Duke Energy Corporation
Q3 2012 Earnings Call Transcript

Published: 8 Nov 2012

[Operator:]

Good day, and welcome to the Duke Energy Third Quarterly Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Bob Drennan, Vice President of Investor Relations. Please go ahead, sir.

[Robert F. Drennan:]

Thank you, Shannon. Good morning, everyone, and welcome to Duke Energy's Third Quarter 2012 Earnings Review and Business Update. Leading our discussion this morning are Jim Rogers, Chairman, President and Chief Executive Officer; and Lynn Good, Executive Vice President and Chief Financial Officer. Today's discussion will include forward-looking information and the use of non-GAAP financial measures. Slide 2 in the presentation package presents the Safe Harbor statement which accompanies our presentation materials. You should also refer to the information on our 2011 10-K and other SEC filings concerning factors that could cause future results to differ from these forward-looking information. A reconciliation of non-GAAP financial measures can be found on our website and in today's materials. Please note that the appendix to the presentation materials includes supplemental information and additional disclosures to help you analyze Duke Energy's performance. Slide 3 details the topics for today's call. First, Jim will provide an update on our key priorities, and Lynn will review our quarterly financial results. After these prepared remarks, we will take your questions. The management team of Duke Energy will host an analyst meeting in New York City in late February. During that meeting, we will update you on our strategic goals and our progress in resolving our near-term priorities. At that time, we will provide our 2013 earnings guidance range and related assumptions, including our long-term earnings growth rate and expectations. More details on this meeting will be distributed shortly. Now I'll turn the call over to Jim.

[James E. Rogers:]

Thank you, Bob, and thank you all for joining us today. It's our first call to report on a consolidated financial results of the new Duke Energy. As a combined company, we're off to a great start. The third quarter results reflect our efforts. We are pleased with what were already accomplished the positive momentum we've created. The work of our employees has been outstanding. As the 2 companies come together, we continue to focus on our mission for customers, and that is providing affordable, reliable and increasingly clean electricity on a 24/7 basis. We are focused and will continue to meet our merger commitments, achieving synergies and savings for both customers and investors. Today, Duke Energy announced adjusted diluted earnings per share of $1.47 for the third quarter. This compares to prior year quarterly earnings of $1.50 per share. Once again, we exceeded Wall Street consensus estimates. In the quarter, we continue to realize the benefits from our fleet modernization program despite less favorable weather and more results in our nonregulated commercial businesses. We are positioned to finish the year within our targeted adjusted diluted earnings guidance range of $4.20 to $4.35 per share. Before going further, I'd like to say a word about Sandy. We were saddened by the loss of life and enormous damage caused by this storm. We were very fortunate that our service areas were spared the brunt of it. We have quickly deployed contractors and employees to assist other utilities with restoration. In total, we sent over 2,900 workers to help in 8 states from Virginia to Connecticut. I deeply appreciate the commitment and dedication of these workers, most of whom are still working to restore service in New York and New Jersey. It is an example of how our new scale and geographic scope have made our storm response capabilities even stronger. Since merger closed, we've been focused on 5 key near-term priorities

[Lynn J. Good:]

