Please stand by. We're about to begin. Good day, and welcome to the Duke Energy first quarter earnings call. Today's conference is being recorded, and at this time, I'll turn the conference over to Mr. Bryan Buckler, Vice President of Investor Relations. Please go ahead, sir.
Thank you, Derrick. Good morning, everyone, and welcome to Duke Energy's first quarter 2020 earnings review and business update. Leading our call today is Lynn Good, Chair, President and Chief Executive Officer, along with Steve Young, Executive Vice President and CFO. Today's discussion will include the use of non-GAAP financial measures and forward-looking information within the meaning of the securities laws. Actual results could differ materially from such forward-looking statements. Those factors are outlined herein and disclosed in Duke Energy's SEC filings. A reconciliation of non-GAAP financial measures can be found in today's materials and on duke-energy.com. Please note the appendix for today's presentation includes supplemental information and additional disclosures. As summarized on slide four, during today's call, Lynn will provide an update on our response to COVID-19. She will also discuss progress on our strategic initiatives and the company's long-term outlook.
Steve will provide an overview of our first quarter financial results and share an update on key regulatory activities. He will also provide insights into our economic and load growth outlook before closing with key investor considerations. With that, let me turn the call over to Lynn.
Bryan, thank you, and good morning, everyone. Let me open our call today by focusing first on our response to COVID-19. I know it is top of mind for all of you. First and foremost, our thoughts are with those who have been personally affected. I also want to express my heartfelt thanks to the healthcare and government workers, as well as those working countless hours to support the frontline professionals. This pandemic has no barriers, as it's permeated the globe, our country, and the states in which we operate. It has altered our day-to-day lives from how we interact to the way we operate and serve our customers. Despite these dynamic conditions, Duke Energy and its employees have risen to the challenge, continuing to provide reliable service to our nearly 24 million electric and gas customers.
The safety of our communities, customers, and employees is our top priority, and we took a number of steps to protect them. In March, we shifted nearly 18,000 teammates to remote operations. For teammates in critical roles that could not work remotely, we deployed the best available personal protection equipment, increased disinfecting between shifts, initiated split operations between primary and alternate locations to limit exposure, placed additional restrictions on those accessing our facilities, and implemented social distancing policies. These new safety protocols were particularly important during spring storm restoration and generation outages. far, our teams have completed three nuclear outages and more than 30 fossil hydro generation outages, all while maintaining focus on safety and delivering on time and on budget.
In mid-April, our transmission and distribution teams quickly responded to more than 900,000 outages across the Midwest and the Carolinas after severe thunderstorms and tornadoes. Duke Energy's response has gone well beyond supporting our internal teams. We were one of the first utilities in the country to suspend service disconnections for non-payment and waive late payment and other fees for our customers. In addition, we donated approximately $6 million from the Duke Energy Foundation to fund relief efforts across our jurisdictions and provided critical PPE to several community organizations within our territory. We also accelerated the flow back of fuel adjustments and overcollections in Florida, resulting in a 20% reduction in residential bills in May. We are working directly with our commercial and industrial customers to provide assistance with payment options for those most impacted by current economic conditions.
Our employees have been steadfast in ensuring our communities have power as they also respond and adapt to these changing times. The collective work of the healthcare and government professionals, as well as utility and other essential workers, demonstrates the power of working together to serve our communities. Let me take a moment to walk you through slide six, which summarizes where our company stands financially during these uncertain economic times. Today, we announced first quarter-adjusted earnings per share of $1.14, in line with our expectations, reflecting milder weather compared to normal and storm costs this winter totaling approximately $0.15 per share. We began to take cost mitigation actions in February as we saw the impact of the mild winter, we are building on those actions to address COVID-19.
Our communities are experiencing a slowdown, and we are beginning to see the impact on electric load in our jurisdictions. In a few minutes, Steve will share more on these customer load trends, focusing on the month of April and a range of potential load trends over the balance of 2020. We are presently projecting a $0.25-$0.35 reduction in revenue from COVID-19, which is consistent with stay-at-home policies through mid-summer and a gradual economic recovery beginning in the third quarter and continuing over the balance of the year. In response to the pandemic and in recognition of mild weather entering the year, we are executing on a series of cost-saving initiatives totaling approximately $350 million-$450 million Or $0.35-$0.45 per share. We are also keeping our regulators informed about the specific costs we are incurring related to COVID-19.
For example, a potential increase in bad debt expense. We'll seek recovery of these costs at the appropriate time. Taking these measures into consideration, we are affirming our 2020 adjusted earnings per share guidance range of $5.05-$5.45. We will continue to update you as we move forward. It's important to recognize that we are only two months into this event. We are, and we will continue planning for a range of outcomes, and we will know more as the economies that we serve reopen. The third quarter, which is our most significant one, is also still ahead of us. Over the long term, we maintain our confidence in the strength of the communities we serve and in our ability to deliver on the $56 billion infrastructure investment plan that is critical to our customers and communities. I will speak more to our business fundamentals in a moment.
