Duke Energy reports third quarter 2015 financial results

• Third quarter 2015 adjusted diluted earnings per share (EPS) were $1.47, compared to $1.40 for the third quarter of 2014
• Reported diluted EPS of $1.35 for third quarter 2015, compared to $1.80 for the third quarter of 2014
• Company narrows its 2015 adjusted diluted earnings guidance range from $4.55 to $4.75 per share to $4.55 to $4.65 per share

CHARLOTTE, N.C. -  Duke Energy today announced third quarter 2015 adjusted diluted EPS of $1.47, compared to $1.40 for the third quarter of 2014. Third quarter 2015 reported EPS was $1.35, compared to $1.80 for the same period last year.

Earnings for the third quarter of 2015 were higher than the prior year quarterly results, primarily due to warmer weather compared to the previous year. The company also experienced strong growth in the Regulated Utilities business, including the impact of the recently completed North Carolina Eastern Municipal Power Agency (NCEMPA) acquisition. 

During 2015, the company has been able to offset weakness in the International business with favorable weather, solid operational performance in the regulated business, and benefits from closing certain strategic initiatives earlier than anticipated. The company has narrowed its 2015 adjusted diluted earnings guidance range from $4.55 to $4.75 per share to $4.55 to $4.65 per share.

"I am pleased with our overall operational and financial performance to date in 2015," said Lynn Good, president and CEO. "We are on-track to achieve our financial objectives for the year and our regulated generation fleet continues to reliably meet customer needs.

"Additionally, we are taking significant steps to grow our low-risk regulated business mix as highlighted by last week's announced acquisition of Piedmont Natural Gas, which provides us with additional capabilities and growth potential around natural gas infrastructure," Good added.

Business unit results 

In addition to the summary business unit discussion below, a comprehensive table of quarterly and year-to-date adjusted earnings per share drivers by segment compared to the prior year is provided on pages 16 and 17. 

The discussion below of third quarter results includes adjusted segment income, which is a non-GAAP financial measure. The tables on pages 25 through 28 present a reconciliation of reported results to adjusted results.

Regulated Utilities

Regulated Utilities recognized third quarter 2015 adjusted segment income of $965 million, compared to $920 million in the third quarter 2014, an increase of 7 cents per share, excluding the benefit of the $1.5 billion accelerated stock repurchase program that was completed in June.

Higher quarterly results at Regulated Utilities were primarily driven by:

• Favorable weather (+$0.09 per share) driven by warmer temperatures in the Carolinas. This was the first above normal summer weather experienced since 2012.
• Higher revenues from increased pricing and riders (+$0.07 per share) due to increased energy efficiency programs and prior year true-ups that did not recur
• Increased wholesale net margins (+$0.05 per share) resulting from growth in contracted amounts and earnings from the long-term wholesale contract associated with the recent NCEMPA asset purchase

These favorable drivers were partially offset by:

• Higher O&M expense (-$0.06 per share) due to the timing of planned work, increased costs related to the recent NCEMPA asset purchase and storm costs
• Higher effective tax rate (-$0.04 per share) primarily due to additional deductions in the prior year

On a year-to-date basis, Regulated Utilities recognized adjusted segment income of $2,371 million, compared to $2,346 million for the same period last year, an increase of 3 cents per share, excluding the benefit of the accelerated stock repurchase program.

Higher year-to-date results at Regulated Utilities were primarily driven by:

• Higher revenues from increased pricing and riders (+$0.14 per share) due to increased energy efficiency programs and prior year true-ups that did not recur, partially offset by a regulatory order in Ohio related to energy efficiency (-$0.03 per share)
• Favorable weather (+$0.11 per share) across Duke Energy's service territories
• Increased wholesale net margins (+$0.12 per share) due to growth in contracted amounts and earnings from the long-term wholesale contract associated with the recent NCEMPA asset purchase
• Higher AFUDC equity (+$0.03 per share) due to increased capital spending
• Higher weather-normal retail volumes (+$0.03 per share) of 0.4 percent compared to 2014

These favorable drivers were partially offset by:

• Higher O&M expense (-$0.19 per share) due to timing of planned outages, increased costs related to the recent NCEMPA asset purchase and nuclear outage cost levelization. These costs were partially offset by lower storm costs.
• Higher effective tax rate (-$0.08 per share) primarily due to a favorable prior year state tax settlement and additional deductions in the prior year
• Higher depreciation and amortization expense (-$0.04 per share) primarily resulting from additional plant in-service

International Energy

International Energy recognized third quarter 2015 adjusted segment income of $69 million, compared to $80 million in the third quarter 2014, a decrease of 2 cents per share, excluding the benefit of the accelerated stock repurchase program. 

