Duke Energy Corporation (NYSE: DUK ) Q3 2015 Earnings Conference Call November 05, 2015 10:00 AM ET Executives Bill Currens – VP, IR Lynn Good – President and CEO Steve Young – EVP and CFO Analysts Shar Pourreza – Guggenheim Partners Dan Eggers – Credit Suisse Jonathan Arnold – Deutsche Bank Steve Fleishman – Wolfe Research Michael Lapides – Goldman Sachs Brian Chin – Bank of America/Merrill Lynch Jim Von Riesemann – Mizuho Securities Ali Agha – SunTrust Robinson Humphrey Paul Ridzon – KeyBanc Capital Markets Operator Good day, ladies and gentlemen and welcome to the Duke Energy Third Quarter Earnings Review and Business Update. At this time, all lines have been placed on a listen-only mode and the floor will be open for questions following the presentation. [Operator Instructions] It is now pleasure to introduce your host Bill Currens, Vice President of Investor Relations. Sir you may begin. Bill Currens Thank you, Jeff. Good morning, everyone, and welcome to Duke Energy’s third quarter 2015 earnings review and business update. Leading our call is Lynn Good, President and CEO, along with Steve Young, 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. A reconciliation of non-GAAP financial measures can be found on our Web site at duke-energy.com and in today’s materials. Please note that the appendix to today’s presentation includes supplemental information and additional disclosures to help you analyze the Company’s performance. As summarized on Slide 3, Lynn will cover our third quarter highlights and provide summary of our recent strategic and growth initiatives. Then Steve will provide an overview of our third quarter financial results and an update on our economic activities within our service territories, as well as an overview of our earnings growth prospects as we move into 2016 in the future. With that, I’ll turn the call over to Lynn. Lynn Good Good morning, and thanks for joining us. This morning reported third quarter 2015 adjusted EPS of $1.47 per share above the $1.40 per share in 2014, as favorable weather and growth in the regulating utilities supported our results. Our regulated businesses have performed well throughout 2015 delivering solid financial results. As we look to the fourth quarter, we are narrowing our guidance range to $4.55 to $4.65 per share. This range reflects mild October weather, as well as storm expenses, unfavorable foreign currency trends and the potential for extending bonus depreciation. The extension of bonus will modestly increase our effective tax for the year. Earlier this year, we increase the growth rate of the dividend to approximately 4%, reflecting our confidence in the strength of our core businesses. The growing dividend supports our commitment to deliver attractive long-term returns for shareholders. Our financial results are made possible by the efforts of our people who work every day to keep our plant safe, efficient and reliable, providing our customers with valuable services. Our regulated generation fleet continued to deliver for customers during the critical summer months. Our nuclear fleet achieved a 97% capacity factor during the quarter and our growing regulated gas fleet continued to deliver value for our customers, taking advantage of the low natural gas prices. In fact our utilities have burned more natural gas in the first nine months of 2015 than they did in either of the two prior full years. The Edwardsport IGCC plant continues to operate well, achieving a third quarter gasifier availability factor of around 80%, massing the first quarter’s record. Additionally in July, the facility achieved a record month of net generation. In early October, we experienced heavy rains and flooding in the Carolinas and 500,000 customer outages. We were well prepared and mobilized our crudes in advance, speeding the restoration of service. Like others in the industry we are making progress towards a safe, cost effective closure of our Ash Basins in the Carolinas. Basin closure is underway at six sites and we are working through the approval of closure plans at our remaining basins. I’m proud of the way the Duke team has responded to this important industry issue with excellence and leadership. We are systematically and strategically increasing our regulated business mix through a series of acquisitions and divestitures as highlighted on Slide 5. As well as the portfolio of investments I will discuss in a moment. Last week, we were very excited to announce the plan to acquire Piedmont Natural Gas, which will add a well established natural gas business and platforms in the Duke portfolio. From a strategic perspective, we see this acquisition as the foundation for establishing a broader gas infrastructure platform within Duke, building upon our recent gas pipeline investments and complementing our existing gas LBT business in the Midwest. We plan to leverage the scale Duke with Piedmont’s well regarded management team and excellent operational capabilities. Piedmont has long been recognized as a premier operator of low risk regulated