Dear Shareholder,
2022 was a remarkable year in many respects. We made significant progress on our strategy, seizing opportunities at every turn to better serve our customers and communities and grow our business. It was also a year full of twists – mounting supply chain constraints, increasing extreme weather events, and rapidly rising interest rates, inflation and fuel costs – that we managed through with great agility. I’m proud of how Duke Energy employees met the moment time and again – opportunity and challenge alike.
OUR COMMITMENT TO DELIVER
Adhering to a clear vision and an unwavering purpose is never so important as during tumultuous times like these. Our core principles guide us to make good decisions in the moment and keep our focus on the larger goals.
For us, that means executing the industry’s largest clean energy transition while preserving affordability and reliability. The result is value for our customers, communities and investors.
For the year, our adjusted earnings per share (EPS) were $5.27 – solidly within our revised guidance range. Our performance was driven by strong results in our electric and gas utilities, including positive contributions from base rate increases and riders and higher electric volumes supported by significant customer growth.
We delivered a total shareholder return that outperformed the Philadelphia Utility Index by 1.4% and the S&P 500 by 20%. Investors recognized core strengths from customer growth, constructive jurisdictions, investment opportunities, and cost management.
2022 marked the 96th consecutive year we paid quarterly cash dividends, which we increased by 2.1%, on our common stock.
Our performance in 2022 positions us well. We took proactive steps for the long term, advancing our regulatory and policy strategy across our footprint, including important milestones with the Carolinas Carbon Plan and Indiana Integrated Resource Plan (IRP), and increasing our capital plan. Given the significant investment opportunity in our regulated operations, we also made the decision to sell our Commercial Renewables business. We intend to close on the sale in the second half of 2023.
Our regulated utilities remain strong and the future is bright. Constructive recovery mechanisms, an active regulatory calendar, and a continued focus on cost management give us confidence in achieving our adjusted 2023 EPS guidance range of $5.55 to $5.75 and our 5% to 7% long-term growth rate.
And although economic uncertainty continues, we will closely monitor and respond to the dynamic environment, leveraging our business agility to deliver the results you’ve come to expect from us.
EXECUTING OUR STRATEGY
Our value as a company has always rested on providing safe, reliable and affordable power, day in and day out. That commitment is unwavering; but how we deliver on it is changing.
Our path to net-zero strategy continues to deliver consistent and lasting benefits to our customers, communities and investors. We believe in a responsible pace of change that is grounded in collaborating with stakeholders to achieve policy progress, transforming and readying our system, and creating value for customers and shareholders.
Collaborating with Our Stakeholders
Our vision for an affordable, reliable clean energy future is clear and it is informed by our engagement with stakeholders. We made strong progress in 2022, working with legislators, policymakers and other interested parties to advance the transition and ensure the best outcomes for those we serve.
At the federal level, President Biden signed historic climate legislation into law. The Inflation Reduction Act (IRA) lowers the cost of the energy transformation and incentivizes future investment in clean energy technologies. We expect to qualify for a variety of nuclear, solar and other renewable tax credits that will generate billions in savings over the next decade and help maintain affordability for our customers.
We also made progress with the U.S. Department of Energy (DOE) and other agencies to identify opportunities under the bipartisan Infrastructure Investment and Jobs Act (IIJA) signed into law in 2021. The DOE received more than $62 billion to help develop and deploy zero-emitting load-following resources. In 2022, we submitted two funding applications – one to expand our methane emissions reduction work and another for an integrated carbon capture and storage design study at our Edwardsport Combined Cycle Plant. Already this year, we are pursuing funding to enhance grid resiliency and progress the development of hydrogen and long-duration storage.
Across our service territories, we worked to advance our jurisdictional priorities. Foremost among them is the North Carolina Carbon Plan, which is designed to meet carbon reduction targets under North Carolina’s House Bill 951 (HB 951) – 70% carbon reduction by 2030 and net-zero by 2050 – while balancing affordability and reliability. We spent months gathering feedback to inform our proposed plan, including engaging over 500 stakeholders from diverse community, customer and consumer groups. In May, we filed a plan that outlined several portfolios to achieve these goals. Each presented a road map to lower emissions through an orderly retirement of coal, replacing it with a diverse set of carbon-free and dispatchable resources. We also requested the approval of near-term activities needed for replacement generation.
In late December, we received a constructive order from the North Carolina Utilities Commission (NCUC) recognizing the value of an all-of-the-above approach. The near-term activities approved include 3,100 megawatts of solar and 1,600 megawatts of storage, as well as transmission upgrades to support these resources.
The NCUC also approved development activities for longer-lead investments, including small modular nuclear reactors (SMRs), pumped hydro storage and transmission related to offshore wind. And the NCUC supported planning for approximately 2,000 megawatts of new, hydrogen-capable natural gas generation to maintain reliability. We look forward to continuing our progress through our updated Carbon Plan filing in North Carolina and the next IRP filing in South Carolina later this year.
