2017 DUKE ENERGY ANNUAL REPORT AND FORM 10-K/A
Lynn J. Good / Chairman, President and Chief Executive Officer
2017: A Year of Achievement
Dear Shareholder:
In a year with record-setting storms, policy shifts and a dynamic regulatory environment, our ability
to deliver on our promises was tested repeatedly. Time after time, we delivered for our customers
and shareholders.
Today’s Duke Energy is built to execute in years like these – proving our agility and commitment to our
strategic vision.
With our portfolio transition complete, we operated in 2017 as a domestic, regulated energy infrastructure
business with a clear growth plan. We shared our long-term aspirations on how we will invest in our grid,
in cleaner energy and natural gas infrastructure while improving customer satisfaction and modernizing
regulatory constructs.
Over the course of the year, we made strong progress and built momentum for the future.
We announced our Power/Forward Carolinas grid modernization initiative and received approvals for
the Atlantic Coast Pipeline. Our nuclear fleet continued to provide carbon-free, 24/7 power and, when
combined with our renewable and natural gas investments, helped deliver affordable, clean energy to
customers. And, we worked with stakeholders to create more modern regulatory constructs.
Meanwhile, our plants set performance records while our workforce continued to set the industry standard
for safety and operational excellence. We also implemented innovative ways to run our company more
efficiently, helping us deliver strong financial results while continuing to grow our dividend.
Progress like this was driven, as always, by our sense of responsibility to customers. That was especially
true during Hurricane Irma – a historic storm that left millions without power in Florida and the Carolinas.
2017 was a strong year for Duke Energy. In this letter, you’ll read more about our results. It’s a story of
resilience, determination and customer focus as our 29,000 employees continue to create a smarter
energy future.
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2017 DUKE ENERGY ANNUAL REPORT
Meeting Our Financial Commitments
However, those customer benefits initially put
We entered 2017 with financial strength and
continued to deliver positive results.
Our adjusted diluted earnings per share were
$4.57 – near the midpoint of our full-year
guidance range. This result was supported by
growth from our investments in our electric and
natural gas businesses, including the full-year
earnings contribution from Piedmont Natural Gas.
We reduced operation and maintenance costs in
response to unfavorable weather early in the year
and plan to keep these costs flat through 2022.
Our efforts to instill cost agility and use new
technology, without impacting operations, remain
critical to our plans to grow and deliver strong
financial results.
And 2018 marks the 92nd consecutive year we
have paid a quarterly dividend – a hallmark pledge
to our investors – and we remain committed to
maintaining our annual dividend growth in line
with earnings growth.
Last year, total shareholder return was 13.0
percent compared to 12.8 percent for the
Philadelphia Utility Index. Utility share prices
came under pressure in late 2017, and that
continued in early 2018 due to rising interest rates
and the impact of federal tax reform.
Tax reform provides our company a unique
opportunity. It will allow us to reduce customer
bills in the near term while also helping offset
the cost of future investments. This ensures our
customers receive the full benefit of the new law,
which we support.
pressure on our balance sheet. Therefore, across
our states, we are working with regulators to
propose a variety of solutions that balance
returning savings to customers while preserving
the financial strength of our utilities, which also
benefits customers. Additionally, we took steps to
support our balance sheet and fund our capital
program given that the positive effects of tax
reform on our business will take time to manifest.
This February, we announced our 2018 adjusted
diluted earnings guidance range of $4.55 to $4.85
per share. Our long-term growth rate remains at
4 to 6 percent, underpinned by our commitment
to deliver strong results on our $37 billion growth
capital plan over the next five years.
Duke Energy remains a premier, long-term
investment due to our attractive dividend yield and
low-risk earnings growth. Last year proved that
we can respond to challenges and deliver on our
strategy to continue returning value to
our investors.
Executing Our Strategy
In 2017, we unveiled our 10-year vision to
modernize the grid, generate cleaner energy
and expand our natural gas infrastructure while
improving customer satisfaction and modernizing
regulatory constructs through stakeholder
engagement. And we spent the past year
executing on it.
