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Duke Energy Corporation (NYSE:DUK)
Q1 2018 Earnings Conference Call
May 10, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Please stand by, we're about to begin. Good day, everyone. Welcome to the Duke Energy first quarter earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Mike Callahan, VP of Investor Relations. Please go ahead, sir.

Mike Callahan -- Vice President, Investor Relations

Thank you, Alan. Good morning, everyone. 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 two presents a 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 three, 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 key over to Lynn.

Lynn Good -- Chairman, President, and Chief Executive Officer 

Thank you, Mike, and good morning, everyone. Today we announce 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 sufficiency. Overall, I'm confident we have the right approach to financing our investment. S&P reaffirmed our credit ratings and stable outlook in March.

On this slide, we've also highlighted other notable accomplishments during the quarter to demonstrate the dedication of our employees and their focus on delivering affordable, safe, reliable, and increasingly clean energy. This was recognized by EEI, which ranked Duke Energy number one in safety in the industry for the third year in a row. And on May 1st, Forbes honored our commitment to engaging, developing, and retaining our workforce, naming Duke Energy as a top employer.

Turning to slide five, let me provide an update on our regulatory activity during the quarter. Last year, we filed two reg 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 DET case approving new rates associated with our $8.1 billion rate base, including our investments in four new solar projects and gas fire generation at Sutton and Asheville.

The decision approved a 9.9% ROE on a 52% equity component of the capital structure. The order also clarified coal ash cost recovery. We received approval to amortize $234 million out of a requested $240 million in deferred costs over a 5-year period with a full debt and equity return. Ongoing goal cash costs will be deferred with a return and be considered in the next DET rate case.

Hearings in DEC ended in March and in late April, we filed a post-hearing brief reiterating our positions in the case. We used the opportunity to introduce the modified proposal of a grid rider for the Commission's consideration. We also addressed our views regarding tax reform. We proposed reducing customer rates, accounting for the lower federal income tax rate, and returning unprotected access deferred income taxes to customers over 5 to 20 years. The timeline is dependent upon the nature of the item that created the deferral.

Finally, we requested to offset a portion of the revenue decrease with the amortization of regulatory assets, accelerated depreciation, or recovery of environmental expenditures. We believe our proposals included in the post-hearing brief strike an appropriate balance of delivering value to customers, while providing returns to investors and maintaining the strength of the utility's balance sheet. A decision is expected in late May or early June.

In Ohio, we filed a settlement agreement in April, which addresses both the electric distribution rate case and our pending EFP proceedings. It includes the extension of our distribution capital investment rider through 2025, giving us clear line of sight for recovery of our investments. The rider is subject to increasing revenue caps through 2025. In addition, the settlement established a new PowerForward Rider to recover costs to enhance the customer experience and further transform the grid, including investments as a result of the Ohio Commission's own PowerFoward initiative.

Also in April, we received a positive order from the Kentucky Public Service Commission in our electric-based rate case. In established a new rider to recover environmental expenditures, including those related to coal ash. We have made clear progress, achieving constructive regulatory outcomes, including modernizing our regulatory constructs. We continue to demonstrate our ability to work with stakeholders to achieve balanced solutions that benefit customers and support our growth plan.

Moving to slide six, I want to provide an update on our efforts to transform the way we generate energy. With three new natural gas plants either online or under construction, we're committed to reducing our carbon footprint and leveraging the overlap between our electric and gas businesses. Our W.S. Lee Plant, located in South Carolina, began serving customers on April 5th, with our Piedmont subsidiary delivering gas using new infrastructure put in place for the project.

In Florida, we expect Citrus County to begin operations soon, with unit one online in the fall and unit two by the end of the year. This plant, totaling 16,000 megawatts, will allow us to retire two coal fire units at Crystal River.

In April, we filed a request with the Florida Public Service Commission to recover our investment in Citrus County via the GBRA mechanism once the units are placed in service. Our filing included an increase to the revenue requirement of approximately $200 million per year. New rates are expected to be fully updated in the fourth quarter.

Our Western Carolinas Modernization Project is progressing and remains on track for an expected 2019 in service date. We're also investing in our commercial renewables business. We anticipate our 25-megawatt Shoreham solar facility to come online in the second quarter, one of the largest solar projects in New York. This is our first project in New York. It expands our commercial renewables footprint to 14 states. We put tax equity financing into this project and will continue to use this funding source moving forward.

