Speaker 1: They're at the vanguard of a green transition. They're delivering locally.
Speaker 1: In a time of global energy turmoil, utility companies are
Speaker 1: having their moment in the sun. Energy us on everyone's
Speaker 1: mind around the world. Energy independence, energy prices, energy availability.
Speaker 1: Utilities historically have been viewed as stodgy and slow moving.
Speaker 1: I would not be here if it were anything like that.
Speaker 1: The youtub is that they're going to thrive in this
Speaker 1: environment are the ones who have a diversified energy mix,
Speaker 1: particularly the ones who have higher percential of clean energy
Speaker 1: resources that is reliable, such as nuclear as well as
Speaker 1: wind and solar and gas in the mix to beck
Speaker 1: those up. Duke Energy, providing regulated gas and electric services
Speaker 1: to about ten million customers in seven U S States,
Speaker 1: has flourished in the spotlight. Revenues have rebounded since COVID
Speaker 1: rocked the industry in the volatility that's driven profits has
Speaker 1: also created pressures. Were in a period of inflation. We're
Speaker 1: in a period where commodity prices are high. So every
Speaker 1: season of leadership is going to have some particular challenge,
Speaker 1: and Duke will meet these challenges with fresh leadership. After
Speaker 1: almost a decade at the helm of Finance, Steve Young
Speaker 1: decided to step away from the role in September. Company
Speaker 1: veteran Brian's avoid became CFO. Why now retire from your
Speaker 1: position a CFO? I thought it was time. It made
Speaker 1: a lot of sense. Brian was ready. Succession planning is
Speaker 1: something that is ongoing at Duke Energy, and this gave
Speaker 1: us an opportunity to promote Brian, someone who has great
Speaker 1: financial background, good market and economic background, who also has
Speaker 1: led businesses so understands P and L and so it
Speaker 1: just felt like the right time to begin that transition.
Speaker 1: That transition in the C suite comes as Duke and
Speaker 1: barks and a transformation of its business aiming to retire
Speaker 1: all cold by achieved net zero carbon emissions by and
Speaker 1: reshape its portfolio around natural gas, nuclear power and renewables
Speaker 1: where we're basically rebuilding generation and transmission and distribution to
Speaker 1: meet the needs of the future. We're going to invest
Speaker 1: at billion over a decade. That is a staggering amount
Speaker 1: of money, which means it's a staggering amount of things.
Speaker 1: We've got to go by, replace, install, make work, and
Speaker 1: do it in an affordable way for our customers. That's
Speaker 1: a tall order. It's a team effort. So boy, we'll
Speaker 1: have plenty of support from Young who's now Duke's Chief
Speaker 1: Commercial officer, and Lynn Good, who was once Dukes CFO herself.
Speaker 1: Any advice you want to give him from your your
Speaker 1: CFO hat CEO hat you can't give advice the CFO hat.
Speaker 1: The advice I gave him was, you know, jump in
Speaker 1: with all fours and make this job as big as
Speaker 1: you can, because you said, at the nexus of so
Speaker 1: many things in the chief financial officer role, the business,
Speaker 1: the regulation, the finance, delivering value to investors into customers,
Speaker 1: and I think Brian is very capable of doing that.