Tax reform provides our company a unique opportunity.
It will allow us to reduce customer bills in the near term
while also helping offset the cost of future investments.
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2017 DUKE ENERGY ANNUAL REPORT
Zach Sipes / Distribution Line Technician
Modernizing the Energy Grid
The energy grid powers nearly
every part of our society. It powers
lives and livelihoods, and serves
as the foundation for transforming
our customers’ experience.
However, in some respects, the
grid operates nearly the same
as it did a century ago – as a
one-way road sending electricity
from power plants to customers.
We are now at a turning point.
With the right investments in
technology, the grid can deliver
more flexibility and functionality to
our customers.
Last year, we announced a $25
billion investment to make our
grid smarter, greener and more
capable. So far, we’ve deployed
smart meters to more customers,
installed grid optimization
technology and used data
analytics to identify power lines
to move underground.
Forty percent of our customers
have smart meters – a key
technology that enables more
control for our customers. In
2017, we installed 1.2 million
meters and plan to install an
additional 1.4 million meters in
2018, focusing deployments
in the Carolinas and the Midwest.
Last year, we hardened the grid,
making it more resilient to storms
and security threats. Already,
we have made significant strides
in Indiana and our Duke Energy
Carolinas service territory. In
2018, we will begin major
hardening and resiliency
activities in Florida, Kentucky
and our Duke Energy Progress
service territory.
Our self-healing technology
investments help improve
reliability by detecting and
rerouting power when a problem
occurs. We have avoided
more than 1.2 million power
interruptions and saved customers
162 million outage minutes.
As we continue to self-optimize
our grid, we’ll reduce more
outages as intelligent systems and
grid automation work together to
reconfigure our system.
Forty percent of our
customers have
smart meters – a
key technology that
enables more control
for our customers.
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2017 DUKE ENERGY ANNUAL REPORT
Our goal is to have 80 percent of customers
serviced by a self-optimizing grid in the
next decade.
In 2017, we used analytics to identify power
lines that experience excessive power outages
and require significant resources to maintain.
We plan to move these lines underground to
improve customers’ experiences and make power
restoration activities more efficient. The program
will launch in Ohio, the Carolinas and Florida in
2018, with plans to deploy in Kentucky in 2019.
We have a call to action to deliver more reliable
electricity and new services. Our investments in a
more intelligent, resilient grid underpin our plans
to meet customers’ evolving needs.
Transforming the Customer Experience
In today’s economy, customer expectations are set
by innovators who create a personal connection,
often through seamless digital and mobile
capabilities. They make it easy to do business,
giving customers the information they want –
when and how they want it.
To meet these new expectations, we’re building
on our grid modernization efforts to transform the
customer experience.
In 2017, we focused on providing our customers
more information and options – including usage
and outage alerts, along with pick your own due
date features. Many of these options were enabled
by smart meters.
We’ve also invested in a new customer information
system – the backbone that allows us to tailor
services for customers – and we look forward to
advancing this project in 2018. And we began
developing a mobile app to give customers
personalized updates, more control and new ways
to communicate with us.
the company into the top quartile, and our 2017
results show we are on the right track.
Customers want an experience that is consistent,
individualized and responsive, and that’s what we
are focused on delivering.
Generating Cleaner Energy
We have a long-standing commitment to the
environment and to lowering our carbon emissions
– with results that prove it.
In April, we announced a new carbon emissions
target. By 2030, we plan to reduce our carbon
emissions by 40 percent from our 2005 levels.
To help us meet this goal, we’re targeting $11
billion in investments in natural gas generation
and expanding our renewables portfolio.
Construction of our combined-cycle, natural gas-
fired generation projects – W.S. Lee, Citrus County
and Western Carolinas – continues to progress.
The W.S. Lee project is near final commissioning
and our Citrus County and Western Carolinas
projects remain on track to begin commercial
operation in 2018 and 2019, respectively.
