Duke Energy Corporation (DUK)

DUK 
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Duke Energy (DUK)

Q2 2011 Earnings Call

August 02, 2011 10:00 am ET

Executives

B. Trent - President of Commercial Businesses and Group Executive

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.

Dan Eggers - Crédit Suisse AG

Jonathan Arnold - Deutsche Bank AG

Greg Gordon - ISI Group Inc.

James von Riesemann - UBS Investment Bank

Hugh Wynne - Sanford C. Bernstein & Co., Inc.

Steven Fleishman - BofA Merrill Lynch

Presentation

Operator

Good day, everyone and welcome to the Duke Energy Second Quarter Earnings Conference Call. Today's call is being recorded. At this time for opening remarks, I would like to turn the call over to Mr. Stephen De May, Senior Vice President of the Investor Relations and Treasurer. Please go ahead, sir.

Stephen De May

Thank you, Kelly. Good morning, everyone and welcome to Duke Energy's second quarter 2011 earnings review and business update. 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 first quarter results and provide an update on our key priority. After these prepared remarks, we will take your questions.

Today's discussion will include forward-looking information and the use of non-GAAP financial measures. You should refer to the information in our 2010 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.

Now 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. During today's call, we will provide you review of our quarterly earnings followed by an update of one, our pending merger with Progress Energy; two, our major construction program; three, our proposed Electric Security Plan in Ohio; and four, our base rate case filings in the Carolinas. These initiatives are positioning the company for long-term stability and earnings growth in the future.

I will also update you on Edwardsport and discuss a proposal we filed with the Indiana Commission in April. It is an equitable proposal and provides a path forward on this important project. Finally, I will end the call with some observations on the most recent EPA ruling and the NRC Task Force review of the events at Fukushima.

Today, we reported second quarter 2011 adjusted diluted earnings per share of $0.33. That compares to $0.34 in the prior year's quarter. With the second quarter, we continued our positive momentum from the first quarter. The company's largest business segment, U.S. Franchised Electric and Gas, achieved solid performance due in part to its new generation investments in the Carolinas and Indiana. This helped offset less favorable weather and higher operations and maintenance costs primarily related to storm restorations. Duke Energy International delivered strong results, as did Commercial Power despite the financial impact of 2010 customer switching in Ohio.

For the year, we are well on track to achieve our guidance range of $1.35 to $1.40 in adjusted diluted earnings per share. And as you all may recall, our third quarter is typically the most significant of the year. I am very pleased with our second quarter performance. We were well-positioned to execute on our business and financial plans for the remainder of the year. Now, I'll turn it over to Lynn, who will give more detail on our financial results for the quarter.

Lynn Good

Thank you, Jim. Slide 6 outlines the adjusted earnings drivers for each of our business segments for the quarter. For U.S. Franchised Electric and Gas, quarterly adjusted segment EBIT decreased from the prior year. While we benefited from weather, this quarter, it was less favorable than the second quarter of 2010.

In addition, we incurred significant storm restoration costs. Both of these were offset by the continued earnings contribution from our new generation investments. Destructive storms have been a theme in the first half of 2011. Storm costs for the quarter were approximately $53 million higher than the prior year quarter. In April, wind storms in the Carolinas and Indiana caused significant outages requiring extensive repairs. In May, severe thunderstorms in Ohio brought damaging winds, hail and tornadoes. According to estimates from the Ohio Insurance Institute, it was the third most expensive natural disaster in the state's history.

As they have in the past, our employees acted quickly to restore power. In fact, after the Carolinas windstorm in April, we restored service within 24 hours to about 70% of the 250,000 customers who lost power. We appreciate our customers' patience and are grateful for the dedication of our employees and those from our neighboring utilities. Storm restoration costs in both the first and second quarter will challenge us to keep the increase in the total company O&M costs within our targeted range of 3% to 4%, net of deferrals and cost recovery riders. However, we continue to work actively to mitigate these unexpected expenses.

In Commercial Power, the quarter's adjusted segment EBIT was lower than the prior quarter, primarily due to the annualized margin impact of 2010 customer switching in Ohio, which we will further discuss in a moment. Our nonregulated Midwest gas split continue to perform very well, supported by strong energy margins and higher dispatch. The gas split dispatched about 1,100 gigawatt hours more than the 2010 second quarter, consistent with the trend we saw in the first quarter this year.

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