Good day, everyone and thank you for standing by. Welcome to the Duke Energy Fourth Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jack Sullivan, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Hannah. Good morning, everyone. And welcome to Duke Energy's fourth quarter 2020 earnings review and business update. Leading our call today is Lynn Good, our Chair, President and Chief Executive Officer; along with Steve Young, Executive Vice President and CFO. Today's discussion will include the use of non-GAAP financial measures and forward-looking information within the meaning of the securities laws. Actual results could differ materially from such forward-looking statements, and those factors are outlined herein and disclosed in Duke Energy's SEC filings. A reconciliation of non-GAAP financial measures can be found in today's materials and on duke-energy.com. Please note the appendix for today's presentation includes supplemental information and additional disclosures. So, with that, let’s turn the call over to Lynn.

Jack thank you. And good morning, everyone. I want to take a moment and welcome Jack to his first earnings call. He has recently assumed responsibility as Vice President of Investor Relations after a very strong 15-year career with Duke where he's had financial experience, capital markets experience, M&A experience, and bring that wealth of background to this role as well as a deep understanding of our company and our industry. We have put him to work over the last couple of weeks with all of our announcements. So many of you have already had a chance to meet and talk with Jack, but you can look forward to more interaction with him as we go forward. So good morning to all of you. It's great to be with you for our fourth quarter 2020 earnings call. We began the year with significant momentum on strategic, regulatory and stakeholder fronts. And I'm very optimistic about our future heading into 2021. Today, we announced adjusted earnings per share of $5.12 for the year, putting us solidly within our updated guidance range for 2020. These results reflect the strength of our regulatory utilities, our commitment to generating sustainable shareholder value and our financial agility, especially in response to the unique difficulties of this past year. We also affirmed our 2021 guidance range of $5 to $5.30, with a midpoint of $5.15, and our recently increased long-term EPS growth rate of 5% to 7% through 2025 based off the midpoint of our 2021 guidance range. Like most companies, 2020 presented us with new challenges and I'm extremely proud of how we responded. We faced those challenges head-on, swiftly responding to the COVID-19 pandemic to support our customers and our workforce, adjusting our plans after removing Atlantic Coast Pipeline, producing $450 million of mitigation…

Thanks, Lynn. And good morning everyone. 2020 was a year marked by agility and transformation. We delivered results within our guidance range, overcame headwinds and leveraged our size and scale to position the company for significant growth in the years ahead. As shown on Slide 7, our full year reported and adjusted earnings per share were $1.72 and $5.12, as compared to $5.06 of reported and adjusted earnings per share in 2019. We took swift and decisive action to mitigate the challenges we faced this year. We did not allow COVID-19, mild weather, storm and the loss of ACP earnings to define our path forward. And this commitment and dexterity enabled us to deliver solidly within our narrow 2020 earnings guidance range. Our 2020 results were driven by strong execution across each of our operating segments. Growth from our rate case execution in Indiana and Kentucky, interim rates in North Carolina and continued growth from our Florida operations through their multi-year rate plan and SoBRA mechanisms produce positive results in electric utilities and infrastructure. We also saw growth in our Carolinas wholesale business due to the new Formula Rate contract that was effective this year. These factors were offset by regulatory lag on our growing assets base, milder weather and dilution from equity issuances. Shifting to gas utilities and infrastructure, we saw higher results in our LDC businesses, primarily due to Piedmont's rate case in North Carolina and contributions from rider mechanisms. The gas LDCs continue to provide strong earnings growth, adding $0.11 driven by customer additions and investments and integrity management, but offset by the cancellation of ACP in July. Results in Commercial Renewables were higher than 2019 driven by new projects placed in service, including Palmer, Holstein, and Rambler, which together totaled 460 megawatts. Going forward, we continue…

Thank you. [Operator Instructions] And we'll go first to Shar Pourreza with Guggenheim Partners.

Hey, Good morning, guys.

Good morning, Shar.

