorded in 2018. This benefit has been reflected as a special item and excluded from adjusted earnings. For the quarter, higher adjusted results compared to the prior year were primarily due to growth from investments at the electric and gas utilities, favorable weather, and lower O&M expenses. These items were partially offset by higher financing costs. Within the segments, electric utilities and infrastructure was up $0.25 compared to the prior year. Higher results were driven by base rate increases across multiple utilities, more favorable weather, and higher rider revenues, including recovery of our Midwest grid investments. O&M was also favorable in the quarter. During September, Hurricane Dorian impacted our Florida and Carolinas utilities. We estimate total cost for Hurricane Dorian at approximately $400 million, including $150 million in Florida. We deferred the majority of these costs and request recovery through regulatory proceedings at DEP and DEF in the coming months. Similar to previous hurricane costs, such as Florence, a portion of the Dorian costs are not eligible for recovery. While Hurricane Dorian restoration costs impacted our quarterly results, we incurred higher costs in the third quarter of 2018 for a net favorable effect this quarter. We also continue to excel at controlling traditional O&M costs, exceeding our own targeted savings for the quarter. While we expect some of the O&M favorability to turn in the fourth quarter due to timing, it is clear our digital and efficiency efforts are producing real savings. I will speak more about our capabilities in this area in a moment. These positive drivers were partially offset by higher depreciation from a growing asset base and slightly lower retail volumes. Shifting to gas utilities and infrastructure, results were up $0.01 in the quarter, largely due to growth from our Midstream investments. While we did see growth in our LDC businesses from an increase in customers, we expect these businesses to have a strong earnings contribution in the fourth quarter due to seasonality. In commercial renewables, results were up $0.02 driven by favorable wind resource and growth from our new projects. The other segment was down $0.11 for the quarter, largely due to higher financing costs and the timing of income tax expense recognition in the current year. We continue to expect our full-year 2019 adjusted effective tax rate to be between 12% and 14%. Finally, share dilution drove a $0.03 decline given we issued shares in December to settle last year's equity forward agreements. We are very pleased with our results so far this year, delivering 7% growth on a year-to-date basis. This execution gives us confidence that we will achieve full-year results within our narrowed 2019 earnings per share guidance range of $4.95 to $5.15. Turning to Slide 10, we operate in jurisdictions with strong customer and business growth fueled by steady population migration. In the third quarter, we saw a pause in the volume growth we experienced in recent quarters, driven primarily by the industrial sector. On a rolling 12-month basis, weather normalized retail electric load growth was negative 0.5%. Within the residential class, we continue to experience outstanding customer growth in each of our territories with an overall increase of 1.6% in 2019. Company sponsored energy efficiency programs for which we are compensated have contributed to the decline in recent residential usage per customer. Residential results in the quarter were also likely impacted by Hurricane Dorian. These factors together resulted in relatively flat residential volumes for the rolling 12-month period. In the commercial class, sales were down 0.6% over the rolling 12-months. Results were impacted by greater adoption of our energy efficiency programs and big box retail closures. These were partially offset by an uptick in data center expansions and strength in the medical services segment. Finally, sales in our industrial class declined 1.3% on a rolling 12-month basis. Lower industrial volumes were driven by manufacturing contractions and the weakening global economy. A few singular industrial closings and manufacturing outages further influenced the rolling 12-month average. We believe these specific outliers will improve as we move forward. Overall, our strong customer growth, attractive jurisdictions, and business diversity helps to mitigate broader macroeconomic headwinds. We expect to end the year flat to last year and recall this follows growth in 2018 of almost 1%. We’ll continue to monitor economic trends and impacts on our sales volumes and will provide updates on our February call. Turning to Slide 11, let me update you on our active regulatory calendar. We filed rate cases for DEC and DEP in North Carolina in September and October respectively. We are seeking recovery for investments in cleaner generation infrastructure, grid modernization projects, and accelerated depreciation of certain coal units. We also request recovery of coal ash remediation spend and deferred storm costs. Now that the storm securitization bill is law, we will seek to securitize the North Carolina portion of these costs, which will reduce the rate impact to our customers. Both cases proposed a 10.3% ROE and a 53% equity component of the capital structure. Evidentiary hearings for the DEC case are set to begin in March 2020. We expect revised rates for both DEC and DEP to be effective in the third quarter of 2020. Moving to Piedmont Natural Gas, we’re pleased with the outcome of the settlement in the North Carolina rate case which was approved on October 31. Under the agreement, Piedmont is allowed a 9.7% ROE and a 52% equity capital structure. Piedmont also received approval of a 9.9% ROE and a 55% equity capital structure in their recent South Carolina annual regulatory filing. Turning to our other utilities, we continue to work through rate case proceedings at Duke Energy Indiana and Duke Energy Kentucky, with hearings expected in the first quarter of 2020 in both cases. We have a robust regulatory strategy that has enabled us to consistently secure recovery of investments we make on behalf of our customers. Our regulators understand the importance of the work we do to serve our communities while also maintaining