Lower quarterly results at International Energy were primarily driven by:

• Lower results in Latin America (-$0.01 per share) principally driven by unfavorable foreign exchange rates and an asset impairment in Ecuador. These drivers were partially offset by lower purchased power costs in Brazil.  
• Lower margins at National Methanol (-$0.01 per share) due to lower MTBE prices

On a year-to-date basis, International Energy recognized adjusted segment income of $157 million, compared to $356 million for the same period in 2014, a decrease of 29 cents per share, excluding the benefit of the accelerated stock repurchase program.

Lower year-to-date earnings at International Energy were driven by:

• Weaker results in Latin America (-$0.25 per share) primarily due to lower sales volumes and higher purchased power costs resulting from ongoing drought conditions and decreased demand in Brazil, a prior-year tax benefit in Chile, unfavorable foreign currency exchange rates, and an asset impairment in Ecuador
• Lower margins at National Methanol (-$0.04 per share) largely driven by lower MTBE and methanol prices

Commercial Portfolio

Subsequent to the sale of its nonregulated Midwest Commercial Generation Business to Dynegy Inc. in April, Commercial Portfolio (formerly Commercial Power) includes Duke Energy's unregulated renewable assets as well as its commercial electric and gas transmission investments.

Commercial Portfolio recognized a third quarter 2015 adjusted segment loss of $4 million, compared to income of $51 million in the third quarter 2014, a decrease of 8 cents per share. The decline in Commercial Portfolio's quarterly earnings was primarily due to the sale of the Midwest Generation business to Dynegy, which was completed in April 2015.

On a year-to-date basis, Commercial Portfolio recognized adjusted segment income of $99 million, compared to $77 million in the comparable year-to-date period of 2014, an increase of 3 cents per share.

Commercial Portfolio's higher year-to-date earnings were driven by higher results from the Midwest Generation fleet (+$0.06 per share), which was sold in April 2015, partially offset by lower earnings from the renewables fleet (-$0.01 per share) resulting from lower wind resources during 2015.

Other

On an adjusted basis, Other primarily includes corporate interest expense not allocated to the business units, results from Duke Energy's captive insurance company, other investments, and quarterly income tax levelization adjustments.

Other recognized a third quarter 2015 adjusted net expense of $19 million, compared to net expense of $58 million in the third quarter 2014, an improvement of 6 cents per share, excluding the impact of the accelerated stock repurchase program. Other's quarterly results were primarily driven by a prior year tax charge and quarterly tax levelization, including the recognition of renewable tax credits.

On a year-to-date basis, Other recognized adjusted net expense of $77 million, compared to $171 million in the comparable period of 2014, an improvement of 14 cents per share, excluding the impact of the accelerated stock repurchase program. Other's year-to-date results were primarily driven by favorable tax resolution, a prior year tax charge and quarterly tax levelization, including the recognition of renewable tax credits.

The consolidated adjusted effective tax rate for third quarter 2015 was 31 percent, compared to 34 percent in the third quarter of 2014. On a year-to-date basis, the consolidated adjusted effective tax rate was 32 percent, consistent with the prior year. Adjusted effective tax rate is a non-GAAP financial measure. The tables on pages 29 and 30 present a reconciliation of reported effective tax rate to adjusted effective tax rate.

Accelerated stock repurchase program

In connection with the transaction to sell the Midwest Generation business to Dynegy for $2.8 billion, which closed on April 2, 2015, Duke Energy completed a $1.5 billion accelerated stock repurchase program (ASR). The program resulted in share retirements of approximately 19.8 million, providing a benefit to the third quarter 2015 and year-to-date results of approximately 4 cents per share and6 cents per share, respectively.

As a result of the ASR, weighted-average shares of Duke Energy common stock outstanding in 2015 are expected to be approximately 695 million.

Earnings conference call for analysts

An earnings conference call for analysts is scheduled for 10 a.m. ET today to discuss Duke Energy's financial performance for the quarter and other business updates.