So, a couple of quick questions here. Lynn, obviously you highlight some factors that would provide upside to the base plan like your acceleration of clean energy, federal legislation. So, to the extent that these items require incremental CapEx, would you kind of consider monetizing additional stakes at your OpCos like Indiana similar to the GIC deal versus maybe tapping traditional financing like equity? Obviously, the demand is there for these strategies and the transaction multiple was certainly healthy versus where your stock trades?

Yes. So Shar thank you for that question. And as we looked at the $60 billion, $59 billion, $60 billion of capital in front of us, we saw this transaction as an attractive investment that gave us an opportunity to eliminate common stock. As you said, is a valuation that was attractive to our investors and frankly recognize the value of what we operate in Indiana. I would say if we look at this five-year period, we feel like we've got a pretty strong capital plan. There may be some upside in the back part of the plan Shar, but I'd look at the clean energy transition that's underway. We have some work to do in 2021 and 2022 to lay further groundwork. And so that escalation will be toward the end of the five-year continuing over the rest of the decade. We will always look for attractive ways to finance growth. And I think we've demonstrated that with this transaction, but don't have anything in the near term that I would point to just reinforce that finding attractive low-cost capital to underpin growth is always an objective. And we're really pleased with what we were able to accomplish with this transaction.

Got it. And then obviously you highlight the higher growth rate and the movement you're seeing in North Carolina, and obviously there has been recommendations provided by working groups in the state. I'm wondering how sort of the North Carolina clean energy legislation could impact sort of this updated growth trajectory as it should investors sort of look at it as simply as an extend the runway scenario, or could actually be accretive to that growth through maybe accelerated spending opportunities, less regulatory lag. I mean, obviously we're assuming that you get some ROE [bans] [ph], PBRs gets approved, but so how do we sort of think about the legislation in light of the updated growth?

Sure. I mean Shar, the first thing I'd like to do is express the confidence we have in achieving 5% to 7%. It has been grounded in not only strong franchise growth, the regulatory certainty we've been able to achieve, including a recent settlement with the AG. The investment opportunities we've talked about on decarbonizing, and then our ability to control costs coupled with the transaction with GIC eliminating equity gives us a really solid foundation for 5% to 7%. So, I look at what we've put in front of you is a capital plan and a strategy with a high degree of confidence to achieve 5% to 7%. I think the ability to reach that top end to keep going would include faster acceleration of generation transition, perhaps faster economic recovery. I put in that list also, Shar, we're seeing such incredible customer growth in the areas that we serve because the population migration that could be another item that would be a surprise to the upside in a good way, sustainable cost savings. If we continue the digital transformation, continue grid modernization, continue retirement of the coal fleet, all of those things will give us an opportunity to continue to drive [indiscernible]. And I do think regulatory lag, if we can find a way to lessen it the growth is going to be strengthened. And so, I come to this discussion with a lot of confidence that we have a plan that will achieve the 5% to 7% and we'll continue to work on the legislation and regulatory reform in a way that'll complement the growth and perhaps enhance it if it moves more quickly.

Terrific. And just lastly for me, I know in your discussions with stakeholders, are you finding sort of an alignment with the Governor and key legislators here, and what's kind of the next data point we should be watching out for?

We have been at work on this Shar. We talked about for some time and have been engaged actively with stakeholders, really building alignment around a common goal, common objectives and those objectives included moving away from coal, carbon reduction, regulatory mechanisms to incent that move. And then of course increased investment in renewable, all within the construct of maintaining reliability and affordability. So, I think, the common objectives really provide a really strong foundation to move forward. So, we're working to advance those objectives and we will continue to provide updates along the way. The session that is underway right now there will be some milestones in April around potential introduction of bills, but what I would point to is with common objectives with a desire to create momentum on carbon reduction I think that alignment provides a great foundation for moving forward.

Terrific. Thank you very much. Congrats. And I'll jump back in the queue.

Thank you, Shar.

Thank you.

And we'll go next to Stephen Byrd with Morgan Stanley.

Hi, good morning. Hope you all are doing well.

