2017 Annual Report
Meeting Our Financial Commitments
Our adjusted diluted earnings per share were $4.57 – near the midpoint of our full-year guidance range. This result was supported by growth from our investments in our electric and natural gas businesses, including the full-year earnings contribution from Piedmont Natural Gas.
We reduced operation and maintenance costs in response to unfavorable weather early in the year and plan to keep these costs flat through 2022. Our efforts to instill cost agility and use new technology, without impacting operations, remain critical to our plans to grow and deliver strong financial results.
And 2018 marks the 92nd consecutive year we have paid a quarterly dividend – a hallmark pledge to our investors – and we remain committed to maintaining our annual dividend growth in line with earnings growth.
Last year, total shareholder return was 13.0 percent compared to 12.8 percent for the Philadelphia Utility Index. Utility share prices came under pressure in late 2017, and that continued in early 2018 due to rising interest rates and the impact of federal tax reform.
However, those customer benefits initially put pressure on our balance sheet. Therefore, across our states, we are working with regulators to propose a variety of solutions that balance returning savings to customers while preserving the financial strength of our utilities, which also benefits customers. Additionally, we took steps to support our balance sheet and fund our capital program given that the positive effects of tax reform on our business will take time to manifest.
This February, we announced our 2018 adjusted diluted earnings guidance range of $4.55 to $4.85 per share. Our long-term growth rate remains at 4 to 6 percent, underpinned by our commitment to deliver strong results on our $37 billion growth capital plan over the next five years.
Duke Energy remains a premier, long-term investment due to our attractive dividend yield and low-risk earnings growth. Last year proved that we can respond to challenges and deliver on our strategy to continue returning value to our investors.
Executing Our Strategy
With our transition complete, our vision for where we want to take Duke Energy is clear. We’re focused on modernizing our energy grid, generating cleaner energy and building our natural gas infrastructure. And we will build on our foundation of customer satisfaction and stakeholder engagement. Everything we do begins with customer service and we understand that working with our stakeholders is critical to our success.
We see great opportunities ahead as we continue investing in infrastructure our customers value and delivering sustainable growth for our investors.
Modernizing The Energy GridThe energy grid powers nearly every part of our society. It powers lives and livelihoods, and serves as the foundation for transforming our customers’ experience.
However, in some respects, the grid operates nearly the same as it did a century ago – as a one-way road sending electricity from power plants to customers. We are now at a turning point. With the right investments in technology, the grid can deliver more flexibility and functionality to our customers.
Last year, we announced a $25 billion investment to make our grid smarter, greener and more capable. So far, we've deployed smart meters to more customers, installed grid optimization technology and used data analytics to identify power lines to move underground.
Forty percent of our customers have smart meters – a key technology that enables more control for our customers. In 2017, we installed 1.2 million meters and plan to install an additional 1.4 million meters in 2018, focusing deployments in the Carolinas and the Midwest.
Last year, we hardened the grid, making it more resilient to storms and security threats. Already, we made significant strides in Indiana and our Duke Energy Carolinas service territory. In 2018, we will begin major hardening and resiliency activities in Florida, Kentucky and our Duke Energy Progress service territory.
Our self-healing technology investments help improve reliability by detecting and rerouting power when a problem occurs. We have avoided more than 1.2 million power interruptions and saved customers 162 million outage minutes. As we continue to self-optimize our grid, we’ll reduce more outages as intelligent systems and grid automation work together to reconfigure our system.
Zach Sipes / Distribution Line Technician
Our goal is to have 80 percent of customers serviced by a self-optimizing grid in the next decade.
In 2017, we used analytics to identify power lines that experience excessive power outages and require significant resources to maintain. We plan to move these lines underground to improve customers’ experiences and make power restoration activities more efficient. The program will launch in Ohio, the Carolinas and Florida in 2018, with plans to deploy in Kentucky in 2019.
We have a call to action to deliver more reliable electricity and new services. Our investments in a more intelligent, resilient grid underpin our plans to meet customers' evolving needs.
Transforming the Customer ExperienceIn today’s economy, customer expectations are set by innovators who create a personal connection, often through seamless digital and mobile capabilities. They make it easy to do business, giving customers the information they want – when and how they want it.
To meet these new expectations, we’re building on our grid modernization efforts to transform the customer experience.
