We recently performed a Q&A with Duke Energy
The Motley Fool: For folks unfamiliar with Duke Energy, can you tell us a little about who you are and how you differ from your peers?
Jim Rogers: Duke Energy is one of the largest electric power holding companies in the United States. We have four business segments, the largest of which is U.S. Franchised Electric & Gas. It has nearly 28,000 megawatts of regulated generation and is the primary source of our earnings growth. This segment serves 3.9 million electric customers in North Carolina, South Carolina, Ohio, Kentucky, and Indiana, and 500,000 retail gas customers in Ohio and Kentucky.
A major differentiator for us is that virtually all of our energy production -- approximately 98% -- comes from coal and nuclear. That's a big enabler for keeping our prices competitive and for protecting our customers from fuel price volatility, as we've seen for natural gas. This is a major reason our customer satisfaction has remained high in our five states.
Our commercial power segment has unregulated generation, located primarily in the Midwest. But most of that capacity is dedicated to serving Ohio retail customers under that state's rate stabilization plan. So when you take these two segments together, approximately 85% of our 2007 ongoing segment EBIT will come from sales to our regulated customers.
Duke Energy International has about 4,000 megawatts of generation located primarily in Latin America. Most of this is hydroelectric capacity and is under contract.
Crescent Resources, our real estate development affiliate, is an effective 50-50 joint venture with Morgan Stanley Real Estate Fund. It develops and manages projects in nine states, primarily in the Southeast and Southwest.
TMF: Nuclear energy has turned a corner recently. How do you foresee nuclear power affecting your bottom line in the next five, 10, or even 15 years?
JR: We are one of the premier and most experienced operators of nuclear plants in the nation. We own 5,000 megawatts and operate 7,000 megawatts of nuclear generation (three plants and seven units) in the Carolinas. We've demonstrated that nuclear power works for our customers and investors. In my judgment, that's a prerequisite for the future success of this energy source.
Nuclear power is currently the only practical technology for producing large amounts of electricity with no greenhouse gases. As costs to mitigate carbon emissions increase, nuclear will be the preferred base load source in many regions of the country, and that means significant investment opportunities. In regulated markets, a fair return on such investments should lead to earnings growth.
We're pursuing the construction of a new nuclear plant in South Carolina. We plan to file a combined construction and operating license application with the NRC before the end of this year and would expect to begin construction in 2010, depending on regulatory approvals.
Earlier this year, South Carolina passed a law allowing us to recover our financing costs in rates as we build. That state is very supportive of nuclear power, and our existing Catawba and Oconee Nuclear Stations there are part of their local communities, providing good employment opportunities and a strong tax base. We have similar legislation pending in North Carolina, and the state utility commission has signaled its support for new nuclear generation in the region. ...
TMF: What's been your best decision as CEO? What's been your worst?
JR: There have been several "best decisions" that helped create significant value for our stakeholders, including:
- Maintaining a company culture since the late 1980s that focuses on ALL stakeholders to understand and balance their competing wants and needs -- not just investors and customers, but also employees, regulators, policymakers, suppliers, partners, and communities -- everyone who has a vested interest in our success. This is what the current sustainability movement is all about, as well as Sarbanes-Oxley's emphasis on greater corporate transparency.
- Testifying in favor of the amendments to the 1990 Clean Air Act to reduce acid rain. I was the only utility CEO to do so, and that helped win concessions for utilities in the coal-dependent Midwest and South.
- Committing to run our business without layoffs.
- Merging PSI Energy in Indiana and Cincinnati Gas & Electric Co. to create Cinergy in 1994.
- Completing the merger of Duke Energy and Cinergy last year, and the subsequent spinoff of Spectra Energy the first of this year, to unlock the value of both businesses.
- Rolling out our innovative energy efficiency plan in North Carolina, and our commitment to retire older coal-fired generation assets through these efforts.
I believe my failure to build new gas plants during 1996 to 1999 -- in response to the growth in demand in the Midwest -- was a misstep. ...
TMF: How do you feel about Duke's current stock price? ...