Our natural gas generation complements our
expanding renewables portfolio. More and
more, customers are looking at renewable energy
to meet sustainability goals and provide cost-
effective power.
Duke Energy is one of the nation’s top renewable
energy investors. We own more than 800
megawatts of solar power capacity and plan
to procure more than 3,000 megawatts over
the next five years. We also own and operate
2,300 megawatts of wind power and operate
about 1,700 megawatts of wind facilities for
third parties, including the first U.S. offshore
wind project.
Our customer-centric focus resulted in improved
customer satisfaction. Our J.D. Power residential
customer satisfaction scores improved compared
to 2016 in all jurisdictions. Our goal is to move
In 2017, we connected 500 megawatts of new
solar energy in North Carolina, helping the state
remain second in the nation for solar capacity.In
addition, Duke Energy Kentucky entered the solar
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2017 DUKE ENERGY ANNUAL REPORT
Anthony Alston / Solar Technician / Kathleen Alexandridis / Engineer
market in 2017 as we announced
three projects to bring customers
6.8 megawatts of solar energy.
In August, our commercial
renewables business acquired
the Shoreham Solar Commons
project in New York, one of the
state’s largest solar projects. We
announced our partnership with
the Indiana National Guard to
install battery storage and solar
panels at Camp Atterbury. We
also announced a $30 million
investment to install the two
largest battery energy storage
systems in North Carolina.
Moving forward, we see new
growth opportunities. In North
Carolina, new legislation will lead
to an additional 2,600 megawatts
of competitively priced solar for
the state. In Florida, we plan to
add 700 megawatts of utility-
scale solar as well as up to 50
megawatts of energy storage.
Building Our Natural Gas
Infrastructure
October 2017 was the one-year
anniversary of our Piedmont
Natural Gas acquisition – one
of the country’s most trusted
utility brands. Already, we’ve
seen the strength of our
combined company.
We will continue to leverage
Piedmont’s expertise as
we expand our natural gas
infrastructure, doubling this
segment’s earnings contribution
to 15 percent in the next decade.
We are using overlap between
our electric and natural gas
businesses to better serve
customers. In the past year, we
announced dual-fuel projects at
our Rogers, Belews Creek and
Marshall Steam stations – a $500
million investment that will reduce
our carbon emissions and increase
our flexibility to manage fuel costs.
We are committed to a cleaner
energy future, and we will
continue our investments to
deliver on it.
Our midstream pipeline business
is critical to serving customers,
and we made significant progress
in 2017.
Duke Energy is one
of the nation’s top
renewable energy
investors. We own
more than 800
megawatts of solar
power capacity and
plan to procure
more than 3,000
megawatts over the
next five years.
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2017 DUKE ENERGY ANNUAL REPORT
Mill Creek Combustion Turbine Station / Cherokee County, SC
The Federal Energy Regulatory Commission (FERC)
issued the final Environmental Impact Statement
(EIS) in July for our Atlantic Coast Pipeline project,
followed by the final project certificate in October.
In addition, we obtained water and air permits
from West Virginia, Virginia and North Carolina.
We began construction of this 600-mile pipeline
in January 2018, staying on track for a late 2019
in-service date.
The Sabal Trail pipeline achieved commercial
operation in July 2017, and it will serve our
Citrus County combined-cycle natural gas plant in
Florida when it comes online. A federal appeals
court ordered FERC to review the project’s EIS
and in September, FERC issued a supplemental
EIS, which is now final. In March 2018, FERC
requested and the federal appeals court approved
additional time to issue a new FERC order for the
project. Sabal Trail anticipates normal pipeline
operations will continue as it monitors any impact
from this process.
Despite permitting challenges with our Constitution
pipeline in New York, we remain committed to this
project and the affordable natural gas it can bring
to customers in the Northeast.
Natural gas is an important resource for
the United States and one of the industry’s
greatest disrupters. Our expanding natural gas
infrastructure will help us bring this lower-carbon
fuel to more customers.
