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Duke Energy Corporation (NYSE:DUK)

Q4 2012 Earnings Conference Call

February 13, 2013 10:00 ET

Executives

Bob Drennan - Vice President, Investor Relations

Jim Rogers - Chairman, President and Chief Executive Officer

Lynn Good - Executive Vice President and Chief Financial Officer

Analysts

Dan Eggers - Credit Suisse

Kit Konolige - BGC

Michael Lapides - Goldman Sachs

Andy Bishop - Morningstar Financial Services

Ashar Khan – Visium

Operator

Good day everyone, and welcome to the Duke Energy Fourth Quarter and Year End Conference Call. Today's conference is being recorded. At this time, I am pleased to turn the conference over to Mr. Bob Drennan. Please go ahead, sir.

Bob Drennan

Thank you, Jennifer. Good morning, everyone and welcome to Duke Energy’s Fourth Quarter and Year End 2012 Earnings Review. Leading our discussion today 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 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 this forward-looking information. A reconciliation of non-GAAP financial measures can be found on our website and also in today’s materials. Please note that the appendix to today’s presentation materials includes supplemental information and additional disclosures to help you analyze Duke Energy’s performance.

In today’s call as Jim and Lynn will review our fourth quarter and year-end earnings, I am pleased to discuss the company’s recent decision to retire the Crystal River 3 Nuclear Plant in Florida. We will also update you on our strategic initiatives and highlight recent regulatory activities. The management team of Duke Energy will host an analyst meeting in New York City on February 28. 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. A live webcast of the meeting can be accessed via the Investors section of Duke Energy’s website. After the prepared comments this morning, Jim and Lynn will take your questions.

And now, I would like to turn the call over to Jim Rogers.

Jim Rogers

Thanks Bob. Thank you all for joining us today. The end of 2012 marked our first six months following the combination of Duke Energy and Progress Energy. By December 31st, we had turned an extraordinary year of uncertainty into a year of great accomplishments both operationally and financially and especially pleased with the resilience and dedication of our employees. Throughout the 18 months approval process in the first months of the new emerged company they were focused on providing affordable and reliable electricity 24/7 to our 7.1 million customers and providing superior value to our investors.

Slide four, highlights a few of this specific accomplishments of our people in 2012. We successful closed the Duke Progress merger in early July. This merger created primarily regulated utility business with the scale to drive efficiencies for our customers and our shareholders. Also the Indiana Commission approved the Edwardsport IGCC settlement providing us clarity on cost recovery of this important project. We had strong operational performance last year; we often say that Stacy comes first. 2012 was a testament to our focus, during the year we achieved the best employee safety record in the company’s history. It is a tribute to our employee’s commitment.

Our nuclear team achieved a fleet capacity factor of over 90% from the 13 straight year excluding Crystal River 3. We successfully completed three major new power plants in North Carolina all within budget. We completed five new wind farms and three new solar farms at 650 megawatts of net renewable capacity to our portfolio. We also had a very strong financial performance in 2012 by achieving each of our overall financial objectives. Our adjusted diluted earnings per share of $4.32 was at the upper end of our earnings guidance of 4.20 to 4.35 for the year. We continued to grow the dividend by approximately 2% while maintaining a strong balance sheet.

Our total shareholder return during 2012 outperformed the Philadelphia Utility Index. From merger announcement in early January 2011 through the end of 2012 Duke Energy’s total shareholders return was around 32%, this significantly outperformed the 17% return of the index during the same period. On our last call we reported on our key near term priorities. We have been focused on since merger closed. As demonstrated on slide five, we’re making excellent headway in resolving these priorities. I will mention the highlights and then going into more detail in later slides.

First, in December we successfully resolved the North Carolina investigations into the post-merger CEO change. Resolution enables us to move forward and focus on our rate cases in the Carolinas which are also near term priorities. These cases are being driven large part by the necessary capital investments we have made in our fleet modernization program. Progress Energy Carolinas filed its rate case in North Carolina last fall.