In 2017, we focused on providing our customers more information and options – including usage and outage alerts, along with pick your own due date features. Many of these options were enabled by smart meters.
We've also invested in a new customer information system – the backbone that allows us to tailor services for customers – and we look forward to advancing this project in 2018. And we began developing a mobile app to give customers personalized updates, more control and new ways to communicate with us.
Our customer-centric focus resulted in improved customer satisfaction. Our J.D. Power residential customer satisfaction scores improved compared to 2016 in all jurisdictions. Our goal is to move the company into the top quartile, and our 2017 results show we are on the right track.
Customers want an experience that is consistent, individualized and responsive, and that’s what we are focused on delivering.
Generating Cleaner EnergyWe have a long-standing commitment to the environment and to lowering our carbon emissions – with results that prove it.
In April, we announced a new carbon emissions target. By 2030, we plan to reduce our carbon emissions by 40 percent from our 2005 levels.
To help us meet this goal, we're targeting $11 billion in investments in natural gas generation and expanding our renewables portfolio.
Construction of our combined-cycle, natural gas-fired generation projects – W.S. Lee, Citrus County and Western Carolinas – continues to progress. The W.S. Lee project is near final commissioning and our Citrus County and Western Carolinas projects remain on track to begin commercial operation in 2018 and 2019, respectively.
Our natural gas generation complements our expanding renewables portfolio. More and more, customers are looking at renewable energy to meet sustainability goals and provide cost-effective power.
Duke Energy is one of the nation's top renewable energy investors. We own more than 800 megawatts of solar power capacity and plan to procure more than 3,000 megawatts over the next five years. We also own and operate 2,300 megawatts of wind power and operate about 1,700 megawatts of wind facilities for third parties, including the first U.S. offshore wind project.
In 2017, we connected 500 megawatts of new solar energy in North Carolina, helping the state remain second in the nation for solar capacity. In addition, Duke Energy Kentucky entered the solar market in 2017 as we announced three projects to bring customers 6.8 megawatts of solar energy.
Anthony Alston / Solar Technician / Kathleen Alexandridis / Engineer
In August, our commercial renewables business acquired the Shoreham Solar Commons project in New York, one of the state's largest solar projects. We announced our partnership with the Indiana National Guard to install battery storage and solar panels at Camp Atterbury. We also announced a $30 million investment to install the two largest battery energy storage systems in North Carolina.
Moving forward, we see new growth opportunities. In North Carolina, new legislation will lead to an additional 2,600 megawatts of competitively priced solar for the state. In Florida, we plan to add 700 megawatts of utility-scale solar as well as up to 50 megawatts of energy storage.
We are committed to a cleaner energy future, and we will continue our investments to deliver on it.
Building Our Natural Gas InfrastructureOctober 2017 was the one-year anniversary of our Piedmont Natural Gas acquisition – one of the country’s most trusted utility brands. Already, we've seen the strength of our combined company.
Mill Creek Combustion Turbine Station / Cherokee County, SC
We will continue to leverage Piedmont's expertise as we expand our natural gas infrastructure, doubling this segment's earnings contribution to 15 percent in the next decade.
We are using overlap between our electric and natural gas businesses to better serve customers. In the past year, we announced dual-fuel projects at our Rogers, Belews Creek and Marshall Steam stations – a $500 million investment that will reduce our carbon emissions and increase our flexibility to manage fuel costs.
Our midstream pipeline business is critical to serving customers, and we made significant progress in 2017.
The Federal Energy Regulatory Commission (FERC) issued the final Environmental Impact Statement (EIS) in July for our Atlantic Coast Pipeline project, followed by the final project certificate in October. In addition, we obtained water and air permits from West Virginia, Virginia and North Carolina. We began construction of this 600-mile pipeline in January 2018, staying on track for a late 2019 in-service date.
The Sabal Trail pipeline achieved commercial operation in July 2017, and it will serve our Citrus County combined-cycle natural gas plant in Florida when it comes online. A federal appeals court ordered FERC to review the project's EIS and in September, FERC issued a supplemental EIS, which is now final. In March 2018, FERC requested and the federal appeals court approved additional time to issue a new FERC order for the project. Sabal Trail anticipates normal pipeline operations will continue as it monitors any impact from this process.
