Duke Energy Corporation (Holding Company) · NYSE:DUK

Duke Energy Corporation (Holding Company) — Investor Presentation (April 2013)

75 slides from Duke Energy Corporation (Holding Company)'s investor presentation, Apr 24, 2013

1. Slide 1: 2013 Integrated Resource Plan Stakeholder Workshop #3

   2013 Integrated Resource Plan Stakeholder Workshop #3 April 24, 2013 Plainfield, IN

2. Slide 2: Welcome

   Doug Esamann, State President- Indiana, Duke Energy Welcome 2

3. Slide 3: Welcome

   Welcome  Safety message  Why are we here today?  Objectives for stakeholder process  Introduce the facilitator 3

4. Slide 4: Why are we here today?

   Why are we here today?  Duke Energy Indiana developing 2013 Integrated Resource Plan (IRP)  Proactively complying with proposed Commission IRP rule  Today is the third stakeholder workshops 4

5. Slide 5: Objectives for Stakeholder Process

   Objectives for Stakeholder Process  Listen: Understand concerns and objectives.  Inform: Increase stakeholders’ understanding of the IRP process, key assumptions, and challenges we face.  Consider: Provide a forum for productive stakeholder feedback at key points in the IRP process to inform Duke

6. Slide 6: The Facilitator

   The Facilitator  Duke Energy Indiana hired Dr. Marty Rozelle of The Rozelle Group and her colleagues to:  Help us develop the IRP stakeholder engagement process  Facilitate and document stakeholder workshops 6

7. Slide 7: Agenda & Introductions

   Marty Rozelle, President, The Rozelle Group Agenda & Introductions 7

8. Slide 8: Engagement Process Overview

   Engagement Process Overview  Third party, unbiased facilitator  Involving stakeholders from the beginning of the IRP development  Four stakeholder workshops  Informative presentations and interactive workshop exercises  Summaries on IRP website (www.duke-energy.com/in-irp) Workshop #1 Workshop

9. Slide 9: Agenda

   Agenda 9:00 Registration & Continental Breakfast 9:30 Welcome from Doug Esamann 9:40 Agenda Review and Introductions 9:55 Review of Workshops 1 & 2 10:15 Load Forecasting: Jose Merino- Director, Load Forecasting & Fundamentals 11:00 Market Fundamentals: Kevin Delehanty, Director, Market Fundamentals

10. Slide 10: Ground rules

    Ground rules  All agree to act in good faith with open minds  Start on time and stay on schedule  Raise your hand to be recognized by the facilitator  Be concise and stick to the topics on the meeting agenda  Respect others and do not interrupt  Turn off phones 10

11. Slide 11: Introductions

    Introductions  Participants  Duke Energy 11

12. Slide 12: Review of Workshops 1 & 2

    Marty Rozelle, President, The Rozelle Group Review of Workshops 1 & 2 12

13. Slide 13: Review Workshop 1 & Workshop 2

    Review Workshop 1 & 2 Workshop 1  Background on IRP process  Discussion of Driving Forces in order to develop Scenarios Workshop 2  Discussion of Energy Efficiency & Renewable Energy  Scenario development exercise 13

14. Slide 14: Feedback from January 30th Workshop

    Feedback from January 30th Workshop  Received variety of feedback on the process and content  Will ask for feedback again at the end of today’s workshop 14

15. Slide 15: Questions & Comments from January Workshop

    Questions & Comments from January Workshop We heard from you… Provide explanation of drivers/scenarios/portfolio interrelationships in analytical process Provide range of key variables More complete explanation of modeling process and how stakeholders input will be used Flow chart on decision making

16. Slide 16: Questions & Comments from January Workshop

    Questions & Comments from January Workshop We heard from you… Monte Carlo Simulation should be used; discuss how to make up for not using MCS Add avoided cost to IRP discussion Review voluntary RPS Show EE assumptions in all Duke states 16

17. Slide 17: Load Forecasting

    Jose Merino, Director, Load Forecasting & Fundamentals Load Forecasting 17

18. Slide 18: Sales Growth Trends Duke Energy Indiana vs. US

    I. Sales Growth Trends Duke Energy Indiana vs. US: History and Projection Retail Sales % Growth Rate – 3 Year Moving Average History Forecast Last 10 years: Next 10 years: Boom and bust cycle (residential, industrial) Don’t expect another severe recession Higher credit availability Credit limited to