gas infrastructure. We have partnered with them over many years, as they have built and operated the critical gas infrastructure that serves natural gas generation in this region. Piedmont is experiencing robust customer growth and is investing in projects that have constructive regulatory mechanisms providing a strong base to organic growth. These investments are expected to grow their rate base, by an average of around 9% over the coming years. This acquisition is expected to close by the end of 2016 and be accretive to our earnings in the first full year after close. This will increase our total regulated business mix to over 90%, firmly supporting our earnings and dividend growth objectives. We will keep you updated, as we progress through the approval process. Turning to Slide 6. We are also focused on creating long-term growth and value for our customers and shareholders, with investments that will modernize our system, both our generation and our growth for the benefit of our customers. We continue to introduce more diversity to our fleet through low cost natural gas. Construction has begun on a combined cycle natural gas plant at the lease site in South Carolina, while preconstruction activities will commence on the Citrus County combined-cycle plant later this year. Both projects represent a total of over 2 billion in investments and remain on-time and on-budget. Our Western Carolina modernization project also remains on track. You may recall that we decided to retire our coal unit in Asheville and replaced it with a combined-cycle gas plant and a new transmission line, to improve reliability and support growth in the Asheville area. After working through a comprehensive stakeholder engagement process over the course for the summer, we announced yesterday a modified set of resources to support this project, eliminating the need for a new transmission line. Rather than the 650 megawatt gas plant, we will build two 280 megawatt combined-cycle natural gas units with the option for 190 megawatt simple cycle unit by 2023. A total estimated investment of just over $1 billion. This modification allows us to maintain our 2024 retirement schedule, while reflecting important input from our customers and communities. Further, earlier this year we acquired the NCEMPA asset, a project that is a win-win for our customers in the Eastern region of North Carolina. Our two gas pipeline infrastructure project Atlantic Coast Pipeline and Sabal Trail will provide critical access to additional low cost natural gas in the Southeast, helping to meet growing demand for the fuel from our generation portfolio, as well as to serve our customers’ needs. These projects continue to move through the regulatory approval and siting processes. The formal FERC application for ACT was filed in September and we expect FERC approval in 2016. Once FERC approval is obtained, the project can begin construction activities with an expected COD in late 2018. At Sabal Trial FERC approval is expected in early 2015 with the pipeline operational in 2017. In Indiana, we are revising our grid modernization plan under state legislation and we plan to re-file our plan by the end of this year. We’re also making meaningful progress growing our renewable investments both in our regulated footprint and in the commercial business. On the regulated side, we’re on track to complete construction of 128 megawatts of utility scaled solar in North Carolina by the end of this year and our moving forward with investments in both South Carolina and Florida. Our commercial renewables portfolio also continues to grow with demand for wind and solar projects throughout the U.S. is supported by renewable portfolio standards and growing customer demand. We have a number of commercial wind and solar projects slated to come online later this year, which will increase this portfolio to over 2,700 megawatts of capacity. Overall, these growth investments total $20 billion through 2019 and provide the foundation for growth in the coming years. Steve will provide additional perspective on 2016 and beyond in his remarks. In conclusion, we continue to execute very well, providing safe, reliable and affordable power to our customers. Our growth prospects remain strong as we deploy significant capital and critical energy infrastructure investments. This establishes the foundation to provide clean modern energy to our customers and our communities for decades to come. Let me turn it over to Steve. Steve Young Thanks Lynn. Today, I’ll review our third quarter financial results and provide a brief look into 2016. I would also discuss the economic drivers in our regulated service territories and the low growth experienced in the third quarter. I’ll ramp up with the discussion of our financial objectives. Let’s start with the quarterly results as highlighted on Slide 7. For more detailed information on segment variances versus last year, please refer to the supporting materials that accompanied today’s press release. We achieved third quarter adjusted diluted