Earnings Call: Q1 2012

May 4, 2012

Day, everyone, and welcome to the Duke Energy First Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over Bill Curranz, Managing Director of Investor Relations. Please go ahead, sir. Thank you, Cynthia. Good morning, everyone, and welcome to Duke Energy's Q1 20 12 earnings review and business update. Leading our discussion today are Jim Rogers, Chairman, President and Chief Executive Officer and Lynn Good, Group Executive and Chief Financial Officer. Jim and Lynn will review our Q1 results and provide an update on key issues. After their prepared remarks, we'll take your questions. Today's discussion will include forward looking information and the use of non GAAP financial measures. You should refer to the information in our 2011 10 ks 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 the presentation materials includes additional disclosures to help you analyze the performance. Now I'll turn the call over to Jim Rogers. Thank you, Bill. Good morning, everyone, and thank you all for joining us today. We appreciate your interest and investment in Duke Energy. Today, we will review our quarterly earnings results, provide an update on economic activity and customer load growth trends, as well as summarize what we are experiencing with coal to gas switching. We will also review the status of our combination with Progress Energy and discuss the settlement agreement we announced earlier this week with respect to the Edwardsport project in Indiana. This settlement agreement resolves uncertainty regarding the cost recovery of this important investment. I will review the terms of this settlement later in my remarks, but let me begin with an overview of the quarter. Today, we announced Q1 2012 adjusted diluted earnings per share of $0.38 that compares to $0.39 in the Q1 of 20 11. Reported earnings for the quarter were $0.22 as compared to $0.38 in the prior year. Current quarter reported results reflect $0.20 of charges related to the settlement agreement on the Edwardsport IGCC project in Indiana. This charge has been treated as a special item for the quarter. Consequently, it has been excluded from our adjusted diluted earnings per share. The quarter was characterized by unusually mild weather across all of our service territories. In fact, this past winter was the 4th warmest winter season on record for the entire U. S. I am pleased with our employees' efforts to effectively manage costs during the quarter. This helped offset some of the impact from the weather. We also benefited from increases in customer prices in the Carolinas as a result of our rate case request last year. In our commercial businesses, from our new ESP agreement in Ohio. In addition to cost control, our operational performance during the quarter was impressive. The regulated nuclear fleet delivered a capacity factor of 99.7%. Meanwhile, our non regulated gas fleet in the Midwest continued to operate at record generating levels, benefiting from low gas prices. I am pleased with where we stand at the end of the Q1. While we cannot control the weather, I commend our employees for focusing on what we can control, specifically our fleet and grid performance as well as our expenses. Based upon our Q1 results, we are on track to achieve our 20 12 adjusted diluted for a more in-depth discussion of our financial performance for the quarter. Thank you, Jim. Slide 6 outlines the significant adjusted earnings drivers for each of our business segments for the quarter. As a reminder, we are now evaluating our business performance on the basis of segment income rather than on our previous segment EBIT basis. As a result, earnings for each segment include interest and income tax expense. In addition, corporate governance costs, which were previously reflected in the category labeled other are now allocated to each segment. First, let's review earnings for our regulated utilities, U. S. Franchise electric and gas. Quarterly adjusted segment income was relatively flat with the prior year quarter. Revised customer rates in the Carolinas and lower operation and maintenance expense helped offset the impact of unfavorable weather. Let me give you some perspective on the mild weather, which affected earnings per share by about $0.04 In the Carolinas, we had the lowest level of heating degree days on record for the Q1. Heating degree days were below normal by around 25% in the Carolinas and 28% in the Midwest. We were able to offset about $0.01 per share of the weather impact with reductions in our O and M costs during the quarter. Due to the unfavorable weather and the low natural gas price environment, we are generating fewer megawatt hours from our coal plants. We've examined our operations for opportunities to reduce costs. From a labor perspective, we have displaced contractors, reduced overtime and have not filled open positions. Additionally, we will defer certain scheduled outages since the plants are not running at the levels we originally anticipated. Assuming normal weather and storm activity, we expect our 20 of our employees and reliability of our systems. Also during the quarter, FE and G began to realize the benefit of recent rate case outcomes in both North and South Carolina, which increased earnings per share by about 0 point $3 These revised rates primarily reflect recovery of investments and our fleet modernization program. Now let me move on to Duke Energy International, which continue