19. Slide 19: Relationship Between Electric Sales & Indiana Economic Activity

    II. Relationship Between Duke Energy Indiana Electric Sales & Indiana Economic Activity Indiana Economy vs. Retail Electric Sales: 2005 = 100 History Forecast • Electric sales forecast includes projected impact of Energy Efficiency, Codes & Standards, Retail Rates in addition to population and econo

20. Slide 20: Forecast Methodology: Energy Sales Forecast Drivers

    III. Forecast Methodology: Energy Sales Forecast Drivers Retail Load System Load Residential Commercial Industrial Government Wholesale • Population • Employment • Manufacturing GDP • Employment • Contract by Contract • Income • Retail Sales • Rates • Rates • Retail Growth • Rates • Income • Price o

21. Slide 21: Energy Sales Forecast Methodology: High Level Process

    III. Energy Sales Forecast Methodology: High Level Process 2) Quantify and test relationship 1) Identify forecast variables between forecast drivers and historical sales 3) Obtain variable projections History (Forecast Variables) Economic variables 1 1 Economic variables Projection (Forecast Electri

22. Slide 22: Energy Sales Forecast Methodology

    III. Energy Sales Forecast Methodology: Forecast Drivers Specifically Modeled Implicitly Modeled Economic variables X Price variables (retail rates, gas prices) X Weather X End-use efficiencies and saturations X Energy Efficiency – Utility Sponsored X Electric vehicles, net-metering solar X Energy E

23. Slide 23: Emerging Trends: Energy Efficiency

    IV. Emerging Trends: Energy Efficiency Duke Indiana Retail Energy Forecast: 2013 = 100 History Forecast 5 Year Average Growth: Duke Indiana Retail Sales History Forecast 23

24. Slide 24: Current Forecasts vs. Spring 2012 Projections

    V. Duke Energy Indiana Current Forecasts vs. Spring 2012 Projections DEI Retail Sales: Current Forecast vs. Spring 2012 Projection DEI System Peak: Current Forecast vs. Spring 2012 Projection Main drivers for slight difference between current forecast vs. Spring 12 Projection • Updated economic proj

25. Slide 25: System Peak Forecast Range

    VI. Duke Energy Indiana System Peak Forecast Range DEI System Annual Peak Load: Retail + Wholesale (After EE Impacts): 2013 = 100 • There is a 95% probability that the expected system peak value is between the high and low lines, given current economic, retail rates, efficiency and customer growth a

26. Slide 26: Market Fundamentals

    Kevin Delehanty, Director, Market Fundamentals Market Fundamentals 26

27. Slide 27: 2013 Duke Fundamental Commodity Price Forecast

    Indiana IRP Stakeholders Meeting 2013 Duke Fundamental Commodity Price Forecast April 24th 2013

28. Slide 28: What is the Duke Fundamental Commodity Price Outlook?

    So what exactly is the “Duke Fundamental Commodity Price Outlook?”  A comprehensive, internally consistent, forecast of supply, demand and future market prices for coal, natural gas, oil, power, and emissions allowances  Duke contracts with leading energy consultants to perform the modeling and pr

29. Slide 29: Typical Process to Develop Long Term Commodity Price Inputs

    Typical Process Used to Develop the Long Term Commodity Price Inputs to Duke’s IRP Planning Models Process Steps Diagram of Typical Fundamental Modeling Process Starts with consultant’s reference case Oil Model Duke reviews reference case and Price Price suggests changes to assumption set Price Cons

30. Slide 30: Natural Gas

    Natural Gas 620MW Buck CCGT Spencer, NC

31. Slide 31: Range of Fundamental Outlooks for US Natural Gas Prices

    Range of Fundamental Outlooks for US Natural Gas Prices 2013 Outlook for Natural Gas Prices at Henry Hub, LA $16.00 $14.00 $12.00 $10.00 Nominal $/mmBtu $8.00 $6.00 $4.00 $2.00 $- 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

32. Slide 32: Range of Published Long Term Gas Forecasts Has Tightened

    The Range of Published Long Term Gas Forecast Views Has Tightened Considerably Over the Past Year Range of Consultant Forecasts of Henry Hub Gas Price (Nominal $/MMBtu) $16.00 $14.00 $12.00 2012 $10.00 2013 Nominal $/mmBtu $8.00 $6.00 $4.00 $2.00 $- 2011 1999 2000 2001 2002 2003 2004 2005 2006 2007