Thank you, Jim. I will begin with an overview of Duke Energy's third quarter earnings results for each of its business segments, an update on retail customer volume trends in economic conditions, as well as our financial objectives going forward. As summarized on Slide 11, for the third quarter of 2012, we announced adjusted diluted earnings per share of $1.47, slightly lower than the $1.50 for third quarter 2011. However, it's important to remember that our prior year results included $0.12 of favorable weather. Even though weather was favorable this year, it was not at the same level we experienced in 2011. This quarter is also the first period that reflects Progress Energy's results in our financial statements. Also remember that last year's results have been adjusted to reflect the 1-for-3 reverse stock split that occurred just prior to the merger closing. On a reported basis, our earnings for the quarter were $0.85 per share as compared to $1.06 per share for the prior year quarter. These reported results for the third quarter 2012 include $0.17 of impairment charges related to the estimated cost increases at Edwardsport and merger-related costs of around $0.42. These charges are considered special items and, therefore, have been excluded from our quarterly adjusted EPS. The merger-related costs consists of employee severance costs, costs related to the interim and permanent FERC mitigation plan, concessions agreed to with the Carolinas commissions in order to receive merger approval and merger transaction costs. Let me briefly discuss the primary adjusted earnings per share drivers for each of our business segments. Adjusted earnings at our regulated business, U.S. Franchised Electric and Gas, were $0.62 higher than the prior year quarter, primarily due to the addition of the former Progress Energy regulated utility operations in the Carolinas and Florida. Updated customer pricing, including the implementation of revised customer rates at Duke Energy Carolinas, also contributed to USFE&G's increase in quarterly results by $0.12 per share. These favorable drivers were partially offset by less favorable weather. Duke Energy International's results for the quarter were $0.02 lower due primarily to unfavorable exchange rates in Brazil. As expected, Commercial Power's results were $0.06 lower than the prior year quarter, primarily due to implementation of the new market-based Electric Security Plan in Ohio. Our nonregulated Midwest gas generating fleet realized the lower PJM capacity revenues as the market-based price fell from $110 per megawatt day in the prior year quarter to $16 per megawatt day in the current quarter. Due to continued low natural gas prices, this gas-fired fleet continued operating at record generating levels. Actual generation for the quarter was around 35% higher than the prior year quarter. Other financial drivers for the quarter included dilution of $0.54 for the quarter-over-quarter impact on EPS resulting from the issuance of additional shares in connection with the merger, and $0.05 of additional interest expense on Progress Energy holding company debt. As you will recall, we issued around 258 million shares to former holders of Progress Energy common stock and now have around 700 million shares of Duke Energy outstanding. An important consideration as you evaluate our year-to-date EPS results is that the weighted average number of shares outstanding will increase from the current year-to-date average of 531 million to 575 million shares for full year 2012. Slide 12 presents both our quarter-over-quarter weather-normalized customer usage trends as well as what we are experiencing on a rolling 12-month basis for our regulated business. This chart includes trends for the Progress Energy utilities compared to what they experienced last year. Trends for the third quarter show residential and industrial demand down from the prior year quarter. Since volume trends in any single quarter can be difficult to evaluate, we have also included 12-month rolling average volume trends as a point of comparison. Over the 12-month horizon, total weather-normalized load is slightly higher, with growth seen in all major customer classes. For residential customers, we continue to experience growth in the number of customers in each of our service territories. In fact, the average number of residential customers has increased by around 50,000 or 0.7% over last year's quarter. This growth is around double what we experienced at this time last year. However, average usage for residential customer continues to trend modestly lower as a result of the challenging economy and energy efficiency efforts. Industrial demand reflects recent weakness in primary metals in the Midwest, the chemicals sector and textile customers in the Carolinas. The automotive sector remains strong. We entered the year expecting overall load growth to be less than 1% over the prior year. Our actual experience to date has generally met expectations, although customer usage patterns continue to be hampered by the economic uncertainty. Despite improvements in national unemployment, home sales and retail sales, U.S. fiscal policy and the European situation leave us cautious about the strength of future growth. We believe our service territories are well positioned and remain attractive for the long term. However, we are planning our business for an environment of very modest load growth until we see greater economic stability. As Bob highlighted during his opening comments, we will hold our analyst meeting in late February in New York. During that meeting, we will discuss our overall business strategy, our 2013 earnings guidance range, CapEx and financing assumptions. You will also have the opportunity to hear from our executive team on focus areas and their businesses. During this meeting, we will discuss our long-term earnings growth objectives for the new combined company. We continue to target a long-term earnings growth range of 4% to 6% in adjusted diluted earnings per share and have determined that 2013, the first full year for the combined company, represents an appropriate base for future growth. Our long-term earnings growth potential remains strong and will continue to be anchored by investments in the regulated businesses; weather-normalized load growth; reaching reasonable regulatory outcomes, particularly in the Carolinas and in Ohio; achieving merger integration benefits and synergies; managing our costs, including emergent work related to our nuclear fleet and the addition of new resources; and continued contributions from our commercial businesses. We have included on Slide 13 an overview of the primary earnings drivers we expect in each of these areas for 2013. Continued growth in the regulated businesses and our ability to harvest merger synergies will help us mitigate the decline in PJM capacity revenues impacting our nonregulated Midwest generation. Our detailed planning for 2013 and beyond continues, and we look forward to discussing our strategic plan in further detail during our analyst meeting in late February. I will close with Slide 14 which addresses our main financial objectives. We remain on track to achieve our 2012 earnings guidance in the range of $4.20 to $4.35 per share, adjusted for the 1-for-3 reverse stock split. In addition to growth in our long-term earnings per share, continued growth in the dividend remained central to our investor value proposition. We are targeting a payout ratio of 65% to 70% based on adjusted diluted earnings per share. Our current dividend yield of 4.9% remains attractive compared to the S&P and the current low interest rate environment. The strength of our balance sheet, liquidity and credit metrics support our ability to grow the business as well as the dividend. We remain committed to maintaining this financial strength, which allows us to finance our growth in a cost-effective manner, directly benefiting our customers. In summary, I'm pleased with our quarterly financial performance and how we hit the ground running as the new Duke Energy. We have a strong growth platform as efficiencies from the merger allow us to pass along savings to our customers and shareholders. From a financial perspective, we remain very well positioned for the future. Now let me turn the call back over to Jim for closing comments.