to provide strong financial results. This segment's adjusted income increased principally due to higher volumes and pricing in Brazil as well as at NMC, more than offsetting the impact of the prior year favorable arbitration award in Peru. Finally, I'll briefly discuss results for our non regulated Commercial Power segment. As expected, Commercial Power's adjusted segment income was lower than the prior year quarter, primarily due to the impact of the new electric security plan in Ohio. That plan resulted in a reduction to earnings per share of about $0.02 As you'll recall, under our new market based ESP, our coal fired generation dispatches into PJM. That generation receives an energy margin as well as capacity revenues based upon PJM clearing prices. Duke Energy Ohio is also collecting an annual $110,000,000 non bypassable stability charge through the end of 2014, adding $0.01 to the Q1 results. Our non regulated Midwest Gas fleet continued its strong performance contributing around $0.01 more than in the Q1 of 2011. The gas fleet's earnings were supported by higher volumes and margins resulting from low gas prices. Our Midwest fleet dispatched about 1900 gigawatt hours more than the prior year quarter, nearly a 70% increase. As expected, PJM capacity revenue received by the Midwest Gas fleet was lower in Q1 2012 as the capacity price fell from the 100 and $74 per megawatt day in the prior year to $110 per megawatt day. As a result of the reset of our ESP in Ohio to market based rates, volumes and margins realized by our competitive retail arm, Duke Energy Retail were lower than in the prior year quarter. This reduced earnings by around $0.01 per share. Despite a challenging environment, the commercial power team continues to work to control costs and optimize the performance of the non regulated generating fleet. Turning to Slide 7, I'll spend a few minutes on our volume trends for the quarter and the economic conditions within our service territories. This slide presents our quarterly volume trends by customer class based on calculations that exclude weather impacts. As a reminder, our 2012 guidance assumes we'll experience weather normalized volume increases of about 0.7%, driven by expected growth of approximately 1% in both the industrial and commercial customer classes. On a weather normal basis, quarterly volumes were around 1% higher than the prior year period. However, most of this favorable trend was due to an extra day in Q1 2012 resulting from leaf year. This increase continues to be largely supported by industrial activity, which remains strong across both the Carolinas and Midwest. Weather normalized industrial volumes were 2.6% higher than the prior year quarter. Growth persists across several major industrial classes, specifically the automotive, chemical and heavy equipment sectors. However, weakness continues in housing related sectors and among our textile customers in the Carolinas. Economic development activities continue to remain strong in our service territories, bringing new investments and jobs. For example, tire manufacturer Michelin announced last month that it will invest $750,000,000 for a new plant and a factory expansion in South Carolina. Combined are expected to create 500 new jobs. Let me move on to trends in the residential customer class. For the quarter, weather normalized residential volumes were essentially flat, an increase of about 0.3%, principally supported by the Carolinas. We are seeing positive trends in the number of residential customers being added in the Carolinas and Midwest. We've added approximately 20,000 more electric and gas customers than the prior year quarter, an average growth of around 0.5%. Even though this level of growth is below what we were experiencing before the experience a reduction in our residential customers' average kilowatt hour usage. A sluggish economic recovery, high gasoline prices and energy efficiency initiatives may all be influencing these usage patterns. Finally, weather normalized volumes for our commercial customers were around 0.6% higher than the prior year. This customer class continues to be weighed down by high office and retail vacancy rates and low construction activity. The economy within our service territories maintains its slow recovery. Industrial activity remains strong, yet consumers continue to be cautious. Unemployment rates have improved, but remain at historically high levels. Further last week's announcement of Q1 U. S. GDP showed a slowing from the Q4 of last year. All of these factors leave us cautious and guardedly optimistic on the overall economic recovery. As we forecast the remainder of the year, we are seeing some challenges in our ability to achieve the 0.7% weather normal volume growth assumed in our 2012 guidance. We will continue to monitor customer volume trends as we progress throughout the year. Finally, let me discuss the issue of coal to gas switching, which resulting from the low natural gas price environment. The charts on slide 8 show our generation fuel mix over the last 2 years and our current projection for 2012, both in the regulated businesses and in our non regulated Midwest generation business. As demonstrated by these charts, the commodity price environment has significantly changed the mix of generation, resulting in less coal and more natural gas. For example, in the Carolinas, our Buck combined cycle gas plant, which became operational this past