Duke Energy Corp (DUK) 2014 Q4 法說會逐字稿

Please stand by. We are ready to begin. Good day and welcome to the Duke Energy fourth quarterly earnings call. Today's call is being recorded. At this time, I would like to turn the conference over to Bill Currens. Please go ahead.

Thank you, Ruth. Good morning, everyone, and welcome to Duke Energy's fourth-quarter and full-year 2014 earnings review and business update. Leading our call is Lynn Good, President and CEO, along with Steve Young, Executive Vice President and Chief Financial Officer.

Today's discussion will include forward-looking information in the use of non-GAAP financial measures. Slide 2 presents the Safe Harbor statement which accompanies our presentation materials. A reconciliation of non-GAAP financial measures can be found on our website at Duke-Energy.com and in today's materials.

Please note that the appendix to today's presentation includes supplemental information and additional disclosures to help you analyze the Company's performance and our financial forecast.

As listed on slide 3, Lynn will begin with a review of our key 2014 activities, as well as an update on our strategic initiatives within the commercial businesses. Then Steve will review our 2014 financial results, present our 2015 financial plan, and discuss our longer-term adjusted earnings growth expectations.

Before I turn it over to Lynn, let me take a brief moment to give you a staffing update on the Duke IR team. It is with mixed emotions that I announce this is Beau Pratt's last earnings call. After three years in Investor Relations, Beau will be moving to new responsibilities within our finance organization.

This is a great move for Beau and for Duke Energy, but I will sorely miss Beau's knowledge, tireless passion for excellence, as well as his endless smile. Beau, thank you for all you have done in helping us advance our mission to continually provide a high level of service to the investment community.

With that, I will turn the call over to Lynn.

Good morning, everyone, and thanks for joining us. In 2014, we built upon the momentum we created in 2013, celebrating key milestones and addressing challenges. We continued building our financial track record, achieving our adjusted earnings guidance range and increasing our important dividend payment to shareholders.

We announced several growth initiatives that will position the Company for the future, and completed our strategic review of the international business. In August we entered into a sale agreement with Dynegy for our commercial Midwest generation portfolio. We also advanced our coal ash management practices and as I will discuss in a moment, we are close to an agreement with the government to resolve the ongoing grand jury investigation into our coal ash basin management.

Today we initiated our 2015 adjusted EPS guidance range of $4.55 to $4.75, and also extended our long-term adjusted earnings per share growth objective of 4% to 6% through 2017. This guidance reflects strong growth in our regulated utilities, offset by near-term headwinds from foreign exchange rates and oil prices in our international business. Steve will provide further details about our financial plan in a few minutes.

Let me review a few operational highlights outlined on slide 4, including our progress on ash basin closure strategies and Edwardsport. Our fleet and grid performed well during 2014, especially during the demands of the polar vortex last winter. Our regulated nuclear fleet set a new net generation record and achieved an annual capacity factor of 93%, the 16th consecutive year above 90%.

We continue to deliver significant benefits from the 2012 merger, and we are on track to achieve the $687 million of savings for our Carolinas customers over the first five years of the merger. In fact, two-and-a-half years into the merger, we have generated over 60% of the guaranteed fuel and joint dispatch savings.

We also learned from the challenges of the Dan River coal ash spill. We used this event as a catalyst to strengthen our ash management practices and to accelerate our base enclosure strategies, positioning us well for compliance with both the North Carolina and federal CCR requirements.

We are currently in settlement discussions with the US government related to the ongoing federal grand jury investigation of the February 2014 Dan River coal ash spill and ash basin operations at other North Carolina coal plants. We expect a proposed agreement could be reached and filed in the next several days for consideration by the Court.

If approved, any proposed agreement would resolve the ongoing grand jury investigation of the Company's coal ash basin management. Based upon our assessment of probable financial exposure related to any agreement, we have recognized a charge of approximately $100 million or $0.14 per share in the fourth quarter of 2014.

This charge has been recognized as a special item and, therefore, excluded from our adjusted earnings per share. As the investigation and our discussions are ongoing, I will not be able to comment further on this matter. We will keep you updated as we have further information to share.

In last year's session, North Carolina enacted legislation which requires the Company to close all ash basins in the state beginning with four high-priority sites: Dan River, Asheville, Riverbend, and Sutton. We have also submitted plans with South Carolina regulators to excavate ash from basins at our retired W.S. Lee steam station.

Our five-year financial plan through 2019 includes $1.3 billion of estimated costs to excavate and close these five sites. As our planning progresses, our capital plans will be updated. We expect to provide cost estimates to close the remaining basins once site-specific closure plans and time frames are approved by the Coal Ash Commission by early 2016.

Under the EPA's new federal coal combustion residuals rule, science continues to support nonhazardous designation of coal ash as a waste. Due to our actions over the past year, we have already performed a lot of the initial work and assessments needed to begin establishing closure plans under the new federal rules.