[James E. Rogers:]

Thanks, Lynn. Before taking your questions, I want to emphasize again how proud I am of our employees. We're now 4 months past merger close and they haven't missed a beat in delivering on our mission. They have an extraordinary get-it-done mentality. We are facing our challenges as one team. We know what we need to do and we're doing it. We are determined to realize our vision of the new Duke Energy, turning our scale and diversity of assets into sustained performance and greater value. Needless to say, we appreciate your interest and investment in Duke Energy. With that, let's open up the phone lines for your questions.

[Operator:]

[Operator Instructions] We will take our first question from Greg Gordon with ISI Group.

[Greg Gordon:]

A couple of questions. First, we're 9 months through the year, and I think if I've done the math correctly, and please forgive me if I haven't, you've had operating earnings of $374 million year-to-date. Can you give us any visibility into where you think you'll be within your $4.20 to $4.35 guidance range for the year, given we've just got a quarter to go?

[Lynn J. Good:]

Greg, it's a good question, and we're leaving the range at $4.20 to $4.35. As we continue to put the companies together, we've got merger integration that we're focusing on, and we just think that's an appropriate place to be at this point. But as we've said, we're very pleased with where we are. We think the quarter was very strong, and the team is working hard on the fourth quarter.

[Greg Gordon:]

Okay. And when I look at the drivers you've given us for next year, there's nothing in there that I think looks surprising or new relative to things that you've talked about as structural drivers before. Is it fair to think about 2013 in some ways as a transition year because the merger closed 6 months later than you expected, so merger synergies will come in a little bit later than expected, you don't get the retail rate hikes until later in the year. If I think about the annualized drivers as they roll into '14, if you're successful, it seems like you have a lot more operating leverage in revenue growth potential in '14 relative to sort of just getting started with getting things working in your favor in '13. Is that fair?

[Lynn J. Good:]

Greg, I think 2013 is an important year. And after giving it lots of consideration, we think it's an appropriate base for growth. As you mentioned, we will have some partial year benefits. The rate cases will be a partial year. Synergies will not be at a full run rate. But I think the drivers of some of the capture here should give you a good indication of where we see '13 and then annualization into '14 would be an appropriate consideration, but we'll have more on '13 in February.

[Greg Gordon:]

Do you think that your 2014 numbers will be better than '13, the same, worse?

[Lynn J. Good:]

Greg, we're going to do guidance in February and talk about '13 and the long-term growth rate. That's as far as I can go at this point.

[Greg Gordon:]

You can't fault me for trying.

[Lynn J. Good:]

I know, I know. I know.

[Operator:]

And our next question comes from Dan Eggers with Credit Suisse.

[Dan Eggers:]

Maybe I'm going to try and carry on with Greg trying to front-run the Analyst Day a little bit. But with all the generation investments kind of getting toward the end of completion, what do you guys see bucketing as being kind of the next major wave of investments the utilities need to make from a system maintenance reliability perspective?