This was the first time P&C had sought a rate case increase in North Carolina in 25 years. The evidentiary hearing begins in March and we expect revised rates to be affecting by mid-year. Duke Energy Carolinas filed a rate case last week in North Carolina and will follow case in South Carolina next month.

As a reminder we also have two pending rate cases in Ohio and electric distribution case and a gas distribution case. Second, early last week we announced our decision to retire the Crystal River 3 nuclear unit in Florida. Third, in December the Indiana Commission improved a settlement agreement that provides clarity on cost recovery for the Edwardsport project. Construction is complete and the plan is undergoing testing. This plant will serve the needs of our Indiana customers for decades to come in an environmentally responsible manner.

We also continued to make progress on the other near-term priorities. We remain focused on delivering our merger integration initiatives. We are being very disciplined about this work and are on track to achieve the intended savings and efficiencies. In fact, we are ahead of schedule in fuel savings. Approximately $52 million of savings were recognized in the last six months of the year. By year end 2012, about 700 employees have left the company through the voluntary severance program. Most of the remaining 400 employees who had elected this program will leave by the end of this year.

Finally, our nuclear fleet as a whole performed extremely well in 2012. We continued to leverage best practices across the fleet and take advantage of having 11 rectors in the Carolinas. We are also making additional investments to optimize safety, reliability, and efficiency.

Now, let’s turn to slide six in the Crystal River 3 retirement decision we announced last week. This nuclear unit in Florida has been safely shutdown and offline since late 2009. As you all will recall, the 2012 regulatory settlement approved by the Florida Commission gives us the sole discretion and flexibility to retire this nuclear unit. This was a difficult decision. It came after comprehensive analysis of cost, risk, and other factors involved in attempting a complex most of the time repair versus retiring and decommissioning the plant. After completion of the technical and economic feasibility studies, we determined that a repair is technically feasible, but it included significant risk that can greatly increase the cost of repair and extend the repair schedule. As a result, we concluded it is in the best long-term interest of our customers and investors to retire the plant.

Additionally, since the fourth quarter of last year, we have been in mediation with our insurance provider to resolve our outstanding claims related to this plant. Both parties have accepted the mediators’ proposal. Consequently, Neo will pay the company additional $530 million. Along with the $305 million that Neo has already paid, our (Florida) customers will have $835 million in insurance proceeds, the largest claim payout in the history of Neo. Deciding how the best move forward and Crystal River 3 has been one of our top priority since the merger closed last July. It is important for everyone as we reached the right decision and provide clarity on this issue.

We intend to use the same store option for decommissioning the plant and are working on a comprehensive plant. This option involves putting the unit in a safe condition for 40 to 60 years before decommissioning. As a result of this lengthy time period, we expect that our current decommissioning fund balance of approximately $600 million will be sufficient. We expect that the Florida Commission will review this retirement decision and the acceptance of the mediators’ proposal resolving Crystal River 3.

Next, moving to slide seven which provides key facts about the rate request, Duke Energy Carolinas filed in North Carolina last week. This is the third in the series of three rate cases filed by Duke Energy Carolina to recover its capital investments to modernize the generation of fleet. We have requested a net increase in annualized customer rates of $446 million or an average of 9.7%. This is based upon a ROE of 11.25% and 53% equity component of the cap structure and a North Carolina retail rate base of approximately $12 billion through the estimated date of the hearings. Around 90% of the requested rate increase was due to capital investments. These include the Cliffside advance coal plant and the Dan River combined cycle natural gas plant both previously approved by the commission. Although the commission has not yet established a procedural schedule we expect that hearings will occur early in the third quarter revised rates effecting in September. Turning to slide eight, I will summarize the recent regulatory approval of the settlement agreement related to our Edwardsport IGCC project in Indiana.

The latest number, the Indiana Commission approved a settlement agreement that was reached with several interveners addressing the cost recovering for this coal gasification plant. The agreement includes a cap of $2.595 billion on the construction cost that retail customers will pay.

