Good day, everyone, and welcome to the Duke Energy first quarter earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Mike Callahan, VP of Investor Relations. Please go ahead, sir.

Thank you, Alan. Good morning, everyone, and thank you for joining Duke Energy's first quarter 2018 earnings review and business update. Leading our call today is Lynn Good, Chairman, President and CEO, along with Steve Young, Executive Vice President and CFO. 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 duke-energy.com and in today's materials. Please note, the appendix for today's presentation includes supplemental information and additional disclosures. As summarized on slide 3, during today's call, Lynn will briefly discuss our financial and operational highlights for the quarter. She will also provide an update on key regulatory activity and progress we've made advancing our strategic investment plan. Steve will provide an overview of our first quarter financial results and insight about economic and low growth trends. He will then provide an update on tax reform and our financing plan before closing with key investor considerations. With that, let me turn the call over to Lynn.

Thank you, Mike, and good morning, everyone. Today we announced adjusted earnings per share of $1.28, marking a strong start to 2018. It's clear our long-term strategy is delivering results. We made progress on our strategic investments and regulatory initiatives and continue to expand our electric and gas infrastructure businesses with solid customer and volume growth across our service areas. With these results, we remain on track to deliver our 2018 EPS guidance range of $4.55 to $4.85 per share and our long-term earnings growth CAGR of 4% to 6% through 2022. In response to tax reform and consistent with the plans we shared with you in February, we successfully executed a $1.6 billion equity offering in March. We also remain on track for the additional steps that we outlined, reducing capital by $1 billion over the five-year plan and maintaining a sharp focus on operational cost efficiency. Overall, I'm confident we have the right approach to financing our investments. And S&P reaffirmed our credit ratings and stable outlook in March. On this slide, we've also highlighted other notable accomplishments during the quarter that demonstrate the dedication of our employees and their focus on delivering affordable, safe, reliable, and increasingly clean energy. This was recognized by EEI [Edison Electric Institute], which ranked Duke Energy number one in safety in the industry for the third year in a row. And on May 1, Forbes honored our commitment to engaging, developing, and retaining our workforce, naming Duke Energy as a top employer. Turning to slide 5, let me provide an update on our regulatory activities during the quarter. Last year we filed two rate cases, one for Duke Energy Progress and one for Duke Energy Carolinas. In late February, the North Carolina Utilities Commission issued an order in our DEP case, approving…

Thanks, Lynn. Let's start with quarterly results. I will cover the highlights on slide 8 and discuss our adjusted earnings per share variances compared to the prior-year quarter. For more detailed information on segment variances versus last year and a reconciliation of reported results to adjusted results, please refer to the supporting materials that accompany today's press release and presentation. On a reported or GAAP basis, 2018 first quarter earnings per share were $0.88 compared to $1.02 last year. First quarter 2018 adjusted earnings per share was $1.28 compared to $1.04 in the prior year. The most significant drivers of the difference between reported and adjusted earnings in the quarter were charges related to the sale of the retired Beckjord plant in Ohio; the recognition of a valuation allowance related to the Tax Act; charges related to the DEP rate order; and an impairment of Duke Energy's investment in the Constitution Pipeline. Higher adjusted results in the quarter were principally due to weather, as well as growth in our electric and gas businesses. Within the segments, Electric Utilities and Infrastructure results were up $0.26 compared to the prior year. Weather was the primary driver with a $0.16 increase, as we returned to more normal weather in the first quarter compared to the warmer winter weather a year ago. We also had higher retail revenues from pricing and riders, primarily driven by three factors; generation base rate or GBRA increases in Florida that took effect last year related to our Hines and Osprey facilities; grid riders in the Midwest; and the recovery of qualifying facility power purchases through the fuel rider in North Carolina as a result of HB 589. We also saw higher retail electric volumes in the quarter, which I'll discuss in more detail in a moment. O&M was…

We'll first go to Jonathan Arnold with Deutsche Bank.

