Earnings Call: Q4 2014

Feb 18, 2015

Good day, and welcome to the Duke Energy Fourth Quarterly Earnings Call. Today's call is being recorded. At this time, I would like to turn the conference over to Bill Kearns. Please go ahead. Thank you, Ruth. Good morning, everyone, and welcome to Duke Energy's 4th quarter and full year 2014 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. Slide 2 presents the Safe Harbor statement, which accompanies our presentation materials. A reconciliation of non GAAP financial measures can be found on our website atduke energy.com and in today's materials. Please note that the appendix to today's presentation includes supplemental information and additional disclosures to help you analyze the company's performance and our financial forecast. As listed on Slide 3, Lynn will begin with a review of our key 2014 activities as well as an update on our strategic initiatives within the commercial businesses. Then Steve will review our 2014 financial results, present our 2015 financial plan and discuss our longer term adjusted earnings growth expectations. Before I turn it over to Lynn, let me take a brief moment to give you a staffing update on the Duke IR team. It is with mixed emotions that I announce this is Beau Pratt's last earnings call. After 3 years in Investor Relations, Beau will be moving to new responsibilities within our finance organization. This is a great move for Beau and for Duke Energy, but I will sorely miss Bo's knowledge, tireless passion for excellence as well as his endless smile. Bo, thank you for all you have done in helping us advance our mission to continually provide a high level of service to the investment community. With that, I'll turn the call over to Lynn. Good morning, everyone, and thanks for joining us. In 2014, we built upon the momentum we created in 2013, celebrating key milestones and addressing challenges. We continued building our financial track record, our financial track record, achieving our adjusted earnings guidance range and increasing our important dividend payment to shareholders. We announced several growth initiatives that will position for the future and completed our strategic review of the international business. In August, we entered into a sale agreement with Dynegy for our commercial Midwest generation portfolio. We also advanced our coal ash management practices. And as I will discuss in a moment, we are close to an agreement with the government to resolve the ongoing grand jury investigation into our coal ash basin management. Today, we initiated our 2015 adjusted EPS guidance range of 4.55 dollars to $4.75 and also extended our long term adjusted earnings per share growth objective of 4% to 6% through 2017. This guidance reflects strong growth in our regulated utilities offset by near term headwinds from foreign exchange rates and oil prices in our international business. Steve will provide further details about our financial plan in a few minutes. Let me review a few operational highlights outlined on Slide 4, including our progress on Ash Basin Closure Strategies and Edwardsport. Our fleet and grid performed well during 2014, especially during the demands of the polar vortex last winter. Our regulated nuclear fleet set a new net generation record and achieved an annual capacity factor of 93%, the 16th consecutive year above 90%. We continue to deliver significant benefits from the 2012 merger and we are on track to achieve the 687,000,000 for our Carolinas customers over the 1st 5 years of the merger. In fact, 2.5 years into the merger, we have generated over 60% of the guaranteed fuel and joint dispatch savings. We also learned from the challenges of the Dan River coal ash spill. We used this event as a catalyst to strengthen our ash management practices and to accelerate our basin closure strategies, positioning us well for compliance with both the North Carolina and federal CCR requirements. We are currently in settlement discussions with the U. S. Government related to the ongoing federal grand jury investigation of the February 2014 Dan River coal ash spill and ash basin operations at other North Carolina coal plants. We expect a proposed agreement could be reached and filed in the next several days for consideration by the Ash Basin Management. Based upon our assessment of probable financial exposure related to any agreement, we've recognized a charge of approximately $100,000,000 or $0.14 per share in the Q4 of 2014. This charge has been recognized as a special item and therefore excluded from our adjusted earnings per share. As the investigation and our discussions are ongoing, I will not be able to comment further on this matter. We will keep you updated as we have further information to share. In last year's session, North Carolina enacted legislation, which requires the company to close all ash basins in the state, beginning with 4 high priority sites, Dan River, Asheville, Riverbend and Sutton. We have also submitted plans with South Carolina regulators to excavate ash from basins at our retired W. S. Lease steam station. Our 5 year financial plan through capital plans will be updated. We expect to provide cost estimates to close the remaining basins once site specific closure plans and time frames are approved by the Coal Ash Commission by early 2016. Under the EPA's new federal coal combustion residuals rule, science continues to support nonhazardous designation of coal ash as a waste. Due to our actions over the past year, we have already performed a lot of the initial work and assessments needed to begin establishing closure plans under the new federal rules. As the federal rule is currently written, there are some inconsistencies with the requirements under the new law in North Carolina, primarily with ash basin closure timeframes. Ultimately, we will adjust our existing ash management plans as necessary to comply with all state