Duke Energy Corp

NYSE:DUK

Earnings Call Transcript 2019-Q4

[Operator]

Good day, and welcome to the Duke Energy Fourth Quarter Earnings Call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Bryan Buckler, Vice President of Investor Relations. Please go ahead, sir.

[Bryan Buckler, VP, IR]

Great. Thank you, Derek. Good morning, everyone, and welcome to Duke Energy's Fourth Quarter 2019 Earnings Review and Business Update. Leading our call today is Lynn Good, Chairman, President, and Chief Executive Officer; along with Steve Young, Executive Vice President, and CFO.

Today's discussion will include the use of non-GAAP financial measures and forward-looking information. Slide 2 presents our safe harbor statement.

A reconciliation of non-GAAP financial measures can be found in today's materials and on duke-energy.com. Please note the appendix for today's presentation includes supplemental information and additional disclosures.

With that, let me turn the call over to Lynn.

[Lynn Good, Chairman, President & CEO]

Bryan, thank you, and good morning, everyone. Today, we announced 2019 adjusted earnings per share of $5.06, representing 7% growth over last year and solidly within the 4% to 6% earnings guidance range from the 2017 base year. 2019 also marked our 93rd consecutive year paying a quarterly dividend to our shareholders. We recognize that consistent growth in earnings and dividends are important to our investors, and we are delivering. I'm very proud of our employees' commitment and hard work throughout the year. We achieved these financial results while maintaining our focus on the customer. Our reliability statistics improved by 15% and our internal customer satisfaction metrics improved 25%, a clear indication that we are enhancing the customer experience.

The foundation of outstanding service territories and ample low-risk investment opportunities to benefit our customers gives us great confidence in the strength of our business into 2020 and beyond. We have introduced a guidance range of $5.05 to $5.45, with a midpoint of $5.25, reflecting solid 5% growth into 2020. We have also expanded our EPS growth target of 4% to 6% through 2024, built on an expanded capital program.

Slide 4 outlines the drivers and opportunities for expanding infrastructure in our jurisdictions. Our service territories are thriving. The Carolinas and Florida lead the East Coast and population growth, driving strong economies and energy infrastructure needs.

GDP growth projections for those areas as well as Nashville, Tennessee also exceeds the national average. To meet the needs of our customers in these regions, we have a $56 billion capital plan over the next five years, 90% of which will be deployed in our regulated electric and gas LDC businesses and drive earnings based growth from transparent low-risk investments. Compared to our previous plan, the new plan represents a 12% increase and a projected $6 billion increase in our earnings base by 2024.

These capital investments represent an excellent foundation to expand our 4% to 6% growth rate through 2024. Steve will provide more detail on the five year capital plan in a minute. We are proud of the work we do to power the lives of our customers. We support the health and prosperity of the communities we serve, not only through investments in our infrastructure but also through our work in the economic development, community leadership and foundation given.

We also recognize the importance of maintaining competitive electric and gas rates. And are pleased that our rates are well below the national average, driven by top quartile O&M performance and a diverse generation mix. The strong and growing jurisdictions we serve at Duke Energy set us apart, and we will continue investing in our grid and clear generation bringing our customers the affordable and reliable service they expect from us.

Moving to Slide 5. Our focus remains unchanged and is grounded in our vision to lead the way to cleaner, smarter energy solutions that our customers value. We place our customers at the center of everything we do. And our vision guides our actions and our investments. We believe a customer-focused strategy will also deliver superior returns to our investors over time. The strategy is rightfully underpinned by 2 foundational elements: first, excellence in operations, which we demand of ourselves and our communities require; and secondly, excellence in stakeholder engagement.

2019 marked another year of strong results in our operations and important progress in stakeholder engagement. I wanted to share a few examples of our important work with stakeholders in 2019. We reached an important settlement with the North Carolina Department of Environmental quality and key community groups on closure plans for our remaining coal ash sites in the state. This milestone agreement clarifies the methodology and time frame to address all ash in the basins and enables us to move forward as we transition to cleaner generation.

We believe it is a reasonable and constructive approach that protects communities and the environment, both saving our customers over $1 billion in cost. In addition, in North Carolina, we successfully advocated for storm securitization legislation, which became law in November and reached constructive outcomes in our Piedmont rate cases in both North and South Carolina. We also announced our comprehensive plan to reduce carbon emissions, targeting at least a 50% reduction by 2030 and net-zero emissions by 2050.

Our updated goals are supported by our announced plans to extend the operating licenses for all of our nuclear units. These units, which will be vital to meeting our carbon goals, achieved a capacity factor above 90% for the 21st consecutive year. We understand the importance of accelerating the path to zero carbon and look forward to working with stakeholders in each of our states to turn these goals into reality. As we turn to Slide 6, delivering superior returns to our investors drives us and is the commitment of our team at Duke Energy.