Good morning, guys.

Good morning.

Good morning, Jonathan.

Steve, you may have given more on this than I picked up in the remarks, so I apologize if that's the case. But I was just wondering if you could give us a little more color into the benefits of tax reform that are retained in the Utilities and Infrastructure segment this quarter, perhaps quantify how much that was, how it's arising, and then to what extent you expect it to be an incremental benefit during the rest of the year.

What we saw in the quarter looking AVA [Average Value Analysis], we saw $0.06 favorability related to income taxes. A couple of things are going on there. I mentioned the accounting levelization rules require smoothing of tax benefits over the year, and that accounts for $0.02 or $0.03 of that favorability. We also utilized some tax optimization efforts that helped provide some benefits in income tax as well. But there is the levelization that will turn around to the extent I described.

And, Jonathan, maybe just to add to that, the overall guidance that we provided in February for the impact of tax reform, we are on track for that. What you're seeing is just some quarter-to-quarter levelization resulting from the application of GAAP, but we are on track with the guidance we gave you in February.

Okay, so that incorporates some earnings pickup from the fact that the riders won't be implemented till they get implemented and the DEP happening in the next case. Am I my understanding that right?

The cash flow implications of retaining those benefits would be reflected in the results. We are deferring in every jurisdiction, I believe, Steve, tax benefits. So you can think about it as cash flow financing benefit, Jonathan.

Okay, so what you're calling out as an earnings driver is purely the timing. It's not the cash benefit.

That's right. What is an earnings driver here is the levelization primarily that Lynn described. There have been some tax optimization efforts that are in the results. That's separate from the Tax Act issue.

Okay, thank you for that. And just one other topic, can you give us an update of how you feel about your goals that you've laid out in Commercial Renewables and just the state of the market competitive-wise there?

Jonathan, we're on track in 2018 in the Commercial Renewables segment. The variance that you see in the quarter is more weather-related, but the backlog of projects and what we expect to close in 2018 remains on track. As you know, it's a competitive market, and we expect it to continue to be.

Okay, thank you very much.

Thank you.

Thank you.

All right. Next we'll go to Michael Weinstein with Credit Suisse.

Good morning. Michael Weinstein - Credit Suisse Securities (USA) LLC: Quick question, the 15% to 16% FFO-to-debt target for 2020 to 2022 and 14% for 2018, how much would that be impacted if – how much of that is dependent on the outcome of the DEP case? How could it change positive or negative as a result of the outcome?

Well, I think the DEP case was very constructive. I think it's overall in line with our expectations as a whole... Michael Weinstein - Credit Suisse Securities (USA) LLC: I'm sorry, but the DEC case.

Okay. We've modeled a number of scenario outcomes. The DEC case we'll learn about in a few weeks, but I think we have a number of levers to pull to still meet our credit metrics over our plan.

Michael, if you look at the DEP case, a very constructive outcome addressing all of the capital, substantially all of the deferred coal ash. We believe we put on a very strong case for DEC, and we'll know more on the specifics late May or June, but I think the precedent established in the DEP case is how you should think about DEC. And then tax reform would be the addition to DEC that I would point to, and we were specific in our recommendations around tax reform in our post-hearing brief that we filed at the end of April. Our intent has always been that customers should see the benefit of the reduction in rates from 35% to 21%, and we have proposed an amortization period for the unprotected, which we think strikes a good balance. So as Steve said, we always model a variety of scenarios on these things, but feel like we're on track to deliver those metrics, and we're certainly committed to do that. And if at any point there's a timing or shortfall, we do have levers, as Steve indicated, to make sure we remain on track. Michael Weinstein - Credit Suisse Securities (USA) LLC: Just to follow up on that, the real question is, the current equity issuance of $2 billion target for this year, does that incorporate even your worst-case scenarios for the outcome of the case, or is there a possibility there might be more?