Engaging Stakeholders
2017 highlighted the value of stakeholder
engagement in providing the best possible service
to our customers and communities.
One of our long-term goals remains to modernize
regulatory constructs in all of our jurisdictions,
ensuring our ability to recover investments
matches how we’re investing in smarter
energy solutions.
In Florida, the Public Service Commission
unanimously approved a settlement agreement
that extends our current multiyear rate plan to
2021. It includes nearly $6 billion of investments,
including solar energy, smart meters and grid
modernization projects. In addition, the agreement
provides for modern investment recovery while
minimizing affects to customer bills.
We also worked with the Public Service
Commission to apply federal tax reform savings
toward storm costs from Hurricane Irma, helping
avoid customer rate increases.
In North Carolina, we worked with stakeholders
and legislators to support legislation, as mentioned
earlier, that better positions the state for solar
growth. The outcome was the product of years of
work, and it sets a model for how we can pursue
constructive outcomes.
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2017 DUKE ENERGY ANNUAL REPORT
We made progress working with our state
commissions as we pursued traditional rate
cases to recover investments while keeping rates
affordable. And we established jurisdictional
advisory councils to create dialogue that informs
our business strategies.
To succeed, we need support from stakeholders
who are willing to work together. In 2018 and
beyond, we will continue to pursue solutions
that make sense for customers and investors.
Constant Focus on
Operational Excellence
Excellent operational performance is the linchpin
for delivering on our financial, safety and
environmental goals.
The ability to maintain the reliability of our fleet
and grid in a safe and sustainable manner, while
also preparing for emerging threats, directly
influences relationships with customers and
regulators, credibility with investors, and our
reputation with stakeholders.
We continued to demonstrate our commitment
to safety as a core principle. We improved our
industry-leading performance from 2016, further
reducing our total incident case rate and OSHA-
reportable employee safety incidents. As we
integrated Piedmont Natural Gas, we’ve seen
strong improvement in their safety performance,
reducing incidents by 60 percent in the past year.
Safety is critical to maintaining reliable operations.
Once again, our generation fleet delivered strong
reliability metrics. Our nuclear fleet’s capacity
factor was 95.6 percent – nearly breaking
the company record set in 2016. With this
performance, 2017 was the 19th consecutive year
our capacity factor has been above 90 percent.
Our McGuire, Oconee and Brunswick
nuclear stations achieved records for days of
consecutive operations – with Oconee setting
a new company record at 716 days. We also
delivered strong refueling outage results,
completing six outages almost 17 days ahead
of our planned outage duration.
Our fossil/hydro organization continued to
find flexible solutions while delivering reliable
operations. In June, we announced an expansion
at our Lincoln Combustion Turbine Station,
installing highly efficient natural gas turbines that
deliver approximately 400 megawatts of peaking
energy. This project offers significant cost savings
to our customers and complements our renewable
resources while lowering carbon emissions.
In addition, our Edwardsport gasified-coal plant
set continuous operation records and improved
gasifier availability.
We delivered this performance while responding
to record weather. In September, Hurricane Irma
caused widespread damage across the Southeast.
Our employees worked tirelessly to rebuild our
system and restored power to 99 percent of
affected customers in eight days.
But we also pride ourselves on identifying
opportunities to improve. We were disappointed
with aspects of our storm response, including
communications on estimated times of restoration
and the performance of certain outage-related
systems. We have already taken steps to
address these issues to serve customers better
in the future.
We improved our industry-leading performance from 2016,
further reducing our total incident case rate and OSHA-
reportable employee safety incidents.
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2017 DUKE ENERGY ANNUAL REPORT
Last year, the Duke Energy Foundation donated more than
$33 million in charitable gifts to local organizations, and our
employees and retirees volunteered over 115,000 hours.