Speaker 1: It's an amazing time to be in this role in
Speaker 1: this moment, extremely and daunting. There's a lot going on,
Speaker 1: but I wouldn't have it any other way. Here's what
Speaker 1: Duke's power generation mix looked like with coal and oil
Speaker 1: nearly a quarter of the portfolio. Here's how it should
Speaker 1: look by renewables will more than triple as a share
Speaker 1: of the company's power output. We have been putting pieces
Speaker 1: in place in our regulated business for several years to
Speaker 1: really accelerate this clean energy transition. Renewables bring um price
Speaker 1: stability because there's no fuel right to either the sunshine
Speaker 1: or the wind. There's typically a significant capital of front investment,
Speaker 1: but it's predictable. Natural gas is needed to balance the
Speaker 1: grid and the reliability needs because the wind doesn't blow
Speaker 1: all the time and the sun doesn't shine all the time,
Speaker 1: and batteries can't bridge the gap enough right UM so
Speaker 1: our plan is to reduce natural gas over time, but
Speaker 1: use it as a bridge fuel as we proliferate renewables
Speaker 1: and nuclear has been just a tremendous benefit for our
Speaker 1: customers and we see promise in future nuclear in the
Speaker 1: twenty thirties as we moved to the transition, that's not
Speaker 1: the only transition. Brian Savoy will manage. Duke wants to
Speaker 1: focus its time, money and resources, and it's regulated businesses
Speaker 1: and it's looking for a buyer for its commercial renewable
Speaker 1: energy holdings. Our commercial business is one that I ran,
Speaker 1: so I'm very familiar with UM and it served us
Speaker 1: very well. But it is only five percent of our
Speaker 1: company right and and our regulated business has a clear
Speaker 1: path to growth, and the competition for capitals fierce inside
Speaker 1: our company, and there are a lot of a lot
Speaker 1: of interests. There's a lot of money wanting to invest
Speaker 1: in green energy. They are from a strategic review right
Speaker 1: now of this business, and I think it makes sense
Speaker 1: to do so because in the U. Tudor space, to
Speaker 1: really get credit in evaluation for a non regulated business
Speaker 1: such as renewable generation, right, you have to do it
Speaker 1: at the much larger scale, and it does make sense
Speaker 1: to take a closer look at maybe somebody else is
Speaker 1: a better story of capital here and recycled capital to
Speaker 1: redirect that into the regulated business. Duke forecast earnings growth
Speaker 1: the five to seven percent through driven by a lot
Speaker 1: of capital investment. The company intends to spend a whopping
Speaker 1: one forty five billion dollars in the next decade, with
Speaker 1: the Lion share going to changing its energy mix and
Speaker 1: modernizing its grid. Brian Savoy is in charge of deploying
Speaker 1: this capital under highly challenging conditions, including the highest inflation
Speaker 1: and most volatile energy prices in decades. When you get
Speaker 1: a surprise like hal fuel prices, we need to adjust
Speaker 1: things like O and M, and so we work with
Speaker 1: operations and and the relationships I have throughout the company
Speaker 1: are positioning me well to help influence our operators to
Speaker 1: adjust their cost as we need to for customers. Do
Speaker 1: you feel that reducing costs right now while also increasing
Speaker 1: spending is different than in the past because of the
Speaker 1: inflationary pressures, because of the energy transition. I would say yes,
Speaker 1: there are a lot of pressures on the business that
Speaker 1: we might have had in short spells in the past,
Speaker 1: but it feels more systemic that we're going to see,
Speaker 1: you know, inflation for some time, higher commodity prices, with
Speaker 1: the kind of volatility. If someone comes to you and say, hey, Brian,
Speaker 1: so I need some more money from my division to
Speaker 1: do this, are you like the no guy or or
Speaker 1: are you able to be really nimble and make sure
Speaker 1: you can be the yes guy? I would say I'm
Speaker 1: the how can we go? Okay? Um? But if we
Speaker 1: say yes to a request that was emergent, we've got
Speaker 1: to say notice some other things. So how do we
Speaker 1: prioritize and make it all work? CEO and former CFO
Speaker 1: and good knows how hard this balancing act can be.
Speaker 1: I think any time you're trying to balance, you get
Speaker 1: pulled in various directions. Um, there will be a pull
Speaker 1: to build more renewables by certain of our stakeholders. There
Speaker 1: will also be a pull not to go that fast
Speaker 1: because it could be too expensive. Maybe our industrial customers
Speaker 1: are worried about price. Vulnerable customers worried about price. So
Speaker 1: trying to strike that right balance with policymakers, with customers,
Speaker 1: with investors is a challenge in any moment, and there
Speaker 1: will be a challenge in this one. And take me
Speaker 1: inside some of the conversation you guys are having to
Speaker 1: do right now. So you and Lynn and and other
Speaker 1: CS executives sitting around the table when you guys talk
Speaker 1: about most right now. Supply chain has been a moving
Speaker 1: target of issues right um last year at this time
Speaker 1: we were looking at solar panels and how do we
Speaker 1: lock in our solar panels that we need for the
Speaker 1: next several years to ensure we can execute the clean
Speaker 1: energy transition. It has moved to different components like transformers,
Speaker 1: which are essential for the grid. Interest rates and the
Speaker 1: pace at which the FED is moving interest rates is
Speaker 1: something we talk about each and every week and when
Speaker 1: will that flatten out and how will that impact our business.