and federal regulations. As one of the cleanest generating stations in the world, our Edwardsport plant in Indiana is an example of how we're reducing emissions across our system. Edwardsport continued on its path of improved operations during 2014, achieving gasifier availability factors of between 70% 75% in the second and third quarters. An extended planned outage in the 4th quarter impacted results. The impact or the plant, which began commercial operation in June of 2013, also achieved substantial completion under the contract of General Electric in December. On the regulatory front, the Indiana Commission held hearings on the IGCC 12/13 semiannual riders earlier this month. Interveners have challenged the in service determination in the plant's early months of performance. Orders are expected mid year for Eversport is well positioned to be a valuable resource for our Indiana customers for decades to come. I'll also highlight the performance of our commercial renewables portfolio in 2014. This business exceeded its financial target of $50,000,000 in net income for the year and invested over $500,000,000 in new wind and solar projects. Since its inception in 2,007, we've invested over $4,000,000,000 in this business and will have over megawatts of wind and solar generation in service by the end of this year. With our acquisition of a majority interest in REC Solar earlier this month, our commercial renewables business is expanding beyond its past focus on utility scale renewable projects to a broader array of products and services. This business will focus on development distributed solar generation and energy solutions for the commercial sector. REC Solar has more than 140 megawatts of solar generation already on customers' rooftops or under construction, and we expect growth in this business as we roll out solutions to commercial customers nationwide. 2014 was also an active and successful year in advancing our growth strategy. During the year, we announced new growth initiatives representing Slide 5. Since our last call in November, a number of these initiatives achieved important milestones. First, in Indiana, our plan to invest $1,900,000,000 in T and D infrastructure over 7 years was filed under state legislation. Hearings were held last month and the decision is expected in mid-twenty 15. Next, our new generation investment in the Carolinas. In December, we received FERC approval to purchase the North Carolina Eastern Municipal Power Agency's minority ownership and some of our existing nuclear and coal generation for $1,200,000,000 We have also filed for approval from the Nuclear Regulatory Commission to transfer the Carolina, we have seen strong growth in solar supported by compliance with state renewable portfolio standards and state tax incentives. In fact, North Carolina currently ranked 4th in the nation measured by total installed solar capacity. By the end of this year, we expect to own over 100 megawatts of solar generation in addition to a significant amount of PPAs where we purchase the output from other solar generating units in the state. This growth will help us continue to comply with the state's growing In South Carolina, we are laying the groundwork to develop solar generation for our customers that want that option. Just last week, we proposed several programs that will expand renewable options for South Carolina customers under recent legislation. The programs are expected to add up to 110 megawatts of solar energy by 2021, including more than 50 megawatts of utility scale solar. Next, I'll provide an update on our new generation investments in Florida. Last month, we filed a petition with the Florida Commission to approve our $166,000,000 acquisition of Calpine's 599 Megawatt Osprey combined cycle plant. As part of the filing, we are also seeking approval for construction of the Suwanee Peakers in the event that the acquisition of Osprey is not approved Atlantic Coast Pipeline joint venture with Dominion, Piedmont and AGL Resources. The utilities commissions in both North and South Carolina have approved our regulated subsidiaries entering into 20 year gas transportation agreements with the pipeline. The project also requires FERC approval, which the joint venture will seek to secure by mid-twenty 16. These important growth initiatives support our ability to continue providing our customers affordable, reliable energy from an increasingly diverse generation portfolio. These investments also provide a solid foundation for our long term adjusted earnings growth rate of 4% to 6% through 2017. As you will recall, last February, we initiated a a strategic review of our international operations, which today comprises about 10% of our overall business mix. We conducted a comprehensive review process that examined various options, including exiting the business, growing the business on our own and achieving scale for us to own, operate and create value with the business. We are taking steps to access $2,700,000,000 of offshore cash associated with the historic earnings of the international business. We will also continue to optimize the value and efficiency of this business. This valuable international cash helps support the robust growth investment portfolio in our domestic businesses as well as the dividend. We will be disciplined with incremental international investments that meet our investment criteria and provide long term value and growth. Before turning the call over to Steve, let me update you on the sale of our non regulated Midwest generation business as outlined on Slide 7. In August, we entered into an agreement to sell this business to Dynegy for $2,800,000,000 in cash. We'd expected to close the transaction by the end of the Q1 of 2015. However, in January, FERC requested additional information, in particular further analysis of market power concentration. Parties to the transaction responded to FERC on