[Lynn J. Good:]

Greg, I'll take a shot. Jim may have some other things to add. We still have some generation to complete, so the Sutton plant is scheduled to go in service in 2013. We also have environmental spending for the coal fleet that will continue. We have nuclear investment that we foresee not only in the existing kind of fleet, but also to address Fukushimas as we go forward. And we're always looking for ways to modernize the T&D system. As you know, we're in the midst of a smart grid rollout in Ohio. That remains a potential opportunity for distribution automation in our other jurisdictions. So those are the things I would point to.

[James E. Rogers:]

That's a great list, Lynn.

[Dan Eggers:]

And then I guess if you're going to look at the kind of the demand growth, I know you guys have been more cautious on recovery than a lot of other companies have been so far. Do you need to see demand growth better than kind of this 1% a year normalized to support that 4 to 6? Or how do you think you're going to be able to kind of hit those targets relative to maybe a rate filing strategy going forward?

[Lynn J. Good:]

Dan, we are planning the business for very modest growth. So we were at less than 1% this year. I think 1% or less is a good planning assumption going forward. And in recognition of that, we are focused on costs that are consistent with that environment. And so I think that, at least for the near-term, is the new normal we're working with.

[James E. Rogers:]

Let me just add to that. I think Lynn said that well, but I would underscore the point that we're going to have to kind of think through what the new cost paradigm needs to be in a world where the demand growth is 1% or less. And I think that's a practical thought. I think our company, compared to others, is probably ahead in the modernization of our generation fleet, and that's really going to drive our earnings over the next year or so. And all the other things that Lynn listed will also be drivers of earnings growth. But I think it has to -- we have to achieve superior growth through O&M control and changing the cost paradigm. I think that's an imperative. And this combination has been a great catalyst to us being able to do that.

[Dan Eggers:]

Jim, when you sit down and go through these rate cases, do you think you need to go either to the commissions or to the legislatures and evaluate things like a decoupling or some other source of more structural mechanisms or regulatory policy perspective if demand growth is going to kind of stay at the sustained lower level?

[James E. Rogers:]

No, Dan, I agree with that in this way

[Operator:]

And our next question is from Steve Fleishman with Bank of America.

[Steven I. Fleishman:]

Let's see. First, could you just give a little more clarification of this agreement that you mentioned and with the staff in North Carolina on delaying the rate case there and getting deferral treatment? How long would that deferral treatment be in place, and when would it start?

[Lynn J. Good:]

So Steve, what we have agreed to do is shift the filing of the case, really in recognition of the work load that the staff has in addressing the Dominion case, the Progress case and the Duke following. And in connection with that shift, we'll be filing to defer O&M depreciation return on Cliffside and Dan River and then put that deferral into rates over a 5-year period. So this -- there's been precedent in the Carolinas for these deferral filings as you're trying to synchronize an in-service for the rate increase. So we have done this in previous cases. We did it for our Buck plant, for example. And so this is just part of trying to synchronize cost -- incurring costs with the rate mechanism.

[Steven I. Fleishman:]

And just when is, like, in-service versus when you'd actually be getting rates, how long a deferral period is that?

[Lynn J. Good:]

We're talking about a month. So in-service by the end of '12, roughly, and then rates would be in effect sometime later in '13.

[Steven I. Fleishman:]

Okay. And then one of the drivers you mentioned for '13 is growth in the USFE&G wholesale business?

[Lynn J. Good:]

Yes.

[Steven I. Fleishman:]

Could you talk a little about what growth you're expecting there?

[Lynn J. Good:]

And so -- see, we gave a little visibility to this as we provided guidance for 2012. So it's the addition of customers, extension of contracts in both the Duke service territories -- historic legacy Duke, as well as the legacy Progress territory. So one that I would point to would be the co-ops in South Carolina. So this is a continuation of what we shared with you in 2011.

