Earnings Call Transcript - DUK Q3 2025

Operator, Operator

Hello, everyone, and thank you for joining us today for the Duke Energy Third Quarter 2025 Earnings Call. My name is Sammy, and I'll be coordinating your call today. I would now like to hand over to our host, Abby Motsinger, the Vice President of Investor Relations, to begin. Please go ahead, Abby.

Abby Motsinger, Vice President of Investor Relations

Thank you, Sammy, and good morning, everyone. Welcome to Duke Energy's Third Quarter 2025 Earnings Review and Business Update. Leading our call today is Harry Sideris, President and CEO, along with Brian Savoy, Executive Vice President and CFO. Today's discussion will include the use of non-GAAP financial measures and forward-looking information. Actual results may differ from forward-looking statements due to factors disclosed in today's materials and in Duke Energy's SEC filings. The appendix of today's presentation includes supplemental information, along with the reconciliation of non-GAAP financial measures. With that, let me turn the call over to Harry.

Harry Sideris, President and CEO

Thank you, Abby, and good morning, everyone. Today, we announced strong results for the third quarter with adjusted earnings per share of $1.81 compared to $1.62 last year, driven by continued growth in our electric utilities. We are well positioned for a solid finish to the year and are narrowing our full year guidance range to $6.25 to $6.35. I'm proud of how our teammates are executing our strategy, delivering value for our customers, communities, and shareholders every day while preparing our system to serve the growing energy needs of tomorrow. We approach 2026 with momentum as our company converts large-load economic development prospects into tangible projects with signed electric service agreements, and we are already turning dirt on projects to meet this load growth. We're carrying out an ambitious generation build that will add more than 13 gigawatts of capacity to our system in the next 5 years. With a maturing pipeline and concrete investment plans in place, we're reaffirming our long-term EPS growth rate of 5% to 7% through 2029 and have confidence we will earn the top half of the range beginning in 2028. Moving to Slide 5. As load growth materializes and we invest in modernizing our system, we expect our new 5-year capital plan to be between $95 billion and $105 billion, increasing the largest investment plan in the industry. The step-up is primarily related to investments in new generation that will drive earnings base growth of more than 8.5% through 2030. We will provide additional details on the updated capital and financing plan on our fourth quarter call in February. As the investment needs of our utilities accelerate, I want to underscore that customer value and affordability remain front and center. Our job is to address the needs of all customers from large industrial customers that are competing against the global market to residential customers that are managing their household budgets. This focus starts with cost management, which is a core competency for Duke Energy. We continue to leverage AI and pursue a technology-enabled industry-leading cost structure as we invest in our system. Other tools we are utilizing to keep rates as low as possible include the combination of Duke Energy Carolinas and Duke Energy Progress utilities, which, if approved, would save retail customers more than $1 billion through 2038. Storm cost securitization, which is expected to save customers in the Carolinas up to 18% on their bills compared to traditional recovery mechanisms. Energy tax credits, which collectively result in hundreds of millions of dollars in annual savings. And we're protecting existing customers through tariff structures and contract provisions for new large-load projects. These are just a few of the many solutions we employ to ensure our 10 million customers receive the service they count on at a fair price. We recognize that our work to provide affordable energy for customers is never done, but we are proud that average rate changes have paced below the rate of inflation over the last decade and that our rates are well below the national average. Turning to Slide 6. The majority of our capital plan increase relates to our record generation build, which is hitting a new gear. Last month, we filed our updated Carolinas resource plan in North Carolina, which expands upon the previous filing approved by regulators in 2024 and presents an updated path to continue to meet the needs of our customers reliably and affordably. The plan maintains an all-of-the-above strategy and supports the work already underway to meet near-term growth. Importantly, the updated IRP results in annual customer bill impacts of approximately 2% over the coming decade, below the rate of inflation and significantly lower than the previously approved plan. The roadmap we laid out isn't just a long-term view. We're actively executing on generation build today. We're on track to add more than 8.5 gigawatts of new dispatchable generation across our service territories over the next 5 years. This includes over 1 gigawatt of upgrades to maximize the value of our existing fleet and 7.5 gigawatts of new natural gas. In the Carolinas, we have secured all major permit approvals, gas supply, long lead equipment, and workforce contracts for our Person County combined cycle units and construction has commenced at the site. We also recently filed CPCNs for the Anderson County combined cycle and Smith combustion turbine projects. We expect approvals on both these sites in mid-2026. In Indiana, we appreciate the commission's recent approval of our CPCN for the Cayuga combined cycle gas units, a critical project to meet the state's growing power needs. The order approved 2 settlements reached in the case as well as semiannual CWIP recovery through a rider. This recovery mechanism will support the balance sheet through the construction cycle and reduce overall cost to the customers. All of the work underway today will enable us to continue to serve our customers reliably and affordably into the future. Beyond supplying power, these grid and generation investments deliver significant value to our communities. In September, we partnered with E&Y to estimate the economic impact of our investment plan. The 10-year capital plan we laid out in February will equate to over $370 billion in economic output, including approximately $130 billion in labor income and will contribute more than $200 billion to the GDP for the communities we serve. The investment will also support nearly 170,000 jobs annually. We are privileged to be a critical economic driver of the communities we serve, and we look forward to growing together in the decades to come. In closing, the fundamentals of our business are the strongest they've ever been. We're powering tremendous growth across the Southeast and Midwest with solid plans based on concrete projects that provide a durable runway of investment well into the future. We're meeting our financial and strategic objectives while continuing our focus on operational excellence, and I am confident the tailwinds we see will continue to strengthen. With that, let me turn the call over to Brian.