As the federal rule is currently written, there are some inconsistencies with the requirements under the new law in North Carolina, primarily with ash base enclosure time frames. Ultimately, we will adjust our existing ash management plans as necessary to comply with all state and federal regulations.

As one of the cleanest generating stations in the world, our Edwardsport plant in Indiana is an example of how we are reducing emissions across our system. Edwardsport continued on its path of improved operations during 2014, achieving gasifier availability factors of between 70% and 75% in the second and third quarters. An extended planned outage in the fourth quarter impacted results.

The impact -- or the plant, which began commercial operation in June of 2013, also achieved substantial completion under the contract with General Electric in December.

On the regulatory front, the Indiana Commission held hearings IGCC-12 and -13 semiannual riders earlier this month. Intervenors have challenged the in-service determination in the plant's early months of performance. Orders are expected midyear for these proceedings.

Edwardsport is well positioned to be a valuable resource for our Indiana customers for decades to come.

I will also highlight the performance of our commercial renewables portfolio in 2014. This business exceeded its financial target of $50 million in net income for the year and invested over $500 million in new wind and solar projects. Since its inception in 2007, we have invested over $4 billion in this business and will have over 2000 megawatts of wind and solar generation in service by the end of this year.

With our acquisition of a majority interest in REC Solar earlier this month, our commercial renewables business is expanding beyond its past focus on utility scale renewable projects to a broader array of products and services. This business will focus on development of distributed solar generation and energy solutions for the commercial sector.

REC Solar has more than 140 megawatts of solar generation already on customers' rooftops or under construction, and we expect growth in this business as we roll out solutions to commercial customers nationwide.

2014 was also an active and successful year in advancing our growth strategy. During the year we announced new growth initiatives representing a total investment of approximately $8 billion. These initiatives, including new generation and new gas and electric infrastructure, are summarized on slide 5.

Since our last call in November, a number of these initiatives achieved important milestones. First in Indiana, our plan to invest $1.9 billion in T&D infrastructure over seven years was filed under state legislation. Hearings were held last month and a decision is expected in mid-2015.

Next, our new generation investment in the Carolinas. In December we received FERC approval to purchase the North Carolina Eastern Municipal Power Agency's minority ownership in some of our existing nuclear and coal generations for $1.2 billion. We have also filed for approval from the Nuclear Regulatory Commission to transfer the nuclear licenses. The parties will work diligently to close the transaction as quickly as possible, with a target to close in late 2015 or early 2016.

We also continue to advance our regulated renewable strategy. In North Carolina we have seen strong growth in solar, supported by compliance with state renewable portfolio standards and state tax incentives. In fact, North Carolina currently ranks fourth in the nation measured by total installed solar capacity.

By the end of this year, we expect to own over 100 megawatts of solar generation in addition to a significant amount of PPAs where we purchase the output from other solar-generating units in the state. This growth will help us continue to comply with the state's growing solar requirements.

In South Carolina, we are laying the groundwork to develop solar generation for our customers that want that option. Just last week, we proposed several programs that will expand renewable options for South Carolina customers under recent legislation. The programs are expected to add up to 110 megawatts of solar energy by 2021, including more than 50 megawatts of utility scale solar.

Next, I will provide an update on our new generation investments in Florida. Last month we filed a petition with the Florida Commission to approve our $166 million acquisition of Calpine's 599 megawatt Osprey combined cycle plant. As part of the filing, we are also seeking approval for construction of the Suwannee peakers in the event that the acquisition of Osprey is not approved timely.

Finally, an update on infrastructure projects in our commercial business. On the gas infrastructure front, there is good progress on the Atlantic Coast pipeline joint venture, with Dominion, Piedmont, and AGL Resources. The utilities commissions in both North and South Carolina have approved our regulated subsidiaries entering into 20-year gas transportation agreements with the pipeline.

The project also requires FERC approval, which the joint venture will seek to secure by mid-2016. These important growth initiatives support our ability to continue providing our customers affordable, reliable energy from an increasingly diverse generation portfolio. These investments also provide a solid foundation for our long-term adjusted earnings growth rate of 4% to 6% through 2017.

As you will recall, last February we initiated a strategic review of our international operations, which today comprises about 10% of our overall business mix. We conducted a comprehensive review process that examined various options including exiting the business, growing the business on our own, and achieving scale and efficiencies through various partnerships and joint venture structures.

As a result of our review, at this time we believe it is in our shareholders' best interests for us to own, operate, and create value with the business. We are taking steps to access $2.7 billion of offshore cash associated with the historic earnings of the international business. We will also continue to optimize the value and efficiency of this business.

This valuable international cash helps support the robust growth investment portfolio in our domestic businesses, as well as the dividend. We will be disciplined with incremental international investments that meet our investment criteria and provide long-term value and growth.