healthy utilities in their regions. We will continue this important work as we close out 2019 and move into 2020. Shifting to Slide 12, our strategy is focused on delivering value to customers through investments in clean energy, natural gas, and grid infrastructure underscored by a $37 billion growth capital plan through 2023. As Lynn mentioned, and as we have previously emphasized, we are committed to maintaining the strength of our balance sheet and are taking proactive steps to ensure our credit metrics remain strong. With ACP’s projected revenues delayed until 2022, we intend to issue approximately $2.5 billion of equity by the end of 2020. This will align proceeds with the timing of ACP construction activities and help avoid unnecessary dilution in 2020. In 2021 and 2022, dilution will be offset by increased ACP earnings given we are no longer pursuing a phase-in approach, AFUDC will accrue on the entire balance until full commissioning occurs, providing an earnings uplift during construction. This additional equity strengthens the company's credit profile, providing sufficient balance sheet strength to absorb a wide range of outcomes associated with ACP. We continue to expect equity issuances of $500 million per year through 2022 via the DRIP and ATM programs for a total of approximately $4 billion of equity issuances over this three-year period, compared to our previous plans of $1.5 billion during this time period. However, after ACP comes online, this additional equity will provide us the balance sheet flexibility to moderate or eliminate annual equity issuances, or deploy additional capital towards regulated investments. Let's turn to Slide 13 where I'd like to highlight approximately 5.5% growth we've seen in our core electric and gas segments this year, which includes financing costs at the holding company. This is on top of the adjusted 5.5% growth we saw for these businesses in 2018 versus 2017. These results have been driven by execution on our $37 billion growth capital plan and top-notch O&M cost control efforts, highlighting the outstanding electric and gas service territories in which we operate and giving us great confidence as we look to 2020 and beyond. With that, let's move to Slide 14 to discuss primary growth drivers for next year. I'll start with 2020 drivers in the Electric Utilities segment. In Florida, we will continue to recover our grid investments through the second base rate increase in our multi-year rate plan. We also expect growth from additional solar projects we covered under the solar base rate adjustment mechanism. In the Carolinas, we have a full-year benefit from the South Carolina rate increases that went into effect in June. We’ll have partial year contribution from the North Carolina rate cases filed this year as well as increased wholesale earnings due to improved pricing. In the Midwest, we’ll see the impacts of our Indiana and Kentucky rate cases and will continue to invest in transmission and distribution upgrades that are recovered under our rider programs. Shifting to the gas segment, we will see higher AFUDC earnings from ACP given we expect construction activities to resume in 2020, once key permits are reissued. The LDC business will see growth from Piedmont’s rate cases, customer additions, and continued investments in integrity management and power generation infrastructure. Our commercial renewable segment will be largely flat to 2019. But as Lynn mentioned, we have line of sight for substantially all our growth prospects for 2020 and 70% over the five-year plan. In addition to a long utility-driven runway for investment, our demonstrated cost control capabilities will remain an important tool to achieve our growth objectives. Our track record of cost management has been outstanding. Since 2015, we have actually lowered non-recoverable O&M from $4.9 billion to $4.8 billion. This includes absorbing $300 million of O&M from the Piedmont acquisition in 2016, in addition to offsetting wage and salary increases and general inflation. In 2019, we continue to take advantage of our scope and scale by investing in digital capabilities and data analytics, which are creating sustainable cost savings. For example, we established an IDEA Lab earlier this year. We have nearly 400 people at this facility who are dedicated to developing digital applications and other solutions to benefit operations every day. In less than a year, they have put more than 20 applications into the field. We know these capabilities will serve us well over our long-term planning horizon. Beyond 2020, we expect dilution from the $2.5 billion equity issuance to occur beginning in 2021. This will be offset by increased ACP earnings. We are no longer pursuing a phase-in approach, and therefore AFUDC will improve on the entire balance throughout the construction period, providing an earnings uplift in 2021 and 2022. Many of the drivers I just described will also support earnings growth in 2021, such as the Florida multi-year rate plan and SOBRA investments, full-year rate case impacts in North Carolina, Indiana and Kentucky, as well as continued grid investments in the Midwest utilities. Longer-term, we expect significant investment opportunity from storm hardening legislation and solar demand in Florida, the growing need for cleaner generation and energy delivery infrastructure in the Carolinas, and new gas distribution infrastructure across our footprint. These drivers give us confidence in our 4% to 6% earnings per share growth rate through 2023. Consistent with our historical practice, we will provide 2020 earnings guidance and our growth prospects for future years during our February financial update. I'll close with Slide 15; we are having a fantastic 2019, as illustrated by another strong quarter. The fundamentals of our business remain strong as those are an attractive investor value proposition founded upon our growing dividend, which currently yields 4%. Coupled with earnings growth of 4% to 6% from transparent, low-risk investments, we offer a compelling risk-adjusted total shareholder return of 8% to 10%. Our scale, constructive service areas, and ability to execute make Duke Energy a solid long-term investment opportunity. With that, let's open the line for your questions.

