Duke Energy Earnings Call Insights: Progress Merger, FERC Decision

On Friday, Duke Energy Corporation (NYSE:DUK) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite shared with analysts and investors.

The Merger

Jonathan Arnold – Deutsche Bank: Jim, first on the merger. I just noticed that you mentioned that you’ve restarted the integration process. So, I guess my question is does that mean it’s stopped and when was that and what changed and can you just provide some color on you’re referring to?

James E. Rogers – Chairman, President and CEO: Sure, let me ask Lynn to address that question if I may.

A Closer Look: Duke Energy Earnings Cheat Sheet>>

Lynn J. Good – Group Executive and CFO: Jonathan, at the time we received the FERC order in December we really put pencils down a bit finishing up what was going to be required for legal day one but really putting it on the shelf so that we could get focused on running Duke and Progress (NYSE:PGN) separately at the beginning of the year. We didn’t have specific clarity on timing of the FERC filing and closing etc. So we’ve been focused for a few months of the year on the things you would expect us to be focused on running the business well, and now we believe we’re getting to the point where we should start brushing off the legal day one work and restarting integration so that we’re prepared for July 1 closing.

Jonathan Arnold – Deutsche Bank: And then on the coal piles, could you give us any sense of where you are currently within this – you said you’re above the 45 to 50 day range, but you’re not at the 75 to 80. Where are you in the range? Do you think you get to the maximum and is this any very similar to ’09 or more dramatic?

Lynn J. Good – Group Executive and CFO: Jonathan, we are at about 90% of the peak levels of 2009, so we’re not quite to the point we experienced in 2009. And the teams are very focused on managing through those, taking all the steps we think are necessary, including offsite storage and other measures. So we’re managing through it and believe we will be able to manage through it.

FERC Decision

Daniel Eggers – Credit Suisse: Jim, there certainly seems like there is some momentum with the conversations you guys are having with the staffs in North Carolina and South Carolina. Can you just maybe mechanically just walk through how a settlement would synchronize from the states with trying to get a FERC decision done and how they would marry together because obviously they are kind of early stage or dependent upon the FERC decision, how that will all play out in June if things worked as you guys have scheduled right now?

James E. Rogers – Chairman, President and CEO: Absolutely. Dan, first let me say that our aspiration is to get a decision from the FERC in early June. In the interim period we’re working with the Public Staff in North Carolina as well as the consumer council in South Carolina to reach settlement agreements that we can present to the state commissions for their approval. We’ve had detailed conversations with the Public Staff in North Carolina. Our discussions have focused on what is the appropriate treatment for the $110 million investment in transmission. It has been focused on some additional flexibility with respect to our guarantee of $650 million in the joint dispatch and fuel blending. It’s also been focused on other items such as our sale of electricity during the interim period. So, we are very close to reaching agreement with the Public Staff, have not reached agreement with other parties with respect to this in North Carolina, and so more to come there and we hope to have a settlement soon. With respect to South Carolina, we’re also working very close with (Duke Scott) and his team so that we can satisfy his requirements. I think an important part of the relationship between North and South Carolina is that Duke’s got negotiated early on a Most Favored Nation’s clause, which really allows them to track whatever agreement is reached between us and the Public Staff in North Carolina.

Lynn J. Good – Group Executive and CFO: So, Dan, maybe just to put those things together, the intent would then be to be in a position where the Commissions could approve the settlement following FERC approval in that June timeframe.

Daniel Eggers – Credit Suisse: So because the Commissions wouldn’t decide basically, you’d have this settlement which could then be adjusted if the FERC makes adjustments and bring it to them, so they wouldn’t actually have to revise what they had done because they wouldn’t have made…?

James E. Rogers – Chairman, President and CEO: That’s a very good observation on your part. We are building in a provision in our settlement that we’re working through now with the Public Staff, for the possibility that the FERC will not fully embrace our proposal. They will modify it in a way – one way or another, and if that happens, then we have the capability to really reopen the agreement we have with the Public Staff and make any adjustments that are appropriate given the FERC’s action.

Daniel Eggers – Credit Suisse: Okay, and I guess just one other question. You guys have talked on a merged basis a 4% to 6% earnings growth is the target without any equity. Are you still feeling comfortable with that at this point in time, and do you feel comfortable without the equity needs given some of the loss of cash you guys have with the Edwardsport deal and some of the loss of cash that Progress put up in that Crystal River deal?

Lynn J. Good – Group Executive and CFO: You know, Dan, we are still targeting the 4% to 6%. We think the combined company has the fundamental growth drivers of investment and mode synergies, of course, will be very important to drive that growth. We will be finalizing guidance as we near completion, restart integration, get a better sense of synergies, timing, et cetera, and be prepared to give you more specifics post closing.