February 6, and FERC has established a shortened comment period through February 23 on the updated application. Separately, Dynegy entered into a settlement with the independent market monitor, such that the IMM will not oppose the updated application. FERC approval is the final regulatory approval required to close. We expect to close the transaction by the end of the second quarter. We expect to deploy the $2,800,000,000 of cash proceeds to recapitalize our business in a balanced manner, a combination of an accelerated stock repurchase and debt reduction through the avoidance of holding company debt issuances. We will maintain flexibility with this plan based on the circumstances at the time of closing. We are committed to maximizing shareholder value and this transaction with Dynegy is expected to be accretive to our adjusted EPS in the 1st 12 months after closing. And thinking back on 2014 and looking forward to the year ahead of us, I am proud of the team at Duke. We are advancing our strategic growth initiatives, maintaining a sharp focus on financial discipline and pursuing excellence in operations and customer service. We are focused on growing and adapting as we position the company for a changing future and to continue meeting our 20 fourseven obligations to our customers, communities investors. I look forward to reporting on our progress during 2015. Now I'll turn the call over to Steve to provide a financial update. Thanks, Lynn. Today, I'll review our full year 2014 results and discuss the economic conditions within our service territories, including customer volume trends. I'll conclude with our financial plan for 2015 and our longer term adjusted earnings growth expectations. Let's start with 2014 results as outlined on Slide 8. My comments are focused on the year to date results versus our original plan for the year. For more detailed information on variances versus last year, please refer to the supporting materials that accompanies today's press release. We achieved 2014 adjusted diluted earnings per share of $4.55 within our revised guidance range of $4.65 On a reported basis, 2014 earnings per share were 2 $0.66 compared to $3.76 last year. The difference between reported and adjusted earnings per share for 20.14 is primarily driven by 3 items: approximately $930,000,000 of pretax impairments taken on the Midwest generation fleet a $373,000,000 tax charge recognized this quarter associated with our plans to return cash from international and an approximate $100,000,000 charge related to potential financial exposure to resolve the ongoing federal grand jury investigation. Overall, I'm pleased with our ability to achieve our revised guidance range for 2014 despite facing some challenges throughout the year. Our regulated businesses exceeded their 2014 plan by about $40,000,000 due to favorable weather partially offset by emerging costs for winter storm restoration and coal ash related activities. Absent these costs, O and M at regulated utilities would have been slightly lower than 2013. The Commercial Power segment fell slightly short of plan for the year, largely due to higher purchase power costs at our competitive retail partially offset by the Renewables business, which delivered around $60,000,000 of net income, above our expectations for the year. International's results were in line with our expectations. Higher earnings in Chile resulting from a one time tax benefit were substantially offset by unfavorable hydrology in Brazil. Before moving on, I'll touch on our strategic decision at International. As Lynn mentioned, our International strategic review resulted in a plan to allow us to efficiently use our offshore cash. Historically, our intent has been to permanently reinvest the undistributed earnings from our foreign operations in offshore investment opportunities. As a result of this intent, we have not previously recognized U. S. Income taxes on these amounts. We only recognized foreign taxes. In the 4th quarter, we declared a taxable dividend of $2,700,000,000 in the form of notes payable related to historical undistributed earnings. This gives us the ability to use this cash in the U. S. As a result, we recognized a $373,000,000 U. S. Income tax charge this quarter. We expect to remit between $1,200,000,000 $1,400,000,000 in 20.15, with the remaining amount remitted by 2022. We currently have $1,700,000,000 of offshore cash. Considering both the impact of this transaction and the 1 year extension of bonus depreciation recently enacted by Congress, we do not expect to be a significant cash tax payer until the 2018 timeframe. Respectively, cash generated from the international operations will mostly be used to pay off the notes of its parent, Duke Energy. The remainder will be reinvested in the international business. As a result of these future uses of cash, we will not accrue any U. S. Income taxes on future earnings. Duke Energy's overall tax position presented us with a unique opportunity to implement this structure and use foreign tax credits making it more tax efficient than it otherwise would have Moving on to slide 9, I'll now discuss our retail customer volume trends. For the full year, overall weather normalized retail load growth was 0.6% in line with our expectations for 2014. Excluding the impact of 2 large industrial customers that closed during the year in Eastern North Carolina, our weather normal retail load growth would have been 0.8%. Industrial and commercial growth have been stable over the past several years as these classes have led the economic recovery. Both classes grew at 1% in 2014, led by the automotive, metals, chemicals, healthcare and education subsectors. Our economic development team played a key role in recruiting 85 new industrial and commercial projects to our service territories during the year. These projects represent $3,500,000,000 in capital investments and over 11,000 