Enabled by HB 951, we also initiated our first requests in North Carolina to implement modern regulatory mechanisms, including performance-based ratemaking and multiyear rate plans, in Duke Energy Progress (DEP) and Duke Energy Carolinas (DEC). The proposed, three-year multiyear rate plan will help smooth customer rate volatility while maintaining upside from customer growth. Investments are focused on grid resiliency, enhanced reliability and lower operating costs. We expect interim rates to be implemented as early as midyear for DEP and September for DEC.
In South Carolina, storm securitization legislation was signed into law in June. This tool allows utilities to issue bonds to finance storm restoration costs, lowering the impact for customers. We filed an initial application with the Public Service Commission of South Carolina in August to begin securitizing deferred storm costs in DEP and expect to issue more than $170 million in bonds by early 2024.
And in the Midwest, we continued to advance our Indiana transition. We held multiple public information sessions with stakeholders, conducted requests for proposals for non-intermittent and renewable resources, and anticipate filing for certificates of public convenience and necessity for new generation in the coming months.
We reached positive settlements in our Ohio and DEP South Carolina electric rate cases, which were approved by the respective state commissions. These agreements underscore the constructive environment in our jurisdictions, allowing us to make critical investments and bring greater value to stakeholders.
Transforming and Readying the System
We operate one of the most diverse systems in the industry and are preparing it for our low-carbon future. We are on track to exceed our 50% carbon emissions reduction target by 2030 and committed to an additional interim target this past year – 80% by 2040 – on our path to net-zero by 2050. We also became one of the first in the industry to expand our net-zero goals to include Scope 2 and certain Scope 3 emissions. Ninety-five percent of our emissions are now tied to a net-zero target.
Reducing emissions
In 2022, we established a goal for coal to represent less than 5% of total generation by 2030 and a full exit by 2035, subject to regulatory approval. We announced plans to add regulated renewables at a record rate. By 2035, we anticipate 30,000 megawatts on our system – five times what we operate today. This past year, we completed our initial $1 billion, 700-megawatt solar commitment in Florida. We continue executing our $1 billion Clean Energy Connection program to add another 750 megawatts by the end of 2024.
To support our renewables portfolio, we are increasing energy storage, adding nearly 20 megawatts of battery storage in Florida alone last year. By 2024, we will finish upgrades to our Bad Creek hydro station in South Carolina, bringing capacity to more than 1,600 megawatts. We also continue to evaluate the potential for a second powerhouse to double capacity.
Nuclear, which accounts for 80% of the carbon-free energy we generate, remains critical. Put simply, we can’t achieve our clean energy goals without it. We continue to advance our first subsequent license renewal application, which would extend the life of Oconee Nuclear Station for an additional 20 years. We will pursue similar renewals for the remainder of our 11 units to operate these valuable assets and support our energy transition.
In our natural gas local distribution companies, we are making great progress reducing methane emissions through our partnership with Accenture, Microsoft and Avanade to use satellites, sensors and other technologies to monitor and detect leaks in real time. And we’re investing $300 million over the next five years in renewable natural gas, including two North Carolina projects that will be completed this year.
Grid investments
The grid is the backbone of our transition. We continue to modernize it to ensure it’s ready to meet the needs of tomorrow. This includes preparing for more renewable energy and extreme weather. In Indiana, we completed our initial Transmission, Distribution and Storage System Improvement Charge (TDSIC) plan, investing $1.4 billion over seven years to make infrastructure upgrades that improve service to customers. The Indiana Utility Regulatory Commission approved our subsequent $2 billion, six-year TDSIC 2.0 plan, which will increase grid reliability and resiliency, enable renewables and distributed generation, and enhance economic development opportunities.
In Florida, we received approval of our Storm Protection Plan from the Public Service Commission. Over the next decade, we anticipate investing more than $7 billion in capital investments to harden the grid and improve resiliency.
We’re transforming our infrastructure to enable the two-way flow of electricity, which will support grid edge technologies, including rooftop solar, battery storage and electric vehicles. We’re collaborating with manufacturers to test vehicle-to-grid integration capabilities during periods of high energy demand. To prepare for electric vehicle growth, we also have charging pilots across all our service territories and are investing $100 million in charging infrastructure by 2025.
Emerging technologies
This decade is essential for researching and developing emerging technologies that are needed to close the gap to net-zero. The IIJA plays an important role in bringing the public and private sectors together to help test and deploy these innovations.
Offshore wind is one such option. In May, we were awarded one of the Carolina Long Bay leases near Wilmington, North Carolina. The Carbon Plan supports limited project development activities common to all Carolina wind energy areas, such as onshore transmission infrastructure.
We continue to see exciting developments with hydrogen. We served as a driving force to launch the Southeast Hydrogen Hub coalition, which includes Southern Company, Dominion Energy and Tennessee Valley Authority, among others, to meet the growing demand for hydrogen in the transportation, industrial and power sectors. The coalition was encouraged by the DOE to submit a full funding application under the IIJA, which we will do this April.
Advanced nuclear and SMR designs continue to develop. We remain technology agnostic on development activities but are engaged with TerraPower’s Natrium and GE Hitachi’s BWRX-300 reactors. We also participate in several developer advisory boards, including the Holtec executive advisory committee and NuScale industry advisory board.