November, has been dispatching like a base load generating unit. In fact, it is currently dispatching just after our nuclear units in Carolinas, ahead of even our most efficient coal units. Additionally, as I mentioned earlier, our non regulated Midwest gas fired generation continues to run at high levels. In fact, 2011 was the 3rd straight year this fleet achieved record generation levels and if low gas prices persist, 2012 is looking like another record year. As a result of reduced coal burns expected in 2012 from mild weather and low natural gas prices, our coal inventory levels have increased. Inventory levels are currently above our target of about 40 days in the Carolinas and about 45 days in Indiana. In 2,009, the impacts of the economic recession put us in a similar situation, but we were able to work with our coal suppliers to effectively manage inventory levels. We are doing the same this year. We've had extensive discussions with our coal suppliers and we're evaluating contract deferrals or buyouts as well as additional coal storage options, both on and off-site. In February, we implemented a coal price decrement in Indiana, increasing the dispatch of our coal units. To the extent the units are dispatched, coal coming to the stations is consumed and other higher potential costs are avoided. Overall, customers benefit. We'll continue to monitor the situation and take appropriate action as needed. In summary, for the remainder of the year, we'll continue to monitor customer load growth trends and are focused on effective cost control and operational performance to help drive our financial results. We remain on track to achieve the $1.40 to 1 $0.45 adjusted diluted earnings per share guidance range for 20 12. However, actual results for the year will be largely dependent upon the Q3, historically our most significant. Additionally, we remain well positioned to achieve our targeted 4% to 6% long term growth and adjusted diluted earnings per share on a standalone Now I'll turn it back over to Jim. Thanks, Lynn. Let me start with our pending merger with Progress. On March 26, Duke and Progress jointly filed a revised mitigation plan with the FERC to address their market power The following features both interim and permanent mitigation components. The permanent mitigation solution involves the building and upgrading of transmission and estimated cost of about $110,000,000 The transmission projects are designed to significantly increase power import capabilities and enhance competitive power supply options in the progress in Duke Carolina service territories. The proposal also features a 2 to 3 year interim mitigation plan with firm power purchase agreements already signed with 3 third parties. The agreements will be in place from the date the merger closes until the transmission projects are operational, at which time the interim mitigation will terminate. The cost of this interim mitigation, which we're able to currently estimate are included on this slide. Our regulatory and legal teams have spent considerable effort investigating solutions to address FERC's concerns about protest to the plan are without merit. We've requested that FERC issue orders approving the mitigation plan, the joint dispatch agreement and the joint open access transmission tariff no later than June 8. After satisfactory FERC approval, we will continue to seek final merger related approvals from the North Carolina and South Carolina Commissions. Over the past several weeks, we have had constructive discussions with the North Carolina public staff. These discussions have centered on how the cost of the proposed FERC mitigation plan will be handled for rate making purposes as well as some clarifications, including timing on the $650,000,000 guarantee of fuel and joint dispatch savings. We hope to have a revised settlement in place soon that balances the interest of consumers and shareholders. We have restarted Duke progress. We will continue to keep you informed on developments regarding the merger in the weeks ahead. Next, let me review the Edwardsport settlement, an important milestone in achieving clarity on the cost recovery of this investment. Earlier this week, we announced an agreement with the Indiana Office of the Utility Consumer Counselor, the Duke Energy Indiana Industrial Group and Nucor Steel Indiana related to recovery of construction costs for the project. This settlement is subject to the approval of the Indiana Commission. Let me highlight a few provisions of the agreement. First, the settlement includes a cap on construction costs, including financing costs to be reflected in customer rates of approximately $2,590,000,000 as of June 30. This amount estimated financing costs. To the extent we do not have a final commission order by June 30, Duke Energy Indiana will be able to recover additional financing costs until customer rates are revised. 2nd, Duke Energy Indiana will not request a retail electric base rate increase prior to March 2013 with rates in effect no earlier than April 1, 2014. And finally, Duke Energy Indiana will incur approximately $20,000,000 to reimburse the settling parties for attorney fees and litigation expenses as well as make other funding commitments for low income heating assistance in Indiana. The agreement also includes certain measures, which help mitigate the customer rate impact of the project. Rate impact of the project. For example, we agreed to implement Revive's appreciation rates to the benefit of customers. Under the terms of the settlement agreement, customer rate impacts for this project are to be implemented as follows. 