Duke Energy Financial Model

• Total assets: Approximately $180 billion.
• Key asset categories: Net Property, Plant and Equipment (PP&E) makes up the vast majority. Regulatory Assets (deferred fuel costs, deferred storm costs) are also highly material.
• Goodwill & intangibles: Historically around $19 billion, stemming from legacy acquisitions (e.g., Progress Energy, Piedmont Natural Gas).
• Working capital profile:
• DSO: 35-45 days.
• DIO: 30-40 days (primarily coal and gas inventory).
• DPO: 40-50 days.
• Net working capital: Typically negative or near zero. Utilities do not rely on working capital to fund growth.
• PP&E: Consists of generation facilities (nuclear, gas, coal, solar), transmission lines, and distribution networks. Useful lives range from 30 to 60 years.
• Right-of-use assets: Immaterial relative to the massive PP&E base.

• Capex as % of revenue: 60-70% (utilities are extremely capital intensive).
• Maintenance capex vs. growth capex: Approximately 30% maintenance, 70% growth/transition.
• Major capex programmes: A $103 billion five-year plan (2026-2030). Approximately 65% is dedicated to grid infrastructure and new power generation (14 GW of new generation and 4.5 GW of battery storage).
• Capitalised software: Minor compared to hard infrastructure.
• M&A pattern: Currently focused entirely on organic rate base growth following the divestiture of the Commercial Renewables business.

• Total debt: Approximately $80.1 billion as of December 2025.
• Debt/EBITDA ratio: Typically 5.0x to 6.0x. The primary rating agency metric is FFO/Debt, which sits at 14.8% (targeting 14.5% to 15.0%).
• Credit rating: Baa1 / BBB+.
• Key debt instruments: First mortgage bonds (secured by utility assets), unsecured holding company debt, and tax-exempt bonds.
• Maturity profile: Laddered over 10 to 30 years to match the long-life nature of the assets.
• Interest rate profile: Predominantly fixed rate.
• Covenants: Standard debt-to-capitalisation limits at the operating company level.
• Share repurchase programme: Inactive. The company is actually a net issuer of equity, planning to issue $10 billion in new equity by 2030 to fund its capex plan.
• Dividend policy: Payout ratio of 60-70% of adjusted EPS, with a yield typically between 3.5% and 4.5%.

• Operating cash flow conversion: OCF is typically 2.0x to 2.5x Net Income (approximately $12.3 billion OCF in 2025) due to massive depreciation add-backs and deferred taxes.
• Free cash flow margin: Deeply negative. The company generates $12 billion in OCF but spends $20 billion in capex annually.
• Major non-cash items: Depreciation and deferred income taxes.
• Working capital cash flow impact: Minimal year-over-year impact unless there is a severe spike in fuel costs requiring deferred recovery.
• Capex intensity: Extremely high. The business requires constant external financing (debt and equity) to fund the gap between OCF and Capex.
• Cash tax rate: Near zero or negative. The company utilises accelerated depreciation and production tax credits (PTCs) from the Inflation Reduction Act, resulting in significant deferred tax liabilities rather than cash tax payments.

1. Assumptions: Hardcoded drivers for rate base growth, allowed ROE, equity thickness, cost of debt, and capex schedule.
2. Rate Base & Capex: Roll-forward of PP&E and accumulated depreciation. Calculates the average rate base for EU&I and GU&I.
3. Revenue Build: Calculates revenue for EU&I and GU&I based on the allowed return on rate base, plus pass-through fuel and O&M costs.
4. Income Statement: Operating revenues, Fuel used in electric generation, Cost of natural gas, Operation maintenance and other, Depreciation and amortisation, Property and other taxes, Interest expense, Income tax expense.
5. Balance Sheet: Cash, Receivables, Inventory, Regulatory Assets, Net PP&E, Goodwill, Accounts Payable, Short-term Debt, Long-term Debt, Regulatory Liabilities, Deferred Income Taxes, Common Equity.
6. Cash Flow Statement: Net Income, D&A, Deferred Taxes, Changes in Working Capital, Capital Expenditures, Dividends Paid, Debt Issued/Repaid, Equity Issued.
7. Debt & Interest Schedule: Tracks holding company vs operating company debt, calculates weighted average interest rate, and models the $10 billion planned equity issuance.
8. Valuation: Dividend Discount Model (DDM) and standard DCF. DDM is the primary valuation method for regulated utilities.

