Duke Energy Corp (DUK) 2012 Q4 法說會逐字稿

Good day, everyone, and welcome to the Duke Energy fourth-quarter and year-end conference call. Today's conference is being recorded.

At this time I am pleased to turn the conference over to Mr. Bob Drennan. Please go ahead, sir.

Thank you, Jennifer. Good morning, everyone, and welcome to Duke Energy's fourth-quarter and year-and 2012 earnings review. Leading our discussion today are Jim Rogers, Chairman, President, and Chief Executive Officer, and Lynn Good, Executive Vice President and Chief Financial Officer.

Today's discussion will include forward-looking information and the use of non-GAAP financial measures. Slide 2 presents the Safe Harbor statement which accompanies our presentation materials. You should also refer to the information in our 2011 10-K and other SEC filings concerning factors that could cause future results to differ from this forward-looking information.

A reconciliation of non-GAAP financial measures can be found on our website and also in today's materials. Please note that the appendix to today's presentation materials includes supplemental information and additional disclosures to help you analyze Duke Energy's performance.

In today's call, Jim and Lynn will review our fourth-quarter and year-end earnings and briefly discuss the Company's recent decision to retire the Crystal River 3 nuclear plant in Florida. We will also update you on our strategic initiatives and highlight recent regulatory activities.

The management team of Duke Energy will host an analyst meeting in New York City on February 28. During that meeting we will update you on our strategic goals and our progress in resolving our near-term priorities. At that time we will provide our 2013 earnings guidance range and related assumptions. A webcast of the meeting can be accessed via the Investors section of Duke Energy's website.

After the prepared comments this morning, Jim and Lynn will take your questions. Now I would like to turn the call over to Jim Rogers.

Thanks, Bob. Thank you all for joining us today.

The end of 2012 worked our first six months following the combination of Duke Energy and Progress Energy. By December 31, we had turned an extraordinary year of uncertainty into a year of great accomplishment both operationally and financially.

I am especially pleased with the resilience and dedication of our employees. Throughout the 18-month approval process in the first months of the newly merged Company, they were focused on providing affordable and reliable electricity 24/7 to our 7.1 million customers and providing superior value to our investors.

Slide 4 highlights a few of the specific accomplishments of our people in 2012. We successfully closed the Dukes/Progress merger in early July. This merger created a primarily regulated utility business with the scale to drive efficiencies for our customers and our shareholders. Also, the Indiana Commission approved the Edwardsport IGCC settlement, providing us clarity on cost recovery of this important project.

We had strong operational performance last year. We often say that safety comes first. 2012 was a testament to our focus.

During the year, we achieved the best employee safety record in the Company's history. It is a tribute to our employees' commitment.

Our nuclear team achieved a fleet capacity factor of over 90% for the 13th straight year, excluding Crystal River 3. We successfully completed three major new power plants in North Carolina, all within budget. We completed five new wind farms and three new solar farms, adding 650 megawatts of net renewable capacity to our portfolio.

We also had a very strong financial performance in 2012 by achieving each of our overall financial objectives. Our adjusted diluted earnings per share of $4.32 was at the upper end of our earnings guidance range of $4.20 to $4.35 for the year.

We continued to grow the dividend by approximately 2% while maintaining a strong balance sheet. Our total shareholder return during 2012 outperformed the Philadelphia Utility Index.

From merger announcement in early January 2011 through the end of 2012, Duke Energy's total shareholder return was around 32%. This significantly outperformed the 17% return of the Index during the same period.

On our last call, we reported on our key near-term priorities we have been focused on since merger closed. As demonstrated on slide 5, we are making excellent headway in resolving these priorities. I will mention the highlights and then go into more detail in later slides.

First, in December, we successfully resolve the North Carolina investigations into the post-merger CEO change. Resolution enables us to move forward and focus on our rate cases in the Carolinas, which are also near-term priorities.