Before turning the call over to Steve, let me update you on the sale of our nonregulated Midwest generation business as outlined on slide 7. In August we entered into an agreement to sell this business to Dynegy for $2.8 billion in cash. We had expected to close the transaction by the end of the first quarter of 2015.

However, in January FERC requested additional information, in particular further analysis of market power concentration. Parties to the transaction responded to FERC on February 6, and FERC has established a shortened comment period through February 23 on the updated application.

Separately, Dynegy entered into a settlement with the Independent Market Monitor, such that the IMM will not oppose the updated application. FERC approval is the final regulatory approval required to close. We expect to close the transaction by the end of the second quarter.

We expect to deploy the $2.8 billion of cash proceeds to recapitalize our business in a balanced manner, a combination of an accelerated stock repurchase and debt reduction through the avoidance of holding company debt issuances. We will maintain flexibility with this plan based on the circumstances at the time of closing.

We are committed to maximizing shareholder value, and this transaction with Dynegy is expected to be accretive to our adjusted EPS in the first 12 month after closing.

In thinking back on 2014 and looking forward to the year ahead of us, I am proud of the team at Duke. We are advancing our strategic growth initiatives, maintaining a sharp focus on financial discipline, and pursuing excellence in operations and customer service. We are focused on growing and adapting as we position the Company for a changing future, and to continue meeting our 24 by 7 obligations to our customers, communities, and investors. I look forward to reporting on our progress during 2015.

Now I will turn the call over to Steve to provide a financial update.

Thanks, Lynn. Today I will review our full-year 2014 results and discuss the economic conditions within our service territories, including customer volume trends. I will conclude with our financial plan for 2015 and our longer-term adjusted earnings growth expectations.

Let's start with 2014 results, as outlined on slide 8. My comments are focused on the year-to-date results versus our original plan for the year. For more detailed information on variances versus last year, please refer to the supporting materials that accompany today's press release.

We achieved 2014 adjusted diluted earnings per share of $4.55, within our revised guidance range of $4.50 to $4.65. On a reported basis, 2014 earnings per share were $2.66 compared to $3.76 last year. The difference between reported and adjusted earnings per share for 2014 is primarily driven by three items: approximately $930 million of pretax impairments taken on the Midwest generation fleet, a $373 million tax charge recognized this quarter associated with our plans to return cash from international, and an approximate $100 million charge related to potential financial exposure to resolve the ongoing federal grand jury investigation.

Overall, I am pleased with our ability to achieve our revised guidance range for 2014, despite facing some challenges throughout the year. Our regulated businesses exceeded their 2014 plan by about $40 million, due to favorable weather partially offset by emerging costs, for winter storm restoration, coal ash-related activities. Absent these costs, O&M regulated utilities would have been slightly lower than 2013.

The commercial power segment fell slightly short of plan for the year, largely due to higher purchased power costs to our competitive retail business during the first quarter's polar vortex, and outages at the Midwest generation fleet. This decline was partially offset by the renewables business, which delivered around $60 million of net income, above our expectations for the year.

International's results were in line with our expectations. Higher earnings in Chile resulting from a one-time tax benefit were substantially offset by unfavorable hydrology in Brazil.

Before moving on, I will touch on our strategic decision at international. As Lynn mentioned, our international strategic review resulted in a plan to allow us to efficiently use our offshore cash. Historically, our intent has been to permanently reinvest the undistributed earnings from our foreign operations in offshore investment opportunities.

As a result of this intent, we have not previously recognized US income taxes on these amounts. We only recognized foreign taxes. In the fourth quarter, we declared a taxable dividend of $2.7 billion in the form of notes payable related to historical undistributed earnings. This gives us the ability to use this cash in the US. As a result, we recognized a $373 million US income tax charge this quarter.

We expect to remit between $1.2 billion and $1.4 billion in 2015, with the remaining amount remitted by 2022. We currently have $1.7 billion of offshore cash.

Considering both the impact of this transaction and the one-year extension of bonus depreciation recently enacted by Congress, we do not expect to be a significant cash tax payer until the 2018 timeframe. Prospectively, cash generated from the international operations will mostly be used to pay off the notes of its parent, Duke Energy. The remainder will be reinvested in the international business.

As a result of these future uses of cash, we will not accrue any US income taxes on future earnings. Duke Energy's overall tax position presented us with a unique opportunity to implement this structure and use foreign tax credits, making it more tax efficient than it otherwise would have been.

Moving on to slide 9, I will now discuss our retail customer volume trends. For the full year, overall weather-normalized retail load growth was 0.6%, in line with our expectations for 2014. Excluding the impact of two large industrial customers that closed during the year in Eastern North Carolina, our weather-normal retail load growth would've been 0.8%.