The conference call will be hosted by Lynn Good, president and chief executive officer, and Steve Young, executive vice president and chief financial officer. 

The conference call will be webcast live through the investor relations page of Duke Energy's website at www.duke-energy.com/investors. In order to expedite access to the call, participants can register in advance through the webcast event link included on the company's investor relations website. A replay of the webcast will be accessible through the company's Investor Relations website and mobile app.

Special items and non-GAAP reconciliation

Special items affecting Duke Energy's quarterly adjusted diluted EPS results in 2015 and 2014 include:

 

Non-GAAP financial measures

Management evaluates financial performance in part based on the non-GAAP financial measures, adjusted earnings and adjusted diluted earnings per share (EPS). These items are measured as income from continuing operations net of income (loss) attributable to non-controlling interests, adjusted for the dollar and per-share impact of mark-to-market impacts of economic hedges in the Commercial Portfolio segment and special items including the operating results of the Midwest Generation business (Disposal Group) classified as discontinued operations for GAAP purposes. Special items represent certain charges and credits, which management believes will not be recurring on a regular basis, although it is reasonably possible such charges and credits could recur. Operating results of the Disposal Group sold to Dynegy are reported as discontinued operations, including a portion of the mark-to-market adjustments associated with derivative contracts. Management believes that including the operating results of the Disposal Group reported as discontinued operations better reflects its financial performance and therefore has included these results in adjusted earnings and adjusted diluted EPS prior to the sale of the Disposal Group. Additionally, as a result of completing the sale of the Disposal Group during the second quarter of 2015, state income tax expense increased as state income tax apportionments changed. The additional tax expense was recognized in Continuing Operations on a GAAP basis. This impact to state income taxes has been reflected in Discontinued Operations in the Commercial Portfolio segment for adjusted diluted EPS purposes as management believes these impacts are incidental to the sale of the Disposal Group. Derivative contracts are used in Duke Energy's hedging of a portion of the economic value of its generation assets in the Commercial Portfolio segment. The mark-to-market impact of derivative contracts is recognized in GAAP earnings immediately and, if associated with the Disposal Group, classified as discontinued operations, as such derivative contracts do not qualify for hedge accounting or regulatory treatment. The economic value of generation assets is subject to fluctuations in fair value due to market price volatility of input and output commodities (e.g. coal, electricity, natural gas). Economic hedging involves both purchases and sales of those input and output commodities related to generation assets. Operations of the generation assets are accounted for under the accrual method. Management believes excluding impacts of mark-to-market changes of the derivative contracts from adjusted earnings until settlement better matches the financial impacts of the derivative contract with the portion of economic value of the underlying hedged asset. Management believes the presentation of adjusted earnings and adjusted diluted EPS provides useful information to investors, as it provides them an additional relevant comparison of Duke Energy's performance across periods. Management uses these non-GAAP financial measures for planning and forecasting and for reporting results to the Board of Directors, employees, shareholders, analysts and investors concerning Duke Energy's financial performance. Adjusted diluted EPS is also used as a basis for employee incentive bonuses. The most directly comparable GAAP measures for adjusted earnings and adjusted diluted EPS are Net Income Attributable to Duke Energy Corporation and Diluted EPS Attributable to Duke Energy Corporation common shareholders, which include the dollar and per share impact of special items, mark-to-market impacts of economic hedges in the Commercial Portfolio segment and discontinued operations.

Management evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to non-controlling interests. Segment income, as discussed below, includes intercompany revenues and expenses that are eliminated in the Consolidated Financial Statements. Management also uses adjusted segment income as a measure of historical and anticipated future segment performance. Adjusted segment income is a non-GAAP financial measure, as it is based upon segment income adjusted for the mark-to-market impacts of economic hedges in the Commercial Portfolio segment and special items, including the operating results of the Disposal Group classified as discontinued operations for GAAP purposes. Management believes the presentation of adjusted segment income as presented provides useful information to investors, as it provides them with an additional relevant comparison of a segment's performance across periods. The most directly comparable GAAP measure for adjusted segment income is segment income, which represents segment income from continuing operations, including any special items and the mark-to-market impacts of economic hedges in the Commercial Portfolio segment.