As shown on the slide the commission made two modifications to the agreement. One involves a $28 million refund to customers which is reflected as a special item for the quarter, the other provision pertains to any potential recovery you will see from vendors on the project.

Any amount receive in excess of the cumulative impairments recognized on the project will be refunded to customers. Construction in the plant is complete and we’re in the final phase of testing that is required before we put the plant into service. Both gasifiers have successfully achieved syngas production, we expect the testing to be complete and the plant to be in commercial service by mid-year.

Slide nine summarizes our major construction projects, these include the Edwardsport plant, the three plants brought online in 2012 and the Sutton combined cycle gas plant scheduled to be operational by the end of this year. We continue to advance our $9 billion multi-year fleet modernization program.

This program has put us ahead of the curve in our industry in terms of preparing for compliance with stricter environmental regulations and by building several new natural gas plants we are increasing our fuel diversity giving our customers the benefits of low natural gas prices. These new plants will allow us to retire upto 6800 megawatts of older less efficient coal 5 units by 2015.

At the end of this year we expect to have retired more than 3800 megawatts of this capacity. As a combined company we have already invested around $7 billion in control equipment for our existing coal plants positioning now for compliance with more stringent air emission regulations. However we estimate we will spend an additional $5 billion to $6 billion over the next decade to comply with pending environmental regulations on air, water and coal ash.

Next turning to slide 10, I will provide a brief update on our commercial businesses, primarily focus on our operations in Latin America and our non-regulated mid-west generation of fleet. I will start with Duke Energy International. During 2012, we expanded our investments in Latin America adding assets in Chile. Our objective with DER over the past six years has been to add generation to our portfolio that meets our risk and return expectations. The assets in Chile meet these expectations and are great compliment to our existing Latin America business. In July we acquired 240 megawatt diesel generating facility then in December we announced a $415 million acquisition of two existing hydro facilities.

We expect to close on a project financing for around half of the purchase price by the end of the first quarter 2013.

Brazil also continues to be an important part of our portfolio and we are monitoring two emerging developments. First, Brazil has recently been experiencing low rainfall. Even these conditions have recently improved reservoir – even though these conditions have recently improved, reservoirs remained low. If these unfavorable conditions persist, the cost of operating in the system may increase for all generators, including Duke. We are closely monitoring the reservoir levels and we will update you on our Analyst Day the end of the month.

Additionally, the Brazilian government recently finalized a new law addressing exploration of generating concessions granted before 1995 and said to expire between 2015 and 2017. We are monitoring this closely. We do not see a direct short-term impact on our Brazilian operations, because our concession agreements were granted after 1995 and do not expire into 2029 and 2033. Over 90% of our available Brazilian capacity is contracted in 2013 and ‘14 with over 60% being contracted for in 2015 and over 50% being contracted for in 2016. We will continue to monitor marketing conditions as we contract our open positions.

Next, let me talk about Midwest generation. As you all know, we have a cost based capacity filing currently pending with the Ohio Commission. Through our request, we are seeking appropriate compensation for our capacity services as provided for under Ohio law and consistent with the new state compensation mechanism adopted by the Ohio Commission. Parties to the case filed comments in early January and we responded earlier this month. Hearings are scheduled for April this filing does not speak to alter the Electric Security Plan or ESP, under which Duke Energy, Ohio is currently operating. Clarity on our filing will inform our long-term strategic decisions about the Midwest generation fleet.

Finally, let me recognize the work of our commercial renewables team in 2012. During the year, we brought online around 650 megawatts of additional net owned capacity. This increased our wind and solar generation to more than 1700 megawatts.

In summary, I am very pleased with what we accomplished in 2012. We completed a complicated complex merger. We delivered on our financial and operational objectives. We are resolving our priority issues one by one. Our employees have shown remarkable resilience. We are building positive momentum and have the right focus and foundation to continue delivering value for all of our stakeholders in the future.