Industrial and commercial growth have been stable over the past several years, as these classes have led the economic recovery. Both classes grew at 1% in 2014, led by the automotive, metals, chemicals, healthcare, and education subsectors.

Our economic development team played a key role in recruiting 85 new industrial and commercial projects to our service territories during the year. These projects represent $3.5 billion in capital investments and over 11,000 new jobs in our six-state service area. Notable companies included GE, Walmart, and Amazon.

Turning to the residential sector, over the last several years we have seen consistent acceleration in the growth of the number of customers in our service territories. This growth is now around 1%, with particular strength in the Carolinas and Florida.

However, offsetting this growth has been declining usage per customer trends. We believe this decline is due to several factors, including more energy-efficiency measures within residences and an increase in the number of apartments and condominiums as opposed to single-family homes. However, looking forward, there are positive signs in the residential sector.

Full-time employment in our states continues to improve. In 2014, 20% of the new jobs added in the US were in states served by Duke Energy. Additionally, the fourth quarter saw gains in median household income, as well as growth in housing starts in our service areas. Based on this data, in 2015 we are anticipating retail customer load growth between 0.5% and 1%.

As the economy continues to recover and consumers gain more confidence, we believe longer-term load growth trends should improve to about 1% annually.

Moving on to slide 10 and our adjusted earnings guidance range for 2015, which is between $4.55 and $4.75 per share. I will briefly touch on our primary assumptions for 2015, based upon achieving the midpoint of our guidance range for the year.

Let's start with the key drivers at regulated utilities, which is expected to deliver around $0.07 of additional earnings per share in 2015 over 2014. Significant drivers include retail load growth of between 0.5% and 1%, additional wholesale earnings as a result of new contracts, earnings through riders or AFUDC on our regulated investments; and finally, our continued focus on maintaining an efficient cost structure.

Our commercial power segment is expected to contribute increased earnings per share of approximately $0.11 in 2015. First, our renewables business continues to grow with around 375 megawatts of new wind and solar generation set to come online in 2015. We expect renewables to contribute around $100 million in net income during 2015. And our adjusted earnings will continue to include the Midwest generation fleet until the Dynegy sale closes, which we assume will be by the end of the second quarter.

The use of proceeds from the sale of the Midwest generation fleet is expected to provide a $0.05 earnings uplift in 2015. These growth drivers are being partially offset by weakness at international, as we expect segment earnings per share to decrease by approximately $0.12 during the year.

The decline is largely due to three factors. One, declining earnings contributions from our interest in national methanol, which sells products that are correlated to crude oil prices. Our plan assumes a $65 per barrel Brent crude oil price for the year.

Two, the impacts of foreign exchange rates as we expect the US dollar to continue strengthening against the Brazilian real. And three, the prior-year Chilean tax benefit, which will not recur.

Our 2015 assumptions for international assume normal hydrology in Brazil. Even though the rainy season has started slow, it's too early to speculate on the likelihood of rationing this year. If hydrology is unfavorable, or worse, rationing is implemented in Brazil, it would have an unfavorable impact on our financial results for the year.

The midpoint of our 2015 guidance range falls slightly below the bottom of our 4% to 6% long-term adjusted diluted EPS objective, primarily due to the weakness I just discussed at international. In particular, national methanol and foreign exchange rates are driving an approximate $0.12 year-over-year decline.

Additionally, the recent decision to extend bonus depreciation through 2014 causes our net operating loss position for tax purposes to extend into 2015. This NOL precludes us from taking the full manufacturer's deduction in 2015, resulting in an unfavorable $0.03 impact to our earnings projection for 2015.

We also have a wider guidance range than normal, $0.20 versus $0.15. This range covers additional uncertainty due to the volatility in crude oil prices, foreign exchange rates, and the timing of closing the Midwest generation sale to Dynegy.

As I will discuss in a moment, the post-2015 growth profile is very promising, and we continue to project the longer-term adjusted diluted EPS growth objective of 4% to 6% through 2017.

Slide 11 shows our high-level 2015 cash flows and financing plan. In addition to cash flows from our normal operations, our decision to repatriate cash from international and the anticipated sale of our Midwest generation business is expected to provide significant cash flows this year. We expect to quickly put this cash to work in support of our financial objectives through a balanced recapitalization.

Our planning assumption is a split of 50% debt retirements at the holding company and 50% for the accelerated share repurchase. Our plans could change based upon circumstances at closing.

The financing plan supports our dividend, strong balance sheet, and credit quality. We do not foresee the need for equity issuances through 2017.

Let's shift now to slide 12 and our longer-term adjusted earnings-per-share growth objective of 4% to 6%, which we are extending through 2017. This long-term growth objective is anchored to the midpoint of our 2013 adjusted earnings guidance range, or $4.32 per share. We experienced 5% growth from this space in 2014, which was driven in part by implementation of revised customer rates in the Carolinas and Midwest.

