Duke Energy plans to slash up to $450 million in expenses this year as it responds to a drop in electricity use because of the coronavirus outbreak. That includes a hiring freeze, cuts in outside contractors and overtime, and plant outages.
The news came as Duke reported a first-quarter profit of $899 million, about even with $900 million a year ago. Revenues were down slightly in part because of the mild winter, which reduced electricity demand even before the coronavirus hit.
Duke forecasts a 3-5% decline in electricity use this year as commercial and industrial customers scale back their operations because of stay-home orders and reduced demand. Residential customers are using more electricity but not enough to offset the loss in business revenues. In the first quarter alone, residential use was up 6%, while commerical (-10%) and industrial (-13%) both plummeted.
CEO Lynn Good told Wall Street analysts during a conference call that Duke doesn't expect the slowdown to ease until at least the end of the year.
"You know, a hiring freeze is going to put us into 2021 with a smaller workforce, and we will monitor as we go how to convert to a sustainable, lower-cost structure if we find ourselves in a longer downturn," Good said.
Besides a hiring freeze, Duke is reducing its use of contractors and revising plans for plant outages.
Neither Good nor Chief Financial Officer Steve Young mentioned layoffs. Spokesperson Catherine Butler said this in an email: "We are focused on minimizing impacts to current employees – that’s been our focus and will continue to be. At this time, our plans do not include widespread furloughs or layoffs."
Duke also warned that other costs are rising, including debts from customers who can't pay. Good said Duke will ask regulators to let it pass those costs on to customers.
Both Good and Young said as Duke adjusts to new economics, some of the cost-savings and other changes could be extended or even become permanent.
Good said Duke may have to consider more drastic measures such as early retirement of older electricity generating plants and selling real estate it owns.
About 60% of Duke's employees are now working remotely, and that's giving managers ideas for long-term work policy changes that will cut costs.
"We're also spending a lot of time on what we've learned about remote work and the activities under way form COVID-19. And I believe there will be permanent savings," Good said.
Added Young: "I think we have found a new avenue, a new path to another body of efficiencies."
Profits Flat From 2019
Profits in the electricity business already were down by $45 million compared with a year ago because of mild winter weather that reduced electricity use. But profits were up in the company's other segments.
The natural gas business, including Piedmont Natural Gas, saw profits rise by $23 million, thanks to rate increases in North Carolina.
And profits were up $44 million at Duke Energy Renewables, the company's non-regulated division that sells solar and wind power nationwide. That was because of revenue growth from new projects that came online in 2019.
Duke Energy shares were up slightly at midday.