In addition to these clean energy projects, we recently issued two key reports, our Annual Sustainability report and our Climate report. The Climate report outline steps we're taking to mitigate risks from climate change and includes analysis of a two-degree scenario. Importantly, our current place to achieving this two-degree scenario. This new report is another example of our long-standing commitment to the environment and our stakeholders.

Moving to slide seven, let me update you on our natural gas business. We made significant progress on the Atlantic Coast Pipeline in the first quarter, completing approximately 200 miles of tree felling along the 600-mile route, or approximately 75% of the miles planned for 2018. The remaining miles will be addressed later this fall when the tree felling window opens again.

In April, we received FERC approval to begin full construction on the North Hampton compressor station in North Carolina. This marks the second of three compressor stations for which we have full construction approval, representing another meaningful step from the project. We also requested approval from FERC to start full construction on the West Virginia portion of the pipeline, where tree felling has been completed or was not required. While we await the final state permits in Virginia, these milestones keep the project on track for a fourth quarter 2019 in service date.

Turning to Sabal Trail, the lateral line to our Citrus County natural gas plant is in service, allowing us to begin operational testing prior to bringing the plant online to serve customers. FERC reissued the certificate for Sabal Trail, reaffirming the project would not result in a significant impact on the environment. Recently, the project partners successfully completed the permanent financing, raising approximately $1.5 billion to return capital to the project owners now that construction is complete. Duke's share of the proceeds is approximately $100 million.

Finally, one quick note on the recent FERC NOPR regarding tax reform, Duke Energy's midterm investments in ACP and Sabal Trail are over 90% contracted with negotiated rates and 20 to 25-year contracts. We believe the proposed rule making does not impact our projects.

As I turn it over to Steve, our results this quarter show that the fundamentals of our business remain strong and we are well-positioned as we move into 2018. Our industry continues to transform, requiring us to execute, anticipate, and adapt. That remains our focus as we invest in infrastructure, our customers' value, and deliver sustainable growth for our investors. We're delivering on our strategy and remain confident in our vision to be the leading energy infrastructure company.

So, Steve, let me turn it to you.

Steve Young -- Executive Vice President and Chief Financial Officer

Thanks, Lynn. Let's start with quarterly results. I will cover the highlights on slide eight 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 accompanied today's 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 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 in 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 H.B. 589.

We also saw higher retail electric volumes in the quarter, which I'll discuss in more detail in a moment. O&M was favorable, $0.04 in the quarter, but this favorability is expected to reverse in future quarters.

Finally, the electric segment benefited from lower income tax expense from $0.06, including impacts of the Tax Act. A portion of this benefit is related to tax levelization and is expected to reverse later this year as excess deferred income taxes are reflected in customer rates. Higher depreciation and amortization expense partially offset the positive drivers, primarily due to growth in the asset base.

Shifting to our gas utilities and infrastructure segment, results were up $0.03 for the quarter. The increase was largely driven by customer group and increased investments at Piedmont, including higher rate base from integrity management investments and required infrastructure for our W.S. Lee plant. This is another example of the complementary nature of our electric and gas businesses.

In commercial renewables, we were down $0.01 for the quarter. This was driven by lower wind resources compared to last year. Finally, other was down $0.04 due to higher interest expense of holding company and higher income tax expense, including a lower tax shield on holdco interest as a result of the Tax Act.

The lower tax shield and other impacts of the new law across our business segments including the timing of these impacts are consistent with our full-year 2018 planning assumptions. Overall, we had a very solid start to the year and look forward to delivering on our plan in the coming quarters.

Turning to slide nine, let me walk you through our retail volume trends. On a rolling 12-month basis, weather normalized, retail electric load growth was 0.06%, consistent with our long-term planning assumption of 0.05%. The residential class exhibit particular strength, growing 1.9% on a rolling 12-month basis. Importantly, load grew faster than the number of customers this quarter, indicating usage growth per customer. We see this as a positive economic indicator and we will continue to closely track customer usage trends.

Population growth remains strong in our service territories, especially in Florida and North Carolina, which were ranked among the top five states for population gains in 2017. We were also encouraged to see strength in the Cincinnati Metro area and Nashville remains one of the fastest-growing cities in the country.