Brian Savoy, Executive Vice President and CFO

Thanks, Harry, and good morning, everyone. As shown on Slide 7, we continue to build on the momentum from the first half of the year with reported and adjusted earnings per share of $1.81 in the third quarter. This represents over 11% growth versus adjusted earnings per share of $1.62 last year, putting us firmly on track to deliver the targeted growth in 2025. Within the segments, Electric Utilities and Infrastructure was up $0.24, driven by higher retail sales volumes and the implementation of new rates across many of our jurisdictions. Weather was above normal in the quarter, but not as favorable as the prior year, and interest expense increased as we execute our growing investment plans. Gas Utilities and Infrastructure results were largely flat to last year, consistent with the seasonality of the LDC business. And finally, the Other segment was down $0.04, primarily due to higher interest expense. As we think about the remainder of the year, recall that we have a demonstrated track record of managing agility in both directions. In the fourth quarter of last year, we implemented an extensive one-time cost savings and agility measures in response to the historic 2024 storm season. In contrast, our strong year-to-date results in 2025, including favorable weather, provide an opportunity to reinvest in the system. With these fourth quarter considerations and year-to-date performance in mind, we are highly confident in achieving our narrowed EPS guidance range of $6.25 to $6.35. Looking ahead to 2026 growth drivers on Slide 8, we expect the constructive regulatory outcomes that are driving 2025 results to continue next year. We are progressing through our multiyear rate plans in North Carolina and Florida, and we'll implement Phase 2 of the Indiana rate case in March. Midwest and Florida grid riders will continue to provide steady growth. We also expect new rates in South Carolina to be effective in the first quarter of 2026. We were pleased to reach constructive settlements last week with the ORS and other intervenors in our DEP rate case. The settlements, which are subject to commission approval, are based on a 9.99% ROE and 53% equity ratio and resolve all open items in the case. Our DEC South Carolina rate case continues to progress as well, and we expect final orders in both cases by year-end. I'd also like to highlight that in North Carolina, we provided 30-day notice of our plans to file rate cases for both DEC and DEP later this month. We expect new rates to be effective in early 2027, and we'll provide additional details once the filings are made. As we move through the remainder of the decade, our long-term earnings growth is underpinned by our attractive jurisdictions, which are benefiting from population migration and growing economies. These tailwinds provide an extensive runway of capital deployment opportunities, which drive steady and increasing rate base growth. With solid business environments and efficient recovery mechanisms in place, we are well positioned to deliver 5% to 7% earnings growth through 2029 with confidence to earn in the top half of the range beginning in 2028. Turning to Slide 9. One of our strategic priorities is to solidify our late-stage economic development pipeline and convert prospects into firm projects. We've been working closely with state and local partners to deliver on that commitment. Internally, we've developed new teams dedicated to speed and execution and implemented creative solutions that accelerate the time to power. These efforts are yielding tangible results with approximately 3 gigawatts of signed electric service agreements with data centers this year alone. This includes ESAs signed this quarter with Digital Realty and Edged, who are making multibillion-dollar investments in North Carolina to support AI infrastructure. And we're not just signing data centers. Our economic