Q4 2016 Real-Time Call Brief

Highlights

Today we announced adjusted earnings per share of $4.69, closing out a very successful 2016.

We are excited about our five-year $37 billion growth capital plan, up approximately 25% from last year.

Today, we extended our consolidated growth rate of 4% to 6% through 2021 which is off of the midpoint of our 2017 adjusted EPS guidance range of $4.50 to $4.70.

We will relentlessly pursue our goal of achieving and sustaining top quartile customer satisfaction placing the customer at the center of everything we do. We'll strengthen energy delivery system investing $25 billion to create a more modern, smarter energy grid.

We will generate cleaner energy through natural gas and renewable investing $11 billion as we move to a lower carbon in future.

Our transmission and distribution network is the largest in the nation and on its own our Carolina system is the sixth largest. Our scale requires constant capital investment, but in this era of transformations, the demands on our system have never been greater. And while that system is reliable, recent events such as Hurricane Matthew have highlighted opportunities to strengthen the grid. We have outlined a 10-year $25 billion plan to modernize, building a more flexible, reliable system.

We expect to reduce our outage frequency and duration rates by 50% and significantly reduce our O&M expenses through the deployment of more advanced technology.

Our next major investment platform focuses on generating cleaner energy I am proud of our efforts to reduce our environmental footprint including reducing or carbon dioxide emissions by 29% since 2005. In the next 10 years we will invest $11 billion increasing new highly efficient natural gas generation to 35% of our portfolio and cleaner, renewable energy sources to approximately 10%. These renewable energy sources include hydro, wind, and solar. With these investments and our carbon free nuclear generation, by 2026, we will reduce carbon emissions by 35% from our 2005 levels.

With more than 90% of our margins in the LDC business mostly fixed through the coupling and weather normalization mechanism and our low risk natural gas pipeline investment portfolio, we have very little exposure to volume metric risk in this business.

Similar to our electric businesses, our LDCs, which serve more than 1.5 million customers, are located in states with strong customer growth of over 1% over the last five years, including customer growth of 1.5% at Piedmont.

In the next 10 years we expect our natural gas platform to account for 15% of our portfolio, up from 8% today as we expand and scale our natural gas business.

The most significant impact from the House GOP plan is on our holding company. If we assume the loss of interest deductibility on new and refinanced holding company debt and a lower tax shield on existing debt, the impact could be approximately 5% dilutive by 2021. Given the capital intensity of our industry and the relatively high leverage percentage supported by regulations, we believe better tax policy to retain interest deductibility and forego immediate expensing of capital expenditures. This approach is recognized in the administration's plan and we will continue to meet few stakeholders to advocate for our position on behalf of our customers and investors.

Turning to infrastructure, the regulated electric industry invests more than a $100 billion annually in critical infrastructure and Duke Energy accounts for nearly 10% of that figure.

We're introducing our adjusted EPS guidance range of $4.50 to $4.70 per share today.

In addition now that we have successfully closed on Piedmont and international transactions, we will anchor our long-term growth rate off of the midpoint of our 2017 guidance range of $4.60.

Over the next five years, we anticipate growing our adjusted EPS by 4% to 6%, consistent with the historic growth rate we have achieved in our domestic businesses.

Given that we've completed the international sale in December, we will not have results from that business in 2017 but we'll have an approximate $0.05 from the use of proceeds from that sale and another $0.05 contribution from National Methanol which we retained and is now reported in other.

We've a robust five-year of capital plan of nearly $50 billion in place to drive our 4% to 6% earnings growth.

In fact we've increased our growth capital plan to $37 billion, an increase of $7 billion largely driven by grid modernization investments in the Carolinas and our growing gas platform. This investment plan will drive earnings base growth in our combined electric and gas businesses of approximately 6% over the next five years.

As we look at each of segment's contributions, electric utilities and infrastructure, representing 89% of our adjusted earnings, is well-positioned to grow at 4% to 5% over the next five years.

Our gas utilities and infrastructure business will contribute approximately 8% to our 2017 results with the five-year growth rate of 10% to 12%.

Our commercial renewables segment, which included owned wind and solar assets as well as our operating services and third party contracts, will contribute approximately 3% with a five-year growth rate of 8% to 12%.

Growth in our electric business will be supported by our five-year $30 billion growth capital plan.

Our plan also reflects environmental compliance cost of over $4 billion including approximately $3 billion to safely close ash basins across systems. These significant investments drive the strong earnings base CAGR of over 5.5% for our electric business through 2021.

We have allocated nearly 60% of our $30 billion plan to transmission and distribution which includes $10 billion for modernizing our grid infrastructure to make the systems smarter and more reliable. The other $7 billion will be devoted to investing in our system for additional customer growth.

Nearly 45% of the capital we invest in the grid will be devoted to storm hardening, to ensure our system is better prepared for severe weather events.

We will focus on key projects such as elevating substations located in vulnerable or low-lying areas and making our powerfolds more resilient. We are also identifying areas more susceptible to frequent power outages using data analytics capabilities. This information will be used as we develop our targeted undergrounding programs where we have allocated 25% of our grid investments to increase the reliability of our system for our customers.

We are committed to further reducing our environmental footprint with plans for new natural gas generation and renewable. Our five-year plan includes investment of $3.3 billion in highly efficient natural gas fired combined cycle plants.

Our $1.3 billion investment plan for carbon-free utility owned renewable will be led by investments in Florida and the Carolinas.

Looking ahead, we continue to expect approximately 0.5% load growth in our long term planning assumptions.

As we turn to our gas segment on slide 20, we have outlined a five-year $6 billion growth capital plan to expand our natural gas infrastructure and further develop this platform. Our plans are split evenly between investments in our LDCs and our mid-stream gas pipelines. This business will grow rapidly with combined earnings base CAGR of 11% over the next five-years as part of our larger 10-year plan to grow this business to 15% of earnings.

We expect to deploy approximately $3 billion in our gas LDC systems with Piedmont accounting for more than two-thirds of our LDCs earnings base and the Midwest accounting for the remaining third.

Moving to our midstream investments; we plan to invest in additional $3 billion in our pipelines during the five-year period much of which will contribute to the completion of ACP. This project is now anticipated to cost between $5 billion and $5.5 billion and is still expected to meet the second half 2019 in service date.

I've already mentioned our $1.3 billion investment in the investment in regulated renewable. In addition, we will also invest $1 billion in commercial renewable assets. This expands upon the more than $5 billion we have already invested in our contracted commercial renewables business since 2007.

Our commercial renewables business continued to expand its wind and solar portfolio ending the year with nearly 3,000 megawatt in 14 states.

In 2016 we invested in approximately 1,000 megawatts of new win projects that qualify for the 10-year PTC under Safe Harbor rules.

We are supporting the balance sheet with $350 million of drift equity per year from 2018 to 2021, which will advance our efforts to fund the increasing level of growth investments in our business.

Moving forward we expect to maintain our annual dividend growth rate at approximately 4% to 6% through 2021 as we target a payout ratio in the 70% to 75% range.