Now, I will turn it over to Lynn who will provide a more detailed look at our financial performance in 2012.

Lynn Good

Thank you, Jim. Today, I will focus my remarks on our full year 2012 results and briefly summarize our quarterly results. And we’ll also provide an update on our customer load trends as well as economic conditions within our service territories. Finally, I will close with an overview of our performance against our overall financial objective.

Let me start with the discussion of our financial results for 2012. As Jim noted, we had a very successful year from a financial perspective as we continued to achieve each of our stated objectives. We delivered adjusted diluted EPS within our annual guidance range. We achieved an average annual growth and adjusted diluted EPS of approximately 5.7% from our base share of 2009. At the upper end of 46% growth objectives. The increase of our quarterly dividend payment by approximately 2% and we maintain the strength of our balance sheet. If you look at slide 12, our fourth quarter 2012 adjusted diluted earnings were $0.70 per share essentially flat with a $0.71 for the prior year quarter, for the full year 2012 we recognized adjusted diluted earnings per share of $4.32 compared to $4.38 for the prior year. 2012 adjusted earnings reflect the addition of earnings from Progress Energy that of the impacted of shares in connection with the merger. The impact of the new market based electric security plant in Ohio and unfavorable weather.

These drivers were partially offset by higher customer rates at Duke Energy Carolinas. On a reported basis our earnings for the fourth quarter 2012 were $0.62 per share, compared to $0.65 for the prior year and for the full year our recorded earnings were $3.07 per share compared to $3.83 for the prior year. Please refer to the reconciliation schedule included with these slides for details on the differences between our reported and adjusted results. For more information on the quarterly and annual drivers see the earnings variance table on pages 12 and 13 of our press release package.

Now I will briefly discuss the primary adjusted earnings per share drivers for each of our business segments for the full year. Our regulated utility business USFE&G had a strong year contributing approximately 84% of our consolidated adjusted earnings. This segment delivered results consistent with our expectations despite unfavorable levels during the year.

USFE&G’s results include six months of earnings from progress utility operations in the Carolinas and Florida contributing a $1.02 per share before dilution. Top line revenue growth was also a significant driver due to revised customer rates in the Carolinas. New rates which included recovery of our major generation investments contributed $0.48 during the year.

Revenue growth due to rate case activity is expected to be a continuing same over the next few years as we have a number of rate cases pending or are expected to be filed shortly. We maintained our focus on O&M cost taking advantage of opportunities to reduce spending in our fossil fleet due to lower capacity factors. This helps mitigate the impact of extended nuclear outages and emerging nuclear cost which occur in the fourth quarter.

As a result excluding O&M expenses from progresses regulated operations, our O&M spend for the year at F&G was fairly consistent with the prior year. Turning now to our international operations as expected results for DEI in 2012 were lower than 2011, primarily due to unfavorable foreign currency exchange rates. In 2012 DEI contributed around 18% of our consolidated earnings.

Even the lower than the prior year DEIs results for 2012 came in above our expectations principally due to favorable results at National Methanol and in Peru.

Next I’ll move on to our commercial power segment which includes our non-regulated generation in the mid-west, our renewables business and Duke Energy Retail. We expected commercial power results in 2012 to be below what we experienced in 2011. Our new electric security plant in Ohio which reset customer rates to lower market based rates become effective at the beginning of 2012. Lower PGM capacity revenues in our mid-west gas fleet and lower margins at Duke Energy Retail also negatively impacted results in the commercial power segment. Commercial power contributed less than 5% of our consolidated earnings in 2012. Our Midwest gas fired fleet continued to benefit from the low natural gas price environment. This fleet achieved record volumes a total generation during the year was about 17 million megawatt hours, around 40% higher than 2011 our previous annual record.

Moving on to other, goods category had higher net expense from the prior year due to additional interest expense on Duke Energy Holding company debt as well as $0.12 from additional interest expense from the Progress Energy Holding following the merger.