Increasingly, our investors are also looking at our results on environment, social responsibility and governance matters. We're very proud of our track record here and consistent with our vision are committed to lead. From establishing industry-leading carbon reduction goals to announcing more than 1,500 megawatts of new wind and solar projects in 2019, we're making significant progress. Last year alone, we further reduced carbon emissions an additional 8% from 2005 levels, bringing our total decrease to 39%. Additionally, our broad array of energy efficiency programs in the Carolinas have created significant savings for our customers, well ahead of national averages for these types of programs while further reducing our carbon footprint.

Duke Energy is also committed to social responsibility, sound governance, and transparent disclosures. We issued our first climate report analyzing the two degree scenario in 2018 and plan to issue an updated report this year. Our ESG ratings reflect our work over more than a decade on sustainability initiatives, and our ratings continue to increase. Many of our investors have an interest in ESG topics, and we understand the importance of achieving excellence in these areas as we move into the next decade. We will be hosting an ESG Investor Day in May. And I'm excited to update all of you on the impressive work we're doing with Duke Energy.

Let me close on Slide 7. Looking beyond our 5-year plan as the strength of our business and our future investment opportunities. We see great potential in the 3 investment priorities we've shared with you over the last few years. Modernizing the energy grid, generating cleaner energy and expanding natural gas infrastructure. Duke Energy's T&D grid across our regulated footprint represents the largest system in the nation, with more than 300,000 line miles of infrastructure. In support of our long-term strategy, we will continue to advance modernization and improvement projects to enable renewables, protected in storms and security trucks and serve the rapidly growing populations in our service areas.

The transition to cleaner generation also provides a multi-decade investment opportunity. Our 2030 commitment to reduce carbon emissions by at least 50% includes offering our existing carbon-free resources, retiring certain less-efficient plants and investing in renewables and natural gas infrastructure. As an example, the appetite for utility-scale solar in Florida continues to rise, and we expect to bring more than 1,750 megawatts online through 2030. In the Carolinas and the Midwest, significant investments will be needed as we transition these fleets away from coal-fired generation.

Our LDC business will also continue to produce opportunities for investment in natural gas infrastructure. We see tremendous value creation from our Piedmont and Midwest gas utilities, which are expected to grow net income at a 12% CAGR through 2024. Population and economic growth in the Southeast, coupled with the important role of natural gas in transforming our generation mix will drive incremental investment opportunities for years to come. The Atlantic Coast Pipeline also represents important infrastructure for our customers in the Carolinas. We have included Slide 17 in the appendix to provide an update on the permit status and financial considerations around the pipeline.

We continue to work towards securing the required permits for the project as we await the Supreme Court's decision on the Appalachian Trail crossing, customer arena, balancing value to customers and a fair return for the project owners. Our expectation is that we will have a more comprehensive update on ACP midyear.

Investing in the grid, generating cleaner energy and expanding natural gas infrastructure are critical to the customers and communities we serve and will create meaningful shareholder value for the next decade and beyond. As I look ahead, I'm more confident than ever that we will deliver strong long-term returns to our shareholders and provide industry-leading service to our customers.

With that, I'll turn the call over to Steve.

[Steven Young, EVP & CFO]

Thanks, Lynn, and good morning, everyone. 2019 was an outstanding year of execution for the company. As shown on Slide 8, our full year reported and adjusted earnings per share of $5.06 was above the midpoint of our original and revised 2019 guidance range.

This represents a 5% CAGR since our portfolio transition in 2017 and 7% earnings growth over 2018. During the third and fourth quarters, we recognized our exceptional year-to-date financial results and took the opportunity to reinvest in our business, deploying additional O&M dollars into customer service and funding charitable contributions to the Duke Energy Foundation. This agility positions the company well to deliver on our financial targets in 2020 and 2021, just as we did in 2017, 2018 and 2019. Our strong results were driven by clear growth across each of our operating segments. Electric Utilities and Infrastructure growth was approximately $0.25 per share and was anchored by our Florida operations, which benefited from the first year of the multiyear rate plan and solar investments.

We also saw solid growth in our Carolinas operations with strong rider revenues from our best-in-class energy efficiency programs and rate cases. These favorable drivers for the segment were partially offset by regulatory lag, primarily in the Carolinas.