33. Slide 33: Growth in Gas Demand Expected from Power Generation

    Most of the Growth in Demand for Natural Gas is Expected to Come from Power Generation US Natural Gas Consumption by End Use (Average Daily Demand in Billion Cubic Feet) 120.0 100.0 80.0 BCFD 60.0 40.0 20.0 0.0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

34. Slide 34: Potential Gas Committee Raised Resource Potential Estimate

    The Potential Gas Committee* Just Raised Their Total Resource Potential Estimate for the US by 25% Source: Potential Gas Committee * The potential gas committee is a non profit organization of mostly volunteer geologists & engineers, sponsored by the Colorado School of Mines to assess the total US r

35. Slide 35: US Production Growth Dominated by Unconventional Sources

    US Production Growth is Dominated by Unconventional Sources for Natural Gas US Natural Gas Supply Outlook - Lower 48 120 100 80 Billion Cu Ft / Day (bcfd) 60 40 20 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 Shale Tig

36. Slide 36: Eagle Ford Growth Gives Way to Marcellus

    Near Term Growth In Liquids-Rich Eagle Ford Shale Gives Way To Long Term Growth in the Marcellus US Shale Gas Production 50 45 40 Other 35 Huron (VA) Bossier 30 Utica (Ohio) Eagle Ford Antrim (MI) BCFD 25 San Juan Rockies 20 Marcellus Fayetteville 15 Woodford Barnett Haynesville 10 5 0 2012 2013 201

37. Slide 37: Coal

    Coal 620MW Buck CCGT Spencer, NC

38. Slide 38: Range of Illinois Basin Coal Prices Remains Wide

    Range of Illinois Basin Coal Prices Remains Wide Even though the Resource Base is Well Known Illinois Basin Coal Price Outlook (Nominal $/MMBtu) $4.00 Ran g e o f Extern al Co n sultan t Fo recasts (11,500 - 11,800 Hig h Sulfur) $3.50 IIlin o is Basin Histo rical FOB Market 4/2/2013 ILB Hig h Sulfur

39. Slide 39: US Coal Supply – Future Challenges

    US Coal Supply – Future Challenges Mainly “Above Ground” Issues: Permitting, Safety, Climate Change, Natural Gas Prices Recoverable Coal Reserves by Country (billions of tons; 2008 most current EIA data) Other 68 Countries reporting Turkey Bulgaria Mongolia Bosnia and Herzegovina Greece Brazil Indon

40. Slide 40: US Coal Supply by Source Basin

    US Coal Supply by Source Basin 1,000,000 900,000 800,000 Import 700,000 PC WC 600,000 SW thousand tons WINT PRB – Wyoming / Montana 500,000 Lignite Rockies 400,000 PRB ILLB 300,000 SAPP CAPP Illinois Basin – Indiana, Illinois 200,000 NAPP CAPP – West Virginia 100,000 NAPP – Ohio, Pennsylvania - Sour

41. Slide 41: Indiana to Burn Larger Share of Illinois Basin Coal

    Indiana is Projected to Burn a Larger Share of Local Illinois Basin Coal Once all the Environmental Controls are in Place Indiana Coal Burn by Source Basin 60,000,000 50,000,000 PRB – Wyoming / Montana 40,000,000 Other Import tons 30,000,000 PRB ILLB NAPP 20,000,000 CAPP Illinois Basin – Indiana, Il

42. Slide 42: Power

    Power 620MW Buck CCGT Spencer, NC

43. Slide 43: Forecasted Electric Sales Growth by NERC Region

    Forecasted Electric Sales Growth (by NERC region) Moves Higher in the Near Term then Drops To Around 1% Long Term 3.00% 2.50% RFC ERCOT MRO 2.00% ISO NE NY Annual Load Growth (%) Central Delta 1.50% Gateway SE VACAR SPP 1.00% CAL NW RMPA SW 0.50% FRCC RFC (Includes Indiana) 0.00% 2014 2015 2016 2017

44. Slide 44: US Generating Capacity Shifts Toward Gas and Renewables

    Long Term US Generating Capacity Shifts Toward Gas and to a Lesser Degree Renewable Sources US Power - Total Capacity by Technology 1,600,000 1,400,000 1,200,000 Wind Other Wind 1,000,000 Solar Gas Turbines Steam - Oil MW's Steam - Gas 800,000 Peaker Natural Gas Combined Cycle Gas Turbine CCGT 600,0