These cases are being driven in large part by the necessary capital investments we have made in our fleet modernization program. Progress Energy Carolinas filed its rate case in North Carolina last fall. This was the first time PEC has sought a rate base case increase in North Carolina in 25 years. The evidentiary hearing begins in March, and we expect revised rates to be effective by midyear.

Duke Energy Carolinas filed a rate case last week in North Carolina and will file a case in South Carolina next month. As a reminder, we also have two pending rate cases in Ohio, an electric distribution case and a gas distribution case.

Second, early last week we announced our decision to retire the Crystal River 3 nuclear unit in Florida.

Third, in December the Indiana Commission approved a settlement agreement that provides clarity on cost recovery for the Edwardsport Project. Construction is complete and the plant is undergoing testing. This plant will serve the needs of our Indiana customers for decades to come in an environmentally responsible manner.

We also continue to make progress on the other near-term priorities. We remain focused on delivering our merger integration initiatives. We are being very disciplined about this work and are on track to achieve the intended savings and efficiencies.

In fact, we are ahead of schedule in fuel savings. Approximately $52 million of savings were recognized in the last six months of the year.

By year-end 2012 about 700 employees had left the Company through the voluntary severance program. Most of the remaining 400 employees who had elected this program will leave by the end of this year.

Finally, our nuclear fleet as a whole performed extremely well in 2012. We continued to leverage best practices across the fleet and take advantage of having 11 reactors in the Carolinas. We are also making additional investments to optimize safety, reliability, and efficiency.

Now let's turn to slide 6 and the Crystal River 3 retirement decision we announced last week. This nuclear unit in Florida has been safely shut down and off-line since late 2009.

As you all will recall, the 2012 regulatory settlement approved by the Florida Commission gives us the sole discretion and flexibility to retire this nuclear unit. This was a difficult decision. It came after comprehensive analysis of cost, risk, and other factors involved in attempting a complex first-of-a-kind repair versus retiring and decommissioning the plant.

After completion of the technical and economic feasibility studies, we determined that a repair is technically feasible. But it included significant risk that could greatly increase the cost of repair and extend the repair schedule. As a result, we concluded it is in the best long-term interest of our customers and investors to retire the plant.

Additionally, since the fourth quarter of last year, we have been in mediation with our insurance provider to resolve our outstanding claims related to this plant. Both parties have accepted the mediator's proposal.

Consequently, NEIL will pay the Company additional $530 million. Along with the $305 million that NEIL has already paid, our Florida customers will have received $835 million in insurance proceeds, the largest claim payout in the history of NEIL.

Deciding how to best move forward with Crystal River 3 has been one of our top priorities since the merger closed last July. It was important for everyone that we reach the right decision and provide clarity on this issue.

We intend to use the SAFSTOR option for decommissioning the plant and are working on a comprehensive plan. This option involves putting the unit in a safe condition for 40 to 60 years before decommissioning.

As a result of this lengthy time period, we expect that our current decommissioning fund balance of approximately $600 million will be sufficient. We expect that the Florida Commission will review this retirement decision and the acceptance of the mediator's proposal resolving Crystal River 3.

Next, moving to slide 7, which provides key facts about the rate request Duke Energy Carolinas filed in North Carolina last week. This is the third in a series of three rate cases filed by Duke Energy Carolinas to recover its capital investments to modernize the generation fleet.

We have requested a net increase in annualized customer rates of $446 million, or an average of 9.7%. This is based upon an ROE of 11.25%, a 53% equity component of the cap structure, and a North Carolina retail rate base of approximately $12 billion through the estimated date of the hearings.

Around 90% of the requested rate increase is due to capital investments. These include the Cliffside 6 advanced coal plant and the Dan River combined-cycle natural gas plant, both previously approved by the Commission. Although the Commission has not yet established a procedural schedule, we expect that hearings will occur early in the third quarter, with revised rates effective in September.