Shifting to Gas Utilities and Infrastructure. We saw higher results in both our LDC businesses in the Atlantic Coast Pipeline. The gas LDCs continue to provide strong earnings, driven by customer additions, investments in integrity management and power generation infrastructure as well as a constructive outcome in the Piedmont's North Carolina rate case in the fourth quarter. Our commercial renewables business delivered approximately $200 million of income in 2019. Going forward, we expect this segment to continue delivering between $200 million and $250 million of net income per year over the 5-year plan.

Overall, Duke Energy delivered outstanding results in 2019, marking another year of achieving our financial commitments. The Duke portfolio, in place since late 2016, has consistently performed well and is positioned for 2020 and beyond.

Turning to Slide 9. As we look to 2020, we've announced our adjusted earnings per share guidance range of $5.05 to $5.45 with a $5.25 midpoint. This represents 5% growth over the midpoint of our original 2019 earnings per share guidance range of $5. We put together a strong financial plan for 2020, and our core utilities will continue to drive upwards earnings trajectory. For Electric Utilities and Infrastructure, growth will come from our critical investment programs. In Florida, similar to 2019, we expect very strong earnings contributions as we move into the second year of our multiyear rate plan. Results in Florida will be further supported by rapid deployment of solar generation. In the Carolinas, we will see full year contributions from the 2019 South Carolina rate cases and expect new retail rates to become effective in North Carolina in the third quarter of 2020.

Finally, in addition to the steady income growth that comes from our Midwest T&D infrastructure investments, we expect new rates for Duke Energy Indiana by midyear. We forecast long-term annual load growth in a 0.5% range and expect 2020 to be even stronger given recent encouraging signs with our industrial customers and the benefit of leap year. The most significant 2020 growth driver for Gas Utilities and Infrastructure will be the full year earnings impact of the Piedmont, North Carolina rate case, given new rates were effective in November 2019.

Our LDC businesses continue to experience increasing customer growth, driving year-over-year margin improvement. We're also heavily investing in integrity management programs across our footprint, recovering these important investments through annual rider mechanisms. In our Gas Midstream business, we expect higher AFUDC on Atlantic Coast Pipeline, with full construction activities beginning in the second half of the year. However, 2020's overall ACP results will be relatively flat, given 2019 benefited from a tax true up.

In Commercial Renewables, we expect a slight uptick in results this year as wind production returns to normal and as our 60-megawatt Palmer solar project will now go into commercial operation in 2020. Otherwise, this segment's results will remain relatively consistent over the 5-year plan.

Slide 10 provides a view of our primary EPS growth drivers for 2021, many of which were similar to the 2020 drivers. Florida continues to be a major contributor of 2021 net income bolstered by the third year of the multiyear rate plan and our 700-megawatt solar investment program. We expect solid contributions from other core operations in the Carolinas and Midwest as we invest in needed infrastructure. Our LDC businesses will experience rapid growth as we deploy capital to serve new customers and increase the integrity of the existing system. And as I discussed during our November call, higher Atlantic Coast Pipeline earnings in 2021 will fully offset the dilution from the $2.5 billion equity forward that will be settled later this year.

Lastly, I'd like to point you to our appendix slides, which highlights Duke Energy's top quartile leadership and O&M cost per customer. But we are still early in our journey. Our industry-leading innovation centers hitting its stride by scaling digital capabilities, such as mobile tools for field workers, artificial intelligence usage, drones, and automation to transform our operations and back-office processes. We will continue to leverage these capabilities to drive efficiencies and productivity across the enterprise.

Turning to Slide 11. I'd like to reiterate some of the points Lynn shared earlier regarding the rapidly expanding infrastructure needs of our operations and communities. We have responded by increasing our 5-year capital plan by over $6 billion to benefit our customers and deliver value for shareholders. The vitality of our communities translates into long-term growth opportunities as we make significant investments and position our cities and communities to remain competitive for jobs and business development. In turn, our communities rely more than ever on our ability to attract low-cost capital to make these investments. Our unique investor growth proposition, coupled with a long history of constructive regulatory outcomes, provide the right balance to lead Duke Energy and its communities into the next chapter of our energy future.

The Florida Capital Plan is underscored by solar investments and grid improvements, including targeted undergrounding. Storm protection plan legislation supports the deployment and recovery of these grid investments, driving our increased capital. We expect to file our SPP plans in the first half of this year with the program taking effect in late 2021 or early '22. In the Carolinas, we see significant needs for T&D capacity and improvement projects to support the expansion of renewables as well as rapid population and economic growth. Turning to our Gas LDCs. Strong economic growth drives tremendous need for infrastructure investments, including our integrity management programs.

Further, as we transition to energy -- cleaner energy sources, we have dual-fuel capital projects at existing coal plants, which moves us closer to achieving our carbon reduction targets. This highlights the complementary nature of our Electric and Gas businesses.

