Earnings Call: Q3 2017

Nov 3, 2017

Good day, and welcome to the Duke Energy Third Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Mike Callahan. Please go ahead. Thank you, Ryan. Good morning, everyone, and thank you for joining Duke Energy's Q3 2017 earnings review and business update. Leading our call today is Lynn Good, Chairman, President and CEO along with Steve Young, Executive Vice President and CFO. 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 the Investor Relations section of our website and in today's materials. Please note the appendix for today's presentation includes supplemental information and additional disclosures. As summarized on Slide 3, during today's call, Lynn will briefly discuss our financial and operational highlights for the quarter. She will also provide an update on the key regulatory activity we have underway and the progress we have made as we continue to advance our strategic investment plan. Steve will then provide an overview of our Q3 financial results and insight about economic and load growth trends. He will also share key investor considerations. Before turning the call over to Lynn, I would like to thank Chris Bauer for his contribution to our Investor Relations team over the last two and a half years. This is Chris' last earnings call as he will assume a new role in our Treasury Department. Many of you have worked closely with Chris, and I hope you will join me congratulating him on his new responsibilities. With that, let me turn the call over to Lynn. Thank you, Mike, and good morning, everyone. Today, we announced adjusted earnings per share of $1.59 for the Q3, continuing to demonstrate growth in the fundamentals of our business. We advanced our long term strategic investment plan, while maintaining our focus on operational excellence. And our employees rose to the challenge of Hurricane Irma, one of the most powerful storms ever to hit the Atlantic. Given our results through the 3rd we are narrowing our 2017 guidance range to $4.50 to $4.60 per share. Even with $0.15 of below normal weather year to date, including the lost revenues from Hurricane Irma, we will deliver on our earnings commitment to our shareholders. This is a testament to the dedication of our employees and our focus on flexible cost management. We are also confident in our ability to maintain our long term growth rate of 4% to 6% off of the 4.60% midpoint of our original 2017 guidance range. We remain focused on achieving growth at the high end of our range over time as our investments build and recovery accumulates. Turning to our operational performance in the quarter, I'm proud to begin with our response to Hurricane Irma. This storm caused widespread devastating damage across the Southeast region, leaving nearly 1,500,000 of our Florida and Carolinas customers without power. And even though many of our employees' own homes and families were impacted by the storm, they put the needs of our customers first. Most of the damage was in our Florida territory, with 1,300,000 customers experiencing outages. More than 12,000 line and field workers rebuilt our system and restored power to over 75% of customers in just 3 days and 99% within 8 days. Our initial storm restoration cost estimate for our Florida service territory is almost $500,000,000 The majority of this will be recovered through the existing commission storm rule or transmission tariffs. After netting our current storm reserve balance of $60,000,000 and storm related capital replacements, we plan to defer approximately $400,000,000 for future recovery from customers. We can also request an additional $132,000,000 dollars to replenish the storm reserve. Under our current rate agreement, Duke Energy Florida is authorized to begin recovering both the storm impact and reserve replenishment 60 days after filing a petition with the commission. Based on our initial estimates, we believe the customers would see an approximate $5 increase on a typical monthly residential bill, assuming a 3 year recovery period. We continue to refine our cost estimate as we prepare to file with the Commission by year end. We also received 2 important recognitions in the quarter. Duke Energy was named to the Dow Jones Sustainability Index for the 12th consecutive year acknowledging our commitment to a cleaner, a cleaner, sustainable energy future. And Site Selection Magazine named us as one of the top utilities in economic development for the 13th consecutive year, highlighting our work to attract businesses to our service areas. We also reached an important seamless textbook integration and we're happy to have our Piedmont teammates as part of Duke Energy. We look forward to investing in this business and expanding our natural gas infrastructure for years to come. As you know, we have a busy regulatory calendar this year. Starting with Florida, we reached a constructive agreement with numerous parties in the state and the settlement was unanimously approved by the commission last week. We worked closely with stakeholders to reach an agreement that paves the way to a smarter energy future for our Florida customers. The settlement provides rate clarity through 2021 and allows us to recover up to 700 megawatts of solar energy and our grid investments, which will improve reliability and enhance customer choice. The agreement also includes recovery of investments in electric vehicle charging stations in a battery storage pilot program. As part of this settlement, we will not move forward with building the Levy Nuclear Plant and customers will not pay any further costs associated with this project. Our success in reaching this settlement is another example of our ability to achieve favorable