Turning to slide 8, I'll summarize the recent regulatory approval of the settlement agreement related to our Edwardsport IGCC project in Indiana. In late December, the Indiana Commission approved a settlement agreement that was reached with several interveners addressing the cost recovery for this coal gasification plant. The agreement includes a cap of $2.595 billion on the construction cost that retail customers will pay.

As shown on the slide, the Commission made two modifications to the agreement. One involves a $28 million refund to customers, which is reflected as a special item for the quarter. The other provision pertains to any potential recovery we receive from vendors on the project. Any amount received in excess of the cumulative impairments recognized on the project will be refunded to customers.

Construction of the plant is complete, and we are in the final phase of testing that is required before we put the plant into service. Both gasifiers have successfully achieved syngas production. We expect the testing to be complete and the plant to be in commercial service by midyear.

Slide 9 summarizes our major construction projects. These include the Edwardsport plant, the three plants brought online in 2012, and the Sutton combined-cycle gas plant scheduled to be operational by the end of this year.

We continue to advance our $9 billion multiyear fleet modernization program. This program has put us ahead of the curve in our industry in terms of preparing for compliance with stricter environmental regulations. By building several new natural gas plants, we are increasing our fuel diversity, giving our customers the benefits of low natural gas prices.

These new plants will allow us to retire up to 6,800 megawatts of older, less-efficient coal-fired units by 2015. By the end of this year, we expect to have retired more than 3,800 megawatts of this capacity.

As a combined Company, we have already invested around $7 billion in control equipment for our existing coal plants, positioning them for compliance with more stringent air emission regulations. However, we estimate we will spend an additional $5 billion to $6 billion over the next decade to comply with pending environmental regulations on air, water, and coal ash.

Next, turning to slide 10, I'll provide a brief update on our Commercial businesses primarily focusing on our operations in Latin America and our nonregulated Midwest generation fleet.

I'll start with Duke Energy International. During 2012, we expanded our investments in Latin America, adding assets in Chile. Our objective with DEI over the past six years has been to add generation to our portfolio that meets our risk and return expectations.

The assets in Chile meet these expectations and are a great complement to our existing Latin American business. In July, we acquired a 240-megawatt diesel generating facility; then in December we announced a $415 million acquisition of two existing hydro facilities. We expect to close on a project financing for around half of the purchase price by the end of the first-quarter 2013.

Brazil also continues to be an important part of our portfolio, and we are monitoring two emerging developments. First, Brazil has recently been experiencing low rainfall. Even though these conditions have recently improved, reservoirs remain low.

If these unfavorable conditions persist, the cost of operating in the system may increase for all generators, including Duke. We are closely monitoring the reservoir levels and will update you on our Analyst Day at the end of the month.

Additionally, the Brazilian government recently finalized a new law addressing expiration of generating concessions granted before 1995 and set to expire between 2015 and 2017. We are monitoring this closely. We do not see a direct short-term impact on our Brazilian operations because our concession agreements were granted after 1995 and do not expire until 2029 and 2033.

Over 90% of our available resilient capacity is contracted in 2013 and '14, with over 60% being contracted for in 2015 and over 50% being contracted for in 2016. We will continue to monitor market conditions as we contract our open positions.

Next, let me talk about Midwest generation. As you all know, we have a cost base capacity filing currently pending with the Ohio Commission. Through our request we are seeking appropriate compensation for our capacity services as provided for under Ohio law and consistent with the new state compensation mechanism adopted by the Ohio Commission.

Parties to the case filed comments in early January, and we responded earlier this month. Hearings are scheduled for April.

This filing does not seek to alter the Electric Security Plan, or ESP, under which Duke Energy Ohio is currently operating. Clarity on our filing will inform our long-term strategic decisions about the Midwest generation fleet.

Finally, let me recognize the work of our Commercial renewables team in 2012. During the year, we brought online around 650 megawatts of additional net owned capacity. This increased our wind and solar generation to more than 1,700 megawatts.