Speaker 1: We are a very large debt issuer, so we watched
Speaker 1: this extremely closely because it affects our call structure. Do
Speaker 1: you want to wait until interest rates level off and
Speaker 1: then does that delay your capital raising to deploy your plan.
Speaker 1: We don't wait, but we do plan. You know, when
Speaker 1: there's opportunistic times to to issue debt, we will go
Speaker 1: with larger, larger pieces or versus smaller um and we
Speaker 1: can work with the length of the debt. Right if
Speaker 1: tenure is price more attractive than twenty or thirty, we'll
Speaker 1: we'll use the tenor to optimize the interest. That's all
Speaker 1: I knew. Yeah, yes, Brian Savoy is taking on a
Speaker 1: new challenge as he steps into the CFO position at
Speaker 1: Duke Energy. It's really just his latest challenge. He's touched
Speaker 1: virtually every area of the company over the last two decades.
Speaker 1: I started my career Duke in Houston in our trading
Speaker 1: business UM and I was with Deloitte twos before I
Speaker 1: joined because one of my clients. You know, what I
Speaker 1: saw in Brian was tremendous enthusiasm and energy. He was
Speaker 1: ready to take on new assignments. He was thinking about
Speaker 1: advancing the ball for the corporation as opposed to any
Speaker 1: personal goals and that and that came through. He helped
Speaker 1: us on a number of complex projects and the more
Speaker 1: we gave him the more he continued to grow. I've
Speaker 1: had five different roles in ten years, and I've seen
Speaker 1: different parts of the company from you know, transformation, leading
Speaker 1: natural gas and commercial strategy. This has prepared me for
Speaker 1: the role I have today. What's the advice that you've
Speaker 1: given him? You know, I've I've told him a couple
Speaker 1: of times, You're not going to get a home run
Speaker 1: at every avat. There's gonna be days where things go
Speaker 1: wrong the patient, be calm, keep your eye on the
Speaker 1: ball for the future. That the thing you want to
Speaker 1: get to. Eventually you'll have bumps in the road. Fixing
Speaker 1: things that go wrong and smoothing out bumps in the
Speaker 1: road is what customers expect from energy providers, and for
Speaker 1: Duke's Renewable Assets, that process is overseen from one room
Speaker 1: in an office building in Charlotte, North Carolina. Bryan's a
Speaker 1: voice showed me around the company's renewable control center. This
Speaker 1: is where operators are monitoring and managing over five thousand
Speaker 1: megawatts of renewables across the United States. How would this
Speaker 1: differ from like a conventional asset monitoring center, Yeah, so assets.
Speaker 1: Historically they would have the monitoring center on site so
Speaker 1: you might have an operator with screens. But at the
Speaker 1: site whereas this we can do ninety sites, there's offshore wind,
Speaker 1: onshore wind, solar, and they're looking for the smallest change
Speaker 1: in output because every megawatt hour is money. You put
Speaker 1: an asset in. Let's say it's a hunter megawatts, you
Speaker 1: expect to get a hundred mega ontes each and every
Speaker 1: hour that the resources there. The resource could be sunshine
Speaker 1: or it could be wind, and when you get ninety
Speaker 1: or eighty, you're you're not producing what you can and
Speaker 1: it can be because the asset isn't isn't working properly.
Speaker 1: Maybe maybe something hit the turbine blade on the wind
Speaker 1: for maybe the solar panel has debris on it, or
Speaker 1: it could be the solar intensity is not quite there.