Hi, Stephen. Yes, hope you’re well?

Thanks, I am. I wanted to talk about the prospects for further federal legislation supporting clean energy. I guess we're growing more optimistic that we may see kind of round two of legislative support this summer into the fall where Congress might further extend the duration of tax credits for wind and solar and potentially add a new tax credit for energy storage. And as you think about that, those kinds of elements of support, how do you think about that in terms of your longer-term resource planning? Could that have an impact in terms just kind of thinking through the economic cost of renewable energy?

I think it will. And I think all of that to the benefit of our customers and our regulated jurisdictions. And so, as you look at, even the integrated resource plans that we shared in the fall, those were predicated on the tax policy that existed at that time. And so, extensions could be valuable, I think credits around battery storage, electric vehicles, all of those represent opportunities to continue the clean energy transition. So, I would say we'll watch it closely.

Okay. Very good. And then maybe just thinking about offshore wind, if the decision was made at the state level to start to sort of at least explore or pursue offshore wind, how do you sort of think about next steps? I'm just not familiar enough with sort of the technical feasibility of offshore wind, what kind of early steps you might take if the decision was made that the state wants to go in that direction?

Stephen, we've been working on the potential for offshore wind for some time. Not only in terms of the obvious issues around leases and location of leases, but also transmission infrastructure that would need to accompany that where in the Carolinas, in particular, the load centers are further west than the coast. So, finding an appropriate transmission path would be important. I think there's been more conversation in the Carolinas. The Governor has joined with other Mid-Atlantic Governors, signing an MOU to say, let's spend more time figuring this out. There's a study underway to look at the impact to economic development. And so, I would say we're monitoring all of this closely. I would think about it is maybe a late 2020, 2030 opportunity in the Carolinas. But nonetheless, we are supportive of finding ways to bring wind into the state as a complement to the solar and nuclear resources that we have that are carbon free. So, I think more to come on that Stephen as some of these exploratory processes bear fruit.

It's well taken. It's a long lead time to kind of think through these issues for offshore wind. Maybe last question, just on the commercial renewables business, I was just curious your latest thinking in terms of the competitive dynamics in renewables. Are you seeing any sort of trends in terms of increased competition? What we're just anecdotally hearing some degree of increased competition, but I'm just kind of curious what you all are seeing on that side of the business?

Stephen, we see it as a competitive. It's been competitive for some time. It started to delineate. Is it a little bit more competitive? So, from our standpoint, we stay very disciplined on the cost of capital, the returns that we want and have a combination of development around the U.S., but also really focused on how we can grow renewables within our own jurisdictions. But I think it's a fair comment. There's a lot of interest in investment moving into renewable energy and that by its nature will create competition.

Very good. That's all I have. Thank you very much.

Thank you.

We will go next to Steve Fleishman with Wolfe Research.

Hi, good morning.

Good morning, Steve.

Hi Lynn. Hey Steve. So just wanted to go back to a prior question, which I'm not sure was answered on the North Carolina Governor's kind of discussions and the like, and just next steps. Is there still going to be kind of a report that comes out from that? And then when would we likely see legislation proposed?

Sure. And Steve on the specific question of the report, there were two processes. So, the regulatory reform report is out. This is the one that talks about multi-year rate plans, performance incentives really a strong endorsement of regulatory reform is important to incenting movement. So that one is out and discussions of course continue on that. The carbon policy report, which is the one that's been led by the Nicholas Institute, shouldn't be coming any time. And I would think about it, Steve, as a data point, there'll be considered in the legislative session, along with our IRPs frankly, that has garnered a lot of stakeholder discussion. We don't expect that carbon policy report to include specific recommendations. But we believe it will be a discussion of retirement of coal, carbon pricing, clean energy standards, et cetera. And these – the stakeholders that have been involved in all of these processes, integrated resource plan, clean energy, policy discussions that the Governor sponsored the regulatory reform. All of those stakeholders have been working together quite well over the course of the year. And when I talked about common objectives, but I was really speaking to it's a common objective that have come out of all of that, common objectives around retirement of coal, common objectives around increasing renewable, regulatory reform, et cetera. So, it's that bringing together of those common objectives has been worked on to try to advance where we go from here. And I'm optimistic that we have a number of very informed and stakeholder groups that have common views of positioning North Carolina for the future. And I think progress will come from that. There's also a keen focus in that group on reliability and affordability, which we also strongly endorse and come to the conversation with very low prices against national averages, and we'll be working actively to make sure we make progress within that construct as well.