In summary, I am very pleased with what we accomplished in 2012. We completed a complicated, complex merger. We delivered on our financial and operational objectives. We are resolving our priority issues one by one.

Our employees have shown remarkable resilience. We are building positive momentum and have the right focus and foundation to continue delivering value for all of our stakeholders in the future.

Now I will turn it over to Lynn, who will provide a more detailed look at our financial performance in 2012.

Thank you, Jim. Today I will focus my remarks on our full-year 2012 results and briefly summarize our quarterly results. I will also provide an update on our customer load trends as well as economic conditions within our service territories. Finally, I will close with an overview of our performance against our overall financial objectives.

Let me start with a discussion of our financial results for 2012. As Jim noted, we had a very successful year from a financial perspective as we continued to achieve each of our stated objectives.

We delivered adjusted diluted EPS within our annual guidance range. We achieved an average annual growth in adjusted diluted EPS of approximately 5.7% from our base year of 2009, at the upper end of our 4% to 6% growth objectives. We increased our quarterly dividend payment by approximately 2%, and we maintained the strength of our balance sheet.

If you look at slide 12, our fourth-quarter 2012 adjusted diluted earnings were $0.70 per share, essentially flat with the $0.71 for the prior-year quarter. For the full-year 2012, we recognized adjusted diluted earnings per share of $4.32 compared to $4.38 for the prior year.

2012 adjusted earnings reflect the addition of earnings from Progress Energy, net of the impact of shares issued in connection with the merger; the impact of the new market-based Electric Security Plan in Ohio; and unfavorable weather. These drivers were partially offset by higher customer rates at Duke Energy Carolinas.

On a reported basis our earnings for the fourth-quarter 2012 were $0.62 per share, compared to $0.65 for the prior year. And for the full year, our reported earnings were $3.07 per share, as compared to $3.83 for the prior year. Please refer to the reconciliation schedule included with these slides for details on the differences between our reported and adjusted results.

For more information on the quarterly and annual drivers, see the earnings variance tables on pages 12 and 13 of our press release package.

Now I will briefly discuss the primary adjusted earnings per share drivers for each of our business segments for the full year. Our regulated utility business, USFE&G, had a strong year, contributing approximately 84% of our consolidated adjusted earnings.

This segment delivered results consistent with our expectations despite unfavorable weather during the year. USFE&G's results include six months of earnings from Progress's utility operations in the Carolinas and Florida, contributing $1.02 per share, before dilution.

Top-line revenue growth was also a significant driver due to revised customer rates in the Carolinas. New rates, which included recovery of our major generation investments, contributed $0.48 during the year. Revenue growth due to rate case activity is expected to be a continuing theme over the next few years, as we have a number of rate cases pending or expected to be filed shortly.

We maintained our focus on O&M costs, taking advantage of opportunities to reduce spending in our fossil fleet due to lower capacity factors. This helped mitigate the impact of extended nuclear outages and emerging nuclear costs which occurred in the fourth quarter. As a result, excluding O&M expenses from Progress's regulated operations, our O&M spend for the year at FE&G was fairly consistent with the prior year.

Turning now to our International operations, as expected, results for DEI in 2012 were lower than 2011 primarily due to unfavorable foreign currency exchange rates. In 2012, DEI contributed around 18% of our consolidated earnings. Even though lower than the prior year, DEI's results for 2012 came in above our expectations, principally due to favorable results at National Methanol and in Peru.

Next I will move on to our Commercial Power segment, which includes our nonregulated generation in the Midwest, our renewables business, and Duke Energy Retail. We expect Commercial Power results in 2012 to be below what we experienced in 2011. Our new Electric Security Plan in Ohio, which reset customer rates to lower market-based rates, became effective at the beginning of 2012.

Lower PJM capacity revenues in our Midwest gas fleet and lower margins at Duke Energy Retail also negatively impacted results in the Commercial Power segment. Commercial Power contributed less than 5% of our consolidated earnings in 2012.