Others net expense was lower than we expected for the year and these results were principally due to lower losses at our captive insurance entity and favorable interest rate. We also recognized dilatation of a $1 per share for the year resulting from the issuance of additional shares in connection with the Progress merger. As a reminder, we issued around 258 million shares to former holders of Progress Energy common stock. We now have around 705 million shares of Duke Energy outstanding. Note that all of these shares were not issued in outstanding for the entire year. Therefore, our weighted average number of shares outstanding for full year 2012 is 575 million.

Now, I’ll move on to a discussion of our customer volume trends and the economic conditions in our service territory. Slide 13 presents our quarter-over-quarter weather normalized customer usage trends as well as what we experienced for the full year in our regulated business. As a reminder, this chart includes trends for the Progress Energy utilities for 2012 compared to what was experienced in 2011.

During 2012, our overall load growth excluding the impacts of weather was 0.6% higher consistent with our expectations. This growth was principally supported by industrial usage which was up around 1%. The automotive sector was especially strong in the Duke Energy Carolinas and Indiana service territories. U.S. auto sales for ‘12 reached their highest level in five years. Demand from our commercial customers increased approximately 0.7% primarily resulting from stronger retail sales. Residential demand was essentially flat for the year. Even though we experienced modest growth of around 0.7% in our average number of residential customers during the year, we continue to see the impact of the economic environment and energy efficiency and customer usage patterns.

As we look ahead our diverse service territories provides you with a key advantage, our rates of generally below regional and national averages making our territories attractive for industrial and commercial expansion. We are also well positioned for a rebound in the residential market as housing markets improved. The trend in customer growth in our service territories was stronger in 2012 than in previous years.

I will close with slide 14 which addresses our main financial objectives. We ended 2012 with adjusted EPS of $4.32 toward the upper end of our annual guidance range. As we look ahead to 2012, we have a number of important regulatory proceedings that will impact our results. We have recently announced the retirement of Crystal River 3. We are also addressing the merging cost in our nuclear business while aggressively pursuing our merger savings initiative.

Our commercial business will also be impacted by the low point of PJM capacity prices and we are continuing to evaluate the impact of the unfavorable hydrology in Brazil. Many of you have looked at these items and turns 2013 a transitional year for Duke. We believe that 2013 is an important foundational year for the company and the appropriate base for future earnings growth. When we consider the degree of variability from timing and amount of regulatory outcomes and the items I just mentioned, we are planning for 2013 adjusted earnings per share to be reasonably consistent with our 2012 results, and we’ll introduce the range on February 28 that addresses the regulatory variability. We are looking forward to providing more perspective on 2013 and beyond later this month.

Growth in our long-term earnings per share and continued growth in our dividends remains central essential to our investor value proposition. We are targeting a payout ratio of 65% to 70% based upon adjusted diluted earnings per share. Our current dividend yield of 4.4% remains attractive as compared to the 2% for the S&P 500. 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 that strength, which allows us to finance our growth in a cost effective manner directly benefiting our customers.

In summary, I am pleased with our financial performance on how we have continued to consistently achieve our financial objectives. We have a strong growth platform as efficiency to the merger allow us to pass along savings to our customers and our shareholders. From a financial perspective, we remain well positioned for the future.

Now, let me turn the call back over to Jim for his closing comments.

Jim Rogers

Thanks Lynn. After a successful transformative 2012, we look forward to the future. We will discuss our plans as Lynn said for 2013 and beyond at our Analyst Meeting in New York on February 28.

With that, let’s open up the phone lines for your questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions). We will hear first from Dan Eggers with Credit Suisse.

Dan Eggers - Credit Suisse

I know you’re going to talk about I have lot of these issues at your analyst day maybe I will ask couple of policy questions, can you maybe Jim share your thoughts on what’s going on the Sutton in North Carolina kind of the trajectory of that legislation and you know what you think can might happen to the commission if there is momentum behind it.