As we look ahead, positive trends in employment and wages and continued strength in the housing market are expected to drive ongoing residential growth. Residential building permit activity remains high, especially in the single-family category. In the commercial class, sales across our jurisdictions were slightly down over the rolling 12 months. We continue to see some weakness in large retailers as they compete www online offerings. Yet, strength in leisure and hospitality businesses have offset this to some degree. Small business confidence remains high, providing optimism for future growth in this sector.

Turning to industrials, on a rolling 12-month basis, the sector declined 0.05%. This decrease is primarily due to production declines at a couple of large customers in the middle of last year and recent outage activities. Industries that support sales to consumers such as construction and housing continue to perform well, which partially offsets the decline.

On a macro level, positive economic growth is a tailwind, with leading economic indicators remaining high. Overall, we remain confident in our long-term assumption of retail, load growth and our electric activities and continue to be optimistic for the economic prospects within our service territories.

Shifting to slide 10, we are making progress in addressing tax reform across our jurisdictions. As we said in February, our approach is to target solutions to provide benefits to customers while smoothing customer rate volatility and supporting the credit quality of the utilities. In several of our jurisdictions, we have proposed using a portion of the lower tax expense to accelerate depreciation, recover environmental cost or amortize regulatory assets. Our solution to Duke Energy Florida is a great example of this. Earlier this year, we received commission approval to use tax reform benefits to offset Hurricane Irma costs and accelerate the depreciation of older coal fire generation units.

Elsewhere, revenues recovered via riders will be updated for the lower federal income tax rate as the riders are made in the ordinary course. The remaining portions of the tax law, including the treatment of excess deferred income taxes are being addressed in separate tax reform dockets or in base rate case proceedings.

In DEC North Carolina, we expect the commission to address tax reform and our pending rate case and look forward to the commission's decision in the coming weeks. For DEP North Carolina, we recommended addressing tax reform in the next rate case proceedings. Our proposals and rate outcomes to date on tax reform are consistent with the objectives we outlined on our fourth quarter call. We continue to respond to our stakeholders in the coming months as these proceedings progress.

Next, let me take a moment on slide 11 to discuss the strength of our balance sheet. As Lynn mentioned in early March, we successfully executed a $1.6 billion equity offering, which included a full exercise of the overall option by the underwriters. We also issued $50 million of equity via the drip in the first quarter. We will issue the remaining $350 million for 2018 using both the drip and our ATM program. We called it beyond 2018. We intend to continue issuing $350 million of equity per year for the remainder of the five-year plan.

We remain on track to achieve our FFO to debt target by 2020. In addition to the equity issuances, our cash flow profile and credit quality are further supported by our regulatory monetization efforts and an active regulatory calendar. This cashflow support includes recovery of deferred coal ash costs, which we are now recovering from our DEP North Carolina and South Carolina retail customers as well as our wholesale customers.

I would also like to remind folks of a material cashflow benefit related to our $1.1 billion of AMT credits that are now refundable under the tax act. beginning in 2019, the value of these credits will be refunded to the company, regardless of whether or not we have taxable income. The legislation front loads the refund schedule with 50% of the unused credits refundable each year. This has a significant positive effective on our funds from operation over the refund period.

We've also included in our appendix more information on the FFO to debt metric, including the implications of coal ash spend, Crystal River 3 securitization, and the effects of purchase accounting. We share these adjustments and the logic behind them with the rating agencies on a regular basis. S&P took a constructive view of the credit quality of the company in March, affirming Duke Energy's current ratings and keeping the company on a stable outlook. In its reported, the agency noted two items as credit-positive, the commission's approval of coal ash recovery in the DEP rate case order, and our commitment to issue equity, including $2 billion of equity in 2018.

Going forward the agencies will look for continued constructive regulatory outcomes and execution of our long-term plan. We believe a strong balance sheet is necessary to invest on behalf of our customers and investors and we have taken important steps to support our credit quality. We remain confident in our equity financing plan. It is sufficient to support the strength of the balance sheet and we do not expect to issue addition equity for the remaining $350 million per year in the five-year plan.

Before I close, I want to take a moment to remind you of our long-term earnings growth CAGR of 4% to 6% through 2022 is based on $4.60 per share in 2017, the midpoint of our original 2017 guidance. While the midpoint of this year's guidance range is below this growth rate, we expect to be back to the low end of the 4% to 6% CAGR by next year. As our higher rate base growth and regulatory recovery accumulates, we expect to be at the mid to high-end of the range in 2022 and beyond.