This past year, we announced a partnership with Purdue University to evaluate the possibilities of SMR technologies to meet campus needs and provide excess power to the grid. Long-duration energy storage coupled with these new technologies could be a significant contributor to our goals. By 2050, we plan to have 30 gigawatts of storage on our system. Currently, we’re exploring more than a dozen different types of storage – from fuel cells to pumped hydro to long-duration batteries. We are testing an Eos Gen 3 zinc battery and a Honeywell flow battery solution at innovation centers. We also recently submitted a DOE application for a CO2 energy storage installation at our Mayo Plant.
Creating Sustainable Value for Customers and Shareholders
We believe deeply that our transition must deliver value to those we serve, and 2022 is proof of our commitment.
Delivering for our customers means providing reliable power at an affordable price and meeting their evolving needs. In today’s environment, affordability and energy equity are front and center. During the pandemic, we created a specialized team to partner with thousands of agencies across our service territories. Since 2021, our specialists helped customers access nearly $300 million in assistance funds. We also began tailoring programs in our states to help customers with utility bills. Through our Share the Light Fund, our company, Foundation, employees, and customers invested more than $9 million to provide low-income customers bill pay assistance.
We’re leveraging IRA benefits and have started to incorporate them into resource plans and rate adjustments across jurisdictions. In Florida, we’re already passing along $56 million of corporate tax savings annually. The Southeast Energy Exchange Market (SEEM) furthered customer savings. Beginning operations in November, SEEM is a sub-hourly, bilateral trading market of more than 20 Southeast and Midwest energy companies that allows utilities to more efficiently buy and sell power and enable renewables. And we introduced creative new programs. In South Carolina, for example, we filed for the creation of new renewable energy programs such as Renewable Choice, which would allow customers to purchase renewable energy certificates to match up to 100% of their demand. The proposal also includes one of the first 24/7 renewable offerings to align use with the hourly production of renewable energy. We continue to offer customers the control, convenience and options they want, and this focus shows in our metrics. Piedmont Natural Gas was named No. 1 in customer satisfaction by J.D. Power for residential natural gas service in the South for the first time in company history. Our Carolinas electric utilities also remain top quartile.
For our investors, we’re focused on driving sustainable growth. We announced an increased capital plan of more than $145 billion in our regulated businesses over the next decade. It’s one of the largest in the industry, with 85% funding investments in the grid and our clean energy transition. Ninety percent of electric capital investments are eligible for modern recovery mechanisms, minimizing regulatory lag and strengthening the balance sheet. And we are committed to delivering results the right way, which starts with transparency. We published a Climate Report, ESG Report and Trade Associations Climate Review – each outlining various aspects of our transition, including our progress on decarbonization, diversity and inclusion, pay equity, environmental justice, just transition, and policy engagement. This focus earned us a Labrador Transparency Award.
EXERCISING AGILITY AND NAVIGATING HEADWINDS
Even as we pursued our strategic goals, we acted swiftly and decisively as challenges arose in this volatile environment.
In response to rising interest rates and inflation, we built on our strong track record on cost management by identifying $300 million in savings opportunities for 2023. Many of these savings were realized through organization simplification, work reduction, automation and digitization, and ongoing cost reductions in supply chain. We believe approximately 75% of the savings will be sustainable.
We minimized high fuel costs for our customers by hedging price exposure, where possible, and engaging in long-term supply and transportation contracts. We took advantage of our fleet diversity to dispatch generation to create cost savings and fuel security. We also worked with regulators in our states to mitigate bill impacts and informed customers of resources to help.
Our service territories also experienced a series of extreme weather events this year. More than 19,000 restoration workers responded to 1 million customer outages across a series of winter storms – the most we’ve seen in eight years. And in September, Hurricane Ian made landfall in Florida as the fifth-strongest hurricane on record. We saw significant impacts in Florida and the Carolinas, but we had 20,000 resources at the ready and restored nearly 2 million outages within 72 hours.
Our team was once again tested in late December. Historic cold weather and extremely high customer demand led to a unique chain of events that forced us to implement rotating outages in the Carolinas for the first time in our history. The rotating outages were conducted to avoid potentially larger and longer outages across the system. We are deeply sorry for what our customers experienced and are pursuing every possible lesson. But I am proud of how our employees responded to restore power and kept it on for customers during the remainder of the cold spell. We are taking steps to ensure that if faced with similar challenges, we will see a different outcome and provide a better customer experience.
Regrettably, weather wasn’t the only threat to the grid. In early December, two of our substations in Moore County, North Carolina, were attacked. Our crews worked around-the-clock, pursuing multiple repair paths and replacing large and vital pieces of equipment over several days to restore service to all 45,000 impacted customers. As the largest grid operator in the country, protecting our grid is paramount. We work every day to secure millions of essential components across our grid. And we continue to collaborate with our industry and government partners to integrate learnings from this incident and others around the country to enhance our protection programs.
BUILDING ON A STRONG FOUNDATION
We recognize safety, operational excellence and community engagement are foundational to our success. And we continue to find ways to mature our programs because we recognize our job is never done.
Safety and Operational Excellence
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