Despite permitting challenges with our Constitution pipeline in New York, we remain committed to this project and the affordable natural gas it can bring to customers in the Northeast.
Natural gas is an important resource for the United States and one of the industry’s greatest disrupters. Our expanding natural gas infrastructure will help us bring this lower-carbon fuel to more customers.
Engaging Stakeholders2017 highlighted the value of stakeholder engagement in providing the best possible service to our customers and communities.
One of our long-term goals remains to modernize regulatory constructs in all of our jurisdictions, ensuring our ability to recover investments matches how we're investing in smarter energy solutions.
In Florida, the Public Service Commission unanimously approved a settlement agreement that extends our current multiyear rate plan to 2021. It includes nearly $6 billion of investments, including solar energy, smart meters and grid modernization projects. In addition, the agreement provides for modern investment recovery while minimizing affects to customer bills.
We also worked with the Public Service Commission to apply federal tax reform savings toward storm costs from Hurricane Irma, helping avoid customer rate increases.
In North Carolina, we worked with stakeholders and legislators to support legislation, as mentioned earlier, that better positions the state for solar growth. The outcome was the product of years of work, and it sets a model for how we can pursue constructive outcomes.
We made progress working with our state commissions as we pursued traditional rate cases to recover investments while keeping rates affordable. And we established jurisdictional advisory councils to create dialogue that informs our business strategies.
To succeed, we need support from stakeholders who are willing to work together. In 2018 and beyond, we will continue to pursue solutions that make sense for customers and investors.
Constant Focus on Operational Excellence
The ability to maintain the reliability of our fleet and grid in a safe and sustainable manner, while also preparing for emerging threats, directly influences relationships with customers and regulators, credibility with investors, and our reputation with stakeholders.
We continued to demonstrate our commitment to safety as a core principle. We improved our industry-leading performance from 2016, further reducing our total incident case rate and OSHA-reportable employee safety incidents. As we integrated Piedmont Natural Gas, we’ve seen strong improvement in their safety performance, reducing incidents by 60 percent in the past year.
Safety is critical to maintaining reliable operations. Once again, our generation fleet delivered strong reliability metrics. Our nuclear fleet’s capacity factor was 95.6 percent – nearly breaking the company record set in 2016. With this performance, 2017 was the 19th consecutive year our capacity factor has been above 90 percent.
Our McGuire, Oconee and Brunswick nuclear stations achieved records for days of consecutive operations – with Oconee setting a new company record at 716 days. We also delivered strong refueling outage results, completing six outages almost 17 days ahead of our planned outage duration.
Our fossil/hydro organization continued to find flexible solutions while delivering reliable operations. In June, we announced an expansion at our Lincoln Combustion Turbine Station, installing highly efficient natural gas turbines that deliver approximately 400 megawatts of peaking energy. This project offers significant cost savings to our customers and complements our renewable resources while lowering carbon emissions. In addition, our Edwardsport gasified-coal plant set continuous operation records and improved gasifier availability.
But we also pride ourselves on identifying opportunities to improve. We were disappointed with aspects of our storm response, including communications on estimated times of restoration and the performance of certain outage-related systems. We have already taken steps to address these issues to serve customers better in the future.
To help those affected by hurricanes Irma, Harvey and Maria, our company matched employee and retiree donations for relief efforts, totaling more than $225,000. And in early 2018, more than 200 employees volunteered to restore power to Puerto Rico following the devastation of Hurricane Maria.
In 2017, we showed our ongoing commitment to environmental stewardship as we reduced reportable events for the third straight year. We also made progress in closing coal ash basins. Our basin excavation projects remained on track with over 7 million tons of ash removed last year, exceeding our goal. Across the system, scientific and engineering work continues to guide closure solutions. In addition, we announced a third coal ash reprocessing location, which will make ash suitable for use in concrete.
Our commitment to a cleaner, more sustainable energy future is evident by Duke Energy being named to the Dow Jones Sustainability Index for the 12th consecutive year. This continued recognition is underpinned by our unwavering focus on safety and operational excellence.
Engaging Employees and Creating Stronger Communities
We’re proud to work with communities and leaders to attract jobs and economic development, continuing to strengthen our states. Last year, Duke Energy attracted $5.9 billion in capital investment, helping create over 12,000 jobs.
For the 13th consecutive year, we were named to Site Selection magazine’s annual list of Top 10 Utilities in Economic Development.