I'll close with our investor value proposition on slide 13. We continue to offer an attractive 8% to 10% shareholder return that balances the 4% to 6% earnings growth with a strong and growing dividend. Our growth is driven by low-risk regulated investments that are supported by our strong balance sheet. Our attractive yield and demonstrated ability to reliably grow our regulated businesses position Duke Energy as the leading infrastructure investment.

With that, let's open the line for your questions.

Questions and Answers:

Operator

And ladies and gentlemen, if you'd like to ask a question at this time, please signal by pressing *1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is *1 if you'd like to ask a question at this time. We'll pause for a moment to allow everyone the chance to signal. One more time, that's *1 if you'd like to ask a question. We'll first go with Jonathan Arnold with Deutsche Bank.

Jonathan Arnold -- Deutsche Bank -- Managing Director

Good morning, guys.

Lynn Good -- Chairman, President, and Chief Executive Officer 

Good morning, Jonathan.

Jonathan Arnold -- Deutsche Bank -- Managing Director

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

Steve Young -- Executive Vice President and Chief Financial Officer

Yes, what we saw in the quarter, looking AVA, we saw $0.06 favorability related to income taxes. A couple of things were going on there. I mentioned the counting levelization rules require a smoothing of tax benefits over the year. That accounts for $0.02 or $0.03 of that favorability. We also utilized some tax optimization efforts that helped provide some benefits and income tax as well. There is the levleization that will turnaround to the extent I described.

Lynn Good -- Chairman, President, and Chief Executive Officer 

Jonathan, maybe just to add to that, the overall guidance 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 gas, but we are on track with the guidance we gave you in February.

Jonathan Arnold -- Deutsche Bank -- Managing Director

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

Lynn Good -- Chairman, President, and Chief Executive Officer 

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. You can think about it as cashflow financing benefit, Jonathan.

Jonathan Arnold -- Deutsche Bank -- Managing Director

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

Steve Young -- Executive Vice President and Chief Financial Officer

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

Jonathan Arnold -- Deutsche Bank -- Managing Director

Okay. Thank you for that. Just one other topic -- can you give us a sort of update of some of your goals that you've laid out in commercial renewables and just a market, state of the market, competitive-wise to that?

Lynn Good -- Chairman, President, and Chief Executive Officer 

Jonathan, we're on track in '18 in the commercial renewable segment. The variance you see in the quarter is more weather-related. But the backlog of projects and what we expect to close in '18 remains on track. As you know, it's a competitive market. We expect it to continue to be.

Jonathan Arnold -- Deutsche Bank -- Managing Director

Okay. Thank you very much.

Lynn Good -- Chairman, President, and Chief Executive Officer 

Thank you.

Operator

Alright. Next, we'll go to Michael Weinstein with Credit Suisse.

Michael Weinstein -- Credit Suisse -- Analyst

Quick question -- the 15% to 16% 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?

Steve Young -- Executive Vice President and Chief Financial Officer

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 -- Analyst

I'm sorry, I meant the DEC case.

Steve Young -- Executive Vice President and Chief Financial Officer

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

Lynn Good -- Chairman, President, and Chief Executive Officer 

You know, 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 of DEC. Tax reform would be the addition to DEC that I would point to. We were specific and 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 receive the benefit of the reduction and rates from 35 to 21. 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. I feel like we're on track to deliver those metrics and are certainly committed to do that. If at any point there's a time in your shortfall we do have levers that Steve indicated to make sure we remain on track.

Michael Weinstein -- Credit Suisse -- Analyst

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?

Lynn Good -- Chairman, President, and Chief Executive Officer 

Yes, it does. Michael, the thing I would think about on tax reform is 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. So, we're not talking about a wide degree of variability for a company of our size. We're talking about amortization periods ranging from 5 to 20 years that we proposed. So, I think it's important to bound that uncertainty exposure as you think out our confidence.

Michael Weinstein -- Credit Suisse -- Analyst

Got it. You've found possible outcomes on the unprotected tax refunds are built into that equity issuance plan, right?

Lynn Good -- Chairman, President, and Chief Executive Officer 

Absolutely.

Michael Weinstein -- Credit Suisse -- Analyst

Okay. Good. Thank you.

Operator

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

Lynn Good -- Chairman, President, and Chief Executive Officer 

Good morning, Steve.

Steve Fleishman -- Wolfe Research -- Managing Director

Hey, good morning. So, just first, do you have any sense from Moody's on when they might visit the negative outlook in any equity issuance you did and the like?