earnings per share of $1.47, compared to $1.40 in last year’s third quarter. On a reported basis, 2015 third quarter earnings per share were $1.35, compared to $1.80 last year. As a reminder last year’s third quarter results included a $0.43 favorable adjustment for a change in the estimated value of the Mid-West generation business. A reconciliation of reported results to adjusted results is included in the supplemental materials to today’s presentation. Regulated utilities quarterly adjusted results increased by $0.07 per share, driven largely by warmer weather and strong margins in our wholesale business, including the new NCEMPA contract. As we expected, these positive drivers were partially offset by higher O&M related to the timing of outages, increased cost related to NCEMPA and higher storm costs. International’s quarterly earnings declined $0.02 over last year. Continued weakness in foreign exchange rates in Brazil and lower margins at National Methanol were partially offset by lower purchase power costs in Brazil. Additionally, we recognized an asset impairment in Ecuador during the quarter. Our commercial portfolio incurred $0.08 of lower adjusted earnings as a result of the absence of prior year Mid-West generation results due to lower wind resources this year earnings from our commercial renewable business are expected to be around 75 million for the full year versus our original expectation of 100 million. Commercial’s results will be favorable impacted in the fourth quarter by tax credits related to over 300 megawatts of wind in solar generation scheduled to come online. And finally other was up $0.06 due to favorable tax adjustments in the timing of tax levelization as a reminder due to income tax levelization other reflects projected benefits related to renewable tax credits ratably during the year. Once the projects become operational these benefits are reallocated to the commercial portfolio. Lastly our quarterly results benefited $0.04 from the accelerated stock repurchase completed earlier in the year. Moving on to Slide 8, I’ll now discuss our retail customer volume trends. Across our jurisdictions weather-normalized retail load growth has increased by 0.3%, over the rolling 12 months. Within the residential sector we are seeing some positive trends. We continue to add new customers at an annual rate of approximately 1.3%. And we’ve now experienced two consecutive quarters of relatively flat usage per customer. We also continue to see favorable key indicators for the residential sector including employment, personal incomes and spending, as well as household formations. The commercial sector continues to grow modestly benefiting from declining office vacancy rates and expansion in the restaurant and real estate sub-sectors. This growth was partially offset by lower governmental and retail store sales during the quarter. The industrial sector while strong for most of the year has recently slowed, we are continuing to see transportation and building materials gain momentum. In particular, residential construction activities remain strong in the Southeast. During the quarter, we began to experience some weakness in the metals and chemicals subsectors. This slowdown is due to a pause in industrial activity, driven by a deceleration of consumer, business and government spending, a reduction in inventories and the strong dollar which has reduced global demand for U.S. products. Our economic development teams remain active successfully helping to track new business investments into our service territories. So far this year these activities have led to the announcement of $2.4 billion in capital investments, which is expected to result in nearly 7,200 new jobs across our six states. With rolling 12 month weather-normalized load growth of 0.3% we expect to thin towards the low-end of our original 2015 expectation of 0.5% to 1%. Moving to Slide 9, let me layout our key earnings drivers, as we begin thinking about 2016. As has been our normal practice we will provide our 2016 guidance range and updated financial plans in February. For our regulated businesses, we plan for normal weather. We expect growth from rider recovery and AFUDC on major capital investments, along with a full year impact of the NCEMPA transaction and modest growth in retail load. With respect to our cost structure, we continue to build upon the success of our recent merger integration activities. Cost management is an ongoing effort. And we are finding ways to reduce O&M below current levels to match modest sales growth. We expect growth in the commercial portfolio, as we continue to add contracted renewable generation and expect the return of normal wind patterns. The loss of Midwest generation’s earnings contribution is a headwind but it is partially offset by the accelerated soft repurchase. We expect internationals’ earnings have stabilized in 2015 and have the opportunity for modest growth in 2016, largely driven by an expectation for improved high growth dispatch, over the past several months we