Speaker 1: When one of these assets isn't producing full capacity, we're
Speaker 1: putting another resource on and we're having to toggle this
Speaker 1: on a consistent basis, and in this as clouds come,
Speaker 1: it's this is by the minute, this is not or
Speaker 1: the hour it's off now it's by the minute, and
Speaker 1: then it'll fall will come back, and we have assets
Speaker 1: that follow this digitally as well, so that we can
Speaker 1: keep a consistent flow of electrons on the grid. The
Speaker 1: operators in this room can respond to incoming data with
Speaker 1: immediate action, remotely controlling wind turbines, solar panels, and batteries.
Speaker 1: It's an other example of using digital and technology tools
Speaker 1: to make us more efficient, to make us more productive,
Speaker 1: minimizing the amount of people we have to have running
Speaker 1: around and observing and giving us the statistics to really
Speaker 1: be able to maintain a monitor those facilities. So we
Speaker 1: couldn't see degradation and output as fast as we do
Speaker 1: now with the technology and the digitalization of the system. Now,
Speaker 1: we still need technicians nearby, and so we use traveling
Speaker 1: crews that can go um say sites in Kansas versus
Speaker 1: sites in in South Texas versus Central Texas and across
Speaker 1: the West. We have around the clock shifts, but about
Speaker 1: twenty people rotate through these shifts and again recovering ninety sites.
Speaker 1: We've got about half a dozen people here at any
Speaker 1: given time managing it. You could think that would scale
Speaker 1: at overtime as renewables grow in the United States. So
Speaker 1: would you say that as you invest more renewables it's
Speaker 1: a hardware thing or a software thing, Like where do
Speaker 1: you think you're gonna spend the most money doing that. Obviously,
Speaker 1: the software will continue to improve over time, and the
Speaker 1: innswers on the equipment are very important to again identify
Speaker 1: those degradations and output. But it's deploying the hardware, deploying
Speaker 1: the assets on the ground, getting the sites ready, connecting
Speaker 1: to the to the grid is a huge lift. Duke's
Speaker 1: hardware and software mix keeps evolving and so does its workforce.
Speaker 1: Retooling also means retraining. We've moved people to the renewable space.
Speaker 1: Some of these folks used to be in coal. We've
Speaker 1: moved people to cybersecurity, which is a growing area that
Speaker 1: we need more and more because as everything gets digitized,
Speaker 1: there's more opportunities for bad actors to penetrate. So we
Speaker 1: need high cyber security skills and when you match that
Speaker 1: with operating skills, you really have a beautiful mix that
Speaker 1: makes a strong strong operator. Operators here have plenty of
Speaker 1: micro details to keep track of, but there's a macro
Speaker 1: factor on their minds as well. That's the weather. We
Speaker 1: have maps the United States just to going to give
Speaker 1: the operators bearing of what's going on in the country,
Speaker 1: and we have plotted on it where our renewable sites
Speaker 1: are so they know if if there's a weather pattern,
Speaker 1: weather system coming, I expect that in that in that area.
Speaker 1: How do you manage extreme weather? So let's say we
Speaker 1: have a wind farm in the west and the windstorm
Speaker 1: is coming. You know, the assets will turn off when
Speaker 1: the wind speeds exceed a certain level automatically because there's
Speaker 1: there's risk of of breakage of the blades and damage
Speaker 1: to people and assets and stuff. We know windstorms coming
Speaker 1: that that might damage the solar or hail storm for instance. Right, Um,
Speaker 1: we can watch those assets closer. We can put a
Speaker 1: crew on site, but this team would be dispatching those
Speaker 1: crews on onto the location. And that's where like the
Speaker 1: weather map and the team like really works. Yeah, that's right.
Speaker 1: From hurricanes in the southeast to wildfires in the west,
Speaker 1: extreme weather events are becoming more prevalent and more intense.