Lynn Good -- Chairman, President, and Chief Executive Officer 

Steve, we can't predict with certainty what Moody's timing is. The one thing I would point to, though, is their report earlier this year and their 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. We have dockets opened in both Ohio and Indiana. I feel like more information is going to become available over the next several months around tax reform in our larger jurisdictions. We'll certainly be anxious to share all of that with Moody's.

Steve Fleishman -- Wolfe Research -- Managing Director

Okay. Great. Then the $1.1 billion of refundable AMT credits -- in 2019 and 2020, are you essentially getting tax money, essentially refunds from the government on taxes?

Steve Young -- Executive Vice President and Chief Financial Officer

Yes, that's correct.

Lynn Good -- Chairman, President, and Chief Executive Officer 

That's correct.

Steve Fleishman -- Wolfe Research -- Managing Director

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

Steve Young -- Executive Vice President and Chief Financial Officer

We're getting that as cash.

Steve Fleishman -- Wolfe Research -- Managing Director

Then just technically, the $1.1 billion, that's like a direct number -- do we tax affect that or is that a direct --

Steve Young -- Executive Vice President and Chief Financial Officer

That's a direct number.

Operator

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

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Hey, good morning.

Lynn Good -- Chairman, President, and Chief Executive Officer 

 Good morning.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

So, I wanted to follow up on a couple of things -- first, if we can go the monetization side of the equation, starting with Ohio -- PowerForward, obviously, success on that front. Did that change your CapEx at all? Obviously, it wouldn't be too meaningful. Secondly, related to that, can you talk on the latest rate cases in the Carolinas and to what extent that might shift things?

Lynn Good -- Chairman, President, and Chief Executive Officer 

We're pleased with the result of the settlement in Ohio, but we need to get through a commission process. There are hearings in July, but we 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 we can invest in, those would be incremental to our plan. So, overall, I would look at the settlement in Ohio as being consistent with our plan with modest upside.

In the Carolinas, I think we've 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 turning our strategy for legislation in 2019 and beyond to see if there's additional legislative certainty to see if we need to set a pathway for further investment in the Carolinas. That's what I would share with you about modernization in the Carolinas.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Excellent. Turning back to the overall guidance, not to wordsmith things too much, but I just wanted to understand you're saying about '19 guidance. Last time, I think you guys talked about being, "Within the guidance range by '19." I think this go around, you talk about being back to the lower end of the four to six. Is that something to do with the timing of the equity within the plan or am I being too nitpicky here?

Lynn Good -- Chairman, President, and Chief Executive Officer 

Julien, the message has been the same. If you go back and reference where we were in February, it has always low end in the range in '19 and then mid to high in '20 and beyond as we see the rate-based growth and the investment and so on. So, no change in message, but we'll be at the low end of the range at '19.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Excellent. Sorry, just a quit nitpicking thing on the tax side real quickly. Obviously, Ohio, that issue got pushed out from the settlement conversations, what's the latest expectation on resolving that?

Lynn Good -- Chairman, President, and Chief Executive Officer 

There's a docket in Ohio. I'd expect it to move through a process in '18, Julien, but I don't have anything more specific than that.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Excellent. Thank you all very much. Best of luck.

Operator

Alright. Next, we'll go to Ali Agha with SunTrust.

Ali Agha -- SunTrust -- Analyst

Thank you, good morning.

Lynn Good -- Chairman, President, and Chief Executive Officer 

Good morning.

Ali Agha -- SunTrust -- Analyst

First, Steve, I wanted to make sure I heard something earlier -- when you talked about first quarter and some timing-related issues, one was tax levelizaiton, as you clarified. If I heard you right as well, I think you mentioned there was a 4% pickup in O&M, also timing related that would reverse over the course of the year, did I hear that right?

Steve Young -- Executive Vice President and Chief Financial Officer

Yes, that's correct. 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.

Ali Agha -- SunTrust -- Analyst

Okay. Got it. Secondly, when I look at the rate-based data that you've given us through 2022, just looking at that data, it appears that the growth in rate base actually slows down 2022 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?

Lynn Good -- Chairman, President, and Chief Executive Officer 

Ali, I would first think about 2020 as being the completion of a number of important projects that you'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. 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. 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.