Let me explain the primary drivers of our 4% to 6% growth over the next three years. I will start with regulated utilities. We do not anticipate any base rate cases through 2017. Our growth is expected to be supported by retail and wholesale load growth and significant investments.

First, retail load growth provides additional earnings out of the existing investment base, in particular in between rate cases. As a rule of thumb, 0.5% to 1% of annual load growth provides roughly 1% to 2% earnings growth.

Second, our regulated wholesale business will grow significantly in 2015, as we enter new contracts and our existing contracts grow. We expect $0.10 of growth in 2015, on top of the $0.06 we gained in 2014.

Third, we expect to invest between $4 billion and $5 billion annually in growth projects in the regulated business. Although we do not project a need for rate cases, many of these investments will be recovered through riders such as transmission and distribution expenditures in Indiana and Ohio, as well as the Crystal River 3 rider in Florida and energy efficiency riders in the Carolinas.

We will accrue AFUDC during construction period for large investments that do not get incorporated into rates or riders before 2018, such as the Lee project in the Carolinas, Citrus County project in Florida, Fukushima-related nuclear investments, and environmental projects. Additionally, the acquisition of assets from NCEMPA and the related wholesale power contract will add earnings starting in 2016.

In our commercial renewables business, we expect to continue growing our portfolio of wind and solar generation, deploying around $1 billion to $2 billion over the next three years. Additionally, investments in the Atlantic Coast pipeline will add about $1 billion of capital through 2017.

The balance recapitalization plan using Midwest generation's sale proceeds is also expected to be accretive to our long-term adjusted earnings per share growth.

Finally, our international business. We expect the strength in the US dollar to be a headwind through 2017. Our forecast assumed Brazilian reservoir levels will return to normal by 2017. It is also important to remember that we are projecting annual demand growth in Brazil of slightly above 2%. In national methanol, we do not expect the current level of depressed oil prices will persist into 2017.

Our ownership percentage of NMC is expected to decline from 25% to 17.5% in mid-2016. The core national methanol business remains strong, as it is one of the most efficient methanol production facilities in the world.

Next, let me briefly highlight the risk to our growth plan, both near- and long-term as I see them. We will continually monitor variability in retail load growth trends, in particular the residential class. Solid load growth is important to meeting our earnings targets.

Additionally, we will keep our eye on some of the variables at international, such as hydrology in Brazil, foreign exchange rates, and crude oil prices.

Finally, it will be important that we continue to manage our cost and realize efficiencies in the business. Even though our 4% to 6% earnings-per-share growth objective is through 2017, I want to give you a feel for some of the growth drivers we expect as we look into 2018 and 2019.

First, the new generation projects in Florida and the Carolinas are expected to be completed and move into rates either through riders or base rate adjustments. Additionally, we expect to continue investing around $4 billion in 2018 and 2019, in growth projects for new generation, T&D infrastructure and environmental compliance.

The Atlantic Coast pipeline is expected online in late 2018, and discretionary growth projects in our commercial renewables business will provide additional support to our growth.

Due to our size and scope, we will have different growth drivers at different times. Taken together, these drivers provide a solid foundation with continued growth over time.

Slide 13 outlines our financial objectives for 2015 and beyond. We have an established track record of achieving those objectives and have a strong plan in place to continue delivering attractive returns for our investors.

We have met or exceeded our earnings guidance range for five consecutive years. We have delivered on our overall long-term 4% to 6% adjusted diluted earnings-per-share growth objective since 2009. Today we announced our 2015 adjusted earnings guidance range of $4.55 to $4.75 per share, and we extended our long-term adjusted earnings growth objective of 4% to 6% through 2017.

We will continue to focus on the dividend, which is central to our investor value proposition. We have reliably paid a quarterly dividend to our shareholders for 89 years, and have grown the dividend for seven consecutive years. We currently pay $2.2 billion annually in dividends to our shareholders, within our targeted payout ratio between 65% and 70%.

With that, let's open the line for your questions.

(Operator Instructions) Dan Eggers, Credit Suisse.

Good morning, guys. Now that you've gotten through the review on the international assets and you have reiterated the 4% to 6% EPS growth target, how do we think about the balance of growth? Because I assume you guys are embedding little or no growth international, which means the domestic businesses are actually going to grow faster than 4% to 6%. Is that fair?

Dan, we continue to look for ways to invest capital. So you will find some growth capital in our expectations in international. But given the fact that it is roughly 10% of the business, you can expect greater growth, the lion's share of the growth coming from regulated.

The only other thing I would add to that is as I think about regulated earnings growth, it's not just the utilities. I think you put the pipeline into that category as well, a FERC regulated growth item that will show up in commercial but nonetheless, is important to the growth picture.