Turning to slide seven. We remain committed to our long-term vision and value creation for our communities and our shareholders. We're putting our five-year, $56 billion capital plan to work as we generate cleaner energy, modernize and strengthen the energy grid, and expand natural gas infrastructure. Since announcing this updated plan in February, we've made progress advancing these goals. Last September, we announced our comprehensive plans to address carbon across our footprint, reaching at least a 50% reduction by 2030 and net zero by 2050. Our updated climate and sustainability report, issued in April, provide more clarity and detail around the measures we're taking to achieve these milestones, including doubling our renewables portfolio over the next five years. Our climate report outlines our plans over the longer term to retire more coal, further expand renewables, energy storage, and natural gas.
We also emphasize the importance of research and development focused on load following carbon-free resources. We believe these new technologies are essential to reach our net zero goal by 2050 and plan to share more updates in this area when we host our ESG day later this year. On the grid in April, we filed our 10-year, $6 billion Florida Storm Protection Plan. These investments will generate meaningful customer benefits by enhancing reliability while reducing restoration costs and outage times associated with extreme weather events. Further details on the progress we're making in these areas are outlined on the slide. Before I close, let me touch on the Atlantic Coast Pipeline. You can reference a status summary on slide 18 in the appendix. We expect a decision from the Supreme Court regarding the Appalachian Trail crossing in the coming weeks.
We're also awaiting the biological opinion and incidental take statement from the U.S. Fish and Wildlife Service, as their detailed analysis continues to ensure that a durable permit is issued. We expect the agency to reissue the permit in mid-2020 and to date have not seen any significant delays in the progress of the work from COVID-19. Successful resolution of both of these items will be important to restart construction. Importantly, ACP has finalized revised commercial terms with the major pipeline off-takers, balancing value to customers and a fair return to project owners. Finally, we are also closely monitoring developments on the Nationwide Permit 12. The recent decision related to the Keystone Pipeline by the district court in Montana has potential implications to ACP. Just yesterday, the judge amended his April 15th ruling, limiting the vacatur to new oil and gas pipeline projects. He also denied a stay pending appeals.
We are evaluating this ruling and the impact it will have on the existing timing and cost of the project. Assuming the issue is resolved in a timely manner and we can take advantage of the November through March tree felling season, we believe ACP can maintain the existing schedule and cost estimates. We remain committed to this important infrastructure project and the economic benefits we expect it will drive for our communities in the Carolinas, and we'll continue to update you as progress is made. As I reflect on our long-term strategy, I'm confident in our investment priorities. They continue to deliver value, capitalize on the complementary nature of our electric and gas franchises, and meet our customers' growing and evolving energy needs.
Looking ahead and in the context of the uncertain economic environment in our country, we will be thoughtful in the pace at which we deploy capital, balancing affordability for our customers with value creation for our investors. Turning to slide eight. Even in the midst of the economic impact of the stay-at-home orders, the fundamentals of our business remain strong. Importantly, our employees' commitment to our customers and communities shine through during the hardest of times as we generate and deliver reliable, increasingly clean energy across our service territories. There are several distinguishing factors that make our company an ideal long-term investment for shareholders. First, our size and scale and diversity of operations is unmatched, allowing us to deliver consistent short-term returns and long-term investment opportunities. Furthermore, we operate in constructive regulatory jurisdictions that oversee our operations in arguably the most attractive communities on the East Coast.
Our five-year, $56 billion plan to invest in cleaner energy, grid improvements, and other infrastructure is critical to the customers and communities we serve and will create meaningful shareholder value for many years to come. These are the strong business fundamentals that give us confidence to deliver on our long-term earnings growth rate of 4%-6%. With that, I'll turn it over to Steve.
Thanks, Lynn, and Good morning, everyone. I'll start with a brief discussion on our quarterly results, highlighting a few of the key variances to the prior year. For more detailed information on variance drivers and a reconciliation of reported to adjusted results, please refer to the supporting materials for the company's today's press release and presentation. As shown on slide nine, our first quarter reported earnings per share were $1.24, and our adjusted earnings per share were $1.14. This is compared to reported and adjusted earnings per share of $1.24 last year. The difference between reported and adjusted earnings was due to the partial settlement in the DEC North Carolina rate case, permitting recovery of 2018 storm costs. Within the segment, electric utilities and infrastructure were down $0.06 compared to the prior year.