outcomes for our customers and our shareholders. We will continue to engage constructively with stakeholders as we advance our regulatory modernization agenda across all of our service areas. Slide 6 summarizes our pending North Carolina cases. Our Duke Energy progress case is advancing and in mid October, a number of intervenors filed written testimony advocating their positions on our request. This is a normal part of the process. As we've seen in past rate cases, the public staff and others typically recommend revenue adjustments. We remain confident in our positions and look forward to filing our rebuttal testimony this coming Monday, November 6, where we will respond to the arguments raised by intervenors. The hearings for the DEP case are scheduled to commence on November 20. At Duke Energy Carolinas, our rate case is in the early stages. We recently received a scheduling order and intervener testimony is due January 19 and hearings are scheduled for mid February. Slide 7 outlines our strategic priorities to transform the customer experience by modernizing the energy grid, generating cleaner energy and expanding natural gas infrastructure. Let me share a few updates on our progress starting with our grid investments. Today, we announced the expansion of our PowerForward Carolinas the grid across our jurisdictions. We continue to invest $25,000,000,000 in the grid across our jurisdictions. We continue to invest $3,000,000,000 in the state, consistent with our 10 year strategy to invest $25,000,000,000 in the grid across our jurisdictions. We commissioned the University of South Carolina Research Economists to study the potential impacts of this initiative. According to the findings, our investments over the next 10 years will deliver significant benefits to the state, including an average of nearly 3,300 jobs supported per year, representing almost $200,000,000 in new salaries and wages annually, more than $100,000,000 in new tax revenue for the state and a total economic output of more than $5,000,000,000 We're looking forward to making these investments on behalf of our customers and to support economic development in South Carolina. In North Carolina, we announced plans for 13 megawatts of batteries spread across 2 sites as part of our Western Carolinas modernization project. And in Indiana, we'll be installing a 5 megawatt battery as part of our micro grid at Camp Atterbury. We continue to look for opportunities to deploy utility scale battery storage as costs come down and performance improves. Shifting to generation, our W. S. Lee, Citrus County and Western Carolina's combined cycle natural gas plants are progressing well and these projects remain on time and on budget. We are also moving forward with a dual fuel project at our Blues Creek coal fired plant in North Carolina, representing a combined investment of over $150,000,000 between Duke Energy Carolinas and Piedmont. This upgrade will enable 50% natural gas co firing on 2 units at the site, increasing fuel flexibility and lowering carbon emissions. Piedmont has filed with the NCUC for permission to build gas infrastructure to supply the plant with natural gas. The project is expected to be completed in 2 phases in 201920 20. During the quarter, we also saw important developments in each of our pipeline investments, Atlantic Coast Pipeline, Sable Trail and Constitution. Atlantic Coast Pipeline reached a significant milestone on October 13th when FERC issued the final certificate. This project will stimulate significant economic development in Eastern North Carolina and support growth in the region. We are working with the relevant state agencies to secure remaining permits and expect to begin construction by the end of this year for an in service date in late 2019. ACP also closed a revolving credit facility in October to fund approximately half of the pipeline construction costs. The project has borrowed $570,000,000 against the facility to cover costs incurred to date with Duke's share at 47%. Regarding the Sable Trail pipeline, FERC issued a supplemental environmental impact statement on September 27. This addressed issues noted by the DC Circuit Court, which vacated the project certificate. FERC and other interested parties have filed with the court for a rehearing and we expect a favorable outcome. The project remains operational as we await the court's decision. And turning to constitution, the project filed a petition for a declaratory order in early October asking FERC to determine if New York failed to act within a reasonable time period on its water permit. We are hopeful FERC agrees with our position within the next several months, which would preserve an in service date as early as the first half of twenty nineteen. Before I close, let me say a few words about tax reform. Duke supports comprehensive tax reform. Like everyone, we are reviewing the legislation that came out yesterday. We were encouraged to see that the bill includes provisions to retain interest deductibility in lieu of the immediate expensing of capital. We are taking a close look at these provisions and the bill as a whole. But let me say this is a positive first step and recognizes our industry and the importance of the impact to our customers. And we will remain engaged as the process continues to unfold. As we near the close of 2017, our focus is unwavering as we execute our strategy and follow through on our commitments to customers, communities and investors. We are on track to deliver earnings within our original guidance range for 2017 as we achieve planned growth in our regulated businesses and maintain our focus on effective cost management. Our long term earnings growth profile of 4% to 