To help those affected by hurricanes Irma, Harvey
and Maria, our company matched employee and
retiree donations for relief efforts, totaling more
than $225,000. And in early 2018, more than
200 employees volunteered to restore power
to Puerto Rico following the devastation of
Hurricane Maria.
In 2017, we showed our ongoing commitment
to environmental stewardship as we reduced
reportable events for the third straight year. We
also made progress in closing coal ash basins.
Our basin excavation projects remained on track
with over 7 million tons of ash removed last year,
exceeding our goal. Across the system, scientific
and engineering work continues to guide closure
solutions. In addition, we announced a third coal
ash reprocessing location, which will make ash
suitable for use in concrete.
Our commitment to a cleaner, more sustainable
energy future is evident by Duke Energy being
named to the Dow Jones Sustainability Index
for the 12th consecutive year. This continued
recognition is underpinned by our unwavering
focus on safety and operational excellence.
Engaging Employees and Creating
Stronger Communities
We’re also doing our part to support the
communities we serve – and the places our
29,000 employees call home.
We’re proud to work with communities and
leaders to attract jobs and economic development,
continuing to strengthen our states. Last year,
Duke Energy attracted $5.9 billion in capital
investment, helping create over 12,000 jobs.
For the 13th consecutive year, we were named
to Site Selection magazine’s annual list of Top 10
Utilities in Economic Development.
But as we focus on creating jobs and attracting
investments, we’re just as focused on building and
nurturing a diverse workforce that’s ready to power
our communities.
Last year, the Duke Energy Foundation donated
more than $33 million in charitable gifts to
local organizations, and our employees and
retirees volunteered over 115,000 hours. Our
philanthropic investments continue to focus on
STEM education and workforce development, the
environment and community impact.
We believe workforce development starts as early
as possible, and that’s why our investments span
kindergarten through career.
In Florida, we invested in Lake-Sumter State
College’s energy technology programs, which
train workers for in-demand energy industry jobs.
In North Carolina, we worked with the Urban
League of Central Carolinas to develop an eight-
week course for students interested in entry-level
utility positions.
As we develop the next generation of leaders,
we need to be prepared for what’s next. Our
employees provide a competitive advantage as we
transform to meet tomorrow’s challenges. But like
our business, our workforce must evolve. This will
require us to attract and retain diverse viewpoints.
Diversity is more than just race and gender. It’s
a mix of different points of view, work and life
experiences, perspectives and cultures.
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2017 DUKE ENERGY ANNUAL REPORT
Joel Gonzalez / Distribution Line Technician
Last year, I signed the CEO Action Pledge for
Diversity and Inclusion, the largest CEO-driven
business commitment to advance diversity and
inclusion. We’ve launched unconscious bias
training and created platforms for employees
to have difficult conversations on issues impacting
our communities. Duke Energy also received
a perfect score from the Human Rights
Campaign for our LGBT-friendly corporate
practices and policies.
In the year ahead, we want to attract more
diverse candidates. In particular, we’re committed
to hiring veterans – who possess the training and
leadership qualities that transfer to our business.
Last year, we hired 400 veterans and plan to fill
12 percent of our open positions with veterans
moving forward.
The vitality of our communities and workforce is
at the heart of our mission. Their strength will
continue to be a priority for Duke Energy, as it has
been for the past 114 years.
Building A Smarter Energy FutureSM
This year’s annual report is my fifth as CEO. I’m
proud of how far we’ve come in transforming our
company and how we have responded to our
customers’ needs. And others see this progress too
as Duke Energy was named to Fortune magazine’s
2018 list of the World’s Most Admired Companies.
Awards like this are gratifying, but we know our
work continues. That’s why we’re embracing
change to continue delivering on our purpose: to
power the lives of our customers and vitality of
our communities.
Few companies are more closely aligned with
making a positive contribution to the economy
and society. Our company is engaged on so many
important policy issues – from the environment
to tax reform, renewable energy, corporate
philanthropy, diversity and more – and we’re
pushing forward to find the right solutions.