Speaker 1: Utility companies are bracing for greater risk. When we think
Speaker 1: about the impacts of extreme their events on the grid,
Speaker 1: large group connect and resources would still such as large
Speaker 1: scale solar farms and large scale wind fronts would still
Speaker 1: rely on the centralized grid to deliver electricity to the
Speaker 1: load centers. So to the extent of the grid is
Speaker 1: knocked out by a hurricane, those assets would go offline
Speaker 1: as well. So, in addition to invest in in green
Speaker 1: generation resources is extremely important, and companies pay attention to
Speaker 1: Greek hardening measures. We're seeing more of it, more frequency
Speaker 1: of of severe events and how we predict those, monitor
Speaker 1: those and and estimate the damage using data analytics and
Speaker 1: machine learning to say how many customers might be out
Speaker 1: if this happens, what generators are at risk, and all
Speaker 1: that That modeling goes into our planning for what we
Speaker 1: put our investments. We talked about the capital plan earlier.
Speaker 1: All those investments are informed by the climate trends that
Speaker 1: we see across our system. The next decade for Duke
Speaker 1: Energy is pretty clearly mapped out. Raise and spend million
Speaker 1: dollars on a massive clean energy transition, put the bulk
Speaker 1: of those investments into regulated businesses, while investigating the sale
Speaker 1: of non core assets to fund that push. It'll all
Speaker 1: be up to new CFO Brian Savoy to execute this
Speaker 1: plan and make sure it delivers optimal financial growth. The
Speaker 1: motion is adopted. Congress passed the Inflation Reduction Act in August,
Speaker 1: putting provisions in place that make his task more manageable.
Speaker 1: The Inflation Reduction Act provides incentives for renewables, it provides
Speaker 1: incentives for battery storage, and it provides incentives for nuclear.
Speaker 1: All of those incentives for a regulated company go right
Speaker 1: to our customers. They reduce directly the price of our product.
Speaker 1: So when I build a renewable product, it's gonna cost
Speaker 1: me less and will cost my customers less. It's gonna
Speaker 1: help our renewable transition. For example, one thousand megawats of
Speaker 1: solar equates to about sixty million in annual production tax credits.
Speaker 1: We're gonna have thirty thousand megawatts of renewables on our
Speaker 1: system by The Inflation Reduction Act has been a very
Speaker 1: important piece of legislation. It's not only that it creates
Speaker 1: a number of incentives for a variety of assets, right.
Speaker 1: It also is very durable and long term. So instead
Speaker 1: of a patchwork of different tax credits that we've seen
Speaker 1: in the past, it actually creates a glidepath going well
Speaker 1: into twenty thirties for this long term transition on the grid.
Speaker 1: Political winds may shift, and regulations are always subject to change.
Speaker 1: For the moment, policy in Washington aligns with Duke's strategic goals,
Speaker 1: but they feel like there's a paral partnership. Now we
Speaker 1: have um a voice at the table. I have a
Speaker 1: lot of conversations with the Treasury Department about about tax
Speaker 1: policy and and as they define the rules around the
Speaker 1: i ra A, they will seek input from people like
Speaker 1: us and we will weigh in. This is what you
Speaker 1: should think about as you write the detailed rules to
Speaker 1: implement this this act. When it comes to the relationship
Speaker 1: between utility and policy makers and regulators, those have always
Speaker 1: been extremely important. Those dudes that cultivate have cultivated those
Speaker 1: relationships in the constructive US and whether they've been good
Speaker 1: stewards of capital and operated the system well and tonto
Speaker 1: consideration interests of various stakeholders in addition to you know,
Speaker 1: the equity and dead investors. Of course, UH, those of
Speaker 1: yous enjoy con relationships with the regulators in our experience
Speaker 1: right and that over time translates into constructive rate outcomes
Speaker 1: and UH and better recovery mechanism. Recovery mechanisms are set
Speaker 1: at the state level. They also help companies and customers
Speaker 1: absorb the capital costs of the clean energy transition. We
Speaker 1: cannot adjust our price without working. The regulators and modern
Speaker 1: recovery mechanisms allow us to adjust price more frequently and
Speaker 1: align with our investments so that when the investments start
Speaker 1: causing expenses, revenues follow and then there's alignment. Otherwise, we
Speaker 1: call it regulatory lag, where you have expenses before we
Speaker 1: can earn revenues on those assets. Historically, would we would
Speaker 1: build up investments, then have what's called the rate case
Speaker 1: and have a large increase in one one slog. The
Speaker 1: modern recovery mechanisms place assets and service each year essentially,
Speaker 1: so you're smoothing rate increases over time. So customers can
Speaker 1: plan better and we can plan better. Even with meticulous
Speaker 1: planning and regulatory tail winds, us utilities must proceed with caution.