6% off our original midpoint of 4.60% is unchanged, underpinned by the strength of our regulated investments in our attractive service areas. This demonstrates the resilience of our company and the employees who deliver exceptional safety results, operational excellence and financial performance every day. Now let me turn it over to Steve. Thanks, Lynn. Today, I will walk you through the key earnings drivers from the Q3, discuss current retail volume trends and update you on economic indicators. I'll close with a summary of our key investor considerations. Let's start with quarterly results. I will cover the highlights on Slide 8 and discuss our adjusted earnings per share variances compared to the prior year quarter. For more detailed information on segment variances versus last year and a reconciliation of reported results to adjusted results, please refer to the supporting materials that occupy today's press release and presentation. On a reported or GAAP basis, 2017 Q3 earnings per share were 1.36 dollars compared to $1.70 last year. The most significant drivers of the difference between the reported and adjusted earnings in the quarter were charges related to the revised Florida settlement agreement and certain commercial renewables assets. 3rd quarter adjusted diluted earnings per share were 1.59 dollars compared to $1.68 in the prior year. Lower results in the quarter were principally due to significantly favorable weather last year and the absence of International Energy earnings. Moving through our segments. Electric Utilities and Infrastructure results were down 0 point 12 $2 compared to the prior year. Weather was the primary driver with a $0.14 decline quarter over quarter. This amount includes 0 point 0 point 0 $2 per share of loss revenues associated with Hurricane Irma. Depreciation and amortization was higher in the quarter due to increased investments across each of our jurisdictions. Partially offsetting these drivers were higher revenues from increases in regulatory pricing and riders. Price increases were primarily due to investment recovery through the generation base rate adjustment mechanism in Florida and new rates in Duke Energy Progress, South Carolina. With respect to riders, the strength of our energy efficiency programs continues to generate incremental earnings, helping to offset lower energy usage from our customers. Our Indiana and Ohio grid investments are also contributing to incremental rider growth. Let me also highlight that O and M was $0.01 favorable, which includes $0.03 of costs associated with Hurricane Irma. This strong result demonstrates our ongoing commitment to managing costs across our business, and we will work diligently to find additional efficiencies and demonstrate flexibility as we close out the year. In our Gas Utilities and Infrastructure segment, results were up for the quarter, primarily driven by our ongoing investment in the Atlantic Coast Pipeline. As expected, the gas distribution results were flat during the warm summer months, and we anticipate these businesses will provide their remaining earnings contribution in the 4th quarter. Moving to commercial renewables. We were down $0.02 for the quarter. This was driven by lower solar ITCs in the current year and higher interest expense as a result of new solar project financings this quarter. Finally, other was up $0.14 for the quarter based on a number of factors, including unfavorable tax adjustments in the prior year and ongoing tax planning activities. These accounted for $0.07 $0.03 respectively. For the full year, we now expect our effective tax rate to be in the range of 31% to 32%. We also had a favorable litigation settlement and lower claims at our captive insurer during the quarter. These favorable drivers were partially offset by higher interest expense at the holding company, primarily due to the Piedmont acquisition financing. As Lynn mentioned, we are narrowing our full year adjusted earnings per share guidance range to $4.50 to $4.60 per share. This reflects our year to date results, including the approximate $0.15 impact of significantly unfavorable weather and an additional $0.03 impact from Hurricane Irma, which were offset to a large extent by the cost management reductions we initiated earlier this year. Turning to Slide 9. I'll review our retail volume trends. On a rolling 12 month basis, weather normalized retail electric load growth was 0.2 percent. If you remove the impact of LEAP Day in the prior year, our rolling 12 month volume growth is in line with our long term expectation of 0.5 percent. The residential sector is growing 0.5% on a rolling 12 month basis as population growth in the Southeast remains strong. This is particularly true in the Carolinas and Florida, where we are seeing residential customer additions of 1.4% and 1.5 percent and 1.5 percent respectively. In Florida, every major metro area is experiencing population growth with Orlando and Tampa being 2 of the fastest growing metro areas in the country. Our combined gas utilities are also adding new customers at a healthy annual rate of 1.4%, led by our Piedmont service territories, which are growing at 1.6%. As we look ahead, positive trends in employment and wages and the continued recovery in the housing market are expected to drive ongoing residential growth. Single family building permits remain strong and are outpacing multifamily home starts in our service areas. As of August, Florida, the Carolinas and Tennessee are in the top 7 states with the number of new single family housing permits. In our commercial customer class, sales across our jurisdictions were slightly down over the rolling 12 months. As we've experienced over the past few