Yes, it does. Michael Weinstein - Credit Suisse Securities (USA) LLC: Okay, thank you.

Michael, I think the thing I would think about on tax reform, which is really probably the most significant open item because we don't yet have commission approval, it comes down to the treatment of the unprotected deferred taxes. And so we're not talking about a wide degree of variability for a company of our size. And we're talking about amortization periods ranging from 5 years to 20 years that we proposed. So I think it's important to bound that uncertainty exposure as you think about our confidence. Michael Weinstein - Credit Suisse Securities (USA) LLC: Got you, but you've bounded – possible outcomes on the unprotected tax refunds are built into that equity issuance plan, right?

Absolutely. Michael Weinstein - Credit Suisse Securities (USA) LLC: Okay, good. Thank you.

And next we'll go to Steve Fleishman with Wolfe Research.

Good morning, Steve.

Hey, good morning. Good morning, Lynn.

Good morning.

So just first, do you have any sense from Moody's on when they might revisit the negative outlook given the equity issuance you did and the like?

Steve, we can't project with certainty what Moody's timing is. The one thing I would point to though is that their report earlier this year and your outlook action was really centered around tax reform. So I would expect as we move through the resolution of the DEC case, you'll get a clear picture of North Carolina. We already have Florida dialed in. Kentucky is visible, and we have dockets open in both Ohio and Indiana. So I feel like more information is going to become available over the next several months around tax reform in our larger jurisdictions, and we'll certainly be anxious to share all of that with Moody's.

Okay, great. And then the $1.1 billion of refundable AMT credits, so in 2019 and 2020, are you just essentially getting tax money, essentially refunds from the government on taxes?

Yes, that's correct.

That's correct.

Overall, because you also have your NOL and other...

We're getting that as cash.

Okay. And then just technically the $1.1 billion, that's a direct number. That's not like a – do we tax effect that, or is that a direct?

That's a direct number. That's (32:01).

Direct cash, okay. Okay, thank you.

Thank you, Steve.

All right.

And next we'll go to Julien Dumoulin-Smith with Bank of America Merrill Lynch.

Hey, good morning.

Good morning.

Good morning.

Hey. So I wanted to follow up on a couple of things. First, if we can go to the modernization side of the equation, starting with Ohio, PowerForward, obviously that's success on that front. Does that change your CapEx at all? Obviously, it wouldn't be too meaningful. And then secondly, related to that, can you talk on the outcome of the latest rate cases in the Carolinas and to what extent that might shift things?

So we're pleased with the result of the settlement in Ohio, Julien, but we need to get through a commission process. So there are hearings in July, but feel good about the settlement we were able to bring to the table. I think the PowerForward part of that rider will include projects that will impact customer experience, so our replacement of customer systems will be included in there. But we'd also expect the Ohio Commission, as they continue their work on their initiatives, to perhaps identify some things that we could invest in. Those would be incremental to our plan. So overall, I would look at the result – the settlement in Ohio as being consistent with our plan with modest upside. And in the Carolinas, I think we talked a number of times about grid investment being a priority in the Carolinas. We'll be watching closely the results of the DEC case and then determining our strategy for legislation in 2019 and beyond to see if there's additional legislative certainty that we need to provide in order to set a pathway for further investment in the Carolinas. So that's what I would share with you about modernization in the Carolinas.

Excellent. And then turning back to the overall guidance, not to wordsmith things too much, but I just wanted to understand what you're saying about 2019 guidance. Last time, I think you guys talked about being "within the guidance range by 2019." And I think this go around, you talk about being back to the lower end of the 4% to 6%. Is that something to do with the timing of the equity and within the plan, or am I just being too nitpicky here?

Julien, the message has been the same. If you go back and reference where we were in February, it has always been low end of the range in 2019 and then mid-to-high in 2020 and beyond as we see the rate base growth and the investment and so on. So no change in message, but we'll be at the low end of the range in 2019.

