Duke Energy's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Duke Energy (DUK)

Q4 2011 Earnings Call

February 16, 2012 10:00 am ET

Executives

Bill Currens -

James E. Rogers - Chairman, Chief Executive Officer and President

Lynn J. Good - Chief Financial Officer and Group Executive

Dhiaa M. Jamil - Chief Generation Officer, Chief Nuclear Officer and Group Executive

Analysts

Dan Eggers - Crédit Suisse AG, Research Division

Greg Gordon - ISI Group Inc., Research Division

Steven I. Fleishman - BofA Merrill Lynch, Research Division

Jonathan P. Arnold - Deutsche Bank AG, Research Division

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Hugh Wynne - Sanford C. Bernstein & Co., LLC., Research Division

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

James D. von Riesemann - UBS Investment Bank, Research Division

Travis Miller - Morningstar Inc., Research Division

Presentation

Operator

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Good day, everyone, and welcome to the Duke Energy Fourth Quarter Year End Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks, I'd like to turn the call over to Mr. Bill Currens. Please go ahead, sir.

Bill Currens

Thank you, Lauren. Good morning, everyone, and welcome to Duke Energy's Fourth Quarter and Year End 2011 Earnings Review. Leading our discussion today are Jim Rogers, Chairman, President and Chief Executive Officer; and Lynn Good, Group Executive and Chief Financial Officer.

Today's discussion will include forward-looking information and the use of non-GAAP financial measures. This forward-looking information is based on Duke Energy as a stand-alone company, as regulatory approvals for our merger with Progress Energy are still pending. You should refer to the information in our 2010 10-K and other SEC filings concerning factors that could cause future results to differ from this forward-looking information. A reconciliation of non-GAAP financial measures can be found on our website and in today's materials. Note that the appendix to today's presentation materials include additional disclosures to help you analyze the company's performance, as well as our 2012 earnings guidance assumptions.

In today's call, Jim and Lynn will review our fourth quarter and year end earnings, and provide you with our 2012 earnings guidance and related assumptions. We will also update you on our strategic initiatives, including our pending merger with Progress Energy. Additionally, we will highlight recent regulatory outcomes and our key priorities for 2012. After the prepared comments, Jim and Lynn will take your questions.

With that, I'll turn the call over to Jim Rogers.

James E. Rogers

Thank you, Bill. Good morning, everyone, and thank you all for joining us today. We appreciate your interest and investment in Duke Energy. We are extremely pleased with our financial and operational performance during 2011. Even though we faced some challenges, it was the year in which we continued to deliver on our commitments. Let me highlight a few of our accomplishments.

From a financial perspective, we grew earnings, ending the year with adjusted diluted earnings per share of $1.46, which is $0.03 higher than our 2010 results. Considering that extremely favorable weather contributed about $0.13 to the prior year, our 2011 performance is truly exceptional. These results exceeded both our original and revised guidance range. For the year, earnings from our ongoing modernization program and strong performance from our international business helped offset less favorable weather, significant storm restoration costs and the annualized effect of customer switching in Ohio. Continuing our commitment to increase the dividend, we grew our quarterly dividend by about 2%. Our dividend is supported by strong regulated earnings base and we target a long-term payout ratio of 65% to 70% of adjusted diluted earnings per share. We continued to finance our major construction projects at low interest rates and completed a new Master Credit Facility supporting our liquidity.

In addition to solid financial results, we also had strong operational performance. Safety is a top priority for us. I'm pleased to report that our safety record last year was the best in the company's history, and it represented the sixth consecutive year we have improved our safety performance. Our nuclear fleet performed very well, achieving a capacity factor of about 93% for the year. This marks the 12th straight year the fleet has been above a 90% capacity factor. Our nuclear fleet also established some quarterly records during the year. During the third quarter, we achieved a capacity factor of around 99.3% and set an all-time record by dispatching more than 15 million megawatt hours. Our fourth quarter capacity factor, at just over 95%, was also a record for fourth quarter performance. And for the fourth consecutive year, our nuclear fleet was ranked #1 among all other nuclear fleets in the nation with the lowest total operating cost per megawatt hour, as reported by the Electric Utility Cost Group.

From a strategic perspective, our regulatory teams executed well during the year, advancing our strategy to obtain regulatory clarity in Ohio, as well as recover the cost of our modernization projects in the Carolinas. Our team in Ohio worked very hard to complete the move of Duke Energy Ohio and Kentucky to PJM, and obtain approval of an Electric Security Plan or ESP that balances the interests of customers, the state, and our investors. I'm pleased the Ohio Commission approved our settlement with intervening parties in late November and new rates are now in effect. The terms of the ESP provide Duke Energy Ohio with 9 bypassable stability charges of $330 million over 3 years. This gives customers the benefit of today's low market prices and allows us to transfer the generation assets to an affiliate. We have begun this work and expect to make a FERC filing in the near future. This move, which we have committed to complete no later than 2014, will provide greater clarity for our generation business.

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