And then I guess kind of from a treatment from an earnings perspective from the international because you guys took the charge in the fourth quarter, there's going to be no change in realized tax rate even as you bring international earnings back to the US because I guess you guys front-end loaded the tax payment. Is that the right way to think about what you guys did?

Yes, that's correct. What we have done is recognize the income tax liability associated with historic earnings. Prospectively, we will not accrue any US income taxes, and we are projecting that our effective tax rate for 2015 will be about 32%.

Okay, just one last question. Just on the renewable investments, you had Dominion at their analyst day who said that they were going to keep investing for another year or two and then look to monetize those renewable businesses, given the fact the lower EPS contribution to asset deployed.

How does that fit to you guys' thoughts on investment in that business and the right fit for you relative to maybe some of these yieldco folks who can pay more for a similar set of assets?

You know, Dan, I think there are a couple of questions in there. One, our competitive positioning, and then what is the long-term strategic fit of renewables? We continue to see it as an important place for us to deploy capital. We see growth in that area. But like any element of our business, from time to time we will step back and see where it fits and how does it optimize value. But that is as far as I would go at this point.

Overall, we see renewables becoming an increasingly part of the generation portfolio, and we will continue deploying capital in a manner that creates the most value for our shareholders.

Great. Thank you, guys.

[Michael Weinstein,] UBS.

It's Julien, good morning. I wanted to perhaps follow up on Dan's question there, and kind of come back to the 4% to 6% for 2016 and 2017. Is that weighted towards 2017, or are you really think about a real pickup next year? If so, what are those drivers as you think about the domestic businesses? To what extent does capital deployment also drive some of that improvement, 2015 to 2016?

You know, Julien, I would point to guidance for 2015 and then the long-term growth rate of 4% to 6%. We've given you some visibility on what you're going to see in 2016, so we hope to close the Eastern Power Agency. We will begin showing earnings from other long-term capital deployment.

We have certain things that will occur on riders, so I think we have given you the pieces. We are not prepared to give specific guidance on 2016 today, but we feel like we have developed a pipeline that will drive growth into the future.

But to be specific here, is 2016 kind of the improvement, or ultimately you are not ready to say 2016 versus 2017 to get to that 4% to 6%?

I don't think we want to get into 2016 versus 2017 at this point. But what I would describe to you is that the growth portfolio is strong. We are projecting to be investing an average of $8 billion a year. 2014 was a relatively low capital year, and that's just the nature of the business in terms of the timing of the resources you need for your regulated businesses when you're closing deals.

We are looking at 2016 being nearly $10 billion of investment if you include the NCEMPA acquisition. And our rate base is growing, our regular rate base growing 6%. So it's hard to know exactly how that will manifest itself through rates, riders, AFUDC exactly, but the investment base is growing.

Great, and a small detail here. You said you expect that the Midwest transaction would close midyear. Is that a reflection on an any more bearish view on timing, or is it really kind of -- or could potentially be a little earlier than that?

Julien, It's a planning assumption. I think with the accelerated comment period that FERC put forward in the settlement that Dynegy has reached with the Market Monitor, we believe closing to occur more rapidly. But for planning assumptions, we put it into the second quarter and we will update as events unfold. It is difficult to predict with certainty FERC's timeline.

Great. Thank you and congrats, Beau.

Brian Chin, Bank of America.

Just to springboard off Julien and Dan's questions, for the recovery of the EPS trajectory back to 2016 from 2015, the way I took your prepared comments there is a little bit of a drag in 2015 on FX and oil. So is some bounceback on those assumed in the 2016 guidance, or is it your view that the growth portfolio is strong enough to account for an FX oil price environment that sort of perpetuates from 2015 onwards, and you still get back to the 4% to 6% trajectory?

Brian, what I would say, we will be closely watching oil prices. For example, we do not believe that the level we are at today will persist. In Steve's remarks, we said into 2017. We also are not projecting they persist into 2016 at this level either. So we have a combination of things in our portfolio that we think will come together.

But I think directing attention to the investments is important because that's going to be the most significant driver of growth over the long-term for the Company.

Great, thank you very much.

Jonathan Arnold, Deutsche Bank.

Good morning. Quick question, just so I understand what you have done on repatriation. You described it as a tax-efficient solution, but then you seem to be booking what I guess is a worst-case scenario on tax. What happens if there is some form of a tax holiday going forward? Will you then release some of this reserve? And because you have structured it as a note, does that effectively help with this? Could you just put some light on that comment?

Sure, let me give a little color to that. We booked roughly $370 million in the fourth quarter related to this, and that reflects a tax-efficient structure. We don't expect before 2016 any comprehensive tax legislation. There are various proposals that are kicked about. And in fact, President Obama's proposal talks about a 19% tax on repatriated earnings, which would be less efficient than what we put in place.

So I think we have maximized our ability to utilize foreign tax credits and taken advantage of our tax positioning pretty well with this structure.

Okay, so there's not a potential for it to improve, or is there? That's kind of my --.