Our Midwest gas-fired fleet continued to benefit from the low natural gas price environment. This fleet achieved record volumes, as total generation during the year was about 17 million megawatt hours, around 40% higher than 2011, our previous annual record.

Moving on to Other, this category had higher net expense in the prior year due to additional interest expense on Duke Energy Holding Company debt, as well as $0.12 of additional interest expense from the Progress Energy Holding Company debt following the merger.

Other's net expense was lower than we expected for the year, and these results were principally due to lower losses at our captive insurance entity and favorable interest rates. We also recognized dilution of $1.00 per share for the year resulting from the issuance of additional shares in connection with the Progress merger.

As a reminder, we issued around 258 million shares to former holders of Progress Energy common stock. We now have around 705 million shares of Duke Energy outstanding.

Note that all of these shares were not issued and outstanding for the entire year. Therefore, our weighted average number of shares outstanding for full-year 2012 is 575 million.

Now I'll move on to a discussion of our customer volume trends and the economic conditions in our service territories. Slide 13 presents our quarter-over-quarter weather-normalized customer usage trends as well as what we experienced for the full year in our regulated business. As a reminder, this chart includes trends for the Progress Energy utilities for 2012 compared to what was experienced in 2011.

During 2012, our overall load growth excluding the impacts of weather was 0.6% higher, consistent with our expectation. This growth was principally supported by industrial usage, which was up around 1%.

The automotive sector was especially strong in the Duke Energy Carolinas and Indiana service territories. US auto sales for '12 reached their highest level in five years.

Demand from our Commercial customers increased approximately 0.7%, primarily resulting from stronger retail sales. Residential demand was essentially flat for the year. Even though we experienced modest growth of around 0.7% in our average number of residential customers during the year, we continue to see the impact of the economic environment and energy efficiency in customer usage patterns.

As we look ahead, our diverse service territories provide Duke with a key advantage. Our rates are generally below regional and national averages, making our territories attractive for industrial and commercial expansion. We are also well positioned for a rebound in the residential markets as housing markets improve. The trend in customer growth in our service territories was stronger in 2012 than in previous years.

I will close with slide 14, which addresses our main financial objectives. We ended 2012 with adjusted EPS of $4.32, toward the upper end of annual guidance range. As we look ahead to 2013, we have a number of important regulatory proceedings that will impact our results.

We have recently announced the retirement of Crystal River 3. We are also addressing emergent costs in our nuclear business while aggressively pursuing our merger savings initiatives. Our Commercial business will also be impacted by the low point of PJM capacity prices, and we are continuing to evaluate the impact of the unfavorable hydrology in Brazil.

Many of you have looked at these items and termed 2013 a transitional year for Duke. We believe that 2013 is an important foundational year for the Company and the appropriate base for future earnings growth.

When we consider the degree of variability from timing and amount of regulatory outcomes and the items I just mentioned, we are planning for 2013 adjusted earnings per share to be reasonably consistent with our 2012 results, and we will introduce a range on February 28 that addresses the regulatory variability. We are looking forward to providing more perspective on 2013 and beyond later this month.

Growth in our long-term earnings per share and continued growth in our dividend remain central to our investor value proposition. We are targeting a payout ratio of 65% to 70%, based upon adjusted diluted earnings per share. Our current dividend yield of 4.4% remains attractive as compared to the 2% for the S&P 500.

The strength of our balance sheet, liquidity, and credit metrics support our ability to grow the business as well as the dividend. We remain committed to maintaining this strength, which allows us to finance our growth in a cost-effective manner, directly benefiting our customers.

In summary, I am pleased with our financial performance and how we have continued to consistently achieve our financial objectives. We have a strong growth platform as efficiencies from the merger allow us to pass along savings to our customers and our shareholders. From a financial perspective, we remain well positioned for the future.

Now let me turn the call back over to Jim for his closing comments.