Okay. That's good. And then just on the book – ignoring an event that no law passes and if we're just kind of doing regulation in the Carolinas as we have it now. Could you just give a sense of just how you would manage this kind of and maybe increasing spend on the regulatory side? Is it just the annual rate cases or…

Yes, Steve, I think it's important to maybe step back for a moment. When we put forward the integrated resource plan and the Carolina in February 6 in the areas, the base scenario, the one that's on the far left is one that can be accomplished without any changes in regulation or legislation, et cetera. And the capital plan that we've put in front of you, it's really predicated on that base plan. So we believe the grid investment, the investment in generation that's included in our plan for the Carolinas can be executed. You could think about the overlay of legislation and perhaps new tools and maybe acceleration being incremental to what we've put in front of you. We thought it was prudent to put together a plan that we have a high degree of confidence to achieve under a variety of scenarios. But we'll work actively as we have over the last year and a half with stakeholders to find a way to meet those objectives.

Great. One last quick one, just the – I think I heard Steve say the 5% – when you look at the 5% to 7% growth rate, it's kind of consistent over the period, roughly. Is that fair?

That’s right.

That's correct.

Okay. Thank you.

Thanks, Steve.

And we'll go next to Julien Dumoulin-Smith with Bank of America.

Hi, good morning, congratulations.

Good morning.

Good morning.

Perhaps just to follow up on this, because I want to understand. So can you talk about legislation and having worked for years to try to get the staples of the curve, but at the same time, we talked about this IRP pending before the commission. Can you talk about how those two processes work as best you understand right now, let's say for instance, you don't get legislation? How does the IRP proceed in that case? And perhaps the overlap in timing critically, have you think about April versus the IRP [indiscernible].

Sure. I mean that Julien I was thinking of these things as being complementary. The stakeholder group has been involved in the IRPs. The stakeholder group has been involved in the clean energy policy discussions or there's a high degree of overlap. And so let's talk a little bit about the IRP because we haven't visited about that in this call. North Carolina will review the IRP comments are due at the end of April. And we would expect an order from the North Carolina Commission yet this year, probably in the fall. And the North Carolina Commission doesn't approve, but rather provide comments perspectives on what they've seen. And so, it becomes a data point, right, not only for the legislative process, but also for the Commission on how we're thinking about the future. And stakeholder parties will have an opportunity to weigh in and discuss. In South Carolina, the IRP will be approved or reviewed and an order will be issued by the Commission. This is consistent with AXE60Q [ph], which you may remember, being a requirement in South Carolina, we believe our IRP conforms with those requirements, extensive stakeholder engagement and analysis of coal retirements and analysis of rate impact. So, we should expect to hear from the South Carolina Commission in June. The legislative session, the bills would be introduced in this legislative session in April. Crossover dates are in May. So, the legislative session is also running July and in the first half of the year. And so I would think about all these things as complimentary. The same people at the table talking about the same objectives, lowering carbon, building renewables, grid investments, regulatory reform. And we will keep you informed along the way as milestones are achieved and feedback is received. But I'm optimistic about informed for those stakeholders coming together with shared objectives.

Got it. Excellent. Thank you.

Thank you.

I’m interested to follow-up on the consistency of the 5% to 7% if I can quickly.

Sure.

Can you comment on the earned ROE trend across the years I'm thinking Carolina has obviously you guys have a range established this year? Is that range broadly the same range through the forecasted period, or how would you characterize that?