Speaker 1: Europe's energy crisis highlights the fight between green energy and
Speaker 1: energy security, raising questions about how fast and hard the
Speaker 1: world can pivot. There's been criticisms say in Europe that
Speaker 1: they were trying to go too fast into renewables, for example,
Speaker 1: and therefore they left out nuclear and they sort of
Speaker 1: shuttered coal plants and now they're paying the price in
Speaker 1: that respect. Um, what's the right pace? I think the
Speaker 1: pace is maintaining balance with a reliability and affordability. That's
Speaker 1: the only way we know to to gauge pace. We
Speaker 1: will not put a plan together that we don't have
Speaker 1: a high degree of confidence. We can serve our customers
Speaker 1: every hour, every season, and we have to keep an
Speaker 1: eye on affordability. We call it a responsible balance transition.
Speaker 1: The transition away from fossil fuels is coming. I mean
Speaker 1: is think about coal. Five years ago, you could get
Speaker 1: as much coal as you want. Now coal is constrained
Speaker 1: and it's going to become even more constrained. So operating
Speaker 1: coal assets is not even going to be an option
Speaker 1: as we move through time. So um, the convergence of
Speaker 1: energy independence and security I believe is coming soon. That's
Speaker 1: the state of play for Brian Savoy as he starts
Speaker 1: his tenure as Duke's CFO. I asked him what he
Speaker 1: sees when he looks ahead. What is the biggest opportunity
Speaker 1: over the next ten year. It's a CFO that you're
Speaker 1: most excited about over the next decade. I feel like
Speaker 1: utilities have a moment to really make a mark on society.
Speaker 1: And again it's long lasting. It's gonna be for our grandkids,
Speaker 1: and their grandkids. So putting the utility sector in prominence
Speaker 1: of the world, that's what I want to do. What's
Speaker 1: the biggest challenge? What are you most worried about the
Speaker 1: next ten years and doing your job? I think the
Speaker 1: biggest challenge is balancing invest the investments we need to
Speaker 1: make and the transition in front of us with the
Speaker 1: cost to customers, because the oversight by regulators is only
Speaker 1: getting more and more and more right, and we've got
Speaker 1: to be more clear on the customer benefits of every
Speaker 1: dollar we spend that turns into value for customers. And
Speaker 1: I can see this playing out in just hand to
Speaker 1: hand combat over the next decade, and we will work
Speaker 1: it and we believe the investments we're making will will
Speaker 1: meet that bar. What is a skill that you have
Speaker 1: as CFO that you think will help that. I'm wired
Speaker 1: for value. I don't like waste at all, and when
Speaker 1: I see things that we need to change, I have
Speaker 1: the courage to make it happen. And as CFO, I'm
Speaker 1: in a position to really move that. And Duke, and
Speaker 1: what's a new skill set of knowledge that you're excited
Speaker 1: about it over the next ten years? I would say
Speaker 1: the new skill set would be how to balance all
Speaker 1: of the external views of the company with the internal
Speaker 1: I've I've worked inside this company and have great influence,
Speaker 1: but ensuring that a similar level of influence is out
Speaker 1: in the external world. What's the best advice you've you've
Speaker 1: received coming into CFO. You know, I will go back
Speaker 1: um many years ago, over over ten years ago. I
Speaker 1: was working for Lynn and she told me, Brian, the
Speaker 1: skills you have positioned you for a wide range of roles.
Speaker 1: I had no idea what that meant then. This was
Speaker 1: like two thousand nine, But as I've looked at my
Speaker 1: career and she has moved me to gain experience across
Speaker 1: Duke in the right areas of operations and strategy. That
Speaker 1: advice back then I didn't appreciate, but I appreciate it
Speaker 1: now more than ever. I'm Alex Steele. This is Bloomberg
Speaker 1: SI