years, utility sponsored energy efficiency programs partially offset growth in this customer class. We are seeing growth in hotels and restaurants. However, the active hurricane season has caused some near term interruptions for these businesses. Turning to Industrials. On a rolling 12 month basis, the sector has grown 0.1%. Industries that support sales to consumers, such as construction and housing, continue to perform well. This strength is partially offset by the automotive sector and a recent slowdown in textiles. On a macro level, manufacturers have reported significant improvement over the past 12 months. According to a recent National Association of Manufacturers survey, this customer class is more positive in its outlook compared to last year, signaling future strength. Overall, based on our actual results over the past few years and our expectations looking ahead, we are confident in our long term assumption of 0.5% retail load growth and feel good about the economic health of our service areas. I'll close with our investment investor value proposition on Slide 10. We offer an attractive 8% to 10% shareholder return that balances a strong growing dividend and earnings growth of 4% to 6%. Our growth is driven by very low risk regulated demonstrated ability to grow our regulated businesses positions Duke Energy as the leading infrastructure investment. With that, let's open the line for your questions. We'll go first to Shahriar Pourreza with Guggenheim Partners. Good morning. Good morning, Shar. Good morning, Shar. So just touching on the grid mod, proposal in South Carolina, is this kind of incremental to plan? And is there any status on the $13,000,000,000 opportunity in North Carolina, maybe just from a legislative standpoint? And when you roll in the $16,000,000,000 in potential opportunities, how does that sort of fit in with your 4% to 6%? Sure. We have included in the plan we shared with you in February, grid investment that is generally consistent with these programs that we're talking about. We'll, of course, fine tune those in February when we give you an update on the 5 year plan. And the approach that we've taken both in North and South Carolina is to complete economic impact studies for the benefits of these investments, We have a We have a couple of paths on recovery, which we've talked about. Of course, our ultimate goal is modernization of the regulatory framework in North Carolina to allow for Duke Energy Carolinas. We'll pursue a similar path, for Duke Energy Carolinas. We'll pursue a similar path in South Carolina, probably approaching first through the regulatory process and determining whether anything further is required. So I think this represents just further underpinning of the growth that we've laid out for you and why we have confidence in our ability to deliver at 4% to 6%, reaching to the higher of the range as these investments continue to grow and accumulate. Okay, higher end of the range. Okay, that's helpful. And then Lynn, I think you've addressed this publicly in the past, but I'm going to put you on the spot anyway because I know it's been on investors' minds. Is there any interest in the South Carolina nuclear plant or even expanding your footprint in the state, especially since you're already very active there from an economic development standpoint? If you could just address this dead on, it would be good. Sure. Sure. We have no interest in the new nuclear plant in South Carolina, and we've been clear about that. Given the risks and the uncertainties around completion of that plant, we don't think there's a fit either for customers or investors and we've been very candid with the state about that. As you indicate, South Carolina is incredibly important to Duke Energy. We operate important businesses and important assets in the state. We're announcing today our willingness to invest another $3,000,000,000 So we are continuing to operate well within the state. We're engaged in supporting our businesses in a way you would expect, but no interest in pursuing new nuclear. Okay, great. Thanks so much. I'll hop back in the queue. And we'll go next to Stephen Byrd with Morgan Stanley. Good morning. Hi, good morning. Good morning. I wanted to just touch base on coal ash spend and wondered if you could remind us in terms of the precedent with Dominion in the state and just your position on the treatment just as a refresher in terms of where we stand on your point of view on recovery of coal ash spend? Sure. Stephen, let me take the Dominion question first. There is precedent in the state of North Carolina for recovery of coal ash in the Dominion case with return of and on. And As you know, this is an important topic in the North Carolina cases, and we are in the process of reviewing the arguments that were presented by public staff and the interveners, and we'll be responding to those very comprehensively with our rebuttal testimony on Monday. We believe that these costs are squarely within the law. They represent environmental compliance costs and we have pursued our approach around closure of basins and around the science and engineering necessary to support compliance with the federal and state law in a very appropriate, aggressive way with science and engineering underpinning our decisions every step of the way. We believe we have a very strong case we'll put forward on cost recovery for ASH. That's helpful. And when you think about the period of time over which you do recover the costs, as you show in one of your charts, coal ash is a very significant portion of the revenue request. Is there a potential to think about a longer time period over which to have these significant cost spreads just as we're