development activities have yielded over $11 billion of capital commitments from other commercial and industrial customers in 2025. These projects are expected to bring an additional 25,000 jobs to our service territories and support our load growth projections. In a rapidly changing external environment where affordability is paramount, I want to emphasize that our electric service agreements contain terms that protect our existing customer base and ensure new large-load projects pay their fair share. Terms include minimum-take provisions, termination charges, and refundable capital advances. As a testament to our work delivering on this wave of economic development, in September, we were recognized with EEI's Outstanding Customer Engagement Award. This award is given directly by corporate customers and highlights our ability to collaborate among broad stakeholder groups on complex projects. And we are just getting started. Active site evaluations are progressing across all of our service territories, and many more projects are moving to advanced stage. As our economic development pipeline has matured over the past year, we are more confident than ever in our ability to capture the once-in-a-generation load growth opportunity in front of us. Turning to the balance sheet on Slide 10. I first want to recognize the work of our regulators and other stakeholders to address cost recovery from last year's historic storm season in record time. With their support, we were able to successfully issue North Carolina storm securitization bonds approximately 1 year after Hurricane Helene, and we expect to issue South Carolina bonds before year-end. Securitization is one of the many tools available to help mitigate rate increases for customers with the North Carolina bonds projected to save customers up to 18% compared to traditional recovery methods. And in Florida, $1.1 billion of storm costs will be fully recovered by February 2026. As a result, bills are expected to decrease by approximately $40 a month beginning in March. Across all 3 jurisdictions, the timely recovery process helps maintain credit quality and reinforces our expectation of achieving 14% or higher FFO to debt by year-end. As discussed on the second quarter call, we are targeting 15% FFO to debt over the long term, which provides 200 basis points of cushion above our Moody's downgrade threshold and 300 basis points above our S&P downgrade threshold. Our balance sheet will continue to improve as we receive proceeds from the Tennessee and Florida transactions, which we expect to close in early 2026. As Harry discussed earlier, we expect our new 5-year capital plan to be between $95 billion and $105 billion. Consistent with previous guidance, we'll target 30% to 50% equity funding for this incremental growth capital. Transaction proceeds will satisfy equity needs in 2026 and remaining common equity issuances to support growth represent a very modest percentage of our market cap and will help maintain credit quality during this period of unprecedented capital deployment. We will provide more detail on our capital and financing plan on our fourth quarter call in February. Moving to Slide 11. We are well positioned to deliver earnings within our narrowed guidance range in 2025 as well as 5% to 7% growth through 2029. As load growth and capital accelerate, we have confidence we will earn in the top half of the range beginning in 2028. Our extensive runway of capital investments, coupled with efficient recovery mechanisms position us to achieve our growth targets, which combined with our attractive dividend yield, provide a compelling risk-adjusted return for shareholders. With that, we'll open the line for your questions.

Operator, Operator

Our first question comes from Julien Dumoulin-Smith from Jefferies.

Julien Dumoulin-Smith, Analyst

I appreciate it. Nicely done today. Appreciate the extra details versus your traditional cadence.

