8-KFinancial EventsOther Events

Duke Energy CORP 8-K Report, Material Impairment (Jul 6, 2020)

Filed July 6, 2020For Securities:DUKDUKBDUK-PA

Summary

Duke Energy Corporation (DUK) announced on July 5, 2020, through its wholly-owned subsidiaries Duke Energy ACP, LLC and Piedmont ACP Company, LLC, that they will cease further investment in the Atlantic Coast Pipeline (ACP) project. This decision stems from significant permitting delays, legal challenges, and the impact of recent court decisions on construction permits, which have materially affected the project's timing and cost. The situation was further compounded by Dominion Energy's announcement to sell substantially all of its gas transmission and storage segment assets, crucial for the ACP's construction and operation. Consequently, Duke Energy expects to record pre-tax charges of approximately $2.0 billion to $2.5 billion. The majority of this charge, estimated between $2.0 billion and $2.2 billion, is anticipated in the second quarter of 2020, with the remainder to be recognized later in the year as exit costs are incurred. These charges will be treated as special items, excluded from adjusted earnings per share (EPS), and are not expected to necessitate incremental equity issuance, as the company believes its existing equity forward agreement provides sufficient balance sheet support.

Key Highlights

  • 1Duke Energy and its subsidiaries are ceasing investment in the Atlantic Coast Pipeline (ACP) project due to significant permitting delays, legal challenges, and cost overruns.
  • 2The company anticipates pre-tax charges of approximately $2.0 billion to $2.5 billion related to the discontinuation of the ACP project.
  • 3Approximately $2.0 billion to $2.2 billion of these charges are expected to be recorded in the second quarter of 2020.
  • 4These charges will be classified as 'special items' and excluded from adjusted earnings per share (EPS) calculations.
  • 5Duke Energy's existing equity forward agreement, priced in November 2019, is deemed sufficient to support the balance sheet without the need for new equity issuance.
  • 6The discontinuation of the ACP project, which was expected to contribute approximately $0.20 to 2020 EPS, will impact the company's ability to achieve its previously stated full-year EPS guidance.
  • 7The company's 2020 results are now trending towards the low end of the previously issued EPS guidance range of $5.05 to $5.45.

Frequently Asked Questions

Duke Energy expects to take pre-tax charges of approximately $2.0 billion to $2.5 billion. Of this amount, an estimated $2.0 billion to $2.2 billion will be recorded in the second quarter of 2020, with the remainder recognized later in the year as exit costs are incurred. These charges are considered 'special items' and will be excluded from adjusted earnings per share (EPS).

No, Duke Energy stated that management believes the $2.5 billion equity forward, priced in November 2019 and expected to settle in Q4 2020, provides sufficient balance sheet support. Therefore, no incremental equity issuance needs are anticipated as a result of discontinuing the project.

The Atlantic Coast Pipeline was projected to contribute approximately $0.20 to 2020 EPS, and its discontinuation, along with the cessation of AFUDC accruals, means Duke Energy's results for 2020 are now trending towards the low end of its previously issued EPS guidance range of $5.05 to $5.45.

The decision was driven by persistent permitting delays, ongoing legal challenges, and adverse court rulings affecting construction permits. These factors materially impacted the project's timing and cost. The announcement by Dominion Energy to sell its related assets further supported Duke Energy's decision to cease future investment.