Duke Energy 2015 Annual Report Download - page 50

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PART II
Adjusted earnings decreased from 2014 to 2015 primarily due to lower
earnings at International Energy as a result of unfavorable hydrology and
changes in foreign currency exchange rates, partially offset by improved
earnings at Regulated Utilities from improved retail pricing and wholesale
margins net of higher operations and maintenance expense.
Adjusted earnings increased from 2013 to 2014 primarily due to the
impact of revised rates and favorable weather, partially offset by higher
depreciation and amortization expense.
See “Results of Operations” below for a detailed discussion of the
consolidated results of operations, as well as a detailed discussion of financial
results for each of Duke Energy’s reportable business segments, as well as
Other.
2015 Areas of Focus and Accomplishments
In 2015, Duke Energy advanced a number of important strategic
initiatives to transform the energy future with a focus on customers, employees,
operations and growth. Duke Energy announced the acquisition of Piedmont,
completed the purchase of North Carolina Eastern Municipal Power Agency’s
(NCEMPA) generation assets, completed the sale of the nonregulated Midwest
Generation business and executed on the coal ash strategy to continue moving
toward ash basin closures. Duke Energy also accomplished industry-leading
safety and environmental performance and increased the growth rate of the
dividend, a significant component of the investor value proposition.
Acquisition of Piedmont Natural Gas. In 2015, Duke Energy entered
into a Merger Agreement with Piedmont, under which Duke Energy will
acquire Piedmont for $4.9 billion in cash. This acquisition reflects the growing
importance of natural gas to the future of the energy infrastructure within the
company’s service territory, and throughout the U.S., and establishes a platform
for future growth in natural gas infrastructure.
Purchase of NCEMPA’s Generation. In 2015, Duke Energy completed
the acquisition of NCEMPA’s ownership interest in some of Duke Energy
Progress’s existing nuclear and coal generation for a total amount of
approximately $1.25 billion. Duke Energy and NCEMPA signed a long-term
wholesale contract to provide power to NCEMPA’s customers previously served
by the generation assets purchased by Duke Energy.
Sale of the Midwest Generation Business. In 2015, Duke Energy
completed the sale of the Disposal Group to Dynegy for approximately $2.8
billion. This decision supports Duke Energy’s strategy to focus investments
on businesses with more predictable and less volatile earnings. The proceeds
from the sale were used, in part, to recapitalize Duke Energy through a stock
repurchase program and deferrals of the issuance of long-term debt.
Operational Excellence of the Nuclear Fleet. Duke Energy’s nuclear
fleet set a company record for total electricity production and demonstrated a
combined capacity factor at approximately 94 percent, the 17th consecutive
year above 90 percent on this plant reliability measure.
Coal Ash Management. On April 17, 2015, the EPA published the RCRA
in the Federal Register, establishing rules to regulate the disposal of CCR from
electric utilities as solid waste. The RCRA, and the Coal Ash Act, as amended,
finalized the legal framework related to coal ash management practices and
ash basin closure. With final rules in place, Duke Energy has made significant
progress toward closure of coal ash basins and has recommended excavation of
24 basins in the Carolinas. In addition, Duke Energy has performed comprehensive
groundwater studies at each North Carolina basin and provided that information
to the North Carolina Department of Environmental Quality (NCDEQ), which was
used by NCDEQ to risk-rank each North Carolina basin. These draft risk rankings
provide additional direction for the closure of each basin.
Also in 2015, Duke Energy began closure activities on the four sites
specified as high risk by the Coal Ash Act and at the W.S. Lee site in South
Carolina. At each site, excavation has commenced, with coal ash moving off-site
for use in structural fill or to lined landfills.
Deliver Merger Benefits. Duke Energy continues to focus on realizing
benefits of the merger with Progress Energy. Duke Energy is on track to achieve the
$687 million of guaranteed savings for customers in the Carolinas over five years.
After 31/2 years, Duke Energy Carolinas and Duke Energy Progress have generated
approximately 90 percent of the guaranteed fuel and joint dispatch savings.
Grow the Dividend. In 2015, Duke Energy increased the growth rate of the
dividend to an annual rate of approximately 4 percent.
Duke Energy Objectives – 2016 and Beyond
Duke Energy will continue to deliver exceptional value to our customers,
be an integral part of the communities in which we do business, and provide
attractive returns to our investors. Duke Energy is committed to lead the way
to cleaner, smarter energy solutions that customers value through a strategy
focused on:
• Transformation of the customer experience to meet the changing
customer expectations through enhanced convenience, control and
choice in energy supply and usage.
• Modernization of the power grid to improve reliability and flexibility in
support of increased distributed energy sources.
• Generation of cleaner energy through an increased amount of natural
gas, renewables generation and the continued safe and reliable
operation of nuclear plants.
• Operational excellence through engagement with employees and being
one of the best safety performers in the industry.
• Stakeholder engagement to ensure the regulatory rules in the states in
which we operate benefit all customers.
Primary objectives toward the implementation of this strategy include:
Complete the Acquisition of Piedmont. As discussed above, Duke
Energy will continue to pursue the remaining required regulatory approvals to
achieve completion of the Piedmont acquisition in 2016. This acquisition will
establish a broader gas infrastructure platform within Duke Energy.
Duke Energy expects to finance the acquisition through a combination of
debt, newly issued equity and other cash sources.
Potential Sale of the Latin American Generation Business. On
February 18, 2016, Duke Energy announced it had initiated a process to divest
the International Energy business segment, excluding the equity investment
in NMC. The process remains in a preliminary stage and there have been no
binding or non-binding offers requested or submitted. There is no specific
timeline for execution of a potential transaction. The sale is expected to be
dilutive to Duke Energy but would improve Duke Energy’s risk profile and
enhance its ability to generate more consistent earnings and cash flows over
time. Proceeds from a successful sale would be used to fund the operations and
growth of its domestic business.