Turning to Slide 12. Our ability to execute on our robust capital program is underpinned by our strengthened balance sheet and solid credit ratings, which are stable on both S&P and Moody's. We continue to expect to issue $500 million of equity per year through 2022 via the DRIP and ATM programs. And as we discussed last quarter, once ACP comes online, we will have the balance sheet flexibility to moderate or eliminate annual equity issues. As a reminder, we plan to settle the $2.5 billion equity forward related to last year's issuance in December 2020, resulting in minimal dilution this year.

Shifting to Slide 13. We understand the value of the dividend to our investors, over 40% of whom are retail shareholders. 2020 will mark the 94th consecutive year paying a quarterly cash dividend, and we remain a top-tier dividend yield investment.

We are committed to continue growing the dividend in the future and finished 2019 with a dividend payout ratio of 74%. As we have said previously, our objective is to reduce that payout ratio over time, more in line with peers, particularly given our robust capital plan. Over the near term, we will set our dividend growth to better position ourselves within a payout ratio range of 65% to 75%, trending to the lower end of this range over the 5-year period.

Before we open it up for questions, let me turn to Slide 14. Our attractive dividend yield coupled with earnings growth from investments in our regulated utilities provide a compelling risk-adjusted return for shareholders. We are positioned to deliver results for both customers and shareholders and are confident in the plan we have for 2020 and beyond.

With that, we'll open the line for your questions.

[Operator]

[Operator Instructions]. And we'll first take Shahriar Pourreza with Guggenheim Partners.

[Shahriar Pourreza, Guggenheim Securities]

So a big jump in CapEx and the rate base is obviously up $6 billion in 23. Can we talk a bit more on sort of the higher numbers and maybe even focusing on 23, especially in Florida, where I think you're expecting to file the formal GRCs later this year? I mean, i.e. base assumptions in the upcoming GRC versus the plan you kind of presented today? And could we see some further upside if the outcome is a little bit more constructive, especially if you've got support from sort of your healthy macro backdrop that you highlighted?

[Lynn Good, Chairman, President & CEO]

Sure. Thank you for the question. We did layout in the slide deck the underlying investments around the $6 billion, $1.5 billion of it is in Florida, $4 billion in Carolinas and then we see incremental investment in our Gas LDCs of $1 billion. But I think to your point, the recent legislation in Florida represents a longer-term opportunity, and we see up to $5 billion over a decade or so of investment in that infrastructure. And as we move through the process of finalizing our existing multiyear plan and resetting that into the future, I do believe there will be ongoing potential for investment in Florida in a way that adds a lot of value to customers and investors.

[Shahriar Pourreza, Guggenheim Securities]

Got it. And then just one, lastly on North Carolina coal ash. It's obviously kind of the fluid situation still. Is there any read-throughs to Dominion's recent notice of decision, which essentially extended the recovery period for their ash spend, but with no return on that spend prospectively? I mean assuming this is kind of applicable to you, can you kind of break this outcome down relative to your $8.5 billion total CCR costs if we sort of apply that same method -- methodology as we did with Dominion?

[Lynn Good, Chairman, President & CEO]

Sure. Shahriar, the first point I would make on this, which I think is really important is the Dominion order did provide recovery of the costs. And that is a significant outcome, which we, of course, believe makes sense given its decommissioning of coal plants that have provided great value to our customers over generations. We have read the notice of decision, but I also think it's important to recognize that we have not yet seen the order. So we don't understand all of the elements, we don't understand the rationale. I think it's fair to say that this order will be specific to the facts and circumstances in this case. And although we'll learn from it, I'm not prepared to say how it will impact us directly.

But we will be presenting our case in the DEC case in March and DEP in May and hopefully have the opportunity to learn more from the order as we prepare to enter into those proceedings.

[Shahriar Pourreza, Guggenheim Securities]

Got it. But just a follow-up. But just given sort of your CapEx outlook and sort of how healthy it is. Is it fair to assume that you can absorb whatever outcome that does come about in that case, assuming there, for instance, isn’t a return on that spend?

[Lynn Good, Chairman, President & CEO]

Shahriar, when we put together a 5-year plan, we do so assuming a range of outcomes. And so that would include amortization, that would include various assumptions around cost recovery. But I also want to emphasize that we believe a lack of return over an extended amortization period is detrimental to our balance sheet and the customers over the long term, and therefore, we believe these costs ought to earn a return. There is a cost of financing associated with anything that -- of this nature, and our cost of financing should be considered as part of cost of service. So we will be making those points as part of the case.