begun to see higher water inflows and lower market power crises. Further, meteorologists are forecasting a strong Alminio weather pattern through early 2016, which could lead to increased rainfall in Southeastern Brazil. Currency exchange rates are expected to remain volatile but the inflationary provisions in our contracts in Brazil can help to mitigate some of the currency devaluation. We also expect Brent crude oil prices will stabilize in 2016. Now moving to Slide 10, I want to step back and discuss our overall earnings growth objectives. Since 2013, our regulated and commercial segments representing 90% of Duke Energy have delivered 5% earnings growth. As we look at 2016 and beyond. These segments are expected to continue to grow within our 4% to 6% growth objective as we deploy significant capital and critical gas and electric infrastructure investments, including the acquisition of Piedmont, as well as renewable investments in our commercial business. We will also see the potential for rate cases in the Carolinas in the coming years to provide timely cash recovery of these important investments. The remaining portion of the company, the international business has experienced a decline, contributing earnings of $0.67 per share in 2013 and 2014 to about half that in 2015. About half of this decline is due to the three year drought in Brazil while unfavorable exchange rates and lower crude oil prices comprise the remaining half. From this point forward we will believe that internationals’ earnings have stabilized and are positioned for modest growth, consistent with our past practice, we will provide more specific financial guidance in February. We plan to reset our base to 4% to 6% long-term earnings growth off of 2016. This reflects continued strong growth in our core businesses, as well as a more realistic based year for growth in our international business from 2016 forward. Moving on Slide 11 outlines our financial objectives for 2015 and beyond. For the reasons Lynn mentioned earlier, we are narrowing our guidance range for 2015, from $4.55 to $4.75 per share to $4.55 to $4.65 per share. We have made significant progress in advancing our strategic growth initiatives, both in our regulated and commercial businesses providing strong support for our long-term earnings growth objective. Our objective is to grow the dividend annually at a rate consistent with our long-term’s earnings growth objectives. In near-term, our payout ratio will trend slightly above 70%. We are comfortable with that higher range based on the strong growth in our core regulated and commercial businesses. And the cash flows we are repatriating from international. Our strong investment grade credit ratings are important to us, as they help us finance our growth in an efficient manner. I am pleased with our results for 2015. We have successfully executed on a number of key strategic initiatives and delivered strong financial and operating results. Helping to offset the weakness in international, we remain focused on finishing the year well. With that, let’s open the line for your questions. Question-and-Answer Session Operator Thank you, ladies and gentlemen. The floor is now open for questions. [Operator Instructions] Our first question is coming from Shar Pourreza of Guggenheim Partners. Shar Pourreza So this morning, you reiterated your 4% to 6% growth, but also higher yet to be determined 2016 base year and you did drop that footnote you had in the second quarter around DEI potentially being a swing factor in your outlook. Steve is this sort of like what you meant when you mentioned that Piedmont deal would enhance growth trajectory is it less concerns around DEI or sort of what’s driving this increased confidence? Steve Young Well, I think what I would refer you to Shar is the slide we discussed 10. Where we looked at our core businesses, when you isolate international with our core businesses they have grown consistently at 5% from 2013 through ’15 and we would expect that to continue. The international business has involved which moved from a $0.60 per year business to $0.30. And that’s been the challenge we’ve had to deal with in 2015, that’s difficult to overcome. So we billion rebasing in ’16 makes sense in light of what international has done. Shar Pourreza And it included Piedmont right? Lynn Good We expect to close Piedmont Shar towards the end of ’16 into ’17, you may recall from our announcement a week ago that we laid out a calendar. We will work as aggressively as we can to close it but I think a year is a good planning assumption. Shar Pourreza Okay, got it. And then just one last question on international, it’s good to see the currencies becoming a little bit less of an issue the hydrology is improving. We haven’t heard much on this lately. Is there any sort of incremental datapoints around the Brazilian government potentially looking at providing some sort of a retrieve to the hydro generators or is this sort of a kind of a dead movement? Steve Young There has been a lot of activity in