1st, recovery of project financing costs up to the hard cap amounts will be reflected in customer rates as soon as practical upon commission approval and will result in an average increase in customer rates of 3.2%. And second, recovery of post and service costs such as O and M costs and depreciation in 2013 based on our rider request to be filed after the expected in service date of the plan and will result in an average increase in customer rates of 6.4 percent. Until such recovery is obtained, these post in service costs will be deferred following the in service date of the project. The provisions of the settlement agreement have resulted in an approximate $420,000,000 pre tax charge or roughly a $0.20 EPS impact in the Q1 2012. This impairment reduces the annual earnings contribution from this project by approximately $0.02 on an ongoing basis. I am pleased that the parties were able to reach this agreement. The agreement is balanced and The agreement is balanced and reasonable and achieves 2 important objectives. 1st, it mitigates the cost impact of this project to our Indiana customers. And second, it resolves the regulatory uncertainty regarding construction cost recovery. We have requested the commission to establish a procedural schedule to address the settlement and expect a final commission decision by the summer or fall of this year. Our current focus is on bringing the Edwards Park facility to full operation later this year, allowing us to provide Indiana customers with cleaner power to meet increasingly strict federal environmental regulations as well as utilize a readily available local resource, Indiana Coal. Let me discuss the status of the Edwards Port construction project in our Carolina projects outlined on Slide 11. Construction of the Edwards Port IGCC project is essentially finished and the start up phase is well underway. The plant is undergoing an extensive testing process with first fire for both gas turbines successfully completed in March. Edwardsport is Commissioning, start up and testing of planned equipment are currently underway. The plant's first fire on coal remains targeted for later in the Q2. We plan to bring the plant online this fall on time and on budget. The 6 20 Megawatt combined cycle Dan River gas plant is also on time and on budget with construction 85% complete and commercial operations scheduled for the Q4. Finally, let me give you an update on our growing renewables business. Last week, we closed on a fifty-fifty joint partnership with Sumitomo for 2 large scale wind farms that Duke Energy Renewables is building in Kansas. The 131 Megawatt Cimarron II project and the 168 Megawatt Ironwood project, Both projects are scheduled to go online later this year. In addition, we have 3 other wind projects currently under construction. We also continued to grow our renewable solar business, targeting the addition of around 25 to 50 megawatts in new capacity this year. By the end of 2012, our total owned renewable capacity is expected to grow to almost 1700 megawatts, let me say I am very pleased with where we stand through the Q1 of 2012. We remain on track with our earnings objectives and entered into constructive agreement on our Edwards Port project in Indiana. Slide 12 summarizes the key short term and long term priorities we discussed during our year end earnings call in February. For the rest of the year, we remain focused on our primary strategic objectives. 1st, obtaining the remaining regulatory approvals related to our merger with Progress second, completing the remaining major construction projects 3rd, obtaining reasonable 3rd, obtaining reasonable regulatory outcomes in the Edwardsport proceeding and our upcoming rate cases in the Carolinas and Ohio, which we will likely file with regulators around mid year and finally, achieving our earnings guidance range for the year. Our employees' hard work continues to support Duke Energy's ongoing mission of delivering affordable, reliable and clean energy, benefiting our customers, investors and the communities we serve. Now let's open up the phone lines for y'all's questions. Thank And we'll take our first question from Jonathan Arnold with Deutsche Bank. Hi. Good morning, Jonathan. Jim, first on the merger, I just noticed that you mentioned that you've restarted the integration process. So I guess my question is, does that mean it stopped? And when was that? And what changed? And can you just provide some color on you're referring to? Sure. Let me ask Lynn to address that question, if I may. Yes. Jonathan, at the time we received the FERC order in December, we really put pencils down a bit, finishing up what was going to be required for legal day 1, but really putting it on the shelf so that we could get focused on running Duke and Progress separately at the beginning of the year. We didn't have specific clarity on timing of the FERC filing and closing, etcetera. So we've been focused for a few months of the year on the things you would expect us to be focused on running the business well. And now we believe we're getting to the point where we should start brushing off the legal day one work and restarting integration so that we're prepared for can you give us any sense can you give us any sense of where you are currently within