Yes, I think, broadly, it's just going to be similar. We have a settlement proposal at a 9.6% ROE, but we've got a long track record in the Carolina, and across our entire footprint of being able to earn at or, in some years certainly above our allowed returns through cost management, through working on wholesale type transactions, as well. So, I think there are a number of mechanisms that are going to allow us to earn similar to what we’ve earned in the past on our regulated jurisdictions.

Okay, excellent. Thank you.

Thank you.

And we’ll go next to Michael Weinstein with Crédit Suisse.

Hi, guys.

Good morning.

Hey good morning.

Hey. On the same topic, could you comment a little bit about the ROE projection you guys have in there for 2021 for Indiana, and Ohio and Kentucky as well? Both looking pretty well trending towards lower numbers going forward, sub-9%, sub-8%, Kentucky?

Yes, I have a couple of comments there. In Indiana, we just filed – we got a rate order in August in Indiana. And that was a catch-up rate case. So, what you see when you've got a big base rate case that's built up and in Indiana, we had that base rate case in quite a while. So, you are building up a lot of investments there. And prior to that build-up, you're going to see the ROEs drop a bit. And then you have to catch up. And we've got the solid ROE in Indiana going forward. We'll be able to optimize around that and earn very well there. Ohio is a similar situation, when you have a base rate case, you’ll build up investments up to that point, and then the new rates will work on the return. So, you'll see some movements around a rate case like that. But over a broad period, as you've seen the New York across our footprint, we've been very capable of earning ROI returns on the growing rate base. And we've done that through periods where we've had more frequent rate cases and periods where we've had less frequent rate cases. And that's where you utilize your capital optimization between rate cases and cost control to keep the return solid. So, we’ll continue to have those capabilities.

Are you planning on having a base rate case in Indiana? I didn’t see that in the deck.

No.

Not in the near-term Michael.

No, not in the near term. We cut out those investments, most of our growth will be coming just from the environmental rider. So, it's a very efficient jurisdiction going forward here.

So, you think it will improve after 2021, basically, the ROEs?

Yes.

And how is the 5% to 7% growth CAGR weighted? Is that a steady growth rate at the periods of 2025 or is that backend?

I would think about it as a steady growth rate.

Yes.

Okay. And dividend growth, I know that we're still in that slower than ETS growth period. Is that expected to continue given the highest CapEx per month you have?

I think certainly in the near term, Michael, and then we'll evaluate it as we get deeper into the five-year plan, the growth shows up, the payout ratio comes down a bit. So, we understand the importance of the growing dividend. And we'll continue to look at that right balance between growth of capital and growth of the dividend.

Great. That’s it from me. Thank you very much.

All right. Thank you.

We'll go next to Jonathan Arnold with Vertical.

Good morning, guys.

Hi, Jonathan.

Hi, just to revisit this question of what's in the plan. And you said pretty clearly that the low end, the left-hand end of the Carolina’s transition, the IRP proposals is what's in your plan in your CapEx? Does that apply to – how would you sort of tie that to the second half of the decade where you've got this $65 billion to $75 billion five-year spend for $25.329? Just curious if that’s still the case, or is that you're starting to dip into acceleration there?

Well, what we reflected in that second half of the decade, the range of $65 billion to $75 billion, represented, again, the low-end scenarios of carbon reduction versus the higher, more aggressive carbon reduction. So, as we learn more about the pacing that the state wants to go through, we projected we'd be somewhere in that range depending on that pacing up to $65 billion to $75 billion as you move into it that second five-year period.

And Jonathan, even the base plan of IRP includes over 50% carbon reduction, and includes quite a bit of transition of generation, retirement of coal and renewables. And so, as Steve indicated, we'll learn more around pace in particular, as we go through, the next few months and hear from commissions, et cetera. And the $75 billion would be the more aggressive, kind of to the 70% type range, but even the base plan has a very healthy growth rate within that range.