We saw the expected benefits from base rate increases in South Carolina and Florida and higher rider revenues in the Midwest, along with forecasted regulatory lag in North Carolina. These fundamental improvements in our segment results were offset by mild winter weather, along with severe storms that impacted much of the Carolinas. Shifting to gas utilities and infrastructure. Results were $0.03 higher, driven primarily by new retail rates in North Carolina and higher margins at the LDC. These items were partially offset by the one-time income tax adjustment related to ACP, which favorably impacted the prior period results. In our commercial renewables segment, results were up $0.06 for the quarter. The increase was primarily due to ongoing benefits from projects brought online in 2019, as well as favorable wind resource and pricing this year.
Finally, other was down $0.12 for the quarter, principally due to planned costs of borrowings and lower investment returns in non-qualified benefit plans, causing an approximate $0.06 year-over-year difference. Returns on these plan assets have partially rebounded for the month of April. Overall, our first quarter financial results were not materially affected by the COVID-19 pandemic. Aside from the unseasonable weather and related storm costs, the first quarter was consistent with our internal plan. Given the softer weather, we began planning mitigation actions in February and further enhanced and accelerated those plans upon the full onset of COVID-19, which I'll describe in detail in a few moments. Turning to slide 10. We continue to execute on our regulatory agenda. As Lynn mentioned, we recently filed our storm protection plan in Florida that provides much-needed storm hardening in the state.
We also have modernized regulatory mechanisms for investments in both Florida and Ohio that are providing timely recovery of our investments in clean generation and a more modernized grid. We currently have three rate cases underway. Our Duke Energy Indiana case continues as planned. The hearings were held in January, and the record is now closed, and we expect the order around mid-year. For Duke Energy Carolinas and Duke Energy Progress, the written pre-hearing record is substantially closed. In the DEC case, we reached a partial settlement for storm costs, allowing us to pursue securitization as well as other adjustments. The hearings for both cases have been delayed. We continue to work with all stakeholders to identify options to safely and efficiently conduct the hearings, and we expect a revised procedural schedule to be released in the coming weeks.
Just last week, we filed with the commission a proposal to combine the hearings of the two cases in July, which is supported by the public staff. If this procedural schedule is approved, it will help to limit the delay in obtaining the general rate case orders. A slight delay in the decisions for both of the North Carolina cases is not expected to have a significant impact on our 2020 financial plan, and the commission has a variety of mechanisms that they can implement to help balance the interests of customers and shareholders. With regard to COVID-19 and the expected impacts across our jurisdiction, we are tracking the financial effects on our utilities, including elevated bad debt expense and late fees for customers.
This is an extraordinary time that has and will continue to require our utilities to incur costs on behalf of our customers and the employees who operate our businesses. Similar to what others are doing across the country, we will work with our regulators to identify the best solutions to recover these costs to support the ongoing financial health of our utilities, while also recognizing the unique needs of our customers during this unprecedented time. Shifting now to our response to the COVID pandemic. Slide 11 highlights the well-timed steps we've taken to bolster our liquidity and financial strength to position us to manage through a variety of potential outcomes. As of April 30, we have a strong available liquidity position of $8.2 billion, which provides the company valuable flexibility as we plan our remaining capital markets transactions in 2020.
provisions within the recently enacted CARES Act provide meaningful cash benefits in 2020 by accelerating our remaining AMT credits of approximately $285 million into the current year. This additional cash benefit will help to mitigate lower revenues and give us added confidence in our ability to deliver our consolidated credit metric targets for the year. Finally, our 2020 capital and financing plan remains on track. We will closely monitor the capital markets and strategically time our issuances to achieve the best outcomes possible for both our customers and shareholders. Moving to slide 12. our large size and scale, our retail customer mix is diverse and anchored by our growing residential customer base. The Southeast remains a very attractive part of the country that continues to experience strong growth of new residential customers at a rate of approximately 1.7% year-over-year.
With the recent stay-at-home policies, volumes in our residential customer class have been strong, particularly in Florida, and we expect this trend to continue into the summer cooling season. The higher residential volumes provide a partial offset to declines in the commercial and industrial classes. Within commercial, much of the service sector has been closed or limited operational, including schools and universities, bars and restaurants, and other retail establishments. Certain sectors within commercial remain resilient, such as data centers and hospitals that continue to provide frontline services to fight against the pandemic. The temporary closures and curtailments of certain industrial customers are beginning to give way to plans to restart production as states in our service territories are relaxing stay-at-home policies and workers are preparing to come back to work gradually. Turning to slide 13.
As we compare billed sales in April to the prior year, we are able to see how the full stay-at-home policies have impacted retail electric volumes across each of our customer classes. Commercial and industrial usage was down 10% and 13% respectively for the month. As expected, the higher margin residential class was up 6%. Overall, retail sales were down 5%, and these results were slightly favorable to our revised forecast for the month. As a reminder, the earnings sensitivities do vary across retail customer classes, and we've included those here for you. Looking ahead, we expect a 3%-5% decline in total retail volumes for the full year.