The success of our company is inextricably linked
with the communities we serve. It’s this spirit of
engagement, collaboration and responsibility that
has defined our success – and will continue to in
the future.
As I look back on 2017, I remain as confident as
ever in our vision for a smarter energy future and
the strategy we’re executing to get there.
Lynn J. Good
Chairman, President and Chief Executive Officer
March 9, 2018
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2017 DUKE ENERGY ANNUAL REPORT
Annual Meeting of Shareholders
Duke Energy’s 2018 Annual Meeting of
Shareholders will be:
Date: May 3, 2018
Time:
12:30 p.m. Eastern time
Visit:
duke-energy.onlineshareholdermeeting.com
Audio broadcast: 800.239.9838
conference number 7668330
To participate in the online Annual Meeting, shareholders
will need the 16-digit control number included in the
Notice of Internet Availability of the Proxy Materials, on
the proxy card and on the instructions that accompanied
your proxy materials.
Shareholder Services
Shareholders may call 800.488.3853 or 704.382.3853
with questions about their stock accounts, legal transfer
requirements, address changes or replacement dividend
checks. Additionally, registered shareholders can view their
account online through DUK-Online, available at duke-
energy.com/investors. Send written requests to:
Investor Relations
Duke Energy
P.O. Box 1005
Charlotte, NC 28201
For electronic correspondence, visit
duke-energy.com/investors.
Financial Publications
Duke Energy’s Annual Report and related financial
publications can be found on our website at duke-energy.
com/investors. Printed copies are also available free of
charge upon request.
Duplicate Mailings
If your shares are registered in different accounts,
you may receive duplicate mailings of annual reports,
proxy statements and other shareholder information.
Call Investor Relations for instructions on eliminating
duplications or combining your accounts.
Transfer Agent and Registrar
Duke Energy maintains shareholder records and acts
as transfer agent and registrar for the Corporation’s
common stock.
Dividend Payment
Duke Energy has paid quarterly cash dividends on its
common stock for 92 consecutive years. For the remainder
of 2018, dividends on common stock are expected to be
paid, subject to declaration by the Board of Directors, on
June 18, September 17 and December 17.
Bond Trustee
If you have questions regarding your bond account,
call 800.254.2826, or write to:
Stock Exchange Listing
Duke Energy’s common stock is listed on the New York
Stock Exchange. The Corporation’s common stock trading
symbol is DUK.
The Bank of New York Mellon
Global Trust Services
101 Barclay Street – 21st Floor
New York, NY 10286
Send Us Feedback
We welcome your opinion on this annual report.
Please visit duke-energy.com/investors, where you can
view and provide feedback on both the print and online
versions of this report or contact Investor Relations
directly. Duke Energy is an equal opportunity employer.
This report is published solely to inform shareholders and
is not to be considered an offer, or the solicitation of an
offer, to buy or sell securities.
Website Addresses
Corporate home page: duke-energy.com
Investor Relations: duke-energy.com/investors
InvestorDirect Choice Plan
The InvestorDirect Choice Plan provides a simple and
convenient way to purchase common stock directly
through the Corporations, without incurring brokerage fees.
Purchases may be made weekly. Bank drafts for monthly
purchases, as well as a safekeeping option for depositing
certificates into the plan, are available.
The plan also provides for full reinvestment, direct deposit
or cash payment of a portion of the dividends. Additionally,
participants may register for DUK-Online, our online
account management service.