this? You said you're above the 45 to 50 day range, but you're not at the 75 to 80. Where are you in that range? Do you think you get to the maximum? And is this any very similar to 2009 or more dramatic? Jonathan, we are at about 90% of the peak levels of 2,009. So we're not quite to the point we experienced in 2,009. And the teams are very focused on managing through Okay. Thank you. Thank you. Thank you. Thank you. Okay. Thank you. Thank you. Moving on to Dan Eggers with Credit Suisse. Hey, good morning, guys. Good morning. Hi, Dan. Jim, there certainly seems like there's some momentum with the conversations you guys are having with the staffs in North Carolina and South Carolina. But can you just maybe mechanically or logistically walk through how a settlement would synchronize from the states with trying to get a FERC decision done and how they would marry together because obviously they're kind of early stage are dependent upon the FERC decision. How that would all play out in June if things worked as you guys haven't scheduled right now? Absolutely. Dan, first, let me say that our aspiration is to get a decision from the FERC in early June. In the interim period, we're working with the public staff in North Carolina as well as the Consumer Council in South Carolina to reach settlement agreements that we can present to the state commissions for their approval. We've had detailed conversations with the public staff in North Carolina. Our discussions have focused on what is the appropriate treatment for the $110,000,000 investment in transmission. It has been focused on some additional flexibility with respect to our guarantee of $650,000,000 in the joint dispatch and fuel blending. It's also been focused on other items such as our sell of electricity during the interim period. So we are very close to reaching agreement with the public staff, have not reached agreement with other parties with respect to this in North Carolina. And so more to come there and we hope to have a settlement soon. With respect to South Carolina, we're also working very close with Duke Scott and his team, so that we can satisfy his requirements. And I think an important part of the relationship between North and South Carolina is that Duke Scott negotiated early on a most favored nations clause, which really allows them to track whatever agreement is reached between us and the public staff in North Carolina. And so Dan, maybe just to put those things together, the intent would then be to be in a position where the commissions could approve the settlement following FERC approval in that June timeframe. So that because the commissions wouldn't decide basically you'd have a the settlement which could then be adjusted if the FERC makes adjustments and bring it to them. So they wouldn't actually have to revise what they had done because they wouldn't That's a very good observation on your part. We are building in a provision in our settlement that we're working through now with the public staff for the possibility that the FERC will not fully embrace our proposal. They will modify it in a way one way or another. And if that happens, then we have the capability to really reopen the agreement we have with the public staff and make any adjustments that are appropriate given the FERC's action. Okay. And I guess just one other question. You guys have talked on a merged basis of 4% to 6% earnings growth is target without any equity. Are you still feeling comfortable with that at this point in time? And do you feel comfortable without the equity needs given some of the loss of cash you guys have with the Edwards Portage deal and some of the loss of cash that progress put up in the Crystal River deal? Dan, we are still targeting the 4% to 6%. We think the combined company has the fundamental growth drivers of investment and load synergies, of course, will be very important to drive that growth. We will be finalizing guidance as we near completion, restart integration, get a better sense of synergies, timing, etcetera and be prepared to give you more specifics post closing. Okay. Thank you. Thank you. Moving on to Hugh Wynn with Sanford Bernstein. Good morning. Good morning. My questions went primarily to Edwardsport and what if anything remains to be wrapped up. You mentioned you're in the testing phase. Has the gasifier had the worst part Hello? Hello? Hello? Hello? My question was, has the gasifier at Edwardsport been tested yet? You were having trouble hearing you. Could you can you restate? Mr. Wynne, are you still on the And Mr. Wynne has disconnected. We'll take our next question from Michael Lapides with Goldman Sachs. Yes, guys. One real quick thing. When I go back and look at your guidance that you provided at the end of the Q4 call or during the Q4 call, look at the U. S. F and G, you expected it to be up year over year about $0.12 Nowhere in there is there any bullet points for O and M cost reductions. And yet based on the commentary and what I'm seeing in the abbreviated data at the back of your release, it seems like you've actually managed O and M down a bit in the Q1. Can you comment on that? Can you comment on expectations for O and M for the rest of the year relative to last year both at U. S. F and G and maybe at Commercial Power? And Michael, let me respond on U. S. F and G. We actually came into the year assuming O and M would be flat 2011 to 2012. And as a result of the weak weather that we experienced