Jim Rogers

Given that Duke and our customers are impacted by many of these state boards and commissions and our company has committed to working constructively with all of them is not appropriate for us to comment on this bill. We cannot speculate on the probability of the proposed legislation passing. Nonetheless we’re focused on achieving the benefits of the merger for our customers in the Carolinas.

Dan Eggers - Credit Suisse

Jim can you talk a little bit of the state of the union last night and President’s comments on global warming type of legislations or rule making. How do you based on what you know, how do you guys see this playing through from an EPA perspective if they can’t get legislative support and is that going to affect any investment decision you guys are looking at making from a coal plant remediation perspective?

Jim Rogers

We’re continued to digest what President said and how people are interpreting it but the way I interpret it is as I couple it what he said in his inaugural address, it's clear that climate is going to be an important issue for him to address, of course you got many other important issues in terms of getting a budget, dealing with immigration of variety of other issues but I do think this is one of the front burner issues. I continue to believe that the EPA is not equipped to put a price and carve it. That is going to take legislation. I think there are many things that we can do to reduce our CO2 emissions, one thing the administration is already done is raise the CAP A standards and that will have an impact but I think the technology innovation of shell gas has been transformed even in terms of the carbon footprint of our industry. Today in the United States we’re at the same place in terms of CO2 emissions as we were in 1992 and our per capita basis is the same place we were in 1960.

I say that to say we made tremendous progress at reducing the burn of coal and have increased dramatically the burn of natural gas which has about 50% of the carbon footprint uphold. And so we have already made huge progress and I would say it another way we’re on track to hit the maximum mark key 2020 number just based on the reduction and the emissions that we see as a consequence of burning base load gas and so I think much is being done to reduce carbon but at the end of the day they will have to put a price on carbon that can’t be done by the EPA that can only be done by Congress and they need to act.

And the good news is because we have the prices of solar dropping, the gas prices is at 3.50 at mmbtu and projected to stay in the 3 to 4, 4.5 - 5 range. We’re in a period where you could start with a low price on carbon and led it escalate over a much longer period of time thus minimizing the impact on the economy. So I would say again there are a lot of ways to be thinking about this, I think the technological innovation has made a difference. I think other innovations and technologies are evolving, it's going to reduce our carbon footprint of the existing buildings in our country. So I think that we’re on the road to decarbonizing our economy even without legislation but having a price on carbon would be important for the future to drive even further our successes that we have achieved so far.

Dan Eggers - Credit Suisse

And Jim I guess you said about $5 billion of environmental CapEx still to go, is that number perspectival your under review or the places where you put that money under review

Sri 9

you are under review or the places where you put that money under review, you are based on the greater attention on CO2 policy?

Jim Rogers

I think virtually all that is really placed on tighter regulations with respect to ash ponds, with respect to the air and SOx, NOx, mercury and primarily mercury. So, I think it’s a combination of all of those. I don’t think we have in that number anything that really goes to additional regulations on carbon. However, as we’ve seen if the modernization that we just undertook dramatically reduces our carbon intensity of every kilowatt hour that we deliver on a blended basis. So, more to come on that, but the consequence of our modernization program that put us in some perspective in terms of the risk going forward, because it’s going to allow us to retire almost 7000 megawatts of own coal plants. And that’s almost 50 units that will be retired and we replace with a more efficient coal and more efficient gas plants. And that translates into lower emissions and lower cost on the margin for our customers. So, I think we have looked around the corner. Our modernization plan is ahead of most utilities in the country. If you look at Southern today, they are just now starting down the road of modernization of their generation fleet. So, I think we have already at the point of putting it behind this and being well positioned for the future.

Dan Eggers - Credit Suisse

Okay, got it. We’ll see you at the Analyst Day. Thanks.

Jim Rogers

Thank you.

Operator

And now we’ll hear from Kit Konolige with BGC.

Kit Konolige - BGC

Good morning guys. Just a couple of questions. Can you kind of just update us on where we stand with the capacity filing in Ohio and when you referred to I think you gave us some guidance on that when do we expect that to be completed? And when you referred to it informing you’re thinking on strategic direction, can you give us a little any further color on what’s implied by that?