Well, I think that we recognized the right liability based on our historic earnings, and it basically represents kind of a top-off tax between foreign tax amounts accrued and paid and the US tax rate. What is also unique here is that we will not be accruing any US income taxes prospectively, which helps us as well.

Okay, and then another topic on wholesale. I think I heard you say $0.10 of wholesale may come in 2015, on top of $0.06 in 2014. Does some of that carry forward into 2016 on a full-year basis, and just what you would think about 2016 and 2017 on the wholesale line?

As we move forward, 2014 and 2015 were big years where we stepped into wholesale contracts, so we saw some nice growth there. That will level out a bit after 2015. We will continue to see some growth in wholesale as our existing contracts grow and we step into some smaller ones. It won't be at the level that we have seen in 2014 and 2015.

Okay, great. Thank you, guys.

Michael Lapides, Goldman Sachs.

Congrats on a good year. Just a question on slide 23, and then kind of thinking about core growth in net income versus growth in EPS. Your regulated utility growth is about 2%, kind of as you outline on this slide. Commercial power has $90 million of kind of nonrecurring benefit in it in 2015, meaning that won't be there in 2016.

Just curious when you think about drivers of the 4% to 6% longer-term, how much of that is driven by just longer-term continued reductions in the share count? Or do you view this as kind of a one-time buyback that's being done now and then there's no more kind of major capital allocations outside of dividends on the equity side of the balance sheet going forward?

Michael, we are certainly going to use balance recapitalization to address the exit of the Midwest generation business. We think that is an appropriate utilization of proceeds, given where we are at this point.

I think what you can expect on regulated utilities is that growth will be lumpy at times, for lack of a more sophisticated word, because of capital deployment, rate cases and other things. So as you look at 2015, it's a no rate case year. And so we would expect growth to accelerate there around reflection of the earnings from the investments we are putting in place.

We also expect commercial will grow as we continue to put renewable investment to work and as the pipeline begins to show up. So I think we could talk through each of these individually, but there will be growth that shows up from deployment of investment. And this share repurchase we think is consistent with the exit of a business.

Okay, just to sanity check one thing on the pipeline; will you be booking AFUDC earnings during construction? So the earnings impact will actually happen before the pipeline goes in service?

Yes, that's correct. We will, Michael.

Got it. Thanks, guys. Much appreciated.

Chris Turnure, JPMorgan.

Good morning, Lynn and Steve. I just wanted to talk a little bit more about 2015 at the regulated utilities first. We've talked about it a lot so far, but just I would've expected a little bit more growth even without a rate case there, given the fact that you are getting the load growth and all of that wholesale growth even though weather normalization is going to hurt you.

And then you also mentioned a couple pennies of a tax hit as well. Is there anything else within 2015 specifically that we might be missing there?

I think typically, when you look at 2015 for the regulated utilities, you have got the organic load growth that we are looking at for retail, the wholesale. Those are pieces there. We should have some growth from riders in AFUDC as investments build. But again, 2014 was a low capital year, so we are just starting to build the tank on some of these larger investments such as the Lee Combined Cycle and the Citrus County.

So there may be a lag in some of that buildup that you see in 2015, relative to where we are going to be in 2016 and 2017. That may be a part of it there.

And then there's what we call rate lag, if you will, and that is O&M which we are trying to hold in check, and have had success doing that thus far. But there's always emergent costs that have to be dealt with. Then there is additional depreciation and interest on capital projects, smaller capital projects that go into service prior to a rate case.

So those are kind of the major components. And I think that one of the things you may be also factoring in is nuclear levelization, which impacts our O&M in an unusual fashion. We got a large benefit in 2013 from nuclear levelization as we started to levelize nuclear outage costs, and that has negative impacts in 2014 and 2015. After 2015, we will be through with that and it won't be a driver.

Okay. Then if we look at the drivers for the international segment for 2015, you do say that you are assuming normal hydrology throughout the balance of the year or the entire year overall. It doesn't look like that is much of a driver, though, in terms of EPS. We have the crude headwinds and the forex headwinds, but should we not be thinking about that helping earnings a lot this year?

Well, I think you have hit the major drivers, which are the FX and the crude for international. When you look at hydrology in Brazil, I think we are assuming normal hydrology. But I think even under normal hydrology, the thermals will be dispatched first throughout the year. That will put some constraints on our hydro-generation capabilities.

Our contract pricing does grow and those contacts are profitable, but given the thermal dispatching order even under normal hydrology coming out of two years of drought, that will constrict some of our ability to make sales into the spot market. So there's some offsetting things there in Brazil. I think you hit the big drivers for international with FX and oil pricing, though.

Okay, great. Thanks a lot.

(Operator Instructions) Ali Agha, SunTrust.