[Operator]

Our next question comes from Julien Dumoulin-Smith with Bank of America.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Perhaps just to follow-up on the Carolinas here, if you don't mind. First, possibilities here on just rate case settlement and just prospects on the timeline, if you will? And then related to that, obviously, you've laid out a pretty impressive updated outlook. How do you think about this tying into some of the updates moving in-flight in parallel at the state level on sort of the grid mod side of the equation, I think, in the DEQ side?

[Lynn Good, Chairman, President & CEO]

On the first question, Julien, on settlement. We always explore opportunities for settlement in every case. I think when you think about the number of issues in any rate case, if we can get to resolution of any of them in advance, we'll certainly look to do that. We did that in the Carolina cases, you may recall the last time around, at least as it pertains to ROE and cap structure. So I can't forecast with certainty how that will occur or if it will occur, but we'll certainly explore those opportunities. On your second question around how it relates to each of the jurisdictions and capital. I'll take a shot at and maybe some clarity of the question would be helpful. Recently, if we hear…

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

With Carolinas, specifically.

[Lynn Good, Chairman, President & CEO]

Sure. So we believe we've made the case soundly in all of our jurisdictions about the importance of the energy delivery system to be the backbone of the transition of renewable generation, storm hardening and the resiliency. We've had hurricane exposure in all of our southeastern jurisdictions over the last 4 years. And then cyber and physical security threats are something that are not unique to Duke Energy, but certainly important for our industry. So we feel like we've laid the groundwork for that. I think, Julien, we'll be involved in stakeholder meetings throughout 2020 in the Carolinas to further discussions around the clean energy plan. And as part of that, it will be not only advancement of how to achieve further carbon reduction but also further methods to modernize regulation, performance-based rate-making and other things that would fit quite nicely with our strategy around clean generation and good investment. So as the stakeholder processes progress in 2020 and into 2021, we'll look for opportunities to continue to pursue regulatory modernization that fits with these investments.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Got it. And then separately, if I could just follow-up on the higher level of rate base, how do you think about the financing? Just -- I know you guys did the equity last year. You haven't projected FFO to debt metric here, but I just want to try to tie that all back together when you think about the updated stable projection.

[Steven Young, EVP & CFO]

Sure. As I alluded to, we priced out the $2.5 billion of equity, we will settle that in late 2020. That plus the DRIP/ATM equity through 2022 are the equity needs that we see will finance the rest of our needs and refundings through a combination of holding company and operating company debt issuances. And we feel comfortable about that financing plan and maintaining the credit ratings.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Got it. Maybe just if I can rephrase that slightly, and you tell me if I'm not saying it right. The equity forward effectively pays for the incremental CapEx such that your metrics are largely unchanged. And then I know that there was previously a conversation around ACP and providing some buffer. Do you want to just reconcile the ACP conversation versus the CapEx plan prospectively? It sounds like you've effectively used incremental equity now to pay for the plan this year. But I just want to also make sure we've addressed the prior commentary about ACP outcomes?

[Steven Young, EVP & CFO]

Right. Let me give some clarity here. The incremental equity dealt with Atlantic Coast Pipeline and delays associated with that and the cash flows, that, therefore, delayed when we determine the project needed to go in 1 phase in 2022 as opposed to having cash flows coming in, in 2021. And that equity dealt with a number of ranges of outcomes with ACP, and it still does. The incremental CapEx spend that we got in the plan, we can deal with under that same amount of equity.

We've got other tools that we've utilized. We issued $1 billion of equity content securities in 2019 at very attractive rates. We have continued to find operational efficiencies through O&M that we described earlier that helps the balance sheet as well. We executed on the John Hancock transaction, and could envision dropping other assets into mechanisms like that, that provide some liquidity. So the equity -- the $2.5 billion equity has not been used up for the incremental CapEx. We can deal with it with the equity I described.

[Operator]

We will next go to Steve Fleishman with Wolf Research.

[Steven Fleishman, Wolfe Research]

So a couple of questions. First, just a technical one. The 2019, it looks like a lot of the deep versus your segment guidance came in the Gas Utilities and Infrastructure segment. Can you just explain what drove that?

[Lynn Good, Chairman, President & CEO]

So we had a couple of things here, Steve, of course, strong results from capital deployment, rate case outcomes, et cetera, Atlantic Coast Pipeline is in there. And we also had a half adjustments on recognition of the way allowance for funds have been recorded on the pipeline which drove the LDC businesses as well. Steve, would you add to that?

[Steven Young, EVP & CFO]

Yes, I would say, looking at 2019, we had strong growth across all of our segments. You look at the Electric Utilities, we had a full year of the 2018 North Carolina rate cases. We had a partial year of the 2019 South Carolina rate cases. We saw Midwest grid continue to roll through. We had the Ohio rate case that added a few cents. Our energy efficiency rider, particularly in the Carolinas, added several cents. So we saw good, solid growth on the electric side. So I would add that.