Harry Sideris, President and CEO

Julien, thank you.

Julien Dumoulin-Smith, Analyst

Absolutely. To start off, could you discuss the incremental capital you are considering? I understand it's still a range, but how do you see that being integrated over time? Is it something that will be consistent throughout the period, or does the final year of 2030 indicate a more significant increase compared to 2028 and 2029? For example, the increase from $87 billion by an additional $10 billion could be spread evenly across the forecast or could be more concentrated in that last year. You haven't provided all the details yet, but I'm interested in how you view the timeline of the data center ramp. Is it genuinely leaning towards that final year? Can you elaborate on that?

Brian Savoy, Executive Vice President and CFO

Yes, I'll take that, Julien. The way I would think about it, as we're signing up these large-load customers, we have more visibility into the infrastructure build we need to make to serve them. And this update in the capital plan has that, plus as we get deeper into the energy modernization strategy, we're investing more. So we knew 2030 was going to be higher than 2025 rolling off. But I would think of it as we're adding capital in every year of the plan, and it's to build to that ramp of these large customers as we get more firm contracts signed and more visibility into the infrastructure needs of those customers.

Harry Sideris, President and CEO

And I would add, Julien, it's a very dynamic environment out there. And you saw us raise from $83 billion to $87 billion earlier this year with the Brookfield deal in Florida. And then you're seeing our capital expand here because of what we're seeing in data center growth and economic development as well as our modernization that Brian mentioned. So we'll continue to evaluate and update as we move.

Julien Dumoulin-Smith, Analyst

I know it is truly unusual for you guys to update twice in a given year outside of your typical cadence of 4Q. So I hear you on that one. Can you speak a little bit more to what that incremental potential is by this roughly $10 billion? Like what's comprised within that? Is that principally just transmission and generation for new data centers? Or are there other pieces in there?

Brian Savoy, Executive Vice President and CFO

No, Julien, it's more than that, but it does include that. As we enter into more energy service agreements, that will prompt us to invest further in transmission and possibly generation as part of this five-year plan. We are also looking into local distribution company investments that could facilitate the new generation at our Piedmont Natural Gas Company. We are considering all those investments, along with the array of transmission and distribution investments we have yet to implement. We are assessing all these aspects, including customer affordability, as we work on finalizing our capital plan. That is why we did not present a single point estimate this time; we are still running our models and reviewing rate cases over time and how they might materialize.

Harry Sideris, President and CEO

Julien, we will provide more details in February, as we usually do, regarding the financing plan and its specifics.

Julien Dumoulin-Smith, Analyst

Right. But needless to say, you've been pretty committed to the balance sheet, you think the FFO to debt, regardless of where this lands, you're going to stick with this updated level pro forma for what you did with debt for earlier this year.

Harry Sideris, President and CEO

Absolutely. We are committed to 15% FFO over time, and we're on target to be over 14% this year as committed.

Julien Dumoulin-Smith, Analyst

Yes. Excellent. All righty, I will leave it there.

Brian Savoy, Executive Vice President and CFO

Appreciate it, Julien.

Harry Sideris, President and CEO

Thank you.

Operator, Operator

Our next question comes from Carly Davenport from Goldman Sachs.

Carly Davenport, Analyst

I guess maybe just on the Carolinas IRP, you have included an option for nuclear there, including an AP1000 starting in potentially 2037. I guess, just with some of the announcements that we've seen across the broader nuclear space recently, just curious how you might envision Duke playing a role in this build-out, particularly as an operator?