We are forecasting the deepest declines in volumes compared to 2019 in both the second and third quarter, with a gradual economic recovery beginning in the latter half of the third quarter and extending beyond the end of the year. With these forecasted ranges, and on a weather-normalized basis, we are forecasting a full-year 2020 negative EPS impact of $0.25-$0.35. As our communities are beginning measured reopenings, we are hearing from a large number of our industrial customers that they are planning to increase their level of operations in the mid to late May timeframe. At the same time, we expect higher residential volumes until stay-at-home policies are fully relaxed. Moving now to slide 14. We've activated several initiatives to mitigate the impacts of COVID-19. Our annual non-rider O&M budget is nearly $5 billion, providing us a formidable lever to address revenue headwinds.
As I mentioned, we began our mitigation plans in February and have greatly expanded those efforts with the COVID-19 onset. Over the past five years, we have demonstrated a core competency in managing our O&M, absorbing increases for inflation, as well as nearly $300 million of O&M associated with the Piedmont acquisition. We have also demonstrated the ability to strategically manage costs between years, taking advantage of strong earnings in some years to strengthen periods when unexpected costs rise. Based on the tremendous focus and commitment of our teammates, we are confident we can reduce our O&M and other expenses by approximately $350 million-$450 million in 2020. Our target is not merely aspirational, but it's underscored with discrete actions for which we have clear line of sight and are already taking action.
For example, as our generating assets are expected to run less during the year, we are optimizing the timing and scope of our 2020 plant outages. In addition, we are aggressively managing all expenses, including our contract labor, overtime, non-essential projects, and a broad range of discretionary spending. We are also suspending external hiring while sharing existing resources in a virtual manner in order to optimize labor costs. Let me be clear, we are highly confident in our ability to deliver on this goal of $350 million-$450 million of 2020 cost reductions. Although we are still early in the year, based on the forecast of a gradual economic recovery beginning this summer and the significant cost mitigation actions that we have put into motion, we are affirming our 2020 target to deliver within our original earnings per share guidance range.
Finally, we understand the value of the dividend to our investors. Approximately 40% of whom are retail investors, and many of whom count on our dividend as a source of income during these uncertain times. 2020 marks the 94th consecutive year of paying a quarterly cash dividend. Throughout the past nine decades, including during the financial crisis of 2008 and 2009, we have protected our quarterly cash dividend. Our excellent businesses that operate in some of the best jurisdictions in the country give us confidence to continue paying and growing the dividend consistent with our long-term target payout ratio of 65%-75%. Before we open it up for questions, let me turn to slide 15. Our attractive dividend yield, coupled with our long-term earnings growth from investments in our regulated utilities, provide a compelling risk-adjusted return for shareholders.
As a company, we are well positioned and confident our vibrant and growing communities will resume strong economic growth as we emerge from this pandemic. With that, we'll open the line for your questions.
Thank you. Ladies and gentlemen, if you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one to signal for question. We'll take our first question from Shar Pourreza with Guggenheim Partners. Please go ahead.
Hey, good morning, guys.
Hi, Shar.
Morning.
Let's say the mitigation plan that was announced, how much of the $0.35-$0.45 is sort of cemented? If COVID is more protracted than your current three to five% load degradation, do you have incremental levers? I do have a quick follow-up.
I'll start, and Steve, you can add. We have definitive plans for the $0.35-$0.45, Shar, as well as upside potential. I think at some point, depending on how this economic downturn plays out, we would continue to go more aggressively, not only at the cost categories we've identified, but really within a broader context of transformation. This is where we'd be more aggressive around corporate center, around outsourcing real estate footprint, digital tools, early plant retirement, just a variety of things. That work is already underway. This is something that I'm particularly proud of, is we've demonstrated the ability to understand our cost and cost drivers significantly over the last five years. We've also put infrastructure in place to drive transformation. The plans are underway for a range of economic outcomes.
Got it. just focusing on the O&M side of the $350 million-$450 million in the mitigation plan, can you touch on how much of this could be ongoing or perpetual in nature as you sort of think about the shaping of your O&M profile post 2020?
Yeah, Shar, I would say there will be elements of the cost reductions that are sustainable and there will be elements that move with timing. An example would be, when you put a hiring freeze in place, we will enter 2021 with a lower headcount than we would originally projected. We will begin bringing skills in at the appropriate time and pace, depending on the needs of the business. I think outages, because we're running our assets less, we've been able to defer some of those, but we'll be thoughtful about maintaining assets that are important to customers and feather those back in as needed. We're also spending a lot of time on what we've learned around remote works and the activities underway from COVID-19, and I believe there will be permanent savings from the way we are using resources.