Excellent. Sorry, just quick nitpicky thing on the tax side real quickly. Obviously Ohio, that issue I think got pushed out from the settlement conversations. What's the latest expectation on resolving that?

There's a docket in Ohio. I'd expect it to move through a process in 2018, Julien, but I don't have anything more specific than that.

Excellent, thank you all very much, best of luck.

Thank you.

All right, next we'll go to Ali Agha with SunTrust.

Thank you, good morning.

Good morning.

Good morning.

Good morning. First, Steve, I wanted to just make sure I had heard something earlier when you talked about first quarter and some timing-related issues. One was tax levelization, as you clarified. If I heard you right as well, I think you mentioned there was about a $0.04 pickup in O&M, also timing related that would reverse over the course of the year. Did I hear that right?

Yes, that's correct.

Okay.

We've seen some favorable O&M in the first quarter, but some of that was related to timing of purchases and so forth, so that may turn around.

Okay, got it. And then secondly, when I look at the rate base data that you've given us through 2022, at least just looking at that data, it appears that the growth in rate base actually slows down 2020 and beyond. So I'm just wondering how to reconcile that with the point that earnings growth should actually accelerate 2020 and beyond. So how do we reconcile those two things?

Ali, I would first think about 2020 as being the completion of a number of important projects that we'll begin to see impact and then fuller impact. So ACP, Western Carolina, the step-in in Florida, the riders in Ohio and Indiana, environmental spend in Indiana. And then as you get further out in the period, we will continue to drive investment in our strategic priority areas of grid, clean energy, gas, and renewables. And those plans will be more fine-tuned as time progresses. What we've given you is ranges and expectations, but we will fine-tune the numbers in 2021 and 2022 as we get closer.

Got it. And last question, Lynn, remind us also. When is the next big rate case cycle that we should think about once you're done with the North Carolina cases now over this planning period?

So as I think about jurisdictions, we're set in Florida if the settlement is improved. Ohio is in good shape. We just finished a case in Kentucky. We have a number of trackers in Indiana. We continue to think about is it time to come in for a full case, so that's something that will be under evaluation. And then the Carolinas, we'll be anxious to see the results of the DEC case, and that will inform our timing. But as we've talked about a number of times, we believe the investment profile in the Carolinas matched with great value and benefits to customers is a good one. We're looking for ways we can modernize the construct. And in the interim, we'll be filing cases to deliver returns to investors and match those benefits to customers. So we'll have more specifics though on the timing after we digest the DEC case.

Got it, thank you.

Thank you.

Now we'll go to Michael Lapides with Goldman Sachs. Michael Lapides - Goldman Sachs & Co. LLC: Hey, guys. Thank you for...

Hello. Michael Lapides - Goldman Sachs & Co. LLC: Hey, Lynn. Thank you guys for taking my call – my question. I actually have a couple. The first one is can you quantify under tax reform and the tax law changes at a companywide level for your regulated operating companies? And I'm just looking for the total company level, not by subsidiary. What is the excess or unprotected add/fit (38:43), that balance? What do you estimate that to be, that likely over multiple, multiple years will likely get refunded back to customers?

We've got about $6.3 billion of excess deferreds on our books, Michael, total company. And of that, about $4.5 billion is protected, and unprotected is about $1.8 billion. Michael Lapides - Goldman Sachs & Co. LLC: So the $4.5 billion should qualify under normalization like we saw after the 1986 Tax Act and go back to customers over a long life period, and the other staff, it's more negotiable?

That's correct. Michael Lapides - Goldman Sachs & Co. LLC: Okay, thank you. The other thing, and this is more of a regulatory or rate-making question. When you look at your capital spend forecast over the next couple years, how much of that – is there a rule of thumb of how much of that capital spend is covered via trackers or riders versus covered via traditional historical looking rate case processes?