[Steven I. Fleishman:]

Okay. And just -- I know you won't answer this question, but just for some color on -- I think you mentioned that 2013 is an important year, but I think in meetings a few months ago, you also talked about it as being a transition year. And as I think about a 4% to 6% growth rate off of it, if it is still a transition year, you're not -- in theory, you're not -- you're actually growing less than that because you're off a base that was still transitioning. So maybe is 2013 a transition year or an important year?

[Lynn J. Good:]

Greg -- Steve, I want to say Greg because I think this transition year has taken on a life with certain investors and analysts. And I'm not trying to signal anything specific on transition or otherwise. We think 2013 is the first full year of the combined company. We've had 6 months to get things started, but we are not at a ramp rate on the merger synergies. And so we believe that represents a good starting point for the company and provides an appropriate base for us to grow on. And so, Greg -- or Steve, I don't know how to respond to the notion of transition or otherwise, just highlighting the items that I've talked about.

[Operator:]

Our next question comes from Michael Lapides with Goldman Sachs.

[Michael J. Lapides:]

Really 2 questions. Real quickly, just trying to think about O&M pressures. Now I know merger synergies, and you'll disclose merger synergy savings levels at the Analyst Day in February, but when you think about things that could offset that, meaning O&M pressures, could you give a kind of a handful of what O&M pressure points could exist within your various businesses?

[James E. Rogers:]

Let me start and then Lynn can add to that. As we add new plants, that will increase O&M, but that will be offset by the retiring of plants. So there will be a netting out that will go on there. Fukushima costs that Lynn mentioned a moment ago, these incremental costs -- and they could be up to $100 million a year, these costs could be a pressure with respect to O&M. But Michael, the way I think about it is, the one thing that we've really been able to do well -- and we have roughly $6 billion in O&M every year, what we really have been able to do well over the last several years is really use the cost lever to hit the numbers. And I think that we're going to continue to do that going forward even though there'll be pressure on us from the bringing on of new plants, the increased nuclear cost. Lynn, how do you think about that?

[Lynn J. Good:]

I think those are a couple of good examples, Michael. Another one that I know a number of focus on are things like pension costs. In a low interest rate environment, that also can be a bit of a headwind. But I think as Jim indicated, we are looking at the total complexion of our O&M. The synergies gave us a great opportunity to identify areas we can save costs, and we're looking for ways to maintain a very modest trajectory in O&M growth as we go forward to really match what we see as top line growth potential.

[Michael J. Lapides:]

Got it. Wanted to follow up the Indiana-related, just trying to think about the process going forward. So you've got the settlement that's been sitting in front of the IURC on Edwardsport for a number of months. When do you think the commission there rules on that settlement and, therefore, when do things go into place as part of that settlement? And then when do you file again for kind of final cost recovery on Edwardsport?

[Lynn J. Good:]

So Michael, we're optimistic that the commission will approve the settlement by the end of the year. There's no specific procedural schedule that would indicate that they must, but we're optimistic that they will rule by the end of the year. And then we have trackers, as you know, in Indiana that would be considered along with the settlement. And the trackers would, first of all, put into rates the return on the invested capital and then we would -- we are intending to file a tracker to pick up in-service, which would be the O&M and depreciation. So those will be filings, the in-service filing will occur shortly, and the other trackers are already under consideration by the Commission.

[Michael J. Lapides:]

Okay. But can you give a little highlight of just if the Commission approves the settlement, that would go into effect beginning of 2013 timeframe. When would the next potential revenue change related to Edwardsport likely occur?

[Lynn J. Good:]

Probably, I would say, a quarter or 2 following in 2013. Michael, the procedural schedule on these trackers are every 6 months typically.

[Operator:]

And next is Hugh Wynne with Sanford Bernstein.

[Hugh Wynne:]

Just a couple of quick questions, the first one on Brazil. You mentioned on Slide 10 that these 20% cuts on electricity rates will be expected to be finalized in early '13. You're protected in the short term by the contract's structure, by the maturity of your contracts in Brazil. What is the maximum potential revenue and earnings impact, however, once these existing contracts are renewed at the new rates?