Thank you, good morning. Steve, in your 2015 guidance you gave us your assumptions for crude -- for oil price as well as the FX in Brazil. Can you remind us what the sensitivities are around that base assumption?

Yes. The 10% movement on the price of oil is in the neighborhood of $0.01 to $0.02. That is an annual basis.

$10.

$10 on the price of -- I'm thinking of oil always being around $100. And then a 10% movement on FX rates for the entire year is in the neighborhood of $0.03.

Okay, and then secondly for the NCEMPA acquisition, I see that you have assumed $0.05 to $0.10 of earnings. Why is there that $0.05 delta in that contribution? I would have thought it would be fairly set once you complete that acquisition.

Those are assumptions around financing basically. If it were financed entirely with cash, then you would be at the upper end of that range. If it were financed 50% at holdco debt, then you would be at the lower end of that range. So we are just incorporating some financing sensitivities there.

I see. Then lastly, Lynn, coming back to the international business, once you have brought that cash back in and you've managed it well that way, (technical difficulty) going forward (technical difficulty) oil price, what about what happens to hydro and the remaining out in Brazil with FX going?

There's still that variability out there. From an earnings perspective, I don't hear much about that it's going to grow like your regular business does. So strategically, would that still fit the profile that you're trying to create here with stable, visible, predictable earnings and dividend growth?

You know, Ali, I think you raise a good question, and certainly as we undertook the strategic review we were looking at both elements. We were looking at cash optimization and we were looking at growth. I think we came up with an outstanding solution around cash, and I think it is particularly timely when you think about the level of capital spending and projects we have identified in the domestic business. But we do have some near-term headwinds from a growth perspective.

The NMC investment was not a part of the strategic review. That is a joint venture that we are in until the latter part of the 2020s, and so we will continue to have some volatility around oil prices. I think the business in Latin America, we do have some foreign currency.

We have hydrology in the short term, but we believe that those markets represent strong markets over the long-term, and we will continue to look for ways we can optimize value out of that portfolio. I think stepping back from all of that, we should also recognize that this is only 10% of Duke's business.

Right, but we are done with the review. This is not something you will come back another year or two. I mean this was pretty comprehensive and we are done for now.

We are done for now.

Thank you.

Paul Patterson, Glenrock Associates.

Just a follow-up on the oil and currency expectations post-2015. As you know, the forward curve is sloping upward to begin with. So I was just wondering when you say that you don't expect them to stay at these low levels, are you talking about the forward curve in general?

In other words, do you have an expectation above the forward curve or -- (inaudible) for the most part right now -- or is this just -- you are just commenting on the fact that the forward curve goes up considerably in the next few years?

Yes, so we use the forward curves, Paul, to plan our business. We will, of course, look at sensitivities around that, but we do not have an independent market view.

Okay, great. Then with respect to the sale of the Dynegy, I think Julien was asking about this. If you guys were to sell it earlier, considerably earlier, would that have a material impact on 2015?

No, that would not have a material impact. You would lose some of the earnings from the Midwest gen from that period of time, the recapitalization benefits would kick in earlier, and the net of those two is immaterial.

Okay, that's it. The rest of my questions have been asked. Thanks a lot.

Andy Levi, Avon Capital.

Good morning. Just one clarification on the wholesale at the utilities, or really I guess at the Carolina utilities. How does that work in a rate case? Because you have your growth and then you said there was like growth in -- smaller growth in 2016 and 2017. But if you file a rate case in, let's say, North Carolina, is there some type of true-up? I'm just trying to remember.

There is not a true-up. Some of the mechanics I will explain. When you file a rate case, you will typically look at who are your firm customers, retail and wholesale, and you will allocate costs in that fashion. And then the states will set retail rates based upon those costs allocated to the retail customer load. So the existence of firm wholesale does impact base rate allocations.

On a prospective basis.

But prospectively. You don't go back and say, let's redo the allocations in the past.

Okay. So for like modeling purposes -- I'm just throwing out numbers -- let's say there was a $0.15 benefit over a two- or three-year period in between the rate cases. You don't lose that $0.15, but I guess it gets taken out on the retail side. So if you were going to have, I don't know, a $200 million rate increase, there's some type of adjustment on the retail side to compensate for the benefit on the wholesale side. Is that kind of the way to look at it?

Prospectively, that's a way to look at it, yes. You will reallocate costs based on your retail and wholesale customers, again, on a prospective basis.

Is there a way for us to figure that out, or that's too complicated for us?

You know, Andy, I think offline the IR team could talk you through that, but I think we're talking about something that is two or three years down the road and probably a better conversation as we get closer to the rate cases.

Great, okay. Thank you very much.

Okay, I want to thank all of you for joining the call today and for your interest in Duke Energy. I look forward to seeing many of you in March as we pursue and attend many of the conferences. So thanks again.

This does conclude today's conference call. Thank you for your participation. You may now disconnect.