new jobs in our 6 state service area. Notable companies included GE, Walmart and Amazon. Turning to the residential sector. Over the last several years, we have seen consistent acceleration in the growth of the number of customers in our service territories. This growth is now around 1% with particular strength in the Carolinas and Florida. However, offsetting this growth has been declining usage per customer trends. We believe this decline is due to several factors, including efficiency measures within residences and an increase in the number of apartments and condominiums as opposed to single family homes. However, looking forward, there are positive signs in the residential sector. Full time employment in our states continues to improve. In 2014, 20% of the new jobs added in the U. S. Were in states served by Duke Energy. Additionally, the 4th quarter saw gains in median household income as well as growth in housing starts in our service areas. Based on this data, in 2015, we are anticipating retail customer load growth between 1.5% 1%. As the economy continues to recover and consumers gain more confidence, we believe longer term load growth trends should improve to about 1% annually. Moving on to slide 10 and our adjusted earnings guidance range for 2015, which is between $4.55 and $4.75 per share. I will briefly touch on our primary assumptions for 2015, based upon achieving the midpoint of our guidance range for the year. Let's start with the key drivers at regulated utilities, is expected to deliver around $0.07 of additional earnings per share in 2015 over 2014. Significant drivers include retail load growth of between 1.5% and 1%, additional wholesale earnings as a result of new contracts earnings through riders or AFUDC on our regulated investments and finally our continued focus on maintaining an efficient cost structure. Our Commercial Power segment is expected to contribute increased earnings per share of approximately 0 point $1 in 2015. First, our renewables business continues to grow with around 3 75 megawatts of new wind and solar generation set to come online in 2015. We expect Renewables to contribute around $100,000,000 in net income during 2015. And our adjusted earnings will continue to include the Midwest generation fleet until the Dynegy sale closes, which we assume will be by the end of the second quarter. The use of proceeds from the sale of Midwest generation fleet is expected to provide a $0.05 earnings uplift in 2015. These growth drivers are being partially offset by weakness international as we expect segment earnings per share to decrease by approximately $0.12 during the year. The decline is largely due to 3 factors: One, declining earnings contributions from our interest in National Methanol, which sells products that are correlated to crude oil prices. Our plan assumes a $65 per barrel Brent crude oil price for the year. 2, the impacts of foreign exchange rates as we expect the U. S. Dollar to continue strengthening against the Brazilian real and 3, the prior year Chilean tax benefit, which will not recur. Our 2015 assumptions for international assume normal hydrology in Brazil. Even though the rainy season has started slow, it's too early to speculate on the likelihood of rationing this year. If hydrology is unfavorable or worse rationing is implemented in Brazil, it would have an unfavorable impact on our financial results for the year. The midpoint of our 2015 guidance range fall slightly below the bottom of our 4% to 6 percent long term adjusted diluted EPS objective, primarily due to the weakness I just discussed at International. In particular, national methanol and foreign exchange rates are driving an approximate $0.12 year over year decline. Additionally, the recent decision to extend bonus depreciation through 2014 causes our net operating loss position for tax purposes to extend into 2015. This NOL precludes us from taking the full manufacturer's deduction in 2015, resulting in an unfavorable $0.03 impact to our earnings projection for 2015. We also have a wider guidance range than normal, dollars 0.20 versus $0.15 This range covers additional uncertainty due to the volatility in crude oil prices, foreign exchange rates and the timing of closing the Midwest generation sale to Dynegy. As I will discuss in a moment, the post-twenty 15 growth profile is very and we continue to project the longer term adjusted diluted EPS growth objective of 4% to 6% through 2017. Slide 11 shows our high level 2015 cash flows and financing plan. In addition to cash flows from our normal operations, our decision to repatriate cash from international and the anticipated sale of our Midwest generation business is expected to provide significant cash flows this year. We expect to quickly put this cash to work in support of our financial objectives through a balanced recapitalization. Our planning assumption is a split of 50% debt retirements at the holding company and 50% for the accelerated share repurchase. Our plans could change based upon circumstances at closing. The financing plan supports our dividend, strong balance sheet and credit quality. We do not foresee the need for equity issuances through 2017. Let's shift now to slide 12 and our longer term adjusted earnings per share growth objective of 4% to 6%, which we are extending through 2017. This long term growth objective is anchored to the midpoint of our 20.13 adjusted earnings guidance range or $4.32 per share. We experienced 5% growth from this base in 2014, which was driven in part implementation of revised customer rates in the Carolinas and Midwest. Let me explain the primary drivers of our 4% to 6% growth over the Our growth is expected to be supported by retail and wholesale load growth and significant investments. 1st, retail load growth provides additional earnings out of the existing investment base, in particular in between rate cases. As a rule of thumb, 1.5% to 1% of annual load growth provides roughly 1% to 2% earnings growth. 