Ali Agha -- SunTrust -- Analyst

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

Lynn Good -- Chairman, President, and Chief Executive Officer 

So, as I think about jurisdictions, we're set in Florida if the settlement is approved. 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. That's something that will be up for evaluation. 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. We'll have more specifics on the timing after we digest the DEC case.

Ali Agha -- SunTrust -- Analyst

Got it. Thank you.

Operator

Now we'll go to Michael Lapides with Goldman Sachs.

Michael Lapides -- Goldman Sachs -- Analyst

Hey, guys, thank you for taking 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 -- I'm just looking for the total company level, not by subsidiary -- what is the excess or unprotected excess that balance? What do you estimate that to be that likely over multiple years will get refunded back to customers?

Steve Young -- Executive Vice President and Chief Financial Officer

We've got about $6.3 billion of excess deferrals, on our box, Michael, total company. Of that, about $4.5 billion is protected and unprotected is about $1.8 billion.

Michael Lapides -- Goldman Sachs -- Analyst

So, the $4.5 billion should qualify under normalization, like we saw after the '86 Tax Act and go back to customers over a long life period, it's kind of more negotiable?

Steve Young -- Executive Vice President and Chief Financial Officer

That's correct.

Michael Lapides -- Goldman Sachs -- Analyst

Thank you. The other thing -- this is more of a regulatory or rate-making question -- when you look at your capital spend forecast over the next couple of years. Is there a rule of thumb of how much that capital spend is covered via trackers and riders versus covered via historical-looking rate case processes?

Steve Young -- Executive Vice President and Chief Financial Officer

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've got the multi-year rate planning in Florida that provides us very efficient recovery. The Carolina is 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 -- Analyst

Got it.

Lynn Good -- Chairman, President, and Chief Executive Officer 

You know, Michael, as you know, modernizing has been a priority. You think about H.B. 589, we now do have tracking mechanisms in the Carolinas around renewables and we've put in 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, over 50%, 60%, 70% perhaps are covered by trackers in those jurisdictions.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. Thank you, Lynn. Thank you, Steve. Much appreciated.

Lynn Good -- Chairman, President, and Chief Executive Officer 

Sure.

Operator

Next, we'll go to Praful Mehta with Citi.

Praful Mehta -- Citigroup -- Analyst

Thanks so much. Hi, guys. Steve, just to clarify -- 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. The reason for the question is just trying to figure out where in that debt range can your metrics vary depending on the outcome of the deferred income taxes.

Steve Young -- Executive Vice President and Chief Financial Officer

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

Lynn Good -- Chairman, President, and Chief Executive Officer 

I think, Praful, as you think about this DEC case, we'll get some visibility for unprotected for DEC within the next couple of months. 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 time that resulted in the deferred taxes and as I said a moment ago, we'll learn more from the commission as we see the results in the DEC rate case.

Praful Mehta -- Citigroup -- Analyst

Gotcha. Fair enough. That makes sense. If there is pushback or a request for faster refunds than what you have assumed in your metrics, does that put pressure on credit at all or do you think most scenarios you can get back in terms of the rate case or settlements incorporated in your current plan?

Lynn Good -- Chairman, President, and Chief Executive Officer 

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

Steve Young -- Executive Vice President and Chief Financial Officer

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

Praful Mehta -- Citigroup -- Analyst

Fair enough. And then secondly on tax equity, you saw that with your solar projects, you're looking at tax equity financing and you mentioned this would be a bigger part going forward. 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 effort for the debt strategy as well to improve metrics. A little bit of color around that would be helpful.

Steve Young -- Executive Vice President and Chief Financial Officer

Sure. The tax equity market is still very valuable. It's being used at our solar farm in New York. We'll continue to utilize that. As you mentioned, our tax position puts us as a candidate for that and I think the market is there. It is an important part of our renewables profile. So, we'll utilize that as we go forward.

Lynn Good -- Chairman, President, and Chief Executive Officer 

Praful, the capital we laid out for 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.

Praful Mehta -- Citigroup -- Analyst

Gotcha. Fair enough. Thanks so much, guys. Appreciate it.

Operator

Next, we'll go to Shahriar Pourreza with Guggenheim Partners.

Shahriar Pourreza -- Guggenheim Securities -- Managing Director

Hey, good morning, guys. My questions were just answered. Thanks so much.

Lynn Good -- Chairman, President, and Chief Executive Officer 

Alright. Thank you.