Okay, good morning guys.

Hi, Shar.

Good morning.

Just on the couple of questions here. On the equity that was just announced, curious on your thoughts on the timing, especially without knowing the viability of ACP. So can you run into a situation where you issue or commit to the equity and SCOTUS to further appeal somehow deal a blow to the project. Do you sort of need the equity if ACP is ultimately cancelled? And then I'm just curious how Steve you're thinking about the method on the equity hybrid, convertible, forwards?

And Shar, I will take that. I think this has been a journey on this project, as you know. And we really looked at the progress made in this quarter that provided us some clarity on a couple of important milestones. So certainly SCOTUS taking the case was important for us to have greater confidence in getting over the trail. And then the fact that we've continued discussions on the biological opinion, discussions with our customers and contractors, all of that taken together, we concluded that targeting a single in-service date at the end of 2021 with completion, mechanical completion in 2021, full-completion in 2022 was the right approach, balancing customer benefits, construction efficiencies, and all of those things and so as we reach those milestones, we thought looking at financing was also appropriate. And as we looked at financing, we did consider a range of outcomes on this project. We’re committed to completing the project. But I think the fact that we have had challenges along the way makes us clear-eyed about evaluating the range of outcomes. We also believe this approach supports the $37 billion capital we're funding in the rest of our regulated business. And with getting the equity out there, we do have flexibility with our DRIP and ATM in the future, if circumstances indicate that we could moderate that and we have additional investments that we could put forward. So we thought it was appropriate in light of the events that occurred this quarter, Shar, to de-risk our plan, get the balance sheet in good shape, move forward, as we have said on Atlantic Coast Pipeline, and really feel like the plan itself is a solid one that represents good growth for investors.

Got it. So with or without, please go ahead.

I was just going to say regarding the mechanism, we've got plenty of time to do this equity. So there are, as you mentioned, a number of tools out there we will be looking at that and seeing what makes the most sense for us, but nothing further beyond that at this point.

So with our without ACP, the capital program, you have necessitates the needs for equity, with or without ACP, I think?

Shar, what I would say is we have already invested almost $2 billion in ACP. And we are continuing to advance the project in light of the developments that have occurred. And so this equity is really to strengthen the balance sheet through that construction period, also supporting the capital growth. And we do have the ability to the DRIP, DRIP, and ATM to moderate if we think that makes sense in the future. But we thought it was appropriate to look at financing and de-risk the balance Sheet at this stage in light of the progress that we’ve made.

