Commercial renewables and gas drove Duke Energy's 2020 earnings, utility executives said during the company's Q4 earnings call on Thursday, and the company is preparing to ramp up spending later this decade as it waits on regulatory and legislative signals.
The utility is anticipating more revenue growth in part through a pending rate settlement in Florida, and potential regulatory reform in North Carolina. Duke's capital plan would have it spend $59 billion over the next five years, and $65 billion to $75 billion in the five years after that as it retires more coal plants and replaces that generation. CEO Lynn Good also said the company sees offshore wind potential in its North Carolina territory within the next decade.
Declines in load due to the COVID-19 pandemic, along with mild weather, the cancellation of the Atlantic Coast Pipeline (ACP) and regulatory lag contributed to a decrease in total revenues from 2019. The utility reported $23.87 billion in 2020, down 4.8% from $25.08 billion in 2019.
Duke announced it would shift its spending toward low-cost, smaller-scale projects in August, following its $1.6 billion loss tied to the ACP cancellation. Now, the utility is focused on aggressive capital spending over the next decade, largely on transmission and distribution, new rate plans in its Carolina and Florida territories, and the maintenance of its local gas distribution systems to continue bolstering its earnings potential.
"Our aggressive $59 billion capital plan is among the largest in the industry placing us at the forefront of clean energy at scale," Good said during the company's earnings call. "We're confident this capital will generate value for our growing ... jurisdictions and provide clean, affordable energy for the more than 25 million customers we serve every day. This capital plan positions Duke to achieve earnings growth of 5% to 7%."
The utility expects its commercial renewable business, which added 460 MW in 2020, to deliver between $200 million and $250 million of net income per year over the five-year plan. Its gas companies earned the utility a return of $0.11 per share, though that growth was offset slightly by the ACP failure, Steve Young, executive vice president and chief financial officer, said during the call.
Duke is also keeping an eye on potential offshore wind investments. North Carolina Gov. Roy Cooper, D, in October signed a memorandum of understanding with the governors of Maryland and Virginia, intended to streamline the development of offshore wind in the Mid-Atlantic region. Duke is supportive of this and has been keeping an eye on the feasibility of developing the resource in the state, according to officials.
"We've been working on the potential for offshore wind for some time," said Good. "Not only in terms of the obvious issues around leases and location of leases, but also transmission infrastructure that would need to accompany that … And so, I would say we're monitoring all of this closely. I would think about it as maybe a late 2020[s], 2030 opportunity in the Carolinas."
A pending settlement in Florida between Duke and ratepayer advocates would allow the utility to implement a multi-year rate base that would recover "significant" grid modernization, electric vehicle and solar costs from customers. If approved, it would set base rates from 2022 through 2024, and increase base-rates $67.246 million in 2022, $48.933 million in 2023 and $79.199 million in 2024, for a total of $195.378 million, according to WUSF Public Media.
"It also allows for the accelerated depreciation of coal plants and supports innovative technology pilot programs that are important to achieving our carbon goals and clean energy future," said Good.
In Florida, the utility also received regulatory approval for the first three years of its storm protection and grid hardening plans, a $6 billion investment over the next 10 years.
Meanwhile, the utility may see a multi-year rate plan set in its North Carolina territory as well. In 2019, the state almost passed a bill that included a shift in utility rate structure toward a multi-year model. Duke supported the measure, but it was cut out of the bill over concerns it hadn't been properly vetted by stakeholders.
Since then, RMI and the Regulatory Assistance Project released a report, prepared for the North Carolina Department of Environmental Quality, that explores regulatory reform in the form of a number of mechanisms including multi-year rate plans, alongside performance incentives and revenue decoupling.
The report is "really a strong endorsement of [how] regulatory reform is important to incenting movement," said Good.
This post has been updated to clarify that RMI and RAP's report explored regulatory incentive options, including multi-year rate plans, but the report did not explicitly endorse options.