2nd, our regulated wholesale business will grow significantly in 2015 as we enter new contracts and our existing contracts grow. We expect $0.10 of growth in 2015 on top of the $0.06 we gained in 20 $5,000,000,000 annually in growth projects in the regulated business. Although we do not project the need for rate cases, many of these investments will be recovered through riders, such as transmission and distribution expenditures in Indiana and Ohio, as well as the Crystal River 3 rider in Florida and energy efficiency riders in the Carolinas. We will accrue AFUDC during riders before 2018 such as the Lee project in the Carolinas, Citrus County project in Florida, Fukushima related nuclear investments and environmental projects. Additionally, the acquisition of assets from NCE and PA and the related wholesale power contract will add earnings starting in 2016. In our commercial renewables business, we expect to continue growing our portfolio of wind and solar generation, deploying around $1,000,000,000 to $2,000,000,000 over the next 3 years. Additionally, investments in the Atlantic Coast Pipeline will add about $1,000,000,000 of capital through 20 17. The balanced recapitalization plan using Midwest generation sale proceeds is also expected to be accretive to our long term 2017. Our forecast assumed Brazilian reservoir levels will return to normal by 2017. It is also important to remember that we are projecting annual demand growth in Brazil of slightly above 2%. At National Methanol, we do not expect the current level of depressed oil prices will persist into 2017. Our ownership percentage of NMC is expected to decline from 25% to 17.5% in mid-twenty 16. The core national methanol business remains strong as it is one of the most efficient methanol production facilities in the world. Next, let me briefly highlight the list to our growth plan both near and long term as I see them. We will continually monitor variability in retail load growth retail load growth trends, in particular the residential class. Solid load growth is important to meeting our earnings targets. Additionally, we will keep our eye on some of the variables at International such as hydrology in Brazil, foreign exchange rates and crude oil prices. Finally, it will be important that we continue to manage our costs and realize efficiencies in the business. Even though our 4% to 6% earnings per share growth objective is through 2017, I want to give you a feel for some of the growth drivers we expect as we look into 2018 2019. First, the new generation projects in Florida and the Carolinas are expected to be completed and move into rates either through riders or base rate adjustments. Additionally, we expect to continue investing around $4,000,000,000 in 2018 2019 in growth projects for new generation T and D infrastructure and environmental compliance. The Atlantic Coast Pipeline is expected online in late 2018 and discretionary growth projects in our commercial renewables business will provide additional support to our growth. Due to our size and scope, we will have different growth drivers at different times. Taken together, these drivers provide a solid foundation of continued growth over time. Slide 13 outlines our financial objectives for 2015 and beyond. We have an established track record of achieving those objectives and have a strong plan in place to continue delivering attractive returns for our investors. We have met or exceeded our earnings guidance range for 5 consecutive years. We have delivered on our overall long term 4% to 6% adjusted diluted earnings per share growth objective since 2,009. Today, we announced our 2015 adjusted earnings guidance range of $4.55 to 4.75 dollars per share and we extended our long term adjusted earnings growth objective of 4% to 6% in 2017. We will continue to focus on the dividend, which is central to our investor value proposition. We have reliably paid a quarterly dividend to our shareholders for 89 years and have grown the dividend for 7 consecutive years. We currently pay 2 point $2,000,000,000 annually in dividends to our shareholders within our targeted payout ratio of between 65% 70%. With that, let's open the line for your questions. We'll go first to Dan Eggers with Credit Suisse. Hey, good morning guys. Good morning, Dan. Good morning. Hey, now that you've gotten through the review on international assets and you've reiterated the 4% to 6% EPS growth target. How do we think about the balance of growth? Because I assume you guys are embedding little or no growth international, which means the domestic businesses are actually going to grow faster than 46%. Is that fair? Dan, we continue to look for ways to invest capital. So you'll find some growth capital international. But given the fact that it's roughly 10% of the business, you can expect greater growth, the lion's share of the growth coming from regulated. And I think And I guess just sorry, let me The only thing I would add to that is, as I think about regulated earnings growth, it's not just the utilities. I think you put the pipeline into that category as well, a FERC regulated growth item that will show up in commercial, but nonetheless is important to the growth picture. And then I guess kind of from a treatment from an earnings perspective from the international because you guys took the charge in the Q4, there's going to be no change in realized tax rate even as you bring international earnings back to the U. S. Because I guess you guys front end loaded the tax payment. Is that the right way to think about what you guys did? Yes, that's correct. What we've done is recognize the income tax liability associated with historic earnings. Prospectively, we will not accrue any U. S. Income taxes. And we're projecting that our effective tax rate for 2015 will be about 32 