45. Slide 45: US Generation Fuel Mix Shifts Toward Gas

    Long Term US Generation Fuel Mix Shifts Toward Gas US Power - Total Generation by Technology 6,000,000 5,000,000 Wind Other 4,000,000 Wind Natural Gas Combined Cycle Solar Steam - Oil GWH's Steam - Gas 3,000,000 Peaker Gas Turbine CCGT 2,000,000 Coal Hydro Coal Nuclear 1,000,000 Hydroelectric Nuclea

46. Slide 46: Overview of Scenarios

    Scott Park, Lead Economic Planning Analyst, Integrated Resource Planning Overview of Scenarios 46

47. Slide 47: Overview of Scenario Development

    Overview of Scenario Development  Workshop #1: Discussed driving forces & input variables  Workshop #2: Discussed draft scenarios  Today, we will:  Share final scenarios  Discuss portfolios  Discuss assumptions of key variables 47

48. Slide 48: Scenarios 1 - 6 Driving Forces

    Duke Reference Case Distributed World Scenarios 1 - 6 Green Future Climate Crisis Driving Forces Domestic Focus Strong Economy & Less Government Economic Outlook Stagflation & slow recovery Robust growth Energy & Enviro Policy & Regs Ease existing regulations Tighter air, water, & waste regs; Strong

49. Slide 49: Scenario Pairs

    Stakeholder scenario selection from Jan 30 meeting Scenario Pairs  Green Future & Distributed World  Green Future & Domestic Focus  Distributed World & Climate Crisis  Green Future & Climate Crisis  Climate Crisis & Strong Econ / Less Government 49

50. Slide 50: Scenario Consolidation

    Scenario Consolidation The results of the stakeholder scenario exercise led to the consolidation of 6 scenarios to 3 scenarios 1. Duke Energy Reference Case 2. Environmental Focus Case  Green Future  Climate Crisis  Distributed World 3. Low Regulation Case  Domestic Focus  Strong Economy / Less

51. Slide 51: Portfolio Discussion

    Scott Park, Lead Economic Planning Analyst, Integrated Resource Planning Portfolio Discussion 51

52. Slide 52: Goals & Constraints of the IRP

    What are the Goals & Constraints of the IRP?  The objective of the IRP is to produce a robust portfolio (resource plan) that meets the load obligation while minimizing the present value of revenue requirement (PVRR)  Subject to:  Adhering to laws and regulations  Meeting reliability and adequacy

53. Slide 53: What does a portfolio look like?

    What does a portfolio look like? Sample Portfolio 1 Sample Portfolio 2 600 600 500 400 400 200 MW MW 300 0 200 100 -200 0 -400 CT CC Wind Solar CT Retirement CC Wind Solar 53

54. Slide 54: How are Portfolios Determined & Modeled?

    How are Portfolios Determined & Modeled?  A capacity expansion model solves for the least cost portfolio (based on PVRR) given a set of inputs  Inputs: Scenario assumptions  Outputs: portfolios and cost data  Subject to meeting the net needs of the system while satisfying reserve adequacy requir

55. Slide 55: Portfolios Evaluation Example

    Portfolios Evaluation Example  In our particular situation, assume that  Portfolio A is the least cost plan for the Environmental Focus Case  Portfolio B is the least cost plan for the Duke Energy Reference Case  Portfolio C is the least cost plan for the Low Regulation Case  A note about model

56. Slide 56: Example of Results Matrix

    Example of Results Matrix PVRR ($) Portfolio A Portfolio B Portfolio C Environmental Focus Case 110 115 130 Duke Reference Case 105 100 110 Low Regulation Case 100 95 90 56

57. Slide 57: Attributes to Evaluate the Portfolios

    What attributes should be used to evaluate the portfolios? Cost Cost Volatility Portfolios Emissions Other suggestions? Flexibility 57

58. Slide 58: Risk Management

    Risk Management  What do we mean by risk?  A low risk portfolio is one that is relatively stable under a variety of assumptions  Scenarios  Sensitivities  How can we measure risk?  Long term PVRR for Scenarios & Sensitivities  Short term PVRR for Scenarios & Sensitivities  Environmental attr

59. Slide 59: Discussion & Exercise on Reasonable Range for Assumptions

    Robert Mc Murry, Director, Midwest IRP Discussion & Exercise on the Reasonable Range for Assumptions 59