Due to the forward-looking nature of any forecasted adjusted earnings guidance, information to reconcile this non-GAAP financial measure to the most directly comparable GAAP financial measure is not available at this time, as management is unable to project all special items or mark-to-market adjustments for future periods.

Due to the forward-looking nature of any forecasted adjusted segment income or adjusted Other net expenses and any related growth rates for future periods, information to reconcile these non-GAAP financial measures to the most directly comparable GAAP financial measures is not available at this time, as the company is unable to forecast all special items, the mark-to-market impacts of economic hedges in the Commercial Portfolio segment, or any amounts that may be reported as discontinued operations or extraordinary items for future periods.

Duke Energy is the largest electric power holding company in the United States with approximately $120 billion in total assets. Its regulated utility operations serve approximately 7.3 million electric customers located in six states in the Southeast and Midwest. Its Commercial Portfolio and International business segments own and operate diverse power generation assets in North America andLatin America, including a growing portfolio of renewable energy assets in the United States.

Headquartered in Charlotte, N.C., Duke Energy is a Fortune 250 company traded on the New York Stock Exchange under the symbol DUK. More information about the company is available at duke-energy.com. 

Forward-Looking Information

This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on management's beliefs and assumptions.

 These forward-looking statements are identified by terms and phrases such as "anticipate," "believe," "intend," "estimate," "expect," "continue," "should," "could," "may," "plan," "project," "predict," "will," "potential," "forecast," "target," "guidance," "outlook," and similar expressions. Forward-looking statements involve risks and uncertainties that may cause actual results to be materially different from the results predicted. Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to: state, federal and foreign legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements or climate change, as well as rulings that affect cost and investment recovery or have an impact on rate structures or market prices; the extent and timing of the costs and liabilities relating to the Dan River ash basin release and compliance with current regulations and any future regulatory changes related to the management of coal ash; the ability to recover eligible costs, including those associated with future significant weather events, and earn an adequate return on investment through the regulatory process; the costs of decommissioning Crystal River Unit 3 could prove to be more extensive than amounts estimated and all costs may not be fully recoverable through the regulatory process; credit ratings of the company or its subsidiaries may be different from what is expected; costs and effects of legal and administrative proceedings, settlements, investigations and claims; industrial, commercial and residential growth or decline in service territories or customer bases resulting from customer usage patterns, including energy efficiency efforts and use of alternative energy sources including self-generation and distributed generation technologies; additional competition in electric markets and continued industry consolidation; political and regulatory uncertainty in other countries in which Duke Energy conducts business; the influence of weather and other natural phenomena on operations, including the economic, operational and other effects of severe storms, hurricanes, droughts and tornadoes; the ability to successfully operate electric generating facilities and deliver electricity to customers; the impact on facilities and business from a terrorist attack, cybersecurity threats, data security breaches and other catastrophic events; the inherent risks associated with the operation and potential construction of nuclear facilities, including environmental, health, safety, regulatory and financial risks; the timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates and the ability to recover such costs through the regulatory process, where appropriate, and their impact on liquidity positions and the value of underlying assets; the results of financing efforts, including the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings and general economic conditions; declines in the market prices of equity and fixed income securities and resultant cash funding requirements for defined benefit pension plans, other post-retirement benefit plans and nuclear decommissioning trust funds; construction and development risks associated with the completion of Duke Energy and its subsidiaries' capital investment projects in existing and new generation facilities, including risks related to financing, obtaining and complying with terms of permits, meeting construction budgets and schedules, and satisfying operating and environmental performance standards, as well as the ability to recover costs from customers in a timely manner or at all; changes in rules for regional transmission organizations, including changes in rate designs and new and evolving capacity markets, and risks related to obligations created by the default of other participants; the ability to control operation and maintenance costs; the level of creditworthiness of counterparties to transactions; employee workforce factors, including the potential inability to attract and retain key personnel; the ability of subsidiaries to pay dividends or distributions to Duke Energy Corporation holding company (the Parent); the performance of projects undertaken by our nonregulated businesses and the success of efforts to invest in and develop new opportunities; the effect of accounting pronouncements issued periodically by accounting standard-setting bodies; the impact of potential goodwill impairments; the ability to reinvest prospective undistributed earnings of foreign subsidiaries or repatriate such earnings on a tax-efficient basis; the expected timing and likelihood of completion of the proposed acquisition of Piedmont, including the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the proposed acquisition that could reduce anticipated benefits or cause the parties to abandon the acquisition, as well as the ability to successfully integrate the businesses and realize anticipated benefits and the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect; and the ability to successfully complete future merger, acquisition or divestiture plans. 