this area Shar, recently there was a technical note that was issued by an arm of the government and that’s really just a document that summarizes discussions to-date, a number of discussions are occurring. The government is targeting issuing effectively an executive order this calendar it remains uncertain exactly when, but that’s their target. And what that order might say is not certain at this point either. So there is more work to be done here. I would say that in general the views of people and the government and the regulators have been constructive with regard to generators in our position. So there is more to come there in the meantime, the injunctions are still in effect and that has provided some relief to us. Operator Thank you. Our next question is coming from Dan Eggers of Credit Suisse. Dan Eggers Hi just taking up on the Slide 11, when you guys, you made the comment about the dividend trending higher than target payout ratio, but also you are wanting to keep with the long-term EPS growth rate. Can you just maybe translate what you’re trying to signal in those comments which seem to be a little bit in conflict? Lynn Good Dan, I would go back to the Steve’s comments on Slide 10 with the intent to rebase off of 2016 and move to 4% to 6% from that point forward. We see the dividend trending slightly above 70% in the very near-term. And so if I look at the strength of the dividend, the dividend is really driven by the underlying core business, which is growing quite well and given the investments we have put in place, we believe that it will continue. And so we have confidence in growing it at that rate and allowing payout ratio trend out modestly in the short-term we think it’s a smart decision. Dan Eggers Okay. And then on O&Ms you guys have done a good job as far as bringing down costs since the Progress acquisition. What kind of reductions do you see from here as you are a part of that ’16 drivers the idea of bringing cost out, is it a substantial reduction ’16 versus ’15 or is more just absorbing inflation at this point? Lynn Good We are still at work Dan on our plans and we’re targeting to absorb inflation plus and we think that’s going to be a combination of a number of things that we build a strong foundation on but we are going after productivity and efficiency and the company as you said has demonstrated a great ability to control cost and we see even more potential in to ’16. Dan Eggers Okay. And then I guess maybe the last one just on you kind of just calibrated the commercial business and not to get too far ahead on ’16 but commercial is now coming in below where you guys thought the normal baseline would be, do you still feel comfortable with $100 million as your run rate from residual commercial? Lynn Good This year we’ve been impacted by wind resources Dan and I think that’s a theme that you have seen with others that have significant renewable exposure. So we expect our restoration of that to more normal levels as part of our planning for ’16 and then we do intend to continue to deploy capital in a way that meets our return expectations, so we would expect to see some growth. I think over the long-term the cash spreads and other things will have to be evaluated, but we see ongoing momentum around renewables. Steve Young And we have committed projects for 2016 lined up as well to keep the growth going there and also in our commercial portfolio as you move forward we will start to see earnings from our pipeline investments kick in as well. Dan Eggers Okay. So just one last one on the load growth trends, you may have had a — you are below, at the bottom end or a little bit below where you thought you’d be even the customer growth seemed pretty good this year, are you having to reconsider kind of what that long-term growth rate is, is it 0% to 0.5% or do you think there is some discrete usage trends maybe around multi-family housing or something like that that is explaining why usage has been that much of a drag relative to customer growth? Lynn Good Dan, I think we’ve been working with a 0.5% to 1% for some time and I think a 0.5% seems to be the range that we’re in. And I think it’s all the things you talked about it is synergy efficiency, it is housing patterns and even volatility in industrial. We had strong industrial growth when you dial back in this quarter. So what we are focused on as we kind of link this discussion to our cost structure, is planning to cost structure that can absorb that variability and also be positioned for modest very low load growth if that’s the direction things continue to head. Operator Thank you. Our next question is from Jonathan Arnold of Deutsche Bank. Jonathan Arnold I just would like to understand a little better when you are talking about this rebase on 2016 and Steve, I’m not quite sure whether I have you right, are you saying you anticipate growing at the 4% to 6% through 2016 and then also off of 2016 or implicit within this concept to the rebase seems to be the idea that maybe you weren’t or you want to reposition the