60. Slide 60: Assumptions Exercise

    Assumptions Exercise  Objective  Stakeholder input on the reasonable ranges for key assumptions.  Feedback on ranges will be considered in defining the basis for each scenario and help define the range of sensitivities to be considered.  Proprietary Information  Many of the assumptions that we

61. Slide 61: CO2

    CO2 $80.00 $70.00 nom $/short ton $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $- Environmental Focus DEI Reference Case Low Reg 61

62. Slide 62: National Ambient Air Quality Standards (NAAQS)

    National Ambient Air Quality Standards (NAAQS)  Duke Energy Reference Case & Low Regulation Case  No additional SO2 requirements  Additional NOX reductions for units w/o SCR or SNCR  0.15lb/mm > 400 MW (by 2020)  0.25lb/mm < 400 MW (by 2020 in the Ref Case; by 2025 in the Low Regulation Case) 

63. Slide 63: 316b & CCB

    316b & CCB 316b - Section of the Clean Water Act that addresses Fish Impingement & Entrainment  Duke Energy Reference Case & Low Regulation Case  Lower intake velocity screens required by 2016 in the Ref Case; by 2020 in the Low Regulation Case  Environmental Focus Case  Modified intake structur

64. Slide 64: Indiana Load Growth

    Indiana Load Growth DEI System Annual Peak Load Scenarios: Retail + Wholesale (After EE Impacts): 2013 = 100 Note: Applicable to all three scenarios. 64

65. Slide 65: Energy Efficiency

    Energy Efficiency 16% 14% 12% % of Retail Sales 10% 8% 6% 4% 2% 0% Environmental Focus DEI Reference Case Low Reg 65

66. Slide 66: Renewable Energy in Indiana

    Renewable Energy in Indiana (minimum requirement) 12% 10% % of Retail Sales 8% 6% 4% 2% 0% Environmental Focus DEI Reference Case Low Reg 66

67. Slide 67: Capital Costs

    Capital Costs Overnight Generation Costs $6,000 $5,000 $4,000 $/kW $3,000 $2,000 $1,000 $0 CT CC Wind (1) Utility Com/Res Coal IGCC Biomass Nuclear IGCC w/ Solar (1) Solar (1) CCS (1) Solar Note: Indication of internal assumption Source: EIA Annual Energy Outlook 2012 67

68. Slide 68: Natural Gas Forecasts

    Natural Gas Forecasts Henry Hub Gas Price Comparison $8.00 $7.50 $7.00 $6.50 2012 $/MMBtu $6.00 $5.50 $5.00 $4.50 $4.00 $3.50 $3.00 Duke Base Environmental Focus Low Reg 68

69. Slide 69: Coal Forecasts

    Coal Forecasts Scenario Comparison Illinois Basin FOB Mine Price 11,000 btu/lb x 6.0 $4.50 $4.00 $3.50 $3.00 nominal$/mmBtu $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Duke Reference Case Environmental F

70. Slide 70: Any other variables that you think we should consider?

    Any other variables that you think we should consider?  We have discussed the reasonable ranges  What other variables should be considered? for the following variables:  Carbon  NAAQS  316b  What are the reasonable ranges of those  Load Growth variables?  Energy Efficiency  Renewables  Cap

71. Slide 71: Decision Making Process

    Decision Making Process Portfolio Detailed Plan Inputs “Quantitative” Development Analysis “Qualitative” Sensitivities • Load Forecast • Fuel Diversity • Fuel Prices • Existing Generation • Environmental • Environmental Risks • New Generation Footprint • Carbon Policies • Energy Efficiency • Flexibi

72. Slide 72: Next Steps

    Next Steps  Development of portfolios for all scenarios and sensitivities  May 1 through mid June  Thoughts on a stakeholder meeting in June to discuss Portfolios  Webinar  Online updates  Physical meeting  Detailed Production Cost analysis of selected portfolios  Present results to stakehol

73. Slide 73: Load Supplemental Forecasting Slides

    Load Supplemental Forecasting Slides 73

74. Slide 74: State of Indiana Employment by Industry

    State of Indiana Employment by Industry – in thousands History Forecast Source: Moody’s Analytics 74

75. Slide 75: State of Indiana Real Gross State Product

    State of Indiana Real Gross State Product in $2005 – $Millions History Forecast Source: Moody’s Analytics 75

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