Thanks, Lynn. After a successful, transformative 2012, we look forward to the future. We will discuss our plans, as Lynn said, for 2013 and beyond at our analyst meeting in New York on February 28. With that, let's open up the phone lines for your questions.

(Operator Instructions) Dan Eggers, Credit Suisse.

Hey, good morning, guys. I know you're going to talk about a lot of these issues at your Analyst Day, so maybe I will ask a couple policy questions. Can you maybe, Jim, share your thoughts on what is going on with Senate Bill 10 in North Carolina, the trajectory of that legislation and what you think might happen to the Commission if there is momentum behind it?

Sure. Dan, given that Duke and our customers are impacted by many of these state boards and commissions and our Company is committed to working constructively with all of them, it is not appropriate for us to comment on this bill. We cannot speculate on the probability of the proposed legislation passing. Nonetheless, we are focused on achieving the benefits of the merger for our customers in the Carolinas.

Okay. Jim, can we talk a little about the State of the Union last night and the President's comments on global warming type of legislations or rule-making? Based on what you know, how do you guys see this playing through from an EPA perspective if they can't get legislative support? Is that going to affect any investment decision you guys are looking at making from a coal plant remediation perspective?

Dan, that's a very good question. We are continuing to digest what the President said and how people are interpreting it. But the way I interpreted it is I couple it with what he said in his Inaugural address.

It is clear that climate is going to be an important issue for him to address. Of course, he has got many other important issues in terms of getting a budget, dealing with immigration, a variety of other issues. But I do think this is one of the front-burner issues.

I continue to believe that the EPA is not equipped to put a price on carbon. That is going to take legislation.

I think there are many things that we can do to reduce our CO2 emissions. One thing the administration has already done is raise the CAFE standards, and that will have an impact.

But I think the technological innovation of shale gas has been transformative in terms of the carbon footprint of our industry. Today in the United States we are at the same place in terms of CO2 emissions as we were in 1992, and on a per capita basis the same place we were in 1960. I say that to say we have made tremendous progress at reducing the burden of coal and have increased dramatically the burn of natural gas, which has about 50% of the carbon footprint of coal.

So we have already made huge progress. And I would say it another way; we are on track to hit the Waxman-Markey 2020 number, just based on the reduction in emissions that we see as a consequence of burning baseload gas.

So I think much is being done to reduce carbon. But at the end of the day, they will have to put a price on carbon.

That can't be done by the EPA. That can only be done by Congress, and they need to act.

And the good news is, because we have the prices of solar dropping, the gas prices at $3.50 an MMBtu and projected to stay in the $3 to $4, or $4.50, $5 range, we are in a period where you could start with a low price on carbon and let it escalate over a much longer period of time, thus minimizing the impact on the economy.

So I think again there are a lot of ways to be thinking about this. I think the technological innovation has made a difference. I think other innovations and technologies are evolving that's going to reduce our carbon footprint of the existing buildings in our country.

So I think that we are on the road to decarbonizing our economy even without legislation. But having a price on carbon would be important for the future to drive even further our successes that we have achieved so far.

Jim, I guess you said something about $5 billion of environmental CapEx still to go. Is that number prospectively under review, or the places where you put that money under review, based on the greater attention on CO2 policy?

I think virtually all that is really placed on tighter regulations with respect to ash ponds, with respect to the air, and SOx, NOx, mercury. And primarily mercury.

So I think it is a combination of all of those. I don't think we have in that number anything that really goes to additional regulations on carbon.

However, as we have seen, the modernization plan that we just undertook dramatically reduces our carbon intensity of every kilowatt hour that we deliver on a blended basis. So more to come on that.

But the consequence of our modernization program, to put this in some perspective in terms of the risk going forward, is going to allow us to retire almost 7,000 megawatts of owned coal plants. That is almost 50 units that will be retired. And it will be replaced with more efficient coal and more efficient gas plants, and that translates into lower emissions and lower cost on the margin for our customers.