[Lynn J. Good:]

Hugh, we're not in a position to estimate this at this point. I think a couple of things need to happen. First of all, the program needs to be approved, and that's going -- that's scheduled to occur in 2013. And then we'll have to evaluate how that impacts market prices. And this is not the only item that would impact market prices. There's supply, demand, there are new resources coming on in Brazil. As you know, they have increased growth in demand of electricity. Hydrological conditions could impact prices as well. So we need to step back and evaluate all of these things before we can give you any clarity on impact.

[Hugh Wynne:]

Okay. And I imagine that will be part of the Analyst Day there?

[Lynn J. Good:]

We'll certainly update you in February. And I think this will be ongoing as we see how these rules are finalized.

[Hugh Wynne:]

Good. The second question is on Edwardsport. You mentioned that you've produced syngas at one of the gasifiers, you've produced electricity. Did that test show that gasifier and the combined cycle gas turbine's operating at design capacity, or was there any shortfall from design expectations?

[James E. Rogers:]

Let me, if I may, turn to Jeff Lyash to address that.

[Jeffrey J. Lyash:]

Yes, thank you, Jim. As you may know, we've been through the power island and fully tested it on natural gas, both combustion turbines and the steam turbine generator. In the last few weeks, we've put gasifier #1 in service, successfully produced very high quality syngas and used that syngas in the first of the 2 combustion turbines to produce up to about 115 megawatts. And that testing, so far, has gone very well. While we've experienced some equipment infant-mortality-failure-type issues, we've seen nothing that calls into question the robustness or the viability of the design. The test program is going pretty much as expected at this point.

[Hugh Wynne:]

Great. If you permit me, can you make any comments on your success to date in reducing your fuel costs on the Carolinas to offset the $650 million rate reduction that you've committed to?

[Lynn J. Good:]

Yes. Hugh, we are on track and see success not only in generating joint dispatch savings, but also in fuel flexibility. I think for the first quarter through September, we'll be filing in the next week some specifics on that first quarter impact. You'll have an opportunity to see that when it's filed. We'd expect the joint dispatch savings to ramp up over time, and similarly fuel. We have about 65% of our commitment on fuel under contract at this point and that, as we burn the coal, that will then flow to customers.

[Operator:]

Our next question is from Stephen Byrd with Morgan Stanley.

[Stephen Byrd:]

I wondered if you could talk a little bit about your sense of the likely sort of regulatory and political climate in North Carolina after the elections that we just saw, just any general sense as a result of the election, thinking about the governor and just some of the changes there?

[James E. Rogers:]

I'd make a couple of observations and one is, is that what you have seen is a significant -- I mean, the Republicans controlled both the House and the Senate. They picked up several seats in the Senate. They now have close to super majority in the House, and this is the first Republican governor in 20 years, and he won by over 10%. So I think that they're putting -- this new administration is going to come in and they have a lot of work to do. They don't have the same deep bench of people to pull from because they've been out of power in Raleigh for 20 years. But my belief is, is that Pat McCrory will do a good job of pulling talent from around the state into Raleigh to really create kind of a world-class administration. And so we're very happy that he's been elected and proud of the fact that he's from Charlotte, and he was our mayor for 14 years. He is the first governor from Charlotte that's ever been elected.

[Stephen Byrd:]

Okay, great. And I just wanted to switch gears very quickly to confirm on Brazil. You don't anticipate any changes to the existing contracts, existing hedges you have as the proposed -- [Audio Gap]

[Operator:]

Our next question is from Kit Konolige with BGC.

[Kit Konolige:]

Totally different question for you, Jim. I saw a report, it's a publication called POLITICO, that you're being considered as the next Secretary of Energy when Steven Chu leaves. So what can you tell us about that?

[James E. Rogers:]

Well, the only thing I can tell you is, since 1990, people have been trying to promote me out of this job into the government, and they've been unsuccessful. So I have a mission here to complete of integrating these 2 teams. I'm focused on that. I'm flattered that they would consider me for that lower paying job. But I think my wife would weigh in and say, "Get the money and focus on Duke." So I think that's how I'm thinking about it.

