01—Abstract
Summary
Summary of the 10-K filed February 25, 2021. Cited figures are marked; the original filing is the authoritative source.
Duke Energy's FY2020 10-K (filed February 25, 2021) reports GAAP reported earnings of $1.270 billiona, or $1.72 per share, down sharply from $3.707 billion ($5.06) in 2019, while adjusted EPS rose modestly to $5.12 from $5.06.
The GAAP decline is driven by two special items: a roughly $2.1 billionb pretax charge to cancel the Atlantic Coast Pipeline (ACP) in Gas Utilities and Infrastructure, and coal ash regulatory settlement charges in Electric Utilities and Infrastructure (the CCR Settlement Agreement with NCUC, which requires an impairment charge of roughly $948 million in that segment). Revenue fell to $23.9 billion from $25.1 billion, reflecting lower sales volumes from COVID-19, mild weather and lower fuel pass-throughs. Management reaffirmed its dividend growth record (94th consecutive year of cash dividends) and raised its long-term adjusted EPS growth target to 5% to 7% through 2025, supported by a $59 billion capital plan for 2021-2025.
Near-term financing actions include a planned sale of a 19.9% minority interest in Duke Energy Indiana to GIC for roughly $2 billionc. Balance-sheet risk increased: in January 2021 S&P downgraded Duke's senior unsecured rating from A- to BBB+, and Moody's placed ratings on review for downgrade in February 2021. For investors, the key tension is between a stable, regulated earnings base and rising execution and credit risk: coal ash cost recovery, the ACP write-off, the pending Indiana minority sale and a February 2021 Texas winter storm that is expected to materially affect Commercial Renewables results in 2021.
02—Key points
Key Highlights
- GAAP reported EPS fell to $1.72 from $5.06, while adjusted EPS rose to $5.12 from $5.06 after excluding special items.
- Special items totaling about $2.9 billion pretax, including roughly $2.1 billion for ACP pipeline cancellation and $872 million net of tax for regulatory settlements (coal ash).
- Long-term adjusted EPS growth target raised to 5% to 7% through 2025, backed by a $59 billion five-year capital plan.
- Dividend policy targets a 65% to 75% payout ratio of adjusted EPS, with 2020 marking the 94th consecutive year of cash dividends.
- Credit ratings under pressure: S&P cut Duke Energy's senior unsecured rating to BBB+ in January 2021, and Moody's placed Duke Energy Carolinas and Duke Energy Progress on review for downgrade.
- Planned sale of a 19.9% minority interest in Duke Energy Indiana to GIC for approximately $2 billion, with the first closing expected in Q2 2021.
- Operating cash flow rose to $8.9 billion from $8.2 billion, and 2020 capital expenditures were about $10.1 billion.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 25, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $23.25B$24.35B | −4.5% |
| Operating Expenses | $18.81B$19.37B | −2.9% |
| Operating Income | $4.57B$5.71B | −19.9% |
| Interest Expense | $2.10B$2.20B | −4.9% |
| Net Income | $1.38B$3.75B | −63.3% |
| EPS (Basic) | $1.72$5.06 | −66.0% |
| EPS (Diluted) | $1.72$5.06 | −66.0% |
| Shares Outstanding (Basic) | 737.00M729.00M | +1.1% |
| Shares Outstanding (Diluted) | 738.00M729.00M | +1.2% |
05—Questions
Frequently Asked Questions
Why did GAAP earnings fall so sharply in 2020 while adjusted earnings held steady?
GAAP net income available to common stockholders fell to $1.27 billion from $3.71 billion. The decline reflects the cancellation of the ACP pipeline (about $2.1 billion pretax charge) and coal ash regulatory settlement charges in Electric Utilities and Infrastructure. Management excludes these items to arrive at adjusted EPS of $5.12, which rose slightly from $5.06 on rate case contributions, lower O&M and growth in Commercial Renewables, partly offset by pandemic impacts and mild weather.
What is the outlook for dividends and earnings growth?
Duke targets a dividend payout ratio of 65% to 75% of adjusted EPS and expects this to continue through 2025. It has increased the dividend by roughly 2% annually in 2019 and 2020 and says it remains committed to continued dividend growth. Long-term adjusted EPS growth is now guided at 5% to 7% through 2025.
What are the main regulatory risks, particularly around coal ash?
Duke Energy Carolinas and Duke Energy Progress reached a January 2021 settlement with North Carolina parties that resolves historical coal ash prudence and cost recovery. The companies agreed not to seek recovery of about $1 billion of deferred coal ash expenditures and took charges of roughly $454 million and $494 million. The settlement requires NCUC approval, which the companies expected in the second quarter of 2021. Separate South Carolina appeals on coal ash disallowances remain pending, and total ash basin closure costs are estimated at $8 billion to $9 billion.
How much financial pressure does the company face from credit rating changes?
S&P downgraded the parent and most subsidiaries' senior unsecured debt by one notch in January 2021, moving Duke Energy's issuer rating to BBB+ and senior unsecured debt to BBB, with outlooks returning to stable. Moody's placed the parent, Duke Energy Carolinas and Duke Energy Progress on review for downgrade in February 2021. A downgrade below investment grade could increase borrowing costs and require additional collateral under credit and commodity agreements.
What near-term events could affect 2021 results?
Key items include the GIC minority interest sale in Duke Energy Indiana (about $2 billion), pending NCUC and FPSC rate and settlement decisions, and the February 2021 Texas winter storm, which is expected to have a material negative impact on Commercial Renewables' 2021 results. Estimated pretax storm impact is about $75 million to $100 million. Duke also expects around $8 billion of new debt issuance in 2021.
06—Continue