also continuing to build in some flexibility for the possibility that load growth doesn't show up as strongly as we anticipated. We've taken some actions that now put us in a position to forecast that O and M will be down 2% year over year. This gives us some flexibility in and M in commercial can actually be tied to generation, particularly in Latin America. And so we look at that O and M a differently and really try to give you a sense of margin and other things that we see in those businesses. Got it. Okay. One other question just in terms of thinking about PJM coming up in the next couple of weeks assuming the auction results are actually released in the next the view that coal plants are needed at peak in PJM? And if so, is it entirely just scrubbed coal plants or even does PJM still need some of the unscrubbed coal plants at the peak? Michael, it's my judgment that in PJM, they still need all the scrub plants and some of the unscrub plants at peak period. So when you think about market fundamentals or kind of what's normal or long term, either an unscrubbed coal plant, whether it's energy or capacity, needs to set the clearing price or some other asset replacing that plant needs to? I think that's right. I think historically and let me see if I remember the I think it's about 85% of time gas is on the margin in PJM. And I think that will continue to be the case even though there's been a flip in gas prices and coal prices and a flip in the dispatch. Said another way, the gas units, particularly combined cycle units are dispatching with the 7,000 plus heat rate before most coal plants or virtually all coal plants in the region. Got it. Okay, Jim. Thank you. Last question, just commercial power really Duke Energy International. Any change in your thoughts about the growth outlook, especially with kind of the next year sharing at National Methanol, kind of what the growth trajectory of this business is relative to your U. S. Businesses? Michael, I think we've talked a little bit about growth on international as we put forward guidance. We think international is a very solid contributor to the company. It has growth prospects with the repricing of the contracted load in Brazil and there's actually some information in the year end package that might be helpful on that. We will also bring some new resources into the international business as we go forward. I think you should look at commercial power, growth is going to occur over a longer term basis as we see capacity prices rise and hopefully a broader spread in energy. Got it. Thanks, Jim. Thanks, Lynn. Much appreciated, guys. Thank you. Moving on to Brian Chin with Citi. Good morning, Brian. Good morning. Jim, if FERC says it needed another month to review this and that sort of drags out the process into August, would you be willing to extend the merger agreement another couple of months? Brian, I'm not going to speculate on what we'll do with respect to extending the time of July 8. We're going to wait till we get there and wait to see what orders we get from the FERC and from the commissions and address that issue at that time. Fair enough. Thanks. Thank you. Moving once again to Hugh Wynn with Sanford Bernstein. Hugh, I'm sorry, you dropped off somehow. Hugh? Hello? Hugh, we're having a difficult time hearing you, Mr. Wynne. If you could pick up your hands or increase your volumes? Hello? Can you hear me? Hugh, we can barely hear you. Hello? Mr. Wynne has dropped again, sir. We'll move on to Andy Levi with Avon Capital. Hi, good morning, Jim. How are you? I'm great, Andy. And you? I'm doing okay. Known you for a long time, so very, very simple question for you. Just concerning the merger, I just want to make sure that you're still very committed and still very excited about this merger. We are very committed to getting this merger across the goal line. This is the 3rd time we filed with the Federal Energy Regulatory Commission. We've reopened negotiations with both states in an effort to get this done. The prior question from Brian was all about July 8. And in our judgment, there's adequate time for both the state and the FERC to act, so we can get this across the goal line. So I'm confident that we will. And if you had to put a probability on it, you'd say more likely than not, we'll get it done. And you're still excited about it as you were when it was announced? I don't know at my age if I'm excited about much. Fair enough, Jim. You're still a young man, come on. Yes, yes, yes, yes. But if you look at this transaction from a long term perspective, this is positions us well for the future. And we wouldn't be continuing to work as hard as we've worked and our teams have worked, if we didn't think this was the right thing going forward. So thank you. That's terrific. And thank you, Jim. Have a great weekend. Yes. You too. Our next question will come from Andy Bischoff with Morningstar. Hi, good morning. Good morning. Question for you, trying to get a grasp of the likelihood of an approval by the Indiana Commission for Edwardsport. What discussions are ahead Andy, as you might imagine, we didn't talk to the commission when we negotiated this settlement. We worked hard with the Consumer Council, who plays a very important role in the state, as well as the industrial group and Nucor. We had many negotiating sessions to get to that settlement. And I think what's important is, is by putting these parties together and presenting it to the