[Kit Konolige:]

Okay, fair enough. And then, Lynn, just to beat this dead horse a little bit more on when you were talking about the '13 drivers, I think I heard you call out the capacity revenues as something you cited among the drivers as a negative. And then I wrote down that you said that merger synergies would help offset that. So should we be looking at any of these items in particular as more or less important than the others?

[Lynn J. Good:]

Kit, as I look at Slide 13, we try to give you positive and negative impact in the quarter. I would point to rate cases, I'd point to synergies, I'd point to costs as being important items. Certainly, the economy is something that we'll be focused on. So I'm not intending to give relative magnitude on any of them at this point. We'll give you a full discussion in February. But there are a number of important items on this page.

[Kit Konolige:]

Okay, fine. And finally, any update -- do you guys have a sense of when this Jenner & Block report is likely to be out, and any further sense of timing on moving forward with the Commission's concerns in North Carolina over the CEO transition?

[James E. Rogers:]

As you know, this investigation is ongoing. We are cooperating with the North Carolina Commission and Jenner & Block. We're keeping open communications with the parties, and we're working our way through this. And I'm hopeful that we can find a way to work our way through this in a way that is -- creates value for both our customers as well as our investors.

[Kit Konolige:]

And but no sense of timing on when we might be able to move forward from that, Jim?

[James E. Rogers:]

It's just hard to zero in on the exact timing, but we're working our way through it. And I think everybody's intent is to do their best to get through this and get it behind us one way or another as soon as possible.

[Operator:]

And next is Ali Agha with SunTrust.

[Ali Agha:]

Jim or Lynn, going back to your dividend payout target, 65% to 70%. If I take the '12 guidance and your current dividend, you are at or slightly above that range right now. So is it fair to assume that if earnings are going to grow 4% to 6%, dividend growth should be somewhat south of that?

[Lynn J. Good:]

Ali, we've been growing the dividend at 2% really since 2009 to bring ourselves into the payout ratio. As we look forward, we'll be balancing that dividend policy with capital spending and growth aspirations, and we'll give you more specifics on dividend in February. But we're committed to growing it. It's an important part of our value proposition, and we're focused on growth into the future.

[Ali Agha:]

And separately, can you remind us your earnings sensitivity? A 1% change in load growth, roughly, what does that do to the bottom line?

[Lynn J. Good:]

It's $100 million of net income.

[Ali Agha:]

$100 million of net income.

[Lynn J. Good:]

Yes.

[Ali Agha:]

Got it. And last question, Jim, for you, assuming the Edwardsport settlement is approved and you go forward, given the cost escalations, et cetera, in retrospect from a financial perspective, ROE-owned perspective, how would you grade that project and that investment when all is said and done?

[James E. Rogers:]

I think if you look back on the project, I mean, once you -- 2 ways to look at it. If you look at the total cost of the project and you look at a return on invested capital, it clearly is greater than our cost of capital. So it's net positive from that standpoint. The minute this plant is completed and in rate base, they will be earning at whatever our ROE is at the time and in the future, which now would be 10.5%.

[Ali Agha:]

Okay. So you wanted the escalation? You think it was all worth it at the end?

[James E. Rogers:]

I do. And I think we will appreciate the value of that plant more as the years go on, and it's a great hedge. I mean, first, it's the most efficient coal plant in the world, and we will appreciate the value of that plant more and more in the future because gas prices are low today, whether you look out over the 40-year life of that plant, can you expect them to be $4 to $5 for 40 years, and to pick up on Ben Franklin who used to say, "There are only 2 things in life that are certain, death and taxes," I would add a third certainty to that, and that is the volatility of the price of natural gas. So I think this becomes a great hedge against natural gas prices in the future.

[Lynn J. Good:]

Ali, I'd like to jump back in on sensitivity on 1%. I misspoke. It's $100 million pretax, $65 million net income.

[Operator:]

And that does conclude today's question-and-answer session. At this time, I will turn the conference back to Mr. Jim Rogers for any additional or closing remarks.

[James E. Rogers:]

Thank you, all, again, for participating in our call today. We look forward to seeing those of you-all who will be at the EEI Financial Conference in Phoenix next week. Again, thank you very much for investing in Duke Energy.

[Operator:]

That does conclude today's conference. We do thank you for your participation.