sensitive to thinking about overall customer bill impacts? Or are there natural limits around thinking about duration? Stephen, I think there's an opportunity to look at methods of recovery. If you look at our filing position, we put forward a couple of ideas for consideration by the commission. There's a traditional deferral and amortization for costs incurred to date. And we proposed recovery of those over a 5 year period. And then we also proposed a run rate, which would be to say, including a certain amount in customer rates on a current basis, kind of matching the spend, which results in a lower overall cost because it's without a return, right? It's as you spend it. We think that provides a fertile opportunity for discussion about what makes sense to customers and that will be a part of this case as you know. But flexibility around timing always is an opportunity. Understood. And then just shifting gears over to tax reform. I know we're all trying to very quickly absorb terms of your read of the proposal as it's laid out. I guess on my mind is just thinking about whether or not that interest is also exempted under the utility exemption that was included Or if it's not exempted, if you can include the EBITDA from the utility businesses themselves because they themselves are exempted? I just I'm a little confused honestly in terms of thinking through the whole coke level impact. So I'm just curious if you had any sort of preliminary thoughts on that. Stephen, you're raising a question that we're looking very closely at, and we are evaluating and reading it closely, not only at Duke, but as an industry. I think it's important to recognize that this was a positive step. And I think there's clear recognition in the language of the capital we spend, the impact to customers, the importance of interest, foregoing capital expensing normalization, excess deferred taxes or transitioned in an appropriate way. And so when we look at the holding company, the area that we're focused on is this allocation to a trader business and a regulated utility and we'll be looking very closely at that. We believe and we will also be engaged in discussions around intent and clarification and we'll be closely pursuing that over the next several days and coming weeks. But I think the important thing is there's clear recognition of our industry in this framework, the importance to infrastructure economic development, and we believe there could be a path forward on this. That's helpful. Agreed, it was a helpful overall result for the industry. So thank you very much. Thank you. Thank you. And we'll go next to Michael Weinstein with Credit Suisse. Hi, guys. Good morning. Good morning. Good morning. Just to be clear, the $3,000,000,000 grid modernization plan for South Carolina, is that incremental to the previously disclosed $13,000,000,000 PowerForward Plan? Or is that part of it? That's really part of the overall grid plan that we've got in our 5 year planning. But it's incremental to the $13,000,000 Michael, because $13,000,000 was North Carolina. That's just North Carolina. That's just North Carolina. Okay. And South Carolina. Got you. So but it's not additive to the $37,000,000,000 CapEx plan, that's what you're saying, right? That's correct. That's part of all of our total growth capital in our 5 year plan. Got you. And given that there's been no settlement in the DEP case at this point the process, do you think it's more likely than not that the North Carolina cases are fully litigated rather than settled? And how would you characterize that? Michael, we can't comment at this point on whether we're engaged in settlement discussions or whether we will be engaged in settlement discussions. We're in a tight and important time period over the next couple of weeks. What we can talk about is rebuttal testimony on Monday, November 6. I think that will give you a very clear view of our response to the arguments that have been put forward. And then the hearing is scheduled for November 20. Okay. Thank you very much. Thank you. We'll go next to Steve Fleishman with Wolfe Research. Just to clarify, so think you just answered the $3,000,000,000 South Carolina plan is in your capital plan and 4% to 6% growth rate? That's correct. Yes, that's correct. Yes. And then how The only modification that I would make to that, Steve, is to say, we always fine tune these capital capital estimates as to timing, near term, longer term. But you'll recall back in February, we laid out grid investment as a key priority of ours. And what we've done is continue to put flesh on the bones and brand them and do the important work with stakeholders. So it is part of that strategy we laid out. We'll be fine tuning where and how much as we go forward, but you should think about it as part of our strategic plan. Okay, great. And then, I think you also had a plan that you've at least talked about for North Carolina in terms of grid modernization? And where does that stand? And is that in your capital plan too? Or is it kind of same thing as part of the mix of different options? It's in the plan, Steve, in the same way I described for South Carolina. And we are pursuing it, on a couple of courses, right? The legislative initiatives that we've talked about, it's also the DEC piece in our Duke Energy Carolinas case, which will proceed in early 2018. So we'll continue to update as we go. We're obviously looking for ways that we can continue to accelerate that investment for the benefit of our customers and achieve the appropriate regulatory outcome. Okay. One clarification also, what is the renewables impairments, the adjustment that you made? What assets did you impair there? Yes. The impairment was of