We're trying to get our hands around quantification of that as we look at remote work policies and as we look at our real estate footprint, and you can expect to hear more about that as we think about 2021 and beyond. Steve, would you add to that?
I think Lynn hit it very well. I'm very confident that we're learning a lot through this pandemic about how to work remotely, how to use technology tools that we didn't really realize what we had. That will serve us well as we go forward. We'll couple that with the digital capabilities that our business transformation center is utilizing and data analytics. I think we have found a new avenue, a new path of another body of efficiencies through what we're learning through this COVID-19 pandemic.
Terrific, guys. Congrats on the plan that was announced today. It's a great execution. Thanks.
Shar, thank you.
Thank you. Our next question comes from Stephen Byrd with Morgan Stanley. Please go ahead.
Hi, good morning.
Good morning.
Morning.
Hope you all and your families are doing well through this weird time.
Thank you, Stephen, and the same for yours as well.
Thank you. I wanted to touch just first on ACP and I think we expect, and I think many expect that you will be victorious at the Supreme Court. From there, I guess I'm thinking about the Montana litigation and potential impacts in terms of decision to restart the project or ability to restart the project. I think there's a chance there that litigation could be fairly extensive. How does that factor into sort of the decision-making around restarting work on ACP?
You know, Stephen, it's an important consideration. As I said in the remarks, assuming that we can get this resolved if it's the tree-felling season, we'll be in a position to move forward maintaining cost and schedule. Given the fact that that ruling happened yesterday, you're catching us at a very early time in our evaluation. We would expect the Army Corps and DOJ to appeal, and we'll be monitoring this closely as I know others will be in the industry and other infrastructure companies, and we'll of course learn more from the Army Corps and DOJ as we go forward. It's something to keep on the radar screen, and we will continue to monitor and update as we learn more.
Understood. it is clearly relevant as you're thinking about the overall plan for the project. Understood.
Yes. It's important to us.
Understood. Maybe just a quick one on the credit statistics, Steve, that you'd laid out kind of your pretty clear path. I may be sort of overthinking or just looking at the discussion here. In terms of the 15% FFO to debt level that you're targeting versus sort of the 15%-16% level, would you mind just touching again on dialogue with rating agencies, your overall sort of sense for where you want to be over the next several years in terms of your FFO to debt?
Yes. Our targeted range, for our credit ratings, is to have FFO in the 15%-16% range. We've taken steps to make that happen in our plan and in the past. We have good dialogue with the rating agencies. Moody's reaffirmed our rating. S&P pulled the entire sector onto a negative outlook. Everybody's looking at the impacts of this pandemic. We'll continue that dialogue. We're seeing some erosion of top-line revenues, and that affects FFO, but you can see the mitigation impacts that we have put in place that moves in the opposite direction. We'll continue the dialogue. We will continue to work to meet our financial plans, both earnings and on the credit side. A couple of things that are unique to us, we've got these AMT credits, that accelerated monetization helps us quite a bit here.
We're also taking advantage of deferring of a corporate portion of payroll taxes. That's about $100 million cash flow benefit. Our pension plans are in good shape in terms of funding and so forth. We're not a cash taxpayer until 2027 in any significant way. We've got some solid strengths in our balance sheet that help us. The continued regulatory activity of getting recovery of cost is essential there. We'll continue that dialogue with the rating agencies, and we'll keep them abreast of what's moving forward.
That makes total sense. Just lastly, if I could, just on the O&M cost control, impressive results in terms of being able to cut costs. It's an interesting point about sort of some of the learnings that you're engaged in. When you think about sort of the EPS growth guidance in the longer term that you've laid out and the trajectory, is there a potential that some of these learnings that could last and can be beneficial, could that have a meaningful benefit in terms of as you think about your overall trajectory, or is it a little too early to say? How are you thinking about what you've been able to learn here?
Stephen, I think O&M agility and the ability to lower cost structure is a tailwind to growth because it puts us in a great position to deploy capital without raising price to customers. I do think about it as something that's important to the long-term growth of the company.
Understood. It sounds like at least a portion of these cost savings are things that could be more permanent in nature and be beneficial longer term, whereas others are things like outage timing are more transitory in nature. It sounds like it's a mix of the two.
I think that's right, Stephen, but I think it's important that you're hearing from us that lowering our cost structure is not only a core competency of ours, but a strong objective. We think particularly in a time where you've got economic uncertainty, to move early and aggressively is a smart thing to do, and that's how we are positioning ourselves in 2020 and also for 2021 and beyond.
We are learning techniques to utilize our workforce much more efficiently in this situation. We can virtually shift engineers within functions. We have shifted financial people from budgeting to accounting to audit services. IT people to different functions. The virtual capabilities, as we learn more about them, are going to help us utilize our workforce more efficiently. I think that's going to provide longer-term savings capabilities.