1. `EU&I Rate Base = Prior EU&I Rate Base + EU&I Capex - EU&I Depreciation - Deferred Taxes`
2. `GU&I Rate Base = Prior GU&I Rate Base + GU&I Capex - GU&I Depreciation - Deferred Taxes`
3. `Allowed Return on Rate Base = (Equity Ratio x Allowed ROE) + (Debt Ratio x Cost of Debt)`
4. `EU&I Operating Income = Average EU&I Rate Base x Allowed Return on Rate Base`
5. `EU&I Revenue = EU&I Operating Income + Fuel Costs + O&M + Depreciation + Property Taxes`
6. `GU&I Operating Income = Average GU&I Rate Base x Allowed Return on Rate Base`
7. `GU&I Revenue = GU&I Operating Income + Cost of Natural Gas + O&M + Depreciation + Property Taxes`
8. `Total Depreciation = Beginning Net PP&E x Blended Depreciation Rate`
9. `Interest Expense = Average Total Debt x Weighted Average Cost of Debt`
10. `Dividends Paid = Prior Year Dividend Per Share x (1 + Dividend Growth Rate) x Shares Outstanding`
11. `New Equity Issued = Total Funding Need - New Debt Issued` (Targeting $10B total over 2026-2030)
12. `FFO = Net Income + Depreciation + Deferred Taxes`
13. `FFO to Debt Ratio = FFO / Total Debt`

The Assumptions sheet dictates the $103 billion capex plan, which feeds the Rate Base & Capex sheet. The calculated Average Rate Base feeds the Revenue Build to determine operating income. The Revenue Build feeds the top line of the Income Statement. Net Income flows to the Cash Flow Statement, where the massive capex outflow creates a funding deficit. This deficit feeds the Debt & Interest Schedule to trigger debt and equity issuance. The new debt balance feeds back into the Income Statement as Interest Expense, creating a circular reference that must be managed with a toggle.

• Revenues, Assets, and Equity are positive.
• Expenses (Fuel, O&M, D&A, Interest) are positive in their build schedules but subtracted in the Income Statement.
• Capital Expenditures are positive in the PP&E roll-forward but negative in the Cash Flow Statement.
• Dividends are negative in the Cash Flow Statement.

• Misunderstanding Fuel Pass-Throughs: Modelling fuel costs as a margin driver. Fuel costs must be modelled as a direct pass-through that increases revenue and expenses equally, leaving operating income unchanged.
• Ignoring Regulatory Lag: Assuming all capex immediately earns the allowed ROE. In reality, capex only enters the rate base after a rate case is settled. The model should use an effective earned ROE that is slightly lower than the allowed ROE.
• Missing the Equity Issuance: Failing to model the $10 billion in planned equity issuance by 2030. If the capex deficit is funded entirely by debt, the FFO/Debt ratio will collapse and break the model's credit metrics.
• Overestimating Cash Taxes: Applying the statutory 21% tax rate to pre-tax income. Utilities have massive deferred tax liabilities due to accelerated depreciation and PTCs; the cash tax rate is near zero.
• AFUDC Mishandling: Forgetting that utilities capitalise the cost of debt and equity during construction (Allowance for Funds Used During Construction), which inflates Net Income but is non-cash.
• Consolidated vs Segment ROE: Applying a single ROE to the whole company. The holding company debt drags down consolidated returns; ROE must be applied at the segment rate base level.
• Dividend Payout Breaches: Allowing the dividend to grow faster than EPS, pushing the payout ratio above the 75% threshold, which would trigger a credit downgrade.
• Incorrect Capital Structure: Modelling the allowed return using the consolidated balance sheet debt. Regulatory returns are calculated using a deemed capital structure (typically 53% equity / 47% debt).

• "FFO/Debt ratio must remain between 14.5% and 15.0%; flag if it drops below 14.0% (Moody's downgrade threshold)."
• "Regulated capital structure should remain at approximately 53% equity and 47% debt."
• "Dividend payout ratio should remain between 60% and 75% of Adjusted EPS."
• "Total Capex for the 2026-2030 period must sum to exactly $103 billion."
• "Effective tax rate should be in the 10-15% range due to tax credits."
• "Balance sheet must balance: Total Assets = Total Liabilities + Equity in every period."
• "Operating margin should remain stable between 20% and 26%."
• "EPS growth should fall within management's target range of 5% to 7% annually."

• Filings: SEC EDGAR for Duke Energy (DUK) 2024/2025 10-K and 10-Q filings.
• Presentations: Duke Energy Q4 2025 Earnings Presentation (February 2026) detailing the $103B capex plan.
• Peers: Southern Company (SO), NextEra Energy (NEE), Dominion Energy (D), American Electric Power (AEP).
• Industry Data: Regulatory Research Associates (RRA) for national average allowed ROE benchmarks; state utility commission dockets (NCUC, FPSC, PSCSC) for rate case settlements.
• Consensus: FactSet or Bloomberg for 2026 EPS consensus estimates ($6.55 - $6.80 guidance range).

• Duke Energy Q4 2025 Earnings Release and Presentation (investors.duke-energy.com)
• SEC Form 10-K for Duke Energy Corporation (filed early 2026 for FY2025)
• Utility Dive: "At $103B, Duke claims largest spending plan of any regulated US utility" (February 2026)
• S&P Global Market Intelligence: "SC regulators adopt settlement, authorize rate increase for Duke Energy Progress" (December 2025)
• EQ Research: "Comparison of Duke Energy (NC) Requested ROE" (February 2026)
• Florida Public Service Commission (FPSC) filings for Duke Energy Florida 2024 Settlement Agreement