Duke Energy Corporation (DUKB): A Promising Utility Navigating the Energy Transition

Published on September 24, 2024 | Ticker: DUKB

Duke Energy Corporation (DUKB) is an energy company headquartered in Charlotte, North Carolina, operating primarily through its subsidiaries, Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana, and Piedmont Natural Gas. The company reported annual net income of $4,296 million, annual revenue of $29,060 million, annual operating cash flow of $9,894 million, and annual free cash flow of -$2,710 million in its latest fiscal year.

Recent Developments

In the first quarter of 2024, Duke Energy reported adjusted earnings per share of $1.44, a strong start to the year and $0.24 above the prior year's results. These results were driven by growth from rate activity across the company's jurisdictions, strengthening retail volumes, and improved weather. Duke Energy remains confident in its outlook and has reaffirmed its 2024 guidance range of $5.85 to $6.10 per share and its long-term earnings per share growth rate of 5% to 7% through 2028.

Business Overview

Duke Energy operates in some of the most attractive and fastest-growing areas of the country, with its jurisdictions experiencing unprecedented growth from population migration and economic development. The company is committed to meeting this increasing customer demand through an "all-of-the-above" strategy that preserves affordability and reliability as it decarbonizes its operations.

In the first quarter, Duke Energy made significant progress in its clean energy transition. In Florida, the company is on track to have 1,500 megawatts of utility-owned solar in service by the end of 2024, and it expects to more than triple the amount of solar on its system by 2033. In the Carolinas, the company is completing annual solar procurements that will add approximately 1,500 megawatters to the grid each year beginning in 2027, as part of its goal to have 30,000 megawatts of regulated renewables on its system by 2035.

Duke Energy also filed certificates of Public Convenience and Necessity in March to build more than 2 gigawatts of new, advanced-class natural gas generation in the Carolinas. These new facilities will be sited at existing coal plant locations and will provide needed dispatchable generation as the company retires its coal units. The company recognizes the importance of natural gas in its energy transition strategy, as it complements the company's substantial investments in renewables and energy storage.

Regulatory Activity

Regulatory activity remains a key focus for Duke Energy. In South Carolina, hearings began on May 20 in Duke Energy Carolinas' rate case, with new rates expected to be implemented by August 1. In Florida, the company filed a three-year multiyear rate plan that will begin in 2025, covering grid investments to enhance reliability, decrease outages, and shorten restoration times, as well as investments to add new solar and battery storage and improve the efficiency of its current generation assets.

In Indiana, Duke Energy filed its first rate case in four years in April, seeking an overall increase in revenues of $492 million. This case reflects strategic investments to improve grid reliability and security, serve a growing customer base, and meet environmental regulations. Piedmont Natural Gas also filed a rate case in North Carolina in April, covering significant infrastructure investments to comply with federal safety regulations, enhance the customer experience, and provide safe, reliable natural gas service.

Financials

Duke Energy's first quarter results demonstrate the strength of its business model and the company's ability to execute on its strategic priorities. The company's focus on constructive regulatory outcomes, efficient recovery mechanisms, and a robust capital plan underpins its confidence in delivering sustainable growth and value for shareholders.

Outlook

Looking ahead, Duke Energy's jurisdictions continue to experience robust economic development, with the company gearing up to serve up to 18,000 gigawatt hours of additional load from new projects by 2028. This represents a 2,000 gigawatt hour increase from the company's previous projection, highlighting the strength of its economic development pipeline.

Liquidity

To support this growth, Duke Energy is well-positioned financially, with a strong balance sheet and a clear path to achieving its 14% FFO to debt target by the end of 2024. The company has implemented the North Carolina rate cases, which add nearly $700 million in annual revenues, and it is making progress in collecting remaining deferred fuel balances, monetizing tax credits, and executing its programmatic equity issuance plan.

Conclusion

Duke Energy's commitment to its clean energy transition, constructive regulatory relationships, and financial discipline position the company well to deliver on its 5% to 7% long-term earnings growth target. As the company navigates this period of significant infrastructure build, its experienced leadership team and track record of execution provide confidence in its ability to create sustainable value for shareholders.

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