It will vary per jurisdiction, Michael. Certainly, we have a number of trackers in the Midwest that cover a lot of the capital there. We got the multiyear rate planning in Florida that provides us very efficient recovery. The Carolinas, the larger jurisdiction which has a lot of the CapEx, has fewer trackers at this point in time. So it's hard to give a rule of thumb there for the enterprise as a whole. Michael Lapides - Goldman Sachs & Co. LLC: Got you.

Michael, in the Carolinas, as you know, modernizing has been a priority. So if you think about HB 589, we now do have tracking mechanisms in the Carolinas around renewables, and we've put in front of the commission grid tracking. So our objective over the five-year period is to make progress in the Carolinas. But I think if you look at the Midwest and Florida, substantial, over 50%, 60%, 70% perhaps are covered by trackers in those jurisdictions. Michael Lapides - Goldman Sachs & Co. LLC: Got it, thank you, Lynn. And thank you, Steve, much appreciated.

Sure.

Thank you.

And next we'll go to Praful Mehta with Citi.

Thanks very much. Hi, guys.

Good morning.

Hello.

So, Steve, just to clarify – and by the way, slide 23 is very helpful in terms of the deferred taxes. But just to clarify, on that $1.8 billion of unprotected, what amount do we have clarity right now of the five years, and what amount is uncertain in terms of the timing of the refund? And the reason for the question, just to give you the context, is I was just trying to figure out where in that FFO-to-debt range can your metrics vary depending on the outcome of the deferred income taxes.

Sure. Of the $1.8 billion of unprotected excess deferreds, about $1.1 billion is at DEC and about $300 million is at Duke Energy Progress, so the bulk of it is in the Carolinas. The remaining portions are in Indiana and Florida. So the big piece of that is in the Carolinas.

And I think, Praful, as you think about this DEC case, we'll get some visibility into the unprotected for DEC within the next couple months. And we've put forward a proposal of amortization between 5 and 20 years, tying that amortization period to the asset class, the nature of the items that resulted in the deferred taxes. And as I've said a moment ago, we'll learn more from the commission as we see the results in the DEC rate case.

Got you, fair enough. That makes sense. But just so if there is pushback or a request for faster refunds than what you have currently assumed, I guess, in your metrics, your FFO-to-debt metrics, does that put pressure on credit at all, or do you think most scenarios that you can get back in terms of the rate case or the settlement are kind of incorporated within your current plan?

Praful, we're confident on this. If you think about $1.1 billion over a 5 year or 10-year period and the scale of the company, the amount of capital we spend, the regulatory activity that we have to generate cash flow, we feel like we have scenarios and levers that we can exercise and manage variability. So I'd leave it at that. Steve?

Right, I would echo that as well. We have efforts under capital optimization looking at our O&M spend that can help offset this, just a number of levers to pull.

Got you, fair enough. That's helpful. And then secondly on tax equity, I saw that with one of your solar projects, you're looking at tax equity financing, and you mentioned this will be a bigger part going forward. It sounds like it makes sense given your cash tax profile. How attractive is the tax equity market right now? How big a player do you look to be in that tax equity? I'm assuming that is a part of your FFO-to-debt strategy as well to improve metrics. So just a little bit of color around that would be helpful.

Sure, the tax equity market is still very viable. It is in fact being used at our Shoreham facility, our solar farm in New York, and we'll continue to utilize that. As you mentioned, our tax position puts us as a candidate for that. And I think the markets there, it is an important part of our Commercial Renewables profile. So we'll utilize that as we go forward.

Praful, the capital that we laid out with you in February is still a good planning assumption for Commercial Renewables. We just look at tax equity as a tool we'll use to put that capital to work.

Got you, fair enough. Thanks so much, guys, I appreciate it.

Thank you.

Sure.

Next we'll go to Shar Pourreza with Guggenheim Partners.

Hey, good morning, guys. My question is...

Hi, Shar.

Hi. Lynn, my questions were just answered. Thanks so much.