Got it. And then just lastly on Senate Bill 559, obviously, as you highlighted, it’s signed into law but it was obviously missing the key piece of the proposal around multi-year planning, ROE band, et cetera. Curious on why this was removed, especially given the Governor's kind of Clean Energy Plan, which was submitted earlier this year and included the possibilities of these mechanisms. So he obviously understands the importance. So I'm curious why that ultimately was removed. And I have to envision the stakeholder process in the Governor's Clean Energy Plan is going to be much more involved. So if you can give us a little bit of a sense on timing, that would be great.

Appreciate that, Shar. And I think the fact that the Clean Energy Plan gives recognition to regulatory modernization is a good thing. But the Clean Energy Plan also includes carbon reductions of up to 70%, of greenhouse gas emission reductions up to 70% and also talks about the retirement of uneconomic coal plants, grid support for clean energy. So it does bring in a number of other topics. And I think the spirit of the stakeholder process will be to address not only the modernized regulatory construct but some of these other items. And as we look at the plan, in light of our climate strategy, we see a great deal of alignment on how we would like to go forward and believe will be an important part of delivering the solutions that the Governor lays out in the clean energy plan.

Got it. Thanks guys. I'll jump back in. Thank you so much.

Thank you, Shar.

Hi Lynn and Steve.

Hi Michael.

Okay. Hey can you elaborate further on reasons for delays at U.S. Fish and Wildlife into the first half of 2020, do this and does the move away from a phase-in approach simply mean that there's just no appetite among off-takers for that Phase 1 alternative that had been discussed previously?

Let me take that in two parts, Michael. So the discussions are underway with Fish and Wildlife. We are taking a look at all of the feedback from the Fourth Circuit evaluating the next step. There's been extensive work done as you know, additional surveys of the Bumblebee and the Clubshell Mussel and the intent of all of the parties is to address those concerns in a way that reduces any additional risks associated with remand from that permit. So we believe it could be issued as early as wintertime, we keep our eye on that tree-clearing window as you know, to try to get trees cleared if we can before the 1st of March. But given our timeline with the Appalachian Trail, we can also accommodate slipping a little further in 2020. I think in terms of the phased-in approach, we have continued discussions throughout this project with customers and also monitoring all of the developments that have occurred, including these permit challenges, et cetera and the greatest value for our customers is the complete project because they're trying to get to that supply basin, and also infrastructure diversity and to the Eastern part of the state. And so that single project is where our customers see the greatest value. And I also believe with our timing that the construction efficiencies of building it in a single phase also make a great deal of sense. So we've got some alignment, and with that movement to revenue in 2022, that was a driver as well as we thought about our financing plan.

Got you. And one last one, has there been any change to the approximate 2% dividend growth expectation? I know you have a commitment to dividend growth. But just wondering if this equity issuance makes any change to that?

Michael, we will reevaluate in connection with guidance in February. But I think that's a reasonable planning assumption for now. We see that as an opportunity and a way for us to moderate our payout ratio to be more in line with our industry peers. And the combination of all these things puts us in a very strong position to execute our growth plans.

Okay, thank you very much.

Thank you.

Thanks. Good morning.

Good morning.

Good morning.

Congrats on having a really strong year this year.

Thank you, Greg.

As it pertains to ACP, with the phased-in, with the lack of a phased-in approach, you would be booking the full AFUDC rate until the project goes into service, so I can see how that has an accretive effect to earnings in 2021 and sort of as an offset to the increased share count. But when it goes into service and you start collecting the actual cash revenues based on the current contract rate, given that the project is coming in at $7.5 billion when the initial service cost was estimated to be in the mid-5s, not that you're alone, there's lots of pipes that are having this issue, shouldn't the return on the pipe unless you're able to negotiate some pass-through of those cost overruns go, that the cash earnings will be lower than the AFUDC rate unless you were able to get contract relief. Is that the right assumption?