Okay, great. Thank you for clarifying there. And then, obviously, 25%, you already have a number out for so that $65 billion to $75 billion implies the quite a material step-up to really in the back – very closer to the back end of the decade. Is that right way to think about it, or is it a 25 number that could be in play if things decided to move faster, I guess?

I think 25% could be in play, Jonathan. I think about it in this way, takes a little bit of time to develop site permit generation. But as we think about this 2021 by the time 2025 rolls around, we will have a clearer picture on that. And coal retirements go along with us. And so, we'll be into a deeper amount of coal being retired in that part of the decade and so you'll be building generation to replace them that way. We'll know more and of course, update these expectations all along the way.

Okay. Thank you. And just may be one other thing. It looked like there was a fair step up in what you're categorizing, as maintenance CapEx in the five-year plan a couple of billion versus last year. Is that a categorization issue, or is it different spend, or what's going on there?

Nothing procedural there, I just think we're looking at the maintenance of the nuclear facilities and the grid facilities as we modernize the grid. There is more CapEx of maintenance nature in those areas, in those two specific areas.

And Jonathan, we did do a little bit of changing our profile around maintenance, outages and other things in 2020, because of COVID. And so, I believe some of that will also be movement of outage and investment that goes with it into 2021 consistent with the challenges of the year.

Got you. Okay, thanks a lot.

Thank you.

We'll go next to Durgesh Chopra with Evercore ISI.

Good morning.

Hey good morning for thank my questions.

Good morning.

Hopefully two quick questions. One, Steve, just can you remind us the tax optimization in 2020, you mentioned this in your drivers when you won over 2020. What is that tax optimization? Any color on the upfront?

What we have done in 2020, we had worked on various efforts that lowered the effective tax rate a bit. And that falls through and was part of the mitigation that was put in place. And it was probably around 0.5% on the effective tax rate reduction might have been in the range of $0.0.4, $0.05 or so of mitigation that we got out of income taxes.

And Durgesh I would share with you that the tax team is always looking for ways to optimize taxes, whether it's a state level property taxes, federal tax, tax credits, research and development, et cetera. And so, we were quite effective in 2020, with a variety of projects, but we are always looking for, effective tax planning ideas.

Got it? Sorry, I was on mute, understood. So, it's more like a 2020 event. You are not modelling that going into 2021. But there may be opportunities, right, is that…

There are opportunities in 2021, but we expect them to be a bit less than what they were in 2020.

Understood, perfect. And then just maybe quickly on the FFO-to-debt metric, if I have this correct, 2020 or the year past we were targeting 15%. Now it's going to 14% for the next five years and you mentioned there's some question versus sort of what agency thresholds are to kind of protect your rating. Can you just provide us a little bit of where is the floor, so how much cushion do you actually have, versus their credit rating agency metrics?

I'll jump in and Steve can follow-on. The FFO has seen the impact of COVID. We also see the impact of our coal ash settlement with some near-term benefits that we offer to customers. And so, as we look ahead, and speaking to our S&P in particular, the range is 12% to 16%, we believe we'll be very solidly within that range. And continue to believe a strong balance sheet and our commitment to the balance sheet is important. And you see that with the recent GIC transaction. So, I would talk about some of those near-term items that I referenced there. And Steve how would you add?

No, I think, that's exactly right. We, certainly, as we look forward, we've got COVID impacts that will continue into 2021 will affect the top line revenues, the coal ash settlement restructured in the fashion that help customers there. But we think we can operate very comfortably within this range at the new rating, and we'll get very adequate access to capital.

Excellent, thank you so much. Great call. Thank you.

Thank you.

And that concludes today's conference. I would like to turn it back over to Lynn Good for any additional or closing remarks.

Well Hannah thank you. And thanks to all of you who joined the call. We've got a lot of news here in 2021, all directed in building a strong foundation for growth in the future. And we look forward to engagement with you in the weeks and months ahead. And of course, the IR team is always available this afternoon if there are further questions. So, thanks for your interest and investment in Duke Energy.

That concludes today's call. Thank you for your participation. You may now disconnect.