[Steven Fleishman, Wolfe Research]

Okay. I'm just looking at Slide 21, where it just shows actual versus original assumptions? And it looks like Gas Utilities be by a lot. So that's why I'm curious...

[Steven Young, EVP & CFO]

In terms of the beat versus that [indiscernible]

[Steven Fleishman, Wolfe Research]

Yes. So that was -- okay. We can follow-up on that. It's just...

[Steven Young, EVP & CFO]

We saw growth in electric a bit and gas a bit more that pushed us above our target.

[Lynn Good, Chairman, President & CEO]

Steve, the three things in Gas LDC, ACP and the tax adjustment around allowance for funds. Those are the three drivers.

[Steven Young, EVP & CFO]

Right.

[Steven Fleishman, Wolfe Research]

Okay. And then just on ACP, at a high level, in the unfortunate event that it somehow doesn't get done. How would you characterize the -- how to think about your 4% to 6%?

[Lynn Good, Chairman, President & CEO]

Steve, I would characterize the 5-year period is having great flexibility. And by that, I mean the robust capital plan that we have outlined for the utilities, positions the utilities very solidly within a 4% to 6% guidance range. And that gives us confidence that those utilities are going to continue to grow and grow well. And we have demonstrated the growth in those utilities over several years. And hopefully, that gives you confidence as well in our ability to deliver.

I think on the Atlantic Coast Pipeline, we will work our way through it. As we spoke about a moment ago, we've taken the step of strengthening the balance sheet to absorb a range of options. We have flexibility with our capital plans to make adjustments, to put in a plan B if one is required to build gas infrastructure to meet the needs that ACP would have met. We also have the opportunity to expand or accelerate good investments in a number of our jurisdictions. And then the ongoing productivity and flexibility around O&M represents another lever that we have in addressing returns over a 5-year period.

We have demonstrated the ability to achieve reductions in flexibility in O&M across our diverse businesses, and we see further opportunities over the 5-year period. So we're committed to driving low-risk regulated growth in earnings and dividend, and we believe that we have the capability of doing that. But we will work our way through ACP, and I think 2020 is an important year to hit some of these milestones, and we'll update all along the way.

[Steven Young, EVP & CFO]

Steve, I just want to go -- to go back to your question, just to also let you know for 2019, we had a beat of our original target by $0.06, but I'd also want to highlight that we accelerated $0.04 of O&M from future years for foundation contributions. We also accelerated several cents for vedge management from future years in this particular calendar year. So we had a lot of optimization around 2019 as well. Absent those things, the beat would have been larger. So I just want to make it clear.

[Steven Fleishman, Wolfe Research]

Yes. That's great. And then one other just quick thing, that the $4 billion of incremental spending in the Carolinas, is it -- it sounds like it's mainly T&D spending. Just, is there any coal ash related spend of new plan in there? Or is that kind of past that period?

[Steven Young, EVP & CFO]

So there's no incremental coal ash spend in that number at all. It's a -- there's a comparable level to what we've had in the past.

[Operator]

We'll next go to Stephen Byrd with Morgan Stanley.

[Stephen Byrd, Morgan Stanley]

Congrats on a constructive update. I wanted to talk about Florida a little bit. Solar economics continue to trend favorably, and you've highlighted Florida as one area of incremental growth. Over time, I guess, longer-term, if we continue to see solar costs drop, is there a fairly significant opportunity to make even bigger changes to your generation mix in the state? Or are there other reasons why that that wouldn't be the case of solar cost drop further?

[Lynn Good, Chairman, President & CEO]

Stephen, I believe there are increasing opportunities, and we will watch those economics all along the way. And as I think back over even the last 2 to 3 years. Every time we set a forward forecast, it has increased and improved. And I think that will be the case into the 2020s.

[Stephen Byrd, Morgan Stanley]

Understood. The number that you've laid out is essentially sort of -- I know you haven't specifically laid out the amount of solar you sort of put Florida together, but we'll be seeing a resource plan that you all layout in, I believe, in April in Florida, which could show further progress in terms of moving towards renewables. Is that fair to say?

[Lynn Good, Chairman, President & CEO]

Yes. And at this point, we're forecasting 1,750 megawatts of solar, Stephen. And we'll continue to update that as we go. But I think to your point, as you think out over a decade, the bias is that number is going to go up.