Additional risks and uncertainties are identified and discussed in Duke Energy's and its subsidiaries' reports filed with the SEC and available at the SEC's website at www.sec.gov. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than Duke Energy has described. Duke Energy undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

September 2015
QUARTERLY HIGHLIGHTS
(Unaudited)
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
(In millions, except for GWh and MW amounts)	2015				2014				2015				2014
REGULATED UTILITIES
Operating Revenues	$	6,147			$	5,986			$	17,090			$	17,074
Operating Expenses(a)	4,481				4,361				12,789				12,807
Gains on Sales of Other Assets, net	1				1				10				2
Operating Income	1,667				1,626				4,311				4,269
Other Income and Expenses	56				75				187				206
Interest Expense	280				271				829				816
Income Before Income Taxes	1,443				1,430				3,669				3,659
Income Tax Expense(b)	538				510				1,358				1,313
Segment Income	$	905			$	920			$	2,311			$	2,346
Depreciation and Amortization	$	691			$	710			$	2,096			$	2,075
Duke Energy Carolinas GWh sales	23,737				22,821				67,511				67,350
Duke Energy Progress GWh sales	18,283				16,540				50,000				47,394
Duke Energy Florida GWh sales	11,513				11,550				30,788				30,051
Duke Energy Ohio GWh sales	6,698				6,465				19,698				18,768
Duke Energy Indiana GWh sales	8,784				8,224				25,217				25,553
Total GWh sales	69,015				65,600				193,214				189,116
Net Proportional MW Capacity in Operation									50,033				49,471
INTERNATIONAL ENERGY
Operating Revenues	$	281			$	366			$	841			$	1,111
Operating Expenses	200				275				639				760
Gains (Losses) on Sales of Other Assets, net	—				2				(1)				7
Operating Income	81				93				201				358
Other Income and Expenses	24				43				69				152
Interest Expense	21				25				66				71
Income Before Income Taxes	84				111				204				439
Income Tax Expense	14				29				44				74
Less: Income Attributable to Noncontrolling Interests	1				2				3				9
Segment Income	$	69			$	80			$	157			$	356
Depreciation and Amortization	$	23			$	23			$	69			$	74
Sales, GWh	4,590				4,292				13,580				13,814
Proportional MW Capacity in Operation									4,333				4,358
COMMERCIAL PORTFOLIO
Operating Revenues	$	66			$	50			$	214			$	195
Operating Expenses(c)	82				87				255				355
Gains on Sales of Other Assets, net	—				—				6				—
Operating Loss	(16)				(37)				(35)				(160)
Other Income and Expenses	(3)				5				(3)				15
Interest Expense	11				14				33				41
Loss Before Income Taxes	(30)				(46)				(71)				(186)
Income Tax Benefit(d)(e)	(26)				(29)				(35)				(116)
Less: Loss Attributable to Noncontrolling Interests	$	(1)			$	—			$	(1)			$	—
Segment Loss	$	(3)			$	(17)			$	(35)			$	(70)
Depreciation and Amortization	$	27			$	24			$	77			$	70
Actual Coal-fired Plant Production, GWh	—				192				—				867
Actual Renewable Plant Production, GWh	1,230				1,054				3,913				4,112
Actual Plant Production, GWh	1,230				1,246				3,913				4,979
Net Proportional MW Capacity in Operation									1,634				1,698
OTHER
Operating Revenues	$	17			$	25			$	78			$	79
Operating Expenses(f)(g)	64				84				177				269
Gains on Sales of Other Assets, net	3				1				16				2
Operating Loss	(44)				(58)				(83)				(188)
Other Income and Expenses	(2)				18				8				33
Interest Expense	91				101				285				302
Loss Before Income Taxes	(137)				(141)				(360)				(457)
Income Tax Benefit(h)(i)	(106)				(50)				(249)				(190)
Less: Income Attributable to Noncontrolling Interests	3				1				8				2
Segment Net Expense	$	(34)			$	(92)			$	(119)			$	(269)
Depreciation and Amortization	$	33			$	31			$	99			$	86