But as we focus on creating jobs and attracting investments, we’re just as focused on building and nurturing a diverse workforce that’s ready to power our communities.
Last year, the Duke Energy Foundation donated more than $33 million in charitable gifts to local organizations, and our employees and retirees volunteered over 115,000 hours. Our philanthropic investments continue to focus on STEM education and workforce development, the environment and community impact.
We believe workforce development starts as early as possible, and that’s why our investments span kindergarten through career.
In Florida, we invested in Lake-Sumter State College’s energy technology programs, which train workers for in-demand energy industry jobs. In North Carolina, we worked with the Urban League of Central Carolinas to develop an eight-week course for students interested in entry-level utility positions.
As we develop the next generation of leaders, we need to be prepared for what’s next. Our employees provide a competitive advantage as we transform to meet tomorrow’s challenges. But like our business, our workforce must evolve. This will require us to attract and retain diverse viewpoints.
Last year, I signed the CEO Action Pledge for Diversity and Inclusion, the largest CEO-driven business commitment to advance diversity and inclusion. We’ve launched unconscious bias training and created platforms for employees to have difficult conversations on issues impacting our communities. Duke Energy also received a perfect score from the Human Rights Campaign for our LGBT-friendly corporate practices and policies.
Joel Gonzalez / Distribution Line Technician
In the year ahead, we want to attract more diverse candidates. In particular, we’re committed to hiring veterans – who possess the training and leadership qualities that transfer to our business. Last year, we hired 400 veterans and plan to fill 12 percent of our open positions with veterans moving forward.
The vitality of our communities and workforce is at the heart of our mission. Their strength will continue to be a priority for Duke Energy, as it has been for the past 114 years.
Building a Smarter Energy Future℠
Awards like this are gratifying, but we know our work continues. That’s why we're embracing change to continue delivering on our purpose: to power the lives of our customers and vitality of our communities.
Few companies are more closely aligned with making a positive contribution to the economy and society. Our company is engaged on so many important policy issues – from the environment to tax reform, renewable energy, corporate philanthropy, diversity and more – and we're pushing forward to find the right solutions.
As I look back on 2017, I remain as confident as ever in our vision for a smarter energy future and the strategy we’re executing to get there.
Lynn J. Good
Chairman, President and Chief Executive Officer
March 9, 2018
Our Financial Highlights(A)
(B)Prior year data has been recast to reflect the classification of the International Disposal Group as discontinued operations and to reflect the impacts of new accounting standards.
Duke Energy at a Glance
Electric Utilities & Infrastructure
- Owns approximately 49,500 megawatts (MW) of generating capacity
- Service area covers about 95,000 square miles with an estimated population of 24 million
- Service to approximately 7.6 million residential, commercial and industrial customers
- 277,100 miles of distribution lines and a 31,900-mile transmission system
(1) As of December 31, 2017.
(2) For the year-ended December 31, 2017.
Natural Gas Customer Diversity
- Regulated natural gas transmission and distribution services to approximately 1.5 million customers in the Carolinas, Tennessee, southwestern Ohio and northern Kentucky.
- Maintains more than 33,100 miles of natural gas transmission and distribution pipelines, and 27,400 miles of natural gas service pipelines.
(2) For the year ended December 31, 2017.
Duke Energy Renewables
(1) As of December 31, 2017.
Duke Energy Renewables, part of the Commercial Renewables business segment, includes utility-scale wind and solar generation assets that total 2,907 MW across 14 states from 21 wind and 63 solar projects. The power produced from renewable generation is primarily sold through long-term contracts to utilities, electric cooperatives, municipalities and commercial and industrial customers.
As part of its growth strategy, Duke Energy Renewables has expanded its investment portfolio through the addition of distributed solar companies and projects, energy storage systems and energy management solutions specifically tailored to commercial businesses and other institutions.
Annual Meeting of Shareholders
Duke Energy's 2018 Annual Shareholder Meeting will be:
Date: May 3, 2018
Time: 12:30 p.m. Eastern Time
Audio Broadcast: 800.239.9838
conference number 7668330
To participate in the online Annual Meeting, shareholders will need the 16-digit control number included in the Notice of Internet Availability of the Proxy Materials, on the proxy card and on the instructions that accompanied your proxy materials.