some wind farms in West Texas, the Ocotillo wind farm that had been acquired quite a while ago, roughly 10 years ago. And as we look forward, we see a lot of exploration of the PTCs because these are older facilities. And those are uncontracted assets selling into the merchant market and some of those prices are projected to be pretty low. So those factors led to the impairment of those assets. Most of our facilities, our renewable facilities are contracted with 3rd party off takers. This is one of our earlier ones that was not. Okay. Great. Thank you. Thank you, Steve. And we'll go next to Michael Lapides with Goldman Sachs. Hey, guys. Just curious Hi, Michael. Hey, Lynn. Just curious how you're thinking about once ACP comes online, so think in 2 years from now, in South Carolina, whether there is a need to have new gas midstream infrastructure in the state, especially since it seems that with new nuclear plants now not moving forward in that state, you're likely to see an uptick in gas fired generation burn? Michael, I believe there's a keen interest on the part of South Carolina for expanded and continued investment in gas infrastructure for the reasons that you talked about. Our focus obviously is on the project as it's defined and constituted today. So it's been on we're pleased with the FERC approval. We're moving forward with state approvals. But as the construction progresses, we'll of course be looking for ways that we can continue to deliver value to customers in the states in which we operate. Got it. So you're not seeing I want to make sure I kind of understand what you're kind of saying there. You're not necessarily seeing an immediate need, meaning 2020 to 2025 timeframe to have new mid stream sizable new mid stream into South Carolina yet? I'm just not prepared to give you specific timing, Michael. So the timing that you talk about is certainly within our planning horizon. We want to get ACP in first, which is late 2019. So we'll talk more specifically about expansion opportunities as time progresses here. So I wouldn't read anything into when or where it falls in that timeframe, but we do believe that additional infrastructure could be important to our customers and to the states in which we operate. Got it. And coming to the Carolinas on the electric grid modernization program both in North Carolina and South Carolina, Do you need legislation to get trackers or kind of more real time recovery? Or is that in your view something that each of the 2 commissions could do without actually having to get new legislation? Michael, I believe the commissions could provide tracking recovery in both states for this type of investment. And you see us making a request for that in the Duke Energy Carolinas case. I would also say that the commission will give us feedback on that And if they believe additional clarification is required to the legislature, we could certainly pursue it there as well. So I think this is something that remains an ongoing topic of discussion for Duke as we think about modernizing our system and delivering value to customers. We're engaged with stakeholders. We're talking about the benefits that this brings and we'll just continue to progress it. We see it as a terrific not only opportunity for customers, but obviously investors as well. Got it. Last item, O and M Management, in terms of thinking about any synergies that might have existed as part of the Piedmont acquisition or just in general about being able to manage to keep O and M either flat or even make it decline, where do you see the greatest opportunities within the organization over the next 2 to 3 years to manage O and M? Michael, we certainly have recognized some synergies with the Piedmont merger, in fact, in excess of what we'd originally projected. Most of those are in corporate type functions. I think as we look forward over the next few years, there's a lot of opportunities for synergies, particularly in the distribution area as we roll out some of these grid investments that we've been talking about. Smart meters will displace the Technology along the grid will allow us to know how equipment is performing and help us optimize around maintenance activities. Those are examples of things to come. We've already seen great success in the generation areas around fossil and nuclear efficiencies, but we've got a lot of good functions that will continue to drive efforts in the efficiency areas. Got it. Thank you, Steve. Thank you, Len. Thanks. And we'll go next to Greg Gordon with Evercore ISI. Thanks. Good morning, guys. Hey. Every single one of my questions was asked, but I just wanted to ask a clarifying question on the tax issue. Sure. Clearly, I'm no I'm not a congressman nor am I a legal expert on these issues. But in reading the House Ways and Means Committee summary of the initial plan, it indicated that the interest deduction would be limited to the equivalent of 30% of any company's pretax income at the filer level. And so from my perspective, it would seem that I mean there aren't any utilities that I do research on that have that even come close to that hurdle including you. So it would seem to me that this based on that interpretation you would in fact have interest deductibility on your parent debt. Am I are you just loathed to make an opinion on that? Or you don't think that I'm reading it clearly? Greg, I think the clarifying question there or clarifying point there is who is a filer? Is it the individual taxpayers or is it an affiliated group and consolidated group? And I think, depending on that interpretation and the corporate structure of any utility, that will have a bearing. What we believe is that the combination of that of the allocation