So, I think we have looked around the corner. Our modernization plan is ahead of most utilities in the country. If you look at Southern today, they are just now starting down the road of modernization of their generation fleet.

So I think we are already at the point of putting it behind us and being well positioned for the future.

Okay, got it. We will see you at the Analyst Day. Thanks.

Kit Konolige, BGC.

Good morning, guys. Just a couple of questions. Can you just update us on where we stand with the capacity filing in Ohio?

When you referred to -- I think you gave us some guidance on that. When do we expect that to be completed?

When you referred to it informing your thinking on strategic direction, can you give us a little -- any further color on what is implied by that?

So, Kit, the procedural schedule for the cost base capacity filing includes hearings in early April. So there are testimony filings on our part as well as the interveners and staff between now and early April; but that is the procedural schedule.

You may recall that we undertook a strategic review of these assets back in 2012 and put that strategic review on hold as we began pursuit of the cost base capacity filing. So we will evaluate and continue to pursue the cost base capacity filing. We believe that we fit those circumstances well within the state of Ohio, and we will work through that process and not take up another strategic review of the assets until that is complete.

Very good. One other question on the North Carolina case. You filed for 11.25% ROE. What did you earn in 2012 in North Carolina?

Kit, we will have some perspective on earned returns on Analyst Day in February. But I would think about it in the range of maybe 10%.

Very good. Okay, thank you.

Michael Lapides, Goldman Sachs.

Really one question for Jim, one for Lynn. When you think about Latin America and where it fits into the broader Duke puzzle or the pieces that make up consolidated the new Duke Energy, how do you think about potential ways to either, A, monetize the cash that is in Latin America or, B, monetize the business overall?

Michael, I will take the comment on cash and cash flow. We continue to look for opportunities to bring home international cash. We took advantage of the tax holiday in the earlier part of the decade.

We have looked at structuring techniques that could be helpful. And the option of outright repatriation also remains, and we continue to evaluate that in the context of the likelihood of broader tax reform and other matters. So, I would think about that as a strategic option that is always available for the Company.

In terms of bringing partners into the business or outright selling the business, we are not focused on that at this point. We continue to look at optimizing the value of what we own and supplementing that value with appropriate acquisitions that fit our risk profile.

Our primary strategic focus is on integration of the companies and ensuring that we have properly situated the Franchised Electric and Gas business for success in the future.

Got it, okay. One follow-up. Lynn, you made the comment about 2013 and 2012 being kind of reasonable with each other from an earnings perspective. You have got a lot of rate actions underway in 2013, many of which -- they are not going into effect to January 1, 2013; many are midyear or later.

When you make a comment like that, what are you assuming in terms of any uplift at all on the revenue line related to those rate actions? Whether it is Ohio electric and gas, whether it is the two cases in North Carolina or the one you're going to file in South Carolina.

Michael, we will be making assumptions on the partial-year effect of all of these rate proceedings, and that degree of variability will be something that we will contemplate as we establish a range for expectations of 2013. And we will give you a fuller report on that and anxious to do that at the end of February.

Got it. Last question, pension. We've had a lot of companies talk about pension as a headwind. Others talk about it as a requirement for cash contributions. Just thoughts?

The economics of pension, Michael, are a headwind. Right? Discount rates are down 100 basis points for Duke between '12 and '13.

So we are looking at the composition of benefits expense within the broader context of the merger and have a number of other plans, considerations that we will be implementing. So we will have an opportunity to give you an update on the specific impact to 2013 when we talk about guidance later this month.

Okay. Thanks, Lynn. Thanks, Jim. Much appreciated.

Andy Bischof, Morningstar Financial Services.

Hi, good morning. I know you highlighted this a little bit in your release last week; but can you provide a little more color on both short-term and long-term plans for replacing the lost generation from Crystal River?