Harry Sideris, President and CEO

Yes. Great question, Carly. As you know, we operate 11 low-cost, safe, reliable nuclear reactors today. So nuclear is a big part of our business. It makes sure that our customers get reliable and affordable power every day. We earn over $500 million of tax credits a year that go back to our customers from these nuclear plants. So we feel nuclear is a very important part of the future. With that said, there's a lot of things that we have to determine and figure out before we move forward. We're encouraged to see the government and some of the partnerships with Westinghouse that were recently announced leaning into this and addressing supply chain concerns, which is one of the items that we have on our list. We still need to figure out what we're going to do with cost overrun protection and how we're going to protect our investors and our customers from overruns on those projects as well as how we're going to protect the balance sheet if we move forward with nuclear. So we're working to resolve those, working with government officials as well as some of the tech customers. So we'll continue to work that. If you remember last year, our IRP had only SMRs in it. We were asked by the North Carolina Commission to explore light water reactors as well. So we filed a report this past March to show what it would take or what would be an AP1000-type project. So we've added that into our plans in our model, and we'll continue to evaluate both of those SMRs as well as large water reactors. But again, nothing going forward until we have those other items resolved.

Carly Davenport, Analyst

Very clear. Okay. Great. And then maybe just another on Carolinas resource planning. As you laid out the updated plan, the share of gas stayed pretty consistent with the prior plan. I guess, would you expect that to move higher to the extent that there's expanded natural gas pipeline capacity into the Southeast? And would something like the MVP Boost project potentially be a needle mover there?

Harry Sideris, President and CEO

Yes. There's a lot of gas in that plan as well as a lot of batteries in solar. So we continue our all-of-the-above strategy in how we serve our load going forward. We've done a lot of work to secure gas through the early part of 2030, and we continue to work on beyond that. We do expect, as economic development growth continues, we will need more gas and more pipelines and are working with the companies to provide that. So we'll continue to update the process and the progress on that. We feel like dispatchable power is critical to serve these new loads and gas is the source that we're focused on right now.

Brian Savoy, Executive Vice President and CFO

Thank you.

Operator, Operator

Our next question comes from Shar Pourreza from Wells Fargo.

Alexander Calvert, Analyst

It's actually Alex on for Shar. So I just wanted to touch on the earnings outlook. So you've indicated you expect to be at the high end of the 5% to 7% starting in '28. Just sort of want to get a sense, is there any potential for that growth to begin ramping sooner? And if you can just remind us what drives the delta between the 5% to 7% EPS growth and that 8%, 8.5% rate base growth you have out there?

Brian Savoy, Executive Vice President and CFO

That's a great question, Alex. We are making incremental investments, expanding our capital plans, and signing up more customers. Each year, we aim for growth within the 5% to 7% range. However, 2028 represents a turning point as we increase our investments in Florida. We'll finalize the multiyear rate plan, and the transaction with Brookfield will close. We've discussed our plans to enhance capital in Florida during this timeframe. Additionally, many of the large-load customers we are currently signing are approaching the completion of their construction projects, which are expected to be finalized in the latter half of 2027. This ramp-up will start, but it hits a critical point in 2028 and continues to grow into the early 2030s. This trajectory gives us strong confidence that we will be in the upper half of the growth range in 2028. It's important to note that the growth is robust, and I would consider it a compound annual growth rate in the upper half for 2028 based on a 2025 starting point of 6.30%, rather than just annual growth.

Alexander Calvert, Analyst

Got it. Okay. That's helpful there.

Harry Sideris, President and CEO

We believe it is sustainable beyond that and see the prospects continuing. Therefore, we consider this a long-term opportunity for us.

Alexander Calvert, Analyst

Great. I understand. Regarding the funding, you still have a significant amount of equity available. You have made good deals in Tennessee and Florida that have been beneficial. Are there other opportunities for asset recycling, or should we expect to see equity and similar instruments in the future?

Harry Sideris, President and CEO

Yes, Alex. Our focus is on digesting those 2 big deals that we announced earlier this year, and then we'll continue to fund like we've mentioned before, 30% to 50% of our plan with equity depending on the projects. We'll update the details of that in February, as we always do. But we're committed to protecting the balance sheet, meeting that 15% FFO that we committed to and being above 14% this year.

Operator, Operator

Our next question comes from Jeremy Tonet from JPMorgan.