of interest to trades or businesses that are regulated coupled with the 30% and the structure that we have in front of us, we believe we've got a framework here that we can work with. But as you know, it's 24 hours, everyone's reading every word, everyone's looking at all the interpretations, we're meeting with the industry. And I think the early read is we see a lot of positive recognition of our industry, but we want to continue to make sure that we've got the appropriate interpretation and see if any clarification bill progresses. Okay, that's fair. Thank you. Have a great day. Thank you. Thanks. And we'll go next to Julien Dumoulin Smith with Bank of America Merrill Lynch. Hey, good morning. Hi, Julien. So perhaps just to follow a little bit up on the South Carolina program. Can you elaborate a little bit on the regulatory recovery thought process here Just in terms of the cadence perhaps of future rate cases, should you pursue the full $3,000,000,000 Just how does that change versus what you'd previously articulated, if at all, just to be very clear about this? Yes. So, Julien, you may recall, we filed a South Carolina Duke Energy Progress case recently. So we'll be evaluating capital investment to prepare that utility to go back in. And then we're evaluating timing on Duke Energy Carolina, South Carolina and also looking at our investment plan to catch that case at the right time. So we always are fine tuning the regulatory calendar. It may move up, it may move back. But what we're trying to communicate today is we see grid investment as an important part of growth in those utilities and we'll be pursuing timely recovery. Got it. So would you say that novel trackers whether approved by the commission or likely approved by the commission or legislative, would you expect to be filing cases on a semi regular basis in order to ensure kind of earned or near earned ROEs? I think that's fair. Okay. Excellent. And then maybe just follow-up a little bit up on the gas side. Obviously, I think at times you've kind of characterized the company as keen or more keen to look towards gas into the future than perhaps electric. I don't want to put words in your mouth. How are you thinking about that today in terms of your future? Gas including midstream, utility, etcetera? Julien, we couldn't be more pleased with the integration of the Piedmont system, not a lot system, not only in terms of the business that they bring, but the expertise and the focus on natural gas. And with the position that Duke holds as a company, 2nd largest consumer of natural gas, we see that as a growing opportunity for us. We're also pleased with progress on Atlantic Coast Pipeline. I mean that's a $2,000,000,000 investment for us and we're anxious to get construction underway later this year. So we will continue to look for ways we can leverage our market position and expertise to bring investment into the gas business. Got it. All right, excellent. I'll leave it there. Thank you all very much. See you soon. Okay. And we'll go next to Ali Agha with SunTrust. Thank you. Good morning. Good morning. Steve, when you look at your full plan, the $37,000,000,000 plan for CapEx, And as you mentioned, you've laid out the South Carolina proposal as part of that. As we sit here today, how much of that plan is now visible or out there versus stuff that will eventually come but hasn't yet been put out there? Just to get some rough idea of that. Well, I think the $37,000,000,000 has been well vetted here. We have very good ideas on the grid spend in terms of targeted undergrounding, smart meters, storm hardened equipment. When you look at the piece of the $37,000,000,000 that's related to generating cleaner energy, we have generation facilities such as citrus or LECCs. We've got our gas growth portion of the plan $6,000,000,000 is very well defined between ACP and the Piedmont distribution investment. So I think we have a very high percentage of plans that we can lay our hands on. The Florida settlement also, Ali, lays the path in Florida for both grid and renewables. And House Bill 589 in the Carolinas also provides pathway on additional investment around renewables in North Carolina. So all of the steps you see us taking in 2017 are underpinning confidence in those capital investment plans. They're transparent, they're clear and understandable and they're projects that we have expertise to deliver. Okay. And then thinking about the 4% to 6% growth rate, you obviously have 2 big rate cases right now and we should get clarity on that fairly soon. So just given the timing of the rate cases, does that cause the earnings growth to be lumpy, perhaps more front end loaded? Or are you thinking of it more straight line? How are you thinking about this 'seventeen through 'twenty one period? Ali, when we talked about guidance this year, we were clear that the plan we've put in front of you gives us the ability to be within the range every year. And that is really in response to that question about, will you fall outside of the range because of general rate cases, etcetera. The plan we put in front of you puts us squarely within the range every year. And so that's what we're executing to. And as you know, we'll give you a fuller update on the specifics around 2018 and refinement of the capital in February. Right. And last question, Steve, you mentioned the effective tax rate to think about is 31% to 32% for the year. Is that a good number to think about as we model future years? Or what should we think about future tax rate? Well, that again, we'll be rolling out our tax assumptions in February for upcoming 5 year plan. But we've got to think about tax reform that's going on right now and assimilate