Very good. Thank you very much.
Thank you, Stephen.
Thank you.
Thank you. Our next question comes from Steve Fleishman with Wolfe Research, LLC. Please go ahead.
Hi, good morning.
Hi, Steve. Good morning.
Could you, if you don't mind, just remind us kind of the North Carolina rate cases, when you expect outcomes and just if that does get delayed further, how much do we have to worry about the timing of that exactly in terms of your range for this year?
Steve, we made a filing maybe a week ago, a few days ago, suggesting or recommending a consolidation of the two cases in the Carolinas. It's supported by Public Staff, putting the hearing in July of this year. We think the commission will give that close consideration. That'll put us close to the timing we had originally planned. We feel like we've got some flexibility within our financial plan for 2020 on that timing. I also think it's fair to say that there are tools with these cases, whether it's deferrals, accounting orders, give back of deferred income taxes, interim rates, a variety of tools that could be used to support the health of the utility. We'll be evaluating all of those considerations as we go and those tools. Many of those tools are available to the commission, as you know.
Okay. Any updated thoughts on whether you have likely potential to settle those cases or expect them to be fully litigated to the end?
Steve, we've entered into a settlement on a handful of items in the DEC case. We'll have similar discussions on DEP. Between now and July, we'll continue to keep lines of communication open with the parties to see if there are other opportunities. I think this is an important time, as you recognize, customers, of course, working through the economic downturn. The health of the utilities are also extraordinarily important. I'm not sure that there's been another time when the essential nature of our service has been underscored more than this. We'll continue to have discussions with regard to forecasts whether or not we'll get to any further settlement at this point, but we'll keep you posted.
Okay. Lastly, I think you mentioned that there's been the initial meeting in the North Carolina energy plan, or at least initial meetings there. Could you just give color on where that stands and when we might start seeing any outcomes from that?
Sure. There have been two stakeholder workstreams, Steve, in 2020. One focused on climate policy. This is a group of stakeholders focused on retirement of coal, CO2 markets, clean energy standard. They have continued to meet even remotely talking about these various items. We would expect a draft report from those discussions in the second quarter, public drafts for third quarter, and then a recommendation going to the governor by the end of the year. You may recall that the objective is to get to at least a 70% carbon reduction by 2030, and it's actually greenhouse gases, not carbon. There are some alignment around base years and other things going on to figure out exactly how to do the counting. We're comfortable with this objective. You know from our climate strategy we're at least 50% by 2030. That stream of work is very engaged.
There have also been two meetings on a stakeholder process focused on modernized regulation, performance-based rate making, and other tools. The discussion there is early, I would say. I think there was one meeting in person, one remote meeting. The objectives there are trying to find ways that carbon reduction can be incented, distributed energy resources. That is moving at perhaps a slightly slower pace, but good discussion and dialogue there as well. I think on both of these, we'll have more feedback as the year progresses, and determine whether or not there's any specific push coming out of either of these processes for legislation in 2021.
Okay, great. Thank you.
Thank you.
Thank you. We will next go to Jonathan Arnold with Vertical Research. Please go ahead.
Hi, good morning, everyone.
Good morning, Jonathan.
Good morning.
Just a quick question. On the guidance reaffirmation and the cost savings versus the pressure you see on sales, is it reasonable to assume that where you're sitting today, if those things play out as you've outlined, recognizing there's a lot of variability, but that you would be sort of solidly in the range or are we kind of holding in at the low end? If there's any other color you can give us there.
Jonathan, appreciate that. We've built a plan and are executing a plan that matches the COVID-19 expectation as well as the first quarter weaker weather, which really gives us an opportunity to land solidly within the range. As we've talked about, we have a track record of being able to manage O&M in this fashion, and we have a high degree of confidence that we can do that. We also recognize we're only a couple of months into this. The third quarter is still ahead of us. There are a wide range of assumptions on how this economy is going to play out. Our states are just beginning to reopen. We have the milestones around Atlantic Coast Pipeline that we've talked about with the SCOTUS decision and also the biological opinion.
we'll continue to update on all of these things as the year progresses, but the actions that we've put into place right now are designed to place us solidly within the range.
Perfect. Thank you for clarifying, Lynn. Just one other thing. You talked about keeping regulators informed on incremental costs. Could you just perhaps sort of speak, are you actually deferring certain items? Just where are you on sort of deferral, and potentially orders out of commissions allowing you to do that and-
For the first quarter, Jonathan, minimal impact because we were just sort of starting into this process and the various policies with customers. We are reporting and tracking all of these costs to our various commissions, and you will begin to see filings around deferrals or accounting orders and other things. I think Ohio and Indiana are already underway. As we get more of that feedback going, then we will reflect appropriate accounting entries at the right time. Steve, how would you add?