All right, thank you.

All right.

Bye, guys.

Okay. We'll go to Paul Ridzon with KeyBanc.

Good morning.

Good morning, Paul.

Good morning.

At renewables, you were down $0.01, which you attributed to wind resource. Was that a net number? In other words, did you have growth from incremental projects more than offset by more than $0.01 of core wind resource?

Yes, that's a net number.

Assuming wind resource had been flat, what would the segment have done?

I'd have to look at that a little bit further, Paul. But the results were down $0.01, and that's primarily due to wind resource and there's some additional resources, but it's not significant.

Okay, thank you. And then back to Steve's question, the $1.1 billion of AMTs, so what net number will you be receiving from the IRS next year? Do you expect the full $550 million?

Yes, in the range of that amount, 50% of the $1.1 billion, we'll get that next year.

And that's net of what you'll be paying the IRS. In other words, you'll be not a cash taxpayer?

That's the amount from the AMT, and we're not a cash taxpayer on any other front. And the AMT...

Thank you very much.

...is not tied to taxable income in any way. It's just an amount you get regardless of where you're at on your tax return.

Thank you.

Thank you.

And we'll take our last question from Christopher Turnure with JPMorgan.

Good morning, Lynn and Steve.

Hi, Chris.

I appreciate the extra detail on Atlantic Coast. That was very helpful. Thank you for that, just a couple clarifications. Could you maybe give us a little bit more on how you're feeling in North Carolina about the grid mod rider? Staff didn't like it but did admit that they would prefer that it has a cost cap and some other conditions if they did approve it. So how are you feeling there, and how much does the tax benefits to the customers in general kind of weigh in on commission and intervener thinking there?

So on the grid investment, Chris, I think what we saw in the hearing is just a continuation of a good discussion about the nature of the investments, the benefits they can deliver, the impact on customer bills. And so as we put together our post-hearing brief, we really addressed a number of the issues that were expressed during the hearing process and put in front of the commission what I would call kind of a step-in for the rider, a three-year proposal with a cap that was responsive to the feedback that we received. So I would think about this as being a continuation of our strategy to keep the conversation going about the grid. I actually think there's a very little disagreement about the need for the investment. I think the benefits to customers are clear, and we are trying to find the right way to put that investment in place for the benefit of customers in a way that makes sense to the commission, public staff, et cetera. I think tax reform represents a great opportunity because you have an opportunity to reduce impact to customers, at the same time you're driving investment. So I think they're complementary in that regard. And so we look forward to continuing the dialogue. And as we've shared previously, we have thought about the grid investment and modernization as being dual-track. Focusing on the regulatory process certainly, but also having legislation is something that we would also consider as we continue our work to modernize regulation.

Okay, that's helpful. I think we'll have to wait and see there. And then just two tax clarification questions, when do you expect to become a cash taxpayer again? And I guess that question would exclude any noise from the AMT credit you're getting the next two years. And then the second question is just on the South Carolina approval from the commission on tax reform there. Do you pay a return to customers on the deferred balance?

On the first question, we do not expect to be a cash taxpayer in our five-year plan, so it's after 2022 when that happens. And help me on your second question again on South Carolina.

So you guys just got the okay a couple weeks back to defer taxes and not have it addressed by the commission until your next rate case filings there.

Yes.

In the interim, do you pay a return on that deferred tax liability owed to customers?

No, we're just deferring those costs at this point.

Okay.

Then the commission will determine how to deal with that at that time of the proceeding. We're just deferring those benefits right now.

Okay, that's good to hear. Thank you, guys.

All right, thanks, Chris.

And it looks like we have no further questions at this time, so I'd like to turn it back over to Ms. Lynn Good, for any closing remarks.

We want to thank everyone for participating, good questions today. We look forward to connecting with you over the next several weeks. And I appreciate your investment and interest in Duke Energy.

That does conclude today's conference. We thank everyone again, for their participation.