range a little bit, I just want to understand what you are saying on ’16, when you made that statement? Steve Young What we are looking at Jonathan is we will set a base year or anchor year off of 2016 and then you would see 4% to 6% growth from there. And we think we’ve got to do that given the changes in international we think it’s stabilized and it’s moved from again a $0.60 business to a $0.30ish business going forward. So where we base with ’16 as the anchor we see a 4% to 6% growth there, underlined by the strong core business growth in the track history that it shows and some potential modest growth in international from that new lower level. Lynn Good And so what I would add to that Jonathan, if you could look at the Slide 10, you see the regulated and commercial portfolio, the blue bar that’s the bar that’s growing at 4% to 6% and then you have an international business, which is about $0.30 in ’15 so it would add to that and grow modestly. So that’s the direction that we are trying to provide here with expectations for ’16 and then we think from that base, we are in a position to grow at 4% to 6% going forward. Jonathan Arnold Okay. Understood. Thank you. Could you maybe just — do you have an expectation currently on what — how pension will look as a driver for next year just specifically or is it a little early to tell? Steve Young It’s a little early to tell on pension you got to take a look at the discount rate right at year-end, and who knows where that will go, if the Fed raises rates or something that could have an impact on it, I don’t think it would be any huge change that we’re looking at in pension expense, at this point but again with it being so sensitive to the discount rate, we would — it’s a little early to say precisely. Operator Thank you. Our next question is coming from Steve Fleishman of Wolfe Research. Steve Fleishman So a couple of questions, I just, these international pressures are not new and in the past you talked about trying to work on a plan and things to offset the international pressures. It just sounds to me like, it just not — you just kind of changed to, they just are what they are, we’re just resetting the base and then growing off there, because these are just — became too much. Is that fair to say what happened? Lynn Good Steve I would say slightly differently. And in 2015, I think the team has done an extraordinary job of offsetting. What is happened in international, we started the year with an expectation, they would deliver 345 and they’re delivering just north of 200 million. And that’s an execution on strategic initiatives more timely and that’s been running the business slow and taking advantage of good weather and other things that have developed. As we look forward, we did not have an expectation earlier in the year of weather international with rebound, the depth of the currency issues, were difficult to forecast at that time, the economic implications. And so as we sit here, closing the year we see a rebound on water conditions in hydrology, but we continue to see headwinds on currency and economic growth. And so we think it’s appropriate in light of what we see today to establish a baseline of about $0.30 for ’15 on international. And then we do believe it’s stabilized and we see an opportunity for modest growth from there. I think what is important is that the 90% of the business regulated in core has demonstrated strong growth over the period of ’13 to ’15 and we think that will keep going. As a result of all the investments we have put in place and our ability to execute. Steve Fleishman And the updated guidance for the international you are now — are you using kind of current forwards for currency in oil and the like or? Lynn Good Yes. Steve Young Yes. Steve Fleishman And essentially are you — okay, great. And then just thinking about Piedmont and the context for the 4% to 6% of this 2016 base now just would that — you talked on the deal announcement of that enhancing the 4% to 6% so if there was no Piedmont, would you still be 4% to 6% or not. Could you just kind of clarify now that you have this new base? Lynn Good Yes. So the growth rate is not dependent on Piedmont. We believe the base business itself, the investments that we’ve outlined, the way the business is executing is capable of growing 4 to 6. So we see Piedmont as incremental to the growth rate. And… Steve Fleishman But still in the 4 to 6? Lynn Good Yes. Steve Fleishman Okay. And then just on the dividend growth and earnings growth comment. Because you’re saying, we’re going to grow the dividend in line with earnings but then we’re above the payout ratio. So kind of by definition you just switch to end up saying about the payout ratio. If that is what you actually do? So could you just kind of clarify your communication there? Steve Young Our dividend is growing about 4% now. I believe that we’ll move above the 70% target level for a while. But as we grow we believe we’ll return back to our target level. Operator Thank you. Our next question comes from Michael