commission, we're presenting to them a package that really allows them to address all the issues that have been raised in the proceeding and put this behind the commission, behind us and allow us to go forward to build what may be the last coal plant that will be built for maybe a decade or more given the price of gas and given the new proposals from EPA with respect to carbon. Great. So you're pretty comfortable that the commission will look favorably on the team? I'm hopeful because we've had a long history in Indiana as well as other states of reaching agreements with the parties and presenting settlements to the commission and having the commission approve them. And we hope that that occurs here and that's certainly our expectation. Great. Thanks so much for the clarity. Thank you. Moving on to Jim Von Reissman with UBS. Good morning, Jim. Good morning, Lynn. Good morning. Just two questions for you, if you don't mind. The first one is on Edwardsport and I had the same question that Hugh was trying to ask because I could hear him. Could you just give us an update as to how the test firing is going on the Edwards ports facility? So Jim, I'll give it try and say it, Jameel or Cedar to correct me when we get into maybe more detailed questions. But we have tested on gas firing of the turbines. We have scheduled tests for the gasifier within the next 6 to 8 weeks and are moving through the startup process in a very methodical way. We have operations teams on the ground ensuring we have a smooth transition from construction to start up to operation. Have you had any issues come up with that out of the course of the ordinary, I should say? I would characterize it as things that you would expect to happen as you're turning over systems and processes. Theo, would you add anything to that? No. I mean in any startup of course you will have issues and that's why you go through the testing. Right. We did experience some, but I would not put it outside of the normal range that you would expect for a first of a kind type of system. Okay. My second question is, I listened to the annual meeting yesterday. And Jim, you made a statement saying about your commitment to new nuclear. And I just it's a clarification question, if you don't mind. You said 5% to 10% you're still interested in a 5% to 10% stake of the Santee Cooper's stake. Now is that 5% to 10% of the total project or just Santee Cooper's piece of it? It's 5% to 10% of the total project. Okay. Super. That's all I needed to know. Thank you. Thanks Jim. Moving on to Ashar Khan with Visium Asset Management. My questions have been answered. Thank you. Thank you. And Ali Agha with SunTrust has our next question. Good morning. I apologize I got on a little late. But on Edwardsport assuming the settlement is approved, what does that mean if anything for the Phase 2 hearings that were separately going on? This settlement resolves both Phase 1 and Phase 2 issues. Okay. Okay. Good. And secondly, again, I apologize you may have done this, but on an LTM basis, what are the utility ROEs looking like for your utility portfolio? Ali, we had a slide in the year end package that had targeted ROEs. And what I'd love to do is have Bill Curran walk you through that offline. Yes. I know I recall that I've seen that. But I'm wondering are you I know it's early in the year and all that, but still that is still the right target? I think that's right. Yes. As you know, 3rd quarter is very important for the regulated business. So we'll continue to build on the progress that we've made quarter, but on track. Got it. Thank you. Thanks so much. Moving on to Greg Rice with Catapult. Hi, guys. Congratulations on a good quarter. Thank you. A quick question on the merger again. If for some reason you guys saw a material reduction in the expected benefits of the merger, would you be able to call upon the burdensome effect clause in the merger agreement? And how would it affect this? And would this allow you to avoid having to pay a breakup fee? Greg, the merger agreement is clear on the burdensome effect provision, is clear on MAE provisions, it's clear on the reps who warranties. And I think rather than me trying to opine with respect to how these provisions will operate, I would urge you to read them and draw your own conclusions as to what effect they would have under the scenario that you presented to us. All right. Thank you. Thank you. And our final question will come from Michael Lapides with Goldman Sachs. Hi, guys. Thank you. Real quick, just rate case timeline in the Carolinas. When do you expect to file? More importantly, do you expect to get all of Cliffside's in the rates? And what portions of Buck County and Dan River would you get as well? Yes. So Michael Buck was in last year's case. And we would file this year's case with the intention of picking up both Cliffside and Dan River. So kind of filing mid year maybe early Q3 and with the planned in service dates to those plants, we would be able to pick both of them up in this case. And does that include both the capital and the expected OpEx? Yes. Okay. Thank you. Much appreciated. And that is all the time we have for questions today. I'd like to turn it back to Mr. Curran for any closing or additional remarks. Great. Thank you. And thank you everyone for joining us today for the Q1 earnings review and business update. As always, the Investor Relations team is available for any follow-up questions. Have a great day.