Shahriar Pourreza -- Guggenheim Securities -- Managing Director

Bye, guys.

Operator

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

Paul Ridzon -- KeyBanc Capital Markets -- Analyst

Good morning.

Lynn Good -- Chairman, President, and Chief Executive Officer 

Good morning, Paul.

Paul Ridzon -- KeyBanc Capital Markets -- Analyst

Renewables, you were down a penny, which you attributed to wind resource. Was that a net number? Did you have growth from incremental projects offset by more than a penny of poor wind resource?

Steve Young -- Executive Vice President and Chief Financial Officer

Yes, that's net number.

Paul Ridzon -- KeyBanc Capital Markets -- Analyst

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

Steve Young -- Executive Vice President and Chief Financial Officer

I'd have to look at that a little bit further, Paul. The results, we were down a penny and that's primarily due to wind resource. There are some additional resources, but it's not singularity.

Paul Ridzon -- KeyBanc Capital Markets -- Analyst

Okay. Thank you. 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?

Steve Young -- Executive Vice President and Chief Financial Officer

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

Paul Ridzon -- KeyBanc Capital Markets -- Analyst

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

Steve Young -- Executive Vice President and Chief Financial Officer

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

Paul Ridzon -- KeyBanc Capital Markets -- Analyst

Thank you.

Operator

We'll take our last question from Christopher Turnure with J.P. Morgan.

Christopher Turnure -- J.P. Morgan -- Analyst

Good morning, Lynn and Steve.

Lynn Good -- Chairman, President, and Chief Executive Officer 

Hi, Chris.

Christopher Turnure -- J.P. Morgan -- Analyst

I appreciate the extra detail on Atlantic Coast. That was very helpful. Just a couple clarifications -- could you give us a little bit more about 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 weigh in on commission and intervene your thinking there?

Lynn Good -- Chairman, President, and Chief Executive Officer 

So, on the grid investment, what we saw in the hearing was continuation of good discussion of the nature of the investments, the benefits they can deliver, the impact on customer bills. 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 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 continuation of our strategy to keep the conversation going about the grid. I actually think there's very little disagreement about the need for the investment. I think the benefits to customers are clear. We're 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, etc.

I think tax reform represents a great opportunity because you have the opportunity to reduce impact to customers at the same time you're driving investment. I think they're complementary in that regard. We look forward to continuing the dialogue and as we shared previously. We have thought about the grid investment and modernization as being dual tracked, focusing on the regulatory process, certainly, but also having legislation is something we would consider as we continue our work to modernize regulation.

Christopher Turnure -- J.P. Morgan -- Analyst

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. 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?

Steve Young -- Executive Vice President and Chief Financial Officer

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

Christopher Turnure -- J.P. Morgan -- Analyst

So, you guys just got the OK a couple weeks back to defer taxes and not have it addressed by the commission until your next rate case filings there. In the interim, do you pay a return on that deferred tax liability owed to customers?

Steve Young -- Executive Vice President and Chief Financial Officer

No. We're just deferring those costs at this point. The commission will determine how to deal with that at that time in the proceeding. We're just deferring those benefits right now.

Christopher Turnure -- J.P. Morgan -- Analyst

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

Lynn Good -- Chairman, President, and Chief Executive Officer 

Alright. Thanks, Chris.

Operator

It looks like we have no further questions at this time. I'd like to turn it back to Miss Lynn Good for any closing remarks.

Lynn Good -- Chairman, President, and Chief Executive Officer 

I'd like to thank everyone for participating. Good questions today. We look forward to connecting with you over the next several weeks. Appreciate your investment and interest in Duke Energy.

Operator

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

Duration: 52 minutes

Call participants:

Lynn Good -- Chairman, President, and Chief Executive Officer 

Steve Young -- Executive Vice President and Chief Financial Officer

Mike Callahan -- Vice President, Investor Relations

Jonathan Arnold -- Deutsche Bank -- Managing Director

Michael Weinstein -- Credit Suisse -- Analyst

Steve Fleishman -- Wolfe Research -- Managing Director

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Ali Agha -- SunTrust -- Analyst

Michael Lapides -- Goldman Sachs -- Analyst

Praful Mehta -- Citigroup -- Analyst

Shahriar Pourreza -- Guggenheim Securities -- Managing Director

Paul Ridzon -- KeyBanc Capital Markets -- Analyst

Christopher Turnure -- J.P. Morgan -- Analyst

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