Yeah, that's correct. We're preparing filings in the Midwest, in Ohio and Indiana. We are tracking costs in all of our jurisdictions. At the appropriate time, we'll make various filings, and work with our regulators on appropriate deferrals. Nothing's being deferred at this point. Applications are getting prepared, tracking is moving forward, and we'll continue to look at this and see what makes the most sense.
Okay. How have you treated that in guidance, I guess?
Jonathan, we're assuming that we will get appropriate treatment of incremental costs, and I'm focusing on things like bad debt expense. The timing of when that occurs in terms of cash collections will depend on the jurisdictions. But for incremental costs, we are assuming that we'll get appropriate regulatory treatment.
Perfect. Okay, thanks.
Thanks.
Could I just ask on one other topic? The recent executive order about not sourcing equipment from adversary nations. Do you have any initial thoughts at a high level on how this might impact your ability to execute the plan on grid, for example? Just any color? I realize that, yeah, it has to be defined, but it seems to be a new challenge in the market.
Sure. We're closely following it, Jonathan. I think the spirit of it is to address cyber risk, which is something we strongly support. There was a similar executive order issued formerly a few years ago for the telecom industry. We will factor in, as we learn more, these plans into our investment plan. As you know, making investments in T&D intended to address cyber and physical risk as well as renewables and customer programs, all of that is squarely within our strategic investment plan. We will adjust it as we learn more, and applaud focus on cyber risk and around the bulk power system.
I would add that we have a broad supplier base across our footprint. As you said, Jonathan, there's more to learn as to who is specifically being targeted here. We look at our vendor base, and try to diversify it as much as possible so we can move in different directions if necessary.
Perfect. Good. Thank you very much for your time this morning.
Thank you, Jonathan.
Yeah.
Thank you. We'll next go to Julien Dumoulin-Smith with Bank of America. Please go ahead.
Hey, good morning, team. Hope you all are well.
Hi, Julien.
Morning.
Hey, good morning. I know you addressed this in part, but I want to come back to it a little bit. How are you thinking of the sustainability of the cost cuts beyond the current period? Obviously, it's a dramatic number, so it's not necessarily expected, but how do you think about the cadence of that against the need for perhaps evolving rate case timelines? Even within that number that you talked about this year, as a follow-up question, how are you thinking about that complementing your cost-cutting efforts to mitigate impacts from coal ash, if that makes sense as well?
Yeah. I'll take a stab, and Steve, you can build on it. We have developed a plan, Julien, to match what we see as COVID risk as well as mild weather. You've got economic downturn as well as a weak start to the year. We've identified from a range of things, operations, corporate center, employee expenses, hiring freeze, contractor contingent workers, overtime, variable compensation, a variety of tools that we will use to go after that.
As I commented a moment ago, the fact that we're only a couple of months into this and learning about the reopening and learning about what might unfold over the balance of the year, we are also looking at each of those cost categories for potential upsizing of them, as well as moving into what I would call more transformative changes, where we might look at real estate and early retirement of certain assets and so on. There's a lot of planning going on because the future is uncertain. As I look at that range of costs, some of them will be sustainable. I'm not prepared to give you a percentage or a specific number on that. I do believe that some of them will be sustainable. The example I gave a moment ago, a hiring freeze is going to put us into 2021 with a smaller workforce.
We will monitor as we go how to convert to a sustainable lower cost structure if we find ourselves in a longer downturn. I think as you talk about things like coal ash, you're talking about regulatory risks and the rate case outcomes and how that'll factor in. We have a range of assumptions in our financial plan as we think about rate cases, and that is always part of our thinking in developing the size of mitigating actions. I won't point to a specific item on that, but I will say anytime you put a financial plan together, you're evaluating a range of outcomes. We feel strongly that recovery of coal ash costs and recovery of a return is important.
We believe it's important for any health of a balance sheet when you think about a cost of this nature, and we will be prepared to strongly defend that when we're on the stand later this summer.
I might add, Julien, that as we think about our regulatory cadences, the ability to generate these O&M efficiencies is a very useful tool here. It gives us headroom to make needed capital investments on behalf of our customers, as Lynn alluded to earlier, and minimize any rate impacts to customers. This capital optimization around our O&M optimization in sync with the regulatory cadence is a very important part of what we're trying to put together. We've got flexibility in the capital plan so we can move that capital around to fit under O&M efficiencies to help our shareholders and our customers. Those are the types of dynamics we're trying to put together across our footprint.
Excellent. Can I just follow up in very briefly here? How are you thinking about the shaping here by quarter of these cost cuts and how they manifest themselves relative, I suppose, to the reductions alone? It sounds like you were rapidly able to identify these cost cuts, such that if you think about two Q and three Q, et cetera. Lynn, if I can clarify, you specifically said that you did not yet elect, for instance, voluntary retirement programs as part of this $400 million number.