[Stephen Byrd, Morgan Stanley]

That's helpful. And then just lastly, going to -- start to hit on the financing needs, just wanted to kind of think through scenarios. In the unfortunate outcome, if it ends up that the Atlantic Coast Pipeline project is not able to move forward either because of the Supreme Court ruling or the biological opinion, how would that -- sort of that single impact sort of your overall equity needs? And in other words, is the sort of financing plan fairly flexible and you wouldn't envision incremental equity in that scenario? Or how do you think about that that sort of outcome?

[Lynn Good, Chairman, President & CEO]

Stephen, I believe we've taken care of the range of outcomes on ACP with a $2.5 billion. The one thing in the financing plan that we would evaluate as we have the DRIP and ATM on through, I believe, 2022, with an idea that we potentially could moderate in '23 and '24 if ACP is on. We will evaluate whether or not the DRIP and ATM should be a part of the financing plan in all events for '23 and '24 depending on outcome. But I think that's the only thing I would point to is something that we'll have ongoing evaluation. But we feel like that we've put in front of you with the equity that we've issued and maintaining the DRIP through 2022 with this additional capital is a solid plan that will meet our credit metrics, our earnings guidance and absorb outcomes around ACP.

[Operator]

We will next go to Michael Weinstein with Crédit Suisse.

[Michael Weinstein, Crédit Suisse]

Can we talk a little bit about commercial renewables? And what the growth plan is for that going forward? You had some projects that pushed out to 2020. So you have a $240 million assumption for that year. And I think it's up $0.06. So that would imply about $0.19 for 2020. Is that sort of the new level going forward or is that going to grow beyond that? And how many megawatts is required to keep that up anyway?

[Steven Young, EVP & CFO]

Sure, Mike. We're looking at having commercial renewables contribute between $200 million and $250 million a year during the plan. It will depend on the timing of projects. But that's keeping pretty level -- pretty flat with the level that they got to in 2019. So we're not showing a lot of growth there. We did shift the Palmer solar project to 2020. That was another optimization move as we got late in the year.

That will help the 2020 earnings. But they'll be between $200 million and $250 million a year through our plan. We've got all of 2020 lined up and locked up, and we've got 60% of the net income over the 5-year period in hand as well. So a rough number that you think about is roughly landing 300 megawatts a year of projects to keep that going. And between the markets that we're in and the crispy programs in North Carolina and so forth, we think that's very attainable.

[Michael Weinstein, Crédit Suisse]

Got it. And ACP, you've said that you don't expect any dilution from the prior forward. As a result of earnings, and particularly after the pipeline goes in service. And I'm just wondering is that as a result of higher rates on the pipeline going forward or is it -- are you banking on higher volumes through compression? Is there a lag period between the in-service period and the lack of dilution? Or is there -- like maybe a divet period in between there?

[Lynn Good, Chairman, President & CEO]

So Mike, we have given you some financial considerations on Slide 17 on allowance for funds in '20 and then full year in-service in '22 and beyond, what you can expect in terms of the contribution of ACP. The dilution that we will experience in 2021 will be absorbed by incremental allowance for funds in that year while the project is still under construction. And so I would think about putting that equity into the plan in 2021. And then the combination of the utility results we've shared with you today as well as what we're sharing on ACP is the earnings platform with financing that you can expect over the 5-year period.

[Michael Weinstein, Crédit Suisse]

One last question. Just to confirm, how much is -- or how much financing have you already committed to the project at this point? I think it's around $2 billion, including excluding AFUDC at this point?

[Steven Young, EVP & CFO]

Yes, the gross project costs are about $2 billion on our books now. We've got about $800 million or $900 million of construction financing against that.

[Michael Weinstein, Crédit Suisse]

And would you expect that to pick up, I guess, once the Supreme Court rules or is that maybe before that at some point?

[Lynn Good, Chairman, President & CEO]

I'm sorry, Mike, I couldn't hear that question.

[Michael Weinstein, Crédit Suisse]

All right. Are we at a point with additional spending start to roll insignificantly? Is it going to be after the Supreme Court rules?

[Lynn Good, Chairman, President & CEO]

So the gating item on construction is the biological opinion and the incidental take statement. So the restoration of the environmental impact study. So if you look again at Slide 17, we're forecasting that reissuance of the permit in the middle part of 2020. So you should think about construction as being in the latter -- restart of construction mean the latter half of 2020.

[Operator]

We'll next take Andrew Weisel with Scotiabank.

[Andrew Weisel, Scotiabank]

So first question, a very impressive CapEx update. For '19 through '23, it looks like your spending is up roughly 15% or so. But when I look at the earnings-based outlook, the increase is more modest at around 5% depending on the year. Could you please help me reconcile those? And what are some of the offsets?