Lynn Good

So, it has the procedural schedule for the cost base capacity filing includes hearings in early April. So, there are testimony filings on our part as all of the interviewers and staff between now and early April, but that’s the procedural schedule. You may recall that we undertook a strategic review of these assets back in 2012 and put that strategic review on hold as we began pursue to the cost based capacity filling. And so we will evaluate and continue to pursue to the cost-based capacity filing and believe that we fit those staff and circumstances well within the State of Ohio, and we’ll work through that process and not take up another strategic review of the assets until that is complete.

Kit Konolige - BGC

Very good. And one other question on the North Carolina case, you filed for 11.25 ROE, what did you earn in 2012 in North Carolina?

Lynn Good

Kit, we will have some perspective on earned returns on Analyst Day in February, but I would think about it in the range of maybe 10%.

Kit Konolige - BGC

Very good. Okay, thank you.

Lynn Good

Thank you.

Jim Rogers

Thank you.

Operator

We’ll now take a question from Michael Lapides with Goldman Sachs.

Michael Lapides - Goldman Sachs

Hi. Really one question for Jim, one for Lynn.

Jim Rogers

Good morning.

Michael Lapides - Goldman Sachs

Good morning guys. When you think about Latin America and where it fits into the broader Duke puzzle or the pieces that makeup consolidated the new Duke Energy, how do you think about potential ways to either a) monetize the cash that’s in Latin America or b) monetize the business overall?

Lynn Good

Michael, I will take the comment on cash and cash flow. We are continuing to look for opportunities to bring home international cash. We took advantage of the tax holiday in the earlier part of the decade. We have looked at structuring techniques that could be helpful and the option of outright repatriation also remains and we continued to evaluate that in the context of the likelihood of broader tax reform and other matters. So I would think about that as a strategic option that’s always available for the company. In terms of bringing partners into the business or outright selling the business, we’re not focused on that at this point. We continue to look at optimizing the value of what we own and supplementing that value with appropriate acquisitions that’s at our risk profile and our primary strategic focus is on integration of the companies and ensuring that we’re properly situated the franchise electric and gas business for a success in the future.

Michael Lapides - Goldman Sachs

One follow-up, when Lynn you made the comment about 2013 and 2012 being kind of reasonable with each other from an earnings perspective you have got a lot rate actions underway in 2013 many of which you know they are not going into effect in 2013 many or mid-year later. Would you make a comment like that, what are you assuming in terms of any uplift at all on the revenue line related to those rate actions whether it's Ohio electric and gas, whether it's the two cases in North Carolina or the ones you’re going to file in South Carolina.

Lynn Good

Michael we will be making assumptions on the partial year effect of all these rate proceedings and that degree of variability will be something that we will contemplate as we establish a range or expectations in 2013 and we will give you a fuller report on that and anxious to do that at the end of February.

Michael Lapides - Goldman Sachs

Got it. Last question, pension, we have had a lot of companies talk about pension as a headwind, others talk about it as a requirement for cash contributions just thoughts.

Lynn Good

The economics of pension Michael are a headwind right? Discount rates is down a 100 basis points for Duke between 12 and 13. So we’re looking at the composition of benefits expenses and the broader context of the merger and have a number of other plans considerations that we’ll be implementing. So we will have an opportunity to give you an update on the specific impact to 2013 when we talk about guidance later this month.

Operator

We’ll move to a question from Andy Bishop with Morningstar Financial Services.

Andy Bishop - Morningstar Financial Services

I know you highlighted it's little bit a newly first week but can you provide a little more color on both short term and long term plans for replacing your loss generation from Crystal River.