Lapides of Goldman Sachs & Company. Michael Lapides Real quick question, just when you think about the renewable business. You have had the earnings benefit in the last year or so. Can you quantify and Steve you touched on it, I want to make sure I understand it. Can you quantify the total EPS benefit of the tax credits? And then how you think about replacing that if solar development slows post 2016 and tax credit roll off or PTCs don’t actually get extended? Steve Young Michael right now, a lot of the net income bottom-line benefit from the renewables, the commercial renewables business comes from the tax benefits. There is some profitability on the non-tax side in the ongoing margin, but the bulk of the earnings comes from the tax benefits. So your question is when these tax benefits when and if they expire what happens there. I think based on what we have seen and heard now there will still be a market for renewable power as no states are backing off RPF standards and that’s a basis for a lot of the growth here is responding to RFPs to meet these requirements. The PPAs in the contracts may have to change with the absence of the tax benefits. And the pricing may have to change, but we will still structure this business to provide profitability here. I would also add that the cost for the renewables is going down and will help offset some of the tax benefits that exists. Michael Lapides Got it. And just how much were for those tax benefits as part of your 2015 guidance. Is that the full piece of commercial that $75 million or just some portion of it? Steve Young It’s the majority of the 75 million. Michael Lapides Got it, okay. The other thing can the O&M cost savings offset the $0.17 impact of positive weather this year? Lynn Good Michael, we are not getting that specific on how each of these drivers impact, so what I would direct you to is think about our O&M spend and we are at work to not only offset inflationary impact to drive those costs lower in ’16. So I think about weather and we always start by planning normal weather and then we’re building up with investment earnings as well as cost control. Operator Thank you. Our next question is from Bryan Chen of Bank of America/Merrill Lynch. Bryan Chen Hi my questions have been answered guys. Operator Our next question is coming from Jim Von Riesemann of Mizuho Securities. Jim Von Riesemann I got to put my dead head on for a second here. Can you just a talk little bit about how much cash flow is upstream from the regulated utilities to the parent level every year on an annualized basis? Lynn Good I think we will probably take that question offline. Jim, I’m not sure we’ve got a cash flow statement sitting in front of us here. Steve Young Right, I don’t have that with me, we’ll have to work on that a bit Jim. Operator Thank you. Our next question is coming from Ali Agha. Ali Agha Lynn and Steve just listening to your comments, just so that I’m clear, with normalized weather next year international being modest, some cost savings and then the rebasing, just directionally it appears that ’16 it is pretty much flat to maybe modestly down from ’15 and then so is that fair? Lynn Good I think we’ve given you the drivers, if you look at the slide, on Slide 10 to grow the base business at 4% to 6% add to it international with modest growth and so I think we’ve given you a pretty good sense of where we think it will be and of course we’ll give you more detail in February, as we finalize our business plans so that you can understand more specifically how much of it is coming from O&M and how much is coming from each of the business segments. Ali Agha Okay. And more near-term in 2015, when you locked of $0.10 from the higher end of the range, is that all because of commercial, is it international being worse, can you just kind of elaborate the change in ’15 guidance? Lynn Good So Ali, we have really been working throughout ’15 to offset weakness in international and have been successful in doing that through a variety of things including favorable weather, as well as early closings on the Eastern Power Agency and the stock buyback. As we look to the fourth quarter though we always plan for normal weather, we started out with October being mild, we have storm expense sitting in October, we have a slighter, weaker currency as a result of some of the movements that occurred in September and then we also talked about the extension of bonus depreciation. We don’t know for sure, but it feels to us like that will likely get extended and if it does, because of our cash position, it results in a modestly higher effective tax rate for the company. So all of those things considered, we think $4.55 to $4.65 is an appropriate range at this point. Ali Agha Steve and on the bonus depreciation front Lynn, I mean the talk is that if it gets extended, it’s a two year extension, I’m just curious of that’s how you guys are seeing it and if so can you just quantify, just a bonus depreciation and extension impact for Duke? Steve Young We’ve heard various guesses