Greg, I think it's important to recognize that we had been in conversations with customers all along the way on the status of the project and also the cost. And we do expect to reach an agreement in principle by the end of this year that provides the right balance between customer price and returns. So we have said a number of times that the actual executed return on this project will be a regulated like return, and we believe that continues to be a fair planning assumption. I think the AFUDC rate is higher, about 14%. But we believe the in-service rate will be a very good regulated return.

Okay, so you believe you'll be able to negotiate a balanced outcome where the after-tax ROE on the pipe on the current, on the new construction cost will look like a good regulated return?

I think it will be a balanced outcome. The business case for this pipeline has remained unchanged. From Duke Energy's perspective, the need for additional firm transport into the Carolinas is unchanged and increasing over time. This pipeline represents a significant opportunity for us to position the Southeast for the long term, and our customers are aware of this. The same applies to Virginia and the eastern part of Virginia. What often goes unnoticed is the fundamental need for this pipeline due to the demand in the region.

No doubt about that. Thank you, Lynn.

Thank you.

Good morning, Lynn and Steve.

Good morning.

Good morning, Chris.

Obviously, the markets are doing well and utilities are doing well in terms of stock price performance. I'm wondering if part of your plans included evaluating asset sales in lieu of doing equity. And then, I guess tied to that question, is part of your decision to do this size of equity tied to the strong market performance?

Yes, Chris, it's a good question. And from our history, we have monetized assets over time, including as recently as a joint venture partner into our commercial renewables business. So we have evaluated that. We believe that our portfolio, we like our portfolio, it's delivering value, it's growing, we have great investment opportunities. So our intent is to pursue this equity need through a security through the markets as opposed to an asset disposition. And so we'll evaluate the timing opportunistically, as Steve mentioned, and believe that’s going to position the company well for growth in the future.

Okay. And then is it fair on the equity issuance to assume that the full amount of the $2-plus billion would hit your share count by the end of next year through cost infrastructure or others?

Yes, that’s correct.

Yes, that’s a fair planning assumption.

Okay. And then, Lynn, you started to address this in a prior question, but just the Governor's plan in North Carolina, kind of what it means for the future, seems like it's a good thing for you guys and your ability to invest in the state and further the goals there. But is there any more detail that you can provide us on next steps and your efforts to get lower regulatory lag and more visibility into your regulatory recovery?

Sure. And I guess I’ll take that in two ways. Chris, on regulatory lag, we have that assignment regardless of what happens to the clean energy plan and we’ll accomplish through deferrals, through capital optimization, through timing our rate cases as well, and you can expect us to continue to focus on that very keenly. But as it pertains to the clean energy plan, early discussions are already underway. The Department of Environmental Quality in the state is overseeing this process. We would expect stakeholder workshop to kick-off even as early as the end of this year, but continuing into 2020. And there were probably a half dozen stakeholder processes during the course of 2019 in preparation for the issuance of the plan. So it's already building some momentum. And as you noted, and as I said, we see a lot of alignment between our climate strategy and what the Governor is trying to accomplish. And I've looked at where we are in North Carolina with over 30% reduction in carbon emissions already, close to 35%. Our IRP plan puts us between 50% and 55% already by 2030. North Carolina is second in the nation in installed solar capacity, over 50% of the energy comes from carbon-free sources. We're looking to second license renewal on nuclear. So there are a number of strategic things that I think line up well with us and so we’ll be very interested in continuing that discussion in 2020 with the clean energy plan stakeholder process.

Okay. Is there a point in time at which those stakeholder discussions move to the Utility Commission? Or is that kind of too far out to tell?

I think it’s too far out to tell. Chris, I do think just getting back to part of it. So we have in front of the commission right now accelerated retirements of coal in connection with our rate case. So we'll have an opportunity to advance that discussion. It's consistent with the clean energy plan over the course of our rate case, and you can expect to see testimony along those lines. So there will be advances consistent with that plan during 2020. I will of course keep you informed about the stakeholder process as it unfolds.

Okay, great. Thanks Lynn.

Thank you.

Great, well thank you everyone for your questions and your interest and investment in Duke. We look forward to seeing many of you at EEI in the next few days. So thanks again.