percent. Okay. Just one last question. Just on the renewable investments, you're demeaning at their Analyst Day, you kind of lower EPS contribution to asset deployed. How does that fit to you guys' thoughts on investment in that business and the right fit for you relative to maybe some of these Yulico folks who can pay more for a similar set of assets? Dan, I think there are a couple of questions in here. 1, our competitive positioning and then what is the long term strategic set of renewables. And we continue to see it as an important place for us to deploy capital. We see growth in that area. But like any element of our business, from time to time, we'll step back and see where it fits and how does it optimize value. But that's as far as I would go at this point. Overall, we see renewables becoming an increasingly part of the generation portfolio, and we'll continue deploying capital in a manner that creates the most value for our shareholders. Great. Thank you, guys. Thank you. Thank you. We'll go next to Michael Weinstein with UBS. Hey, it's Julian. Good morning. Good morning, Julian. Julian, also known as Michael. How are you? Thank you. Quite well. I wanted to perhaps follow-up on Dan's question there and kind of come back to the 4% to 6% for 2016 2017. Is that weighted towards 2017? Are you really thinking about a real pickup next year? And if so, what are those drivers as you think about the domestic businesses? And to what extent does capital deployment also drive some of that improvement '15 to 'sixteen? Julian, I would point to guidance for 'fifteen and then the long term growth rate of 4 to 6. And we've given you some visibility on what you're going to see in 'sixteen. So we hope to close the Eastern Power Agency. We'll begin showing earnings from other long term capital deployment. We have certain things that will occur on Riders. So I think we've given you the pieces. We're not prepared to give specific guidance on 16 today, but we feel like we've developed the pipeline that will drive growth into the future. But to be specific here, is the 2016 kind of the improvement? Or ultimately, you're not ready to say 2016 versus 2017 to get to that 4% to 6 percent? I don't think we want to get into 2016 versus 2017 at this point. But what I would describe to you is that the growth portfolio is strong. We are projecting to be investing an average of $8,000,000,000 year. 2014 was a relatively low capital year and that's just the nature of the business in terms of the timing of the resources you need for your regulated businesses when you're closing deals. We're looking at 16 being nearly 10,000,000,000 dollars of investment when you include the Nakempa acquisition. And our rate base is growing our regular rate base growing 6%. So it's hard to know exactly how that will manifest itself through rates, riders, AFUDC exactly, but the investment base is more bearish view on timing? Or is it really kind of or is it really kind of or is it more bearish view on timing? Or is it really kind of could potentially be a little earlier than that? Julien, it's a planning assumption. I think with the Dynergy has reached with the market monitor, we believe closing could occur more rapidly. But for planning assumptions, we put it into the Q2 and we'll update as events unfold. It's difficult to predict with certainty FERC's timeline. Great. Thank you and congrats both. Thanks so much. Thank you. We'll go next to Brian Chin with Bank of America. Hi, good morning. Good morning, Brian. Good morning, Brian. Just a springboard off Julian and Dan's questions. For the recovery of the EPS trajectory back to 2016 from 2015, The way I took your prepared comments, there's a little bit of a drag in 2015 on FX and oil. And so is some bounce back on those assumed in the 2016 guidance? Or is it your view that the growth portfolio is strong enough to account for an FX and oil price environment that sort of perpetuates from 15% onwards and you still get back to the 4% to 6% trajectory? Brian, what I would say, we'll be closely watching oil prices. For example, I do not we do not believe that the level we're at today will persist. In Steve's remarks, we said into 'seventeen. We also are not projecting they persist into 'sixteen at this level either. So we have a combination of things in our We'll go next to Jonathan Arnold with Deutsche Bank. Hey, good morning. Good morning. Hi, Jonathan. Quick question on just so I understand what you've done on repatriation. You described it as a tax efficient solution, but then you seem to be booking what I guess is a worst case scenario on tax. What happens if there's some form of a tax holiday going forward? Would then release some of this reserve? And because you've structured this as a note, does that effectively help with this? Could you just put some light on that comment? Sure. Let me give a little color to that. We booked the roughly $370,000,000 in the Q4 related to this. And that reflects a tax efficient structure. We don't expect before 2016 any comprehensive tax legislation. There are various proposals that are kicked about. And in fact, President Obama's proposal talks about a 19% tax on repatriated earnings, which would be less efficient than what we put in place. So I think we have maximized our ability to utilize foreign tax credits and taken advantage of our tax positioning pretty well with this structure. Okay. So there's not a potential for it to improve or is there? I think that we recognize the right liability based on our historic earnings. And it basically represents kind of a top off tax between foreign tax amounts accrued and paid and the U. S. Tax rate. And what is also unique here is that we will not be accruing any U. S. Income taxes prospectively, which helps us as well. Okay. And then another topic on wholesale, I think I heard you say $0.10 of wholesale income in 2015 on top of $0.06 in 2014. Does some of that carry