Duke Energy, the energy giant powering millions of homes and businesses across the Southeast and Midwest, just reported a strong first quarter, exceeding earnings expectations and reaffirming its ambitious growth strategy. The company is embracing its new identity as a fully regulated utility, and its five-year, $73 billion capital plan speaks volumes about its commitment to the energy transition. But beneath the shiny surface of robust growth and a seemingly unshakeable balance sheet, there lies a potential vulnerability, a silence so deafening it could rattle even the most seasoned Wall Street analysts: the Nuclear Production Tax Credit (PTC).

Duke Energy's executives repeatedly emphasized their confidence in securing the nuclear PTC, highlighting its crucial role in their financial plan. The company expects to qualify for hundreds of millions of dollars annually through the PTC, directly benefiting customers by lowering their bills. This flow-back mechanism, agreed upon with regulators, significantly strengthens Duke's credit metrics, contributing to its projected 14% FFO-to-debt target.

But the elephant in the room, the one no one seems to be addressing, is the fragility of this credit. What happens if the political winds shift and the Inflation Reduction Act (IRA), the very foundation of the nuclear PTC, faces repeal? While Duke's executives assured analysts that they are actively engaging with policymakers, the political landscape is anything but stable. A change in congressional leadership or even a shift in public opinion could put the entire IRA, including the nuclear PTC, on the chopping block.

This potential vulnerability becomes even more alarming when we delve into the numbers. Duke's walk-up to the 14% FFO-to-debt target relies heavily on the nuclear PTC. A repeal could knock out a significant chunk of their projected FFO improvement. Let's consider a hypothetical scenario:

Assume Duke receives $300 million annually from the nuclear PTC (a conservative estimate based on their "several hundred million" projection).

A repeal would eliminate this $300 million, representing roughly 43% of their projected FFO improvement.

This potential loss could significantly impact Duke's credit metrics, bringing them perilously close to the downgrade threshold. While executives claim they have time to adjust and would explore alternative plans, such a drastic change could force them into making difficult choices - potentially curtailing capital expenditures, re-evaluating dividend growth, or even resorting to additional equity issuances.

Furthermore, the silence surrounding the preferred stock dividend reset adds another layer of uncertainty. The company is clearly planning to refinance this perpetual preferred stock, but the specifics remain shrouded in mystery. With rising interest rates, simply repricing the preferred would be financially unwise, leaving Duke with limited options. This silent maneuvering could be indicative of a larger struggle to maintain financial stability in the face of potential challenges.

Projected Load Growth from Economic Development

Duke Energy is seeing unprecedented load growth from economic development, especially in the Carolinas. The chart below, based on data from their Q1 2024 earnings call, illustrates this trend.

Duke's dependence on the nuclear PTC, coupled with its silence on the preferred stock issue, casts a shadow of doubt over its otherwise rosy outlook. While the company boasts about its thriving regulated business and unprecedented growth, the unspoken risks lurking beneath the surface warrant closer scrutiny. Are investors truly prepared for a potential shake-up? Duke Energy's silence might just be the canary in the coal mine, a warning sign that the seemingly solid foundation of its growth story could be built on a shaky premise. Perhaps it's time for analysts to start asking the tough questions, to delve deeper and uncover the vulnerabilities lurking beneath Duke's impressive façade.

"Fun Fact: Duke Energy's electric grid, spanning the Carolinas, Florida, Indiana, Kentucky, and Ohio, covers a vast territory of over 104,000 square miles – that's larger than the entire United Kingdom! This extensive network serves over 8.2 million customers, highlighting the scale of Duke's regulated operations."