No, I'll take that one. There is no assumption of a voluntary retirement program in the numbers, Julien.
on the shaping, Julien, I'd look for most of it to be in the second half of the year. A lot of our generation outage work will be in the fall generation season. As our headcount freeze kicks in, that kind of builds during the year. We had budgeted increases in workforce. We'll certainly see some in each quarter of the rest of the year. Specifically due to the generation outage work, that'll be a bit more in the second half of the year.
Excellent. Thank you for the patience, guys. Best of luck.
Thank you, Julien.
Thank you.
Thank you. We'll next go to Michael Weinstein with Bernstein. Please go ahead.
Hi, guys.
Hi.
Hope you're doing well.
hope you are, too.
Hey, a couple of quick points here on CapEx and O&M. The Florida grid hardening plan that you just filed, is that already reflected in the five-year CapEx plan? I think it is, but I just wanted to confirm that.
Michael, we updated in February about $1.5 billion into Florida, our Florida five-year plan, and that is consistent with what we filed in the grid hardening plan. You will see incremental capital beyond the five years because this has put forward a 10-year plan, and we'll provide those updates as the years progress.
That's right. Our February capital plan was increased 12%, and the Florida grid mod was a significant part of the increase.
Right. Just to beat a dead horse on the O&M reductions, is there a ballpark estimate that you could give us for how much is deferral into the planned maintenance and how much is more permanent? Is 25% of it more permanent, maybe 50% permanent? Some kind of ballpark.
Michael, at this point, I don't have a range to share with you. I think that's been a topic of interest, and as we go into the second quarter and begin our more earnest planning for 2021, I think we'll be in a better position to talk about that. Our objective will be to make as much sustainable as we can in this environment, but I don't have a specific on deferral versus sustainable at this point.
Yeah, I think we want to look at how the assets operate and think about their performance under the revised operations and so forth and where we're headed, and that'll impact it as well.
Okay, a related question. Steve, you mentioned the idea that you have headroom now from lower O&M for more capital improvements. Do you see the opportunity to convert some of these OpEx cuts and once the crisis is over into a higher rate base and CapEx growth plan?
Well, we certainly always look at putting our financial plan together keeping in mind impacts on customer rates. To the extent you can reduce O&M costs, that does give you that headroom there. We have a robust dataset of capital opportunities. We turn capital away each year when we go through our budgeting process. Given our scope and scale, the breadth of our grid, we have plenty of opportunities to do those kind of things, Mike.
Also, since the Progress rate case has a record that's still open, is it possible to incorporate some of these COVID cost deferrals and recovery mechanisms or anything else you're thinking about there? Possible to still incorporate that into that space?
Michael, we're looking at the appropriate way to handle the Carolinas in light of the fact that the cases have yet to go to hearing. I don't have anything specific to share on that plan right now, but we are reporting the cost to the North Carolina Commission and to the state and to South Carolina, and we'll make the appropriate filings and incorporate in the rate case, if that makes sense, or handle in whatever way makes sense. Just too early on that one.
Got you. Okay, that's all I have for now. Stay safe, guys. Thank you very much.
Thank you.
Thank you.
Thank you. We'll next go to Jeremy Tonet with J.P. Morgan. Please go ahead.
Hi, good morning.
Hi, Jeremy.
Just wanted to come to the O&M side with a slightly different angle, I guess. If I recall, it seems like spending on items such as vegetation management was accelerated in 4Q 2019, so just trying to think through how much cost savings was kind of banked last year that could be used against this year, and was any of that contingency kind of already utilized in the first quarter?
You're right. In 2019, our agility programs worked in the other direction. We had a favorable year, and we accelerated some useful expenses into 2019. We had vegetation management is one area where we had about four cents that we pulled into 2019, as I recall. That was baked into our plans and our forecast and so forth. The ability to do those kind of things is very useful to us. That's already baked into the numbers that you're seeing at this point. That helps us achieve and get into our range, that dexterity between calendar years.
Got it. That's helpful. That's it for me. Thanks.
Thank you, Jeremy.
Thank you. Ladies and gentlemen, that does conclude our time for questions and answers. I'd like to turn the conference back over to Ms. Lynn Good for any additional or closing remarks.
Well, thank you, Derek, and thanks to all who joined today for your interest and investment in Duke Energy. I just want to take this opportunity to thank the employees at Duke Energy. I'm extraordinarily proud of the work that's been underway with new safety protocols to do the business as usual, but also to serve our customers well. The commitment of this leadership team and our employees to excellence for the customers and in maintaining the financial health of our company is truly extraordinary. Thanks to the Duke Energy employees and thanks to all of you for joining today.
Thank you. Again, that does conclude today's call. We do thank you for your participation. You may now disconnect.