forward into 2016 on a full year basis? And just what you would think about 2016 and 2017 on the wholesale line? As we move forward 2015 2015 were big years where we stepped into wholesale contracts. So we saw some nice growth there. That will level out a bit after 2015. We will continue to see some growth in wholesale as our existing contracts grow and we step into some smaller ones. It won't be at the level that we have seen in 2014 2015. Okay, great. Thank you, guys. Thank you. Thank you. We'll go next to Michael Lapides from Goldman Sachs. Yes. Hey, guys. Congrats on a good year. Just a question on Slide 23 and then kind of thinking about core growth in net income versus growth in EPS. Your regulated utility growth is about 2% kind of as you outlined on this slide. Commercial power has $90,000,000 of kind of non recurring benefit in it in 2015 meaning that won't be there in 2016. Just curious when you think about drivers of the 4% to 6% longer term, how much of that is driven by just kind of longer term continued reductions in the share count? Or do you view this as kind of a one time buyback that's being done now and then there's no more kind of major capital allocations outside of dividends on the equity side of the balance sheet going forward? Michael, we're certainly going to use balanced recapitalization to address the exit of the Midwest generation business. We think that is an appropriate utilization of proceeds given where we are at this point. I think what you can expect on regulated utilities is that growth will be lumpy at times for lack of a more sophisticated word because of capital deployment, rate cases and other things. So as you look at 2015, it's a no rate case year. And so we would expect growth to accelerate there around reflection reflection of the earnings from the investments we're putting in place. We also expect commercial will grow as we continue to put renewable investment to work and as the pipeline begins to show up. So I think we could talk through each of these individually, but there will be growth that shows up from deployment of investment and this share repurchase, we think is consistent with the exit of a business. Okay. And just to sanity check one thing on the pipeline, Will you be booking AFUDC earnings during construction? So the earnings impact will actually happen before the pipeline goes in service? Yes, that's correct. We will, Michael. Got it. Thanks, guys. Much appreciated. Thanks so much. Sure. We'll go next to Chris Turnure with JPMorgan. Good morning, Steve. I just wanted to talk a little bit more about 2015 at the regulated utilities first. We talked about it a lot so far, but just I would have expected a little bit more growth even without a rate case there given the fact that you're getting the load growth and all of that wholesale growth even though weather normalization is going to hurt you. And then you also mentioned a couple of pennies of a tax hit as well. Is there anything else within 2015 specifically that we might be missing there? I think typically when you look at 2015 for the regulated utilities, you've got the organic load growth that we're looking at for retail, the wholesale, those are pieces there. We should have some growth from riders in AFUDC as investments build. But again 2014 was a low capital year, so we're just starting to build the tank on some of these larger investments such as the lead combined cycle and the Citrus County. So there may be a lag in some of that buildup that you see in 2015 relative to where we're going to be in 2016 2017 and maybe a part of it there. And then there's what we call rate lag, if you will, and that's O and M, which we're trying to hold in check and have had success doing that thus far, but there's always emergent costs that have to be dealt with. And then there's additional depreciation and interest on capital projects, smaller capital projects that go into service prior to a rate case. So those are kind of the major components. And I think that one of the things you may be also factoring in is nuclear levelization, which impacts our O and M in an unusual fashion. We got a large benefit in 2013 from nuclear levelization as we started to levelize nuclear outage costs and that has negative impacts in 2014 2015. After 2015 we'll be through with that and it won't be a driver. Okay. And then if we look at the drivers for the international segment for 2015, you do say that you're assuming normal hydrology throughout the balance of the year or the entire year overall. It doesn't look like that is much of a driver though in terms of EPS. We have the crude headwinds and the ForEx headwinds, but should we not be thinking about that helping earnings a lot this year? Well, I think you've hit the major drivers, which are the FX and the crude for international. When you look at hydrology in Brazil, I think we're assuming normal hydrology. But I think even under normal hydrology, the thermals will be dispatched first throughout the year. That will put some constraints on our hydro generation capabilities. Our contract pricing does grow and those contracts are profitable. But given the thermal dispatching order even under normal hydrology coming out of 2 years of drought, that will constrict some of our ability to make sales into the spot market. So there's some offsetting things there in Brazil. I think you've hit the big drivers for We'll go next to Ali Agha with SunTrust. Thank you. Good morning. Good morning. Steve, in your 2015 guidance, you gave us your assumptions for oil price as well as the FX in Brazil. Can you remind us what the sensitivities are around that base assumption? Yes. The 10% movement on the price of oil is in the neighborhood of $0.01 to $0.02 and that's an annual basis. $10 $10 $10 on the price of I'm thinking of oil always being around $100 And then a 10% movement on FX rates for the entire year is in the neighborhood