[Steven Young, EVP & CFO]

Yes, I think our rate base growth is at the 6% level over the period of time there. And CapEx may vary in terms of how it's loaded through the type of CapEx, but I'd have to look in more detail on that and the IR team can help you with that.

[Lynn Good, Chairman, President & CEO]

Even if you look at the capital in the appendix that will give you a sense of the growth in each of the utilities. So on average, every utility is growing within the 4% to 6% range. Some are higher than that. And Gas, of course, is higher than that. But the combination, the average of all of the utilities together are at the 6% CAGR.

[Andrew Weisel, Scotiabank]

Right. I understand that. I'm not talking about year-over-year growth. I'm talking about your new guidance versus the prior guidance. I should have been more clear.

[Lynn Good, Chairman, President & CEO]

So we have laid out on Slide 11 kind of how this comes in. And I think we could spend some time with the IR team to give you some specifics on what it looks like in '20, '21, '22. I think the combination of that chart in the detail in the appendix, we'd be happy to walk you through.

[Andrew Weisel, Scotiabank]

Okay. I'll follow up off-line. My next question is, can you talk a bit about the industrial demand. Obviously, it's -- you're not the only one seeing this, but it was pretty soft last year, fourth quarter, in particular. And then, I think, you mentioned the uplift in 2020 from the leap day, but maybe if you could just talk about adjusted expectations over the next few quarters?

[Steven Young, EVP & CFO]

Sure. 2019 was a rough year for the economy as a whole and that translated to our industry and lower kilowatt-hour sales. We saw that in many of our peers as well. The good news for us is that we see tremendous customer growth. We saw the best customer growth in 2019 we've seen in many years, particularly in the Carolinas and Florida. As we look forward, we'll see some of that customer growth translate into some favorable growth, we believe. We also think that there will be some rebound as we look at some of our industrial customers. A few have had some singular issues with outages, supply chain issues and so forth. So we think they may get some traction as we move forward in 2020 to help rebound off a bad year. Our overall growth expectation, load growth expectation is 0.5%. And there'll be years like 2018 that are very strong years followed by some years that are a little weaker, but we think that's a reasonable place to be over the 5-year period. We do expect to see some growth over '19 and 2020 as '19 was kind of a low year. And again, we're seeing some favorable indicators from some of our industrials in our service territories.

[Lynn Good, Chairman, President & CEO]

Andrew, the only thing I would add to that is all of our jurisdictions continue to perform with GDPs above national average. The weakness we saw in industrial was largely driven by some of the uncertainties around tariffs that surface in 2019. But as Steve said, we are beginning to see some signs of rebound in the specific customer circumstances and hope for a stronger 2020.

[Andrew Weisel, Scotiabank]

Okay, great. That's helpful. Then on the dividend, Steve, did I hear you say that you're targeting the low end of the 65% to 75% range in the outer years? Why would that be and why not the midpoint?

[Steven Young, EVP & CFO]

Well, that's just where it tracks based on the assumptions we put there. We'll certainly monitor that as we go forward. It's nice to have the flexibility to look at the dividend as it gets to the lower end of the range, but we have that flexibility. So we're not committing to anything on that, but it's nice to be tracking in that direction.

[Lynn Good, Chairman, President & CEO]

And I think, Andrew, as we more solidly position the dividend within the payout range, our longer-term goal is to grow the dividend at the same pace of earnings. And this moderation we're experiencing here in the short-term will give us the flexibility to do that over the longer term.

[Andrew Weisel, Scotiabank]

Got it. Very good. And then if I could squeeze one last one in here. The earned ROEs in the Carolinas, you're guiding to a modestly lower return in 2020 versus the past few years. Is that primarily related to last year's reduction in the allowed ROE? Are there other factors there? I know it's tough to discuss in the middle of rate cases, but any kind of directional commentary?

[Steven Young, EVP & CFO]

A couple of factors that come in, you -- as you build investment base for the upcoming rate case, you will incur some lag, as I referred to, and then you'll catch that up when you have a rate case. So some of those returns will move around depending upon rate case timing. And I think that's one of the factors to think about as well.

[Operator]

Thank you. And ladies and gentlemen, that does conclude our time for questions and answers today. I'd like to turn the conference back over to Lynn Good for any additional or closing remarks.

[Lynn Good, Chairman, President & CEO]

Well, I want to thank everyone for joining the call today. We're proud of our accomplishments in 2019 and believe that the company is well positioned not only to deliver industry-leading service to our customers but also results -- strong results for our shareholders in the years ahead. We look forward to seeing you at our ESG Investor Day in May and also look forward to any follow-up questions that you have, our IR team will be available. So thanks again for joining us.

[Operator]

Thank you. And again, that does conclude today's call. We thank you again for your participation. You may now disconnect.