where that's at. Certainly, this year, we've done some good work around tax optimization to bring in some tax savings that have lowered the effective tax rate a bit for us. But too hard to predict in the future given what's going on right now. We'll be working on that and rolling that out in February. Understood. Thank you. Thank you. And we'll go next to Christopher Turnure with JPMorgan. Good morning. Good morning, guys. I just wanted to ask 2 quick questions. The first on coal ash, hypothetically speaking, let's say that you are unable to get the recovery that you guys feel you deserve there ultimately. What kind of leeway on spending do you have going forward given the fact that you have kind of the lion's share to go and you have the law that you have to comply with? Well, Chris, we'll comply with the law. We have state and federal requirements, CAMA in North Carolina, CCR in the Carolinas and then throughout our service territory. So that's what we are we'll comply with all of those requirements, and we will aggressively pursue recovery. And we'll have more to say about that, of course, as we work through these rate cases. There are court appeals and other avenues we could pursue if we think that's appropriate. We believe we have a very strong case. I know there's multiple categorizations of the ash ponds and timing associated with each one of those, but is there leeway on timing in addition to what you just described? You're probably thinking about the risk rating in North Carolina, Chris. So we have certain sites that are due by the 2019, 2024, 2029. There are also timeframes within CCR. So you may have flexibility within a year or so depending on how you ramp up the activity. But when you look at the project overall, the team is doing an outstanding job of balancing the compliance requirements with the spending in a way that minimizes costs to the extent we can, but of course complying with the laws we always will. Okay. And then my second question is on the Renewables segment. I think the impairment this quarter was excluded from your adjusted EPS. So if we just look at the adjusted number year to date, it looks like maybe you're falling a little bit short of plan. I think that segment last year also was not quite where you had originally wanted it to be. Anything we should be aware of there versus your expectations? No. Chris, the other thing I'd point to is we've had weak wind resources in 2017, which has had an impact on results year to date. So we're continuing to operate the assets well. There will be weather variability and there will be some variability around timing of projects, particularly those that are impacted by ITC. But nothing additional that I'd share with you from a strategic point of view on that segment. Okay. Thanks, Lynn. Thank you. And we'll take our last question today from Praful Mehta with Citigroup. Hi, guys. Thanks so much. So if possible, can we go back to tax reform for 1 minute? Just wanted to understand on holding company debt and the interest deductibility on that debt. Is it possible from the read that holding company would be treated as a separate tax filer relative to the utilities, in which case, obviously, the holding company has no income and purely just an interest expense, if that were the scenario. Can that scenario play out? Or do you think that's not realistic? No. Praful, we do have certain of our utilities flowing up into the taxpayer called Duke Energy Corporation, just the way we are structured. And so I think there are a couple of avenues we're looking at, this allocation to trader business, regulated utility and then of course the 30% test. So we believe we see a path here, but it's 24 hours. We want to take the time to understand, get the clarification. But I think the progress that we've made in this and the recognition of our the response from the staff, obviously, was quite conservative in terms of the rating progress. The response from the staff obviously was quite conservative in terms of the rate increase versus what you've asked. You seem pretty confident that you should be able to get to a good position there. Just any more color on that would be helpful. And what if you don't hit like let's say you get 50% of the ask, just what does that mean for growth and 4% to 6% growth as well? So, Prafula would point again to this rebuttal testimony that we're filing on November 6. We disagree with the positions that were put forward on, ASH in particular as well as a number of other items that were highlighted in the testimony. We believe they're not supported by precedent or the law and we'll make those positions very clear. We are open to settlement discussions, cannot comment on whether we are engaged or will be engaged in those discussions, but the process needs to play out over the next couple of weeks hearings of course on 20th. And I think the potential implication to the financial results, we'll share with you when we have more information to share. And I think this is just a process that's going to need to unfold, not only in the next couple of weeks, but of course, the commission order is not expected until early 2018. Got you. Well, thanks so much guys and look forward to catching up with EEI. Thank you. Okay. And that And that concludes the question and answer session. I'd like to turn the conference back over to Ms. Lynn Good for any additional or closing remarks. Great. Thank you. And thank you for your interest and investment in Duke Energy. We look forward to seeing many of you next week at EEI and continuing discussions. So thanks again for your time this morning. And that does conclude today's conference. Thank you for your participation and you may now disconnect.