of $0.03 Okay. And then secondly for the NCEMPA acquisition, I see that you've assumed $0.05 to $0.10 of earnings. Why is there that $0.05 delta in that contribution? I would have thought it would be fairly set once you complete that acquisition. And those are assumptions around financing basically. If it were financed entirely with cash, then you'd be at the upper end of that range. If it were financed 50% at Holdco Debt, then you'd be at the lower end of that range. So we're just incorporating some financing sensitivities there. I see. And then lastly, Lynn, coming back to the international business, once you brought that cash back in and you can maximize the value that way, When you look at that business going forward, you've exposed it to oil price, what it about, what happens to hydro and is it raining or not in Brazil, where are the FX going? I mean, there's still that variability out there. From an earnings perspective, I don't hear much about that it's going to grow like your regulated business does. So strategically, would that still fit the profile that you're trying to create here with stable, visible, predictable earnings and dividend growth? Ali, I think you raised a good question. And certainly, as we undertook the strategic review, we were looking at both elements. We were looking at cash optimization and we were looking at growth. I think we came up with an outstanding solution around cash and I think it's particularly timely when you think about the level of capital spending and projects we've identified in the domestic business. But we do have some near term headwinds from a growth perspective. The NMC investment was not a part of the strategic review. That's a joint venture that we're in until the latter part of 2020s. And so we will continue to have some volatility around oil prices. And I think the business in Latin America, we do have some foreign currency, we have hydrology in the short term, but we believe that those markets represent strong markets over the long and we'll continue to look for ways we can optimize value out of that portfolio. I think stepping back from all of that, we should also recognize that this is only 10% of Duke's business. Right. But we are done with the review. This is of Duke's business. Right. But we are done with the review. This is not something you'll come back another year or 2. I mean, this was pretty comprehensive and we are done for now. We're done for now. Got it. Thank you. Thank you. We'll go next to Paul Patterson with Glenrock Associates. Good morning. Can you hear me? Hi, how are you? Good. Just a follow-up on the oil and currency expectations post 2015. As you know, the forward curve is sloping upward to begin with. So I was just wondering, when you say that you don't expect them to stay at these low levels, are you talking about the forward curve in general? In other words, do you have an expectation above the forward curve? Or I forget Brett for the most part right now. Or is this just you're just commenting on the fact the forward curve goes up considerably in the next few years? Yes. So we use the forward curves, Paul, to plan our business. We'll, of course, look at sensitivities around that, but we do not have an independent market view. Okay, great. And then with respect to the sale of the Dinesh, I think Julien was asking about this. If you guys were to sell it earlier, considerably earlier, would that have a material impact on 2015? No, that would not have a material impact. You'd lose some of the earnings from the Midwest Gin from that period of time, the recapitalization benefits would kick in earlier and the net of those 2 is immaterial. Okay. That's it. Both of my questions have been asked. Thanks a lot. Thanks so much. Our last question comes from the line of Andy Levi with Avon Capital. Hi, good morning. Hi, Andy. Hi, Andy. How are you doing? Good. Just one clarification on the wholesale at the utilities or really I guess at the Carolina utilities. How does that work in a rate case because you have your growth and then you said there was like growth in some smaller growth in 2016 and 2017. But if you file a rate case, let's say, North Carolina, is there some type of true up? I'm just trying to remember. There's not a true up. Let me some of the mechanics I'll explain. When you file a rate case, you will typically look at who are your firm customers, retail and wholesale, and you will allocate costs in that fashion. And then the states will set retail rates based upon those costs allocated to the retail customer load. So the existence of firm wholesale does impact base rate allocations. On a prospective basis. But prospectively, you don't go back and say, let's redo the allocations in the past. Okay. So for like modeling purposes, I'm just throwing out numbers. Let's say there was a $0.15 benefit over a 2 or 3 year period in between the rate cases. You don't lose that $0.15 but I guess it gets taken out on the retail side. So if you were going to have, I don't know, a $200,000,000 rate increase, there's some type of adjustment on the retail side to compensate for the benefit on the wholesale side. Is that kind of the way to look at it? Yes. Well, prospectively that's the way to look at it. Yes. You will reallocate costs based on your retail and wholesale customers again on a prospective basis. And is there a way for us to kind of figure that out? Or that's too complicated for us? Andy, I think off line, the IR team could talk you through that. But I think we're talking about something that's 2 or 3 years down the road and probably a better conversation as we get closer to the rate cases. Great. Okay. Thank you very much. Thanks so much. Okay. I want to thank all of you for joining the call today and for your interest in Duke Energy. Look forward to seeing many of you in March as we pursue and attend many of the conferences. So thanks again. This does conclude