Diana Niles, Analyst

This is Diana Niles on for Jeremy. If I may expand on Alex's first question, I was wondering, to what extent does that high end of 5% to 7% reflects incremental capital? And does any of that incremental capital factor into like the confidence you expressed today to hit the high end of the range starting in 2028?

Brian Savoy, Executive Vice President and CFO

This is Brian, and I’ll address that. Considering the upper end of our growth range for early 2028, I believe it aligns with the capital range we mentioned, which is between $95 billion and $105 billion. It does not rely on us being at the high end, nor would it be significantly lower if we were at the low end. All these scenarios have been taken into account.

Operator, Operator

Our next question comes from David Paz from Wolfe Research.

David Paz, Analyst

Could you remind me what the advanced pipeline looks like for large-load? And how much of that would you say is in advanced discussions that could be added to the 3 gigawatts of ESAs you signed this year?

Harry Sideris, President and CEO

Yes. Good to hear from you. We have a very large and diverse pipeline of projects. I would say ours is just as big, if not bigger than anybody else's out there. But really, our focus has been on the projects that are from the credible hyperscalers as well as third-party developers that we feel like have the ability to get these projects through fruition. So we're working with them to get through the queue to get through the funnel as we call it, to be able to have these signed ESAs. So we signed in the last 6 months, 3 gigawatts of ESAs, as we mentioned in our presentation, and we continue to work with many others on that. So really focused on nailing down those energy service agreements because that's what we feel is the right focus for us. So we're working through a large pipeline, but really focused on developing those prospects into those final projects.

David Paz, Analyst

Okay. So you don't want to discuss how many near-term advanced discussions could lead to agreements being signed over the next year or so?

Harry Sideris, President and CEO

It's a very dynamic environment, David, and we continue to work on it every day, and we have a dedicated team, like Brian mentioned earlier, that is focused on this 24/7 of how we get this into our system and into these signed agreements as fast as possible.

David Paz, Analyst

Got it. Okay. No, I appreciate that. And sorry to kind of go back to the EPS growth commentary. I just want to make sure I understood what you added, I think, at the end of the durability of this growth starting in '28, so the upper half of your 5% to 7% beginning in 2028, and that's durable into the 30s at that same level off of the, I guess, '27. Is that the way to think about it?

Harry Sideris, President and CEO

Yes, that's a good assumption. As these economic development projects come into play and we continue to invest in our system, we see that being a durable approach.

Operator, Operator

Our next question comes from Nicholas Campanella from Barclays.

Nicholas Campanella, Analyst

I got on late, so sorry if I'm repeating a question. I really just had one was just the 30% to 50% of equity funding to fund the capital upside, what would kind of put you in the lower end of that range? And what should we be watching there from the balance sheet side that could enable you to do less equity?

Brian Savoy, Executive Vice President and CFO

Yes, it's a great question. We provided this range in previous quarters, which has guided how we funded the capital plan in the current five-year plan. The lower end of the range would be influenced by investments that have a quicker recovery. These investments require less equity over time compared to those with slower recovery, which might take longer to be integrated into the rider mechanism, potentially necessitating more balance sheet support. In the last update, we noted that 40% of the additional growth capital was funded with common equity or equity support. I would consider the faster recovery investments to be at the lower end and the slower recovery investments to be closer to 50%.

Operator, Operator

We currently have no further questions. So I'd like to hand back to Harry for some closing remarks.

Harry Sideris, President and CEO

Yes. Just to wrap up, I want to leave you all with 3 items. Number one, we see a lot of momentum into the end of this year and into '26 and beyond. Two, our business is in the strongest position it has ever been. And finally, I am confident we are going to earn in the top half of our 5% to 7% range beginning in '28. But more importantly, our plan is durable well into the future. So again, thanks for joining us today, and thank you for your investment in Duke Energy. I hope everybody has a great day.

Operator, Operator

That concludes today's call. We thank everyone for joining. You may now disconnect your lines.