Sure. The bottom line is, as we retire Crystal River 3 and we look out in the future, we see that Crystal River 1 and 2 will be retired in the 2015-2017 time frame. So when you think about those retirements in a collective way, it is clear that we need additional capacity.

And my judgment is that gas-fired combined-cycle plants is the best capacity. We are dependent on natural gas in a significant way, but if you look at the studies on the projection and the price of natural gas, the cost to produce shale gas in the United States, I think there is going to be adequate supply over a long period of time.

And people are talking in the range that the price, because of the supply, will be in the $4 to $5 range over a very long period of time. That means like a decade or two.

Now, I will quickly caveat that in almost 40 years in the industry, I have never seen an energy forecast that was right. But I do believe that we are all surprised at the amount of reserves that we have found of shale gas and surprised at the low cost of production.

So we believe that building gas in Florida, even though we are significantly dependent on gas, is still a good thing to do going forward.

Great. Thanks for the clarity.

(Operator Instructions) Ashar Khan, Visium.

Good morning and congrats, Jim, on a very, very successful year. Just going forward, Jim, could you just bring us a little bit up to date on the Board additions and process for the change, search for the CEO going forward as you look into the later half of the year?

Sure. The Board is working to add a new Director in the first half of this year and another Director by the end of the year. They have engaged a consultant to work with them to be able to bring a new Director or two new Directors onboard.

They are going -- the Board Committee is working through a very thoughtful, deliberate process in the selection of a new CEO to lead our Company going forward. My judgment is that they are on track to get this done in a timely way; and more to come on all of that, as their deliberations are ongoing.

Okay. If I can just get some -- what do you mean by timely way? Is something expected in the summer? Is that where one should look forward to?

I can't predict how the deliberations will unfold. I am in a position where I am advising the Board and advising the consulting group in terms of how to think about it, defining what the requirements of a CEO should be, given where our industry is and where our Company is relative to other participants in our industry.

But I think, again, they are going to be very thoughtful, very deliberative, because this is the most important decision a Board ever makes, and that is selecting who the CEO is. And I think they are going to do it in a careful way, and they will take as much time as needed to get it done.

Okay. Again, thanks a lot and thanks again on a very, very successful year.

(Operator Instructions) Michael Lapides, Goldman Sachs.

Hi, Jim. I know you don't want to comment on the North Carolina legislation. But just in terms of rate case processes in general and when there is turnover -- voluntary, involuntary, regardless -- of commissioners, what are the rules in North Carolina when, if there is ever turnover of a commissioner or multiple commissioners in the middle of a rate case?

Different states have different rules. We occasionally see commissioners move on to other jobs. We see them retire or leave for health reasons.

Just trying to understand what the rules in the Carolinas are regarding whether you need a quorum of commissioners or something along that line to formally rule on an ongoing rate case.

Well, first I will start my comment by saying it is really premature to comment on the impact it will have on our rate case filings because no legislation has been passed yet. The other point I would make is that I am confident that regardless of how Senate Bill 10 turns out, that it will be done in a way that provides for a careful transition.

And under the rules of the state, we are allowed to put our rates into effect -- I think midyear with respect to PEC and six months after we filed with DEC; so it is like a six-month rule, so we could put the rates into effect.

We are working with the public staff to get resolution of this. And we are working to resolve this through settlement; and my first choice is always to resolve rate cases through settlement. And if we can do that, that would be terrific. But more to come on all that.

Got it. Okay. Thank you, Jim. Much appreciated.

At this time we have no further questions in the queue. I will go ahead and turn the call over to Jim Rogers for any additional or closing remarks.

Thank you again for being on our call today. Thanks for your interest and investment in Duke. I am pleased with the momentum we have created in a short period as the new Duke Energy. The merger will enable us to put the Company in a strong position for the future and realize efficiencies for the benefit of customers and investors.

We look forward to seeing those of you who will be at our analyst meeting on the 28th of this month. Thank you all very much.

Thank you, sir. That does conclude today's teleconference. We do thank you all for your participation.