Jim Rogers

Sure. The bottom-line is we retired Crystal River 3 and we look out in the future, we see that Crystal River 1 and 2 will be retired between ’15 - 2017 timeframe. So when you think about those retirements in a collective way it's clear that we need additional capacity and my judgment is it gas price combined cycle plants is the best capacity. We are dependent on natural gas in a significant way but if you look at the studies on the projection and the price of natural gas the cost to produce shell gas in United States I think there is going to be adequate supply over a long period of time and people are talking in a range of the price because of the supply will be in the $4 to $5 range over a very long period of time and that means like a decade or two.

Now I will quickly caveat that in almost 40 years in the industry I have never seen an energy forecast that was right. So, but I do believe that we’re all surprised at the amount of reserves that we have found of shell gas and surprised at the low cost of production and so we believe that building gas in Florida even though we’re significantly dependent on gas is still a good thing to do going forward.

Operator

(Operator Instructions). And now we’ll hear from Ashar Khan with Visium.

Ashar Khan – Visium

Just going forward Jim could you just bring us a little up-to-date on the board additions and the process for the change, search for the CEO going forward as you look into the latter half of the year?

Jim Rogers

Sure. The board is working to add a new director in the first half of this year and another director by the end of the year. And they have engaged a consultant to work with them to be able to bring a new director or two new directors on board. They are going. The Board Committee is working through a very thoughtful deliberate process in the selection of a new CEO to lead our company going forward. And my judgment is, let’s say, are on track to get this done in a timely way and more to come on all of that and as their deliberations are ongoing.

Ashar Khan – Visium

Okay. And if I can just get some when you mean by timely way is something expected in the summer is that where one should look forward to?

Jim Rogers

I can’t predict how the deliberations will unfold. I am in a position that we are on advising the board and advising the consulting group in terms of how to think about it defining what the way the requirements of the CEO should be given where our industry and where our company is relative to other participants in our industry. But I think again they are going to very thoughtful, very deliberative, because this is the most important decision a board ever makes. And that’s selecting who the CEO is. And I think they are going to do it in a careful way and they will take as much time as needed to get it done.

Ashar Khan – Visium

Okay. Again, thanks a lot and thanks again on a very, very successful year.

Jim Rogers

Thank you.

Operator

(Operator Instructions) We will hear from Michael Lapides with a follow-up from Goldman Sachs.

Michael Lapides - Goldman Sachs

Hi, Jim. I know you don’t want to comment on the North Carolina legislation, but just in terms of the rate case processes in general and when there is turnover voluntary, involuntary regardless of commissioners, what are the rules in North Carolina when if there is ever turnover of the commissioner or multiple commissioners in the middle of a rate case. Different states have different rules, we occasionally see commissioners move on to other jobs, we see them retire or at least for health reasons, just trying to understand what the rules in the Carolinas are regarding whether you need a quorum of commissioners or something along that line to formally rule on an ongoing rate case?

Jim Rogers

Well, first I will start my comment by saying it’s really premature to comment on the impact it will have on our rate case filings, because no legislation has been passed yet. And the other point I would make is that I am confident that regardless of how Senate Bill turns out it will be done in a way that provides for a careful transition and under the rules of the state we are allowed to put our rates into effect. I think mid-year with respect to PEC and with six months after we filed with DEC, so it’s like a six-month rule. So, we can put the rates into effect. And we are working with the public staff and get resolution of this and we are working to resolve this through settlement and always -- our first choice is always to resolve rate cases through settlement and if we can do that, that will be terrific, but more to come on all that.

Michael Lapides - Goldman Sachs

Got it. Okay. Thank you, Jim. Much appreciate it.

Operator

And at this time, we have no further questions in the queue. I will go ahead and turn the call over to Jim Rogers for any additional or closing remarks.

Jim Rogers

Thank you again for being on our call today. Thanks for your interest and investment in Duke. I’m pleased with the momentum we have created in a short period, it's a new Duke Energy, a merger will enable us to put the company in a strong position for the future and realize efficiencies that benefit of customers and investors. We look forward to seeing those of you who will be at our analyst meeting on the 28th of this month. Thank you all very much.

Operator

Thank you sir. That does conclude today’s teleconference. We do thank you all for your participation.

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