that how long it will be extended, we think there is a good likelihood of at least one year, two years is possible as well, and the impacts for 2015, for one year extension is in the range of $0.04 for us if you go beyond into a two year extension, it could be a similar number just depends on our overall tax positioning the issue for us is we’re toggling in and out of an NOL position and which makes us perhaps unique in the industry, if you are deeply within an NOL or outside of an NOL position. This extension doesn’t have an impact and it depends a bit on when we come out of that NOL position, which depends on other factors. So it’s a little hard to predict beyond ’15. Lynn Good And of course all the cash flow. Cash flow is positively impacted, if it is extended, so let see if this is giving you as earnings for certain. Ali Agha Absolutely. Last question Lynn, so on the international operations is the mind set now look, sort of hunker down and sort of work with the portfolio flat to modest growth, is that sort of the planning now and not really being more proactive and saying, hey does this really fit in the portfolio? Lynn Good Our focus has certainly been this year, Ali trying to run the business as efficiently as we can, we focused on cost, I think the international team has done an extraordinary job in a difficult market, we think it stabilized and hopefully, we’ll see a slightly better picture in ’16. I think the portfolio is always under review. The fact that we added Piedmont is consistent with our view that we wanted more natural gas in the portfolio. So that’s an ongoing review, in the meantime we’re also taking advantage of the international cash as you know. Operator [Operator Instructions] Our next question is comes from Paul Ridzon of KeyBanc Capital Markets. Paul Ridzon In your release you indicate that for the quarter weather was a $0.09 pick-up at the utility and then when I look at Slide 19 in the deck. I see that last year it was $0.06 below norm, but this year is basically short of normal. Just trying to reconcile that? Steve Young Yes. I think that your statements are correct there is some rounding in some of these schedules I believe is the difference in your sense. But we’ve returned to normal weather this quarter last year, it was mild weather. Lynn Good And Paul the other thing I would know the share count is going to have a difference between ’14 and ’15, because of the share buyback. Paul Ridzon Okay. And then kind of given the pending Piedmont acquisition, what’s going to happen to proceeds from securitization, should that just sit on the balance sheet when you use that cash when you close the deal? Lynn Good Yes. So we would expect securitization to move through the process in ’16 Paul. So we don’t come into the cash flow as a company and be used for investments or 4 billion debt in the short-term. But we do see at as the cash flow item that over a long-term basis could be used for long-term investments Piedmont being one of them. Paul Ridzon When do you expect that cash? Steve Young We would expect to be able to close the securitization in the first to second quarter of 2016. Paul Ridzon And then just lastly your latest thoughts around filing rate cases in your regulatory jurisdictions? Steve Young We’re looking at filing in I would say in the late teens it depends upon investment plans and other factors there that we’d look at jurisdiction by jurisdiction. But generally we’re looking at rate cases in the Carolinas in the late teens. Paul Ridzon And then lastly just a clarification on the payout ratio discussion, if you were to look at your ’15 payout ratio what would you use as the numerator and denominator. I guess 460 would be denominator? Steve Young I’m sorry, ask that again, I’m sorry I am not. [Multiple Speakers] Paul Ridzon I just want to make sure, how are you thinking about the payout ratio? What — is it the indicated dividend at year-end or is it the dividend paid during the year? Steve Young It’s the dividend paid during the year as it grows over the annual earnings. Paul Ridzon So it’s kind of a mix a blend of two years of dividends, because change at mid-year? Lynn Good So there is nothing fancy about this Paul. Whether you use an annualized number or whether you use what is paid out I think it’s all a matter of small rounding. I would calculate the payout ratio the way you typically do for every other utility. Operator Thank you. There appear to be no further questions in the queue at this time. I’d like to turn the call back to Lynn Good for any closing or final remarks. Lynn Good So thank you everyone for joining us today for your interest and investment in Duke Energy. Our fourth quarter earnings call which will also include our updated financial forecast will be held in February and we look forward to seeing many of you in the coming months and at the EEI Conference next week. Thank you. Operator Ladies and gentlemen, on behalf of Duke Energy we’d like to thank you for your participation. You may now disconnect and have a wonderful day.