Duke Energy Corporation (DUK)

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Duke Energy (DUK)

Q4 2010 Earnings Call

February 17, 2011 10:00 am ET

Executives

Lynn Good - Chief Financial Officer and Group Executive Officer

Stephen De May - Head of Investor Relations, Senior Vice President and Treasurer

James Rogers - Chairman, Chief Executive Officer and President

Analysts

Michael Lapides - Goldman Sachs Group Inc.

Greg Gordon - Morgan Stanley

Dan Eggers - Crédit Suisse AG

Jonathan Arnold - Deutsche Bank AG

Leslie Rich - Columbia Management

Steven Fleishman - BofA Merrill Lynch

Brian Chin - Citigroup Inc

Presentation

Operator

Good day, everyone, and welcome to the Duke Energy Quarterly Earnings Conference Call. At this time, for opening remarks, I would like to turn the call over to Mr. Stephen De May. Please go ahead, sir.

Stephen De May

Thank you, Marie C. Good morning, everyone, and welcome to Duke Energy's fourth quarter and year end 2010 earnings review. Leading our discussion today are Jim Rogers, Chairman, President and Chief Executive Officer; and Lynn Good, Group Executive and Chief Financial Officer. Jim and Lynn will review our fourth quarter and full year results, discuss our performance in 2010, provide an update on key strategic matters and provide financial guidance and our outlook for 2011. After their prepared remarks, Jim and Lynn will take your questions.

Today's discussion will include forward-looking information as a use of non-GAAP financial measures. You should refer to the information in our 2009 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 in today's materials. Note that the appendix to the presentation materials includes additional disclosures to help you analyze the company's performance.

With that, I'll turn the call over to Jim Rogers.

James Rogers

Thank you, Stephen. Good morning, everyone, and thank you all for joining us today. We appreciate your interest and investment in Duke Energy. We are extremely pleased with our financial and operational performance during 2010. We delivered on our commitments: One, by increasing earnings in the dividend; two, by operating our fleet and grid exceptionally well at record levels; three, by continuing our cost control efforts; and four, by delivering excellent customer service. To begin today's discussion, let's take a quick look at the fourth quarter. Then I'll spend most of the time reviewing last year's accomplishments.

Today, we reported fourth quarter adjusted diluted earnings per share of $0.21. That compares to $0.28 last year. The favorable impacts of rate increases and weather were offset by three factors: One, increased costs related to plant outages; two, a discretionary donation to the Duke Energy Foundation of $40 million or $0.02, and without this pre-funding of the foundation for future years, we would have met the consensus for the fourth quarter; thirdly, the continued impact of customers switching in Ohio.

For the full year, we announced adjusted diluted earnings per share of $1.43, an increase of 17% over last year's $1.22. Our full year results fell within the $1.40 to $1.45 earnings range we forecasted in the third quarter and significantly above our original guidance of $1.25 to $1.30. Even without the favorable weather, which contributed around a net of $0.13, we would have landed at the high end of our original guidance. We continued growing our quarterly dividend to shareholders, increasing the per share dividend from $0.24 to $0.245, a 2% increase. Our total shareholder return of 9.5% exceeded the 5.7% return of the Philadelphia Utilities Index.

Despite the demands on our fleet and grid due to extreme weather, we delivered record performance in 2010. Duke's nuclear fleet capacity factor of approximately 95.9% set a new fleet record. This is the 11th consecutive year in which the nuclear fleet exceeded 90%. For 2010, our nuclear fleet had the lowest total operating cost per megawatt hour among domestic fleets for the third straight year as reported by the Electric Utility Cost group.

Our nonregulated Midwest coal and gas generation fleet also performed well, generating power at record levels, while staying focused on controlling costs and being available. We continued to diligently control costs. Our O&M expenses, net of deferrals and cost recovery riders, were held flat from 2007 to 2009. In 2010, the modest cost increases we experienced were primarily due to weather-related demands on our system as well as increased costs associated with Duke Energy Retail. The bottom line is we held O&M virtually flat for four years.

We also continued to deliver superior customer service. J.D. Powers 2010 residential customer satisfaction study ranked Duke Energy-Carolinas best among large utilities in the South region. And we just learned today that we were ranked second for satisfaction among business customers in the South, moving up from third last year. Despite challenging record temperatures and high demand, our employees consistently delivered exceptional operating performance and excellent customer service. We are thankful for their dedication and commitment to serving our customers as well as our investors. We also made progress on our four major fleet modernization projects in 2010. I will discuss these in more detail next.

Turning to Slide 5. You can see the status at Edwardsport, Cliffside, Buck and Dan River. These projects are the centerpiece of our plan to modernize our fleet, positioning us to deliver efficient, reliable and increasingly clean power well into the future. In total, these projects represented investments of approximately $7 billion and about 2,700 megawatts of capacity. By 2015, the completion of these projects will enable us to close about 1,200 megawatts of aging, less efficient coal units and reduce our emission's footprint, better positioning ourself for more stringent environmental regulations. Buck is scheduled to be in service later this year, and Edwardsport, Cliffside and Dan River are expected to go online in 2012.

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