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2017 DUKE ENERGY ANNUAL REPORT
Our Financial Highlightsa
(In millions, except per share amounts)
Operating Results
Total operating revenues
2017
2016b
2015b
$23,565
$22,743
$22,371
Income from continuing operations
$3,070
$2,578
$2,654
Net income
Cash Flow Data
$3,064
$2,170
$2,831
Net cash provided by operating activities
$6,634
$6,817
$6,700
Common Stock Data
Shares of common stock outstanding
Year-end
Weighted average – basic and diluted
Reported diluted earnings per share (GAAP)
Adjusted diluted earnings per share (non-GAAP)
Dividends declared per share
Balance Sheet Data
Total assets
700
700
$4.36
$4.57
$3.49
700
691
$3.11
$4.69
$3.36
688
694
$4.05
$4.54
$3.24
$137,914
$132,761
$121,156
Long-term debt including capital leases, less current maturities
$49,035
$45,576
$36,842
Total Duke Energy Corporation stockholders’ equity
$41,739
$41,033
$39,727
Earnings Per Share
(in dollars)
Reported Diluted
Adjusted Diluted
4.54
4.05
4.69
4.36
4.57
3.11
Dividends Declared
Per Share (in dollars)
3.24
3.36
3.49
Capital and Investment
Expenditures (dollars in billions)
8.2
8.5
7.0
2015
2016
2017
2015
2016
2017
2015
2016
2017
a Significant transactions reflected in the results above include: (i) the sale of the International Disposal Group in 2016, including a loss on sale recorded within discontinued operations
(see Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions”); (ii) the acquisition of Piedmont in 2016, including losses on interest rate swaps related to the
acquisition financing (see Note 2); and (iii) costs to achieve mergers in all periods.
bPrior year data has been recast to reflect the classification of the International Disposal Group as discontinued operations and to reflect the impacts of new accounting standards.
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2017 DUKE ENERGY ANNUAL REPORT
Duke Energy At A Glance
Electric Utilities and Infrastructure
Natural Gas Customer Diversity
Generation Diversity (percent owned capacity)1
Gas Utilities and Infrastructure conducts natural gas distribution
operations primarily through the regulated public utilities of
Piedmont Natural Gas and Duke Energy Ohio.
Natural Gas Operations (throughput)2
Generated (net output gigawatt-hours (GWh))2
Customer Diversity (in billed GWh sales)2
Regulated natural gas transmission and distribution services to
approximately 1.5 million customers in the Carolinas, Tennessee,
southwestern Ohio and Northern Kentucky
Maintains more than 33,100 miles of natural gas transmission
and distribution pipelines and 27,400 miles of natural gas
service pipelines
Duke Energy Renewables
Generation Diversity (percent owned capacity)1
Electric Utilities and Infrastructure conducts operations primarily
through the regulated public utilities of Duke Energy Carolinas,
Duke Energy Progress, Duke Energy Florida, Duke Energy Indiana
and Duke Energy Ohio.
Electric Operations
Owns approximately 49,500 megawatts (MW) of
generating capacity
Service area covers about 95,000 square miles with an
estimated population of 24 million
Service to approximately 7.6 million residential, commercial
and industrial customers
277,100 miles of distribution lines and a 31,900-mile
transmission system
1 As of December 31, 2017. | 2 For the year ended December 31, 2017.
Duke Energy Renewables primarily acquires, develops, builds
and operates wind and solar renewable generation throughout
the continental U.S. The portfolio includes nonregulated renewable
energy and energy storage assets.
Duke Energy Renewables, part of the Commercial Renewables
business segment, includes utility-scale wind and solar generation
assets that total 2,907 MW across 14 states from 21 wind
and 63 solar projects. The power produced from renewable
generation is primarily sold through long-term contracts to
utilities, electric cooperatives, municipalities and commercial
and industrial customers.
As part of its growth strategy, Duke Energy Renewables has
expanded its investment portfolio through the addition of
distributed solar companies and projects, energy storage
systems and energy management solutions specifically tailored
to commercial businesses and other institutions.
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2017 DUKE ENERGY ANNUAL REPORT
39% Natural Gas/Fuel Oil 36% Coal 18% Nuclear 7% Hydro and Solar34% Coal 35% Nuclear 30% Natural Gas/Fuel Oil 1% Hydro and Solar 32% Residential 30% General Services 20% Industrial 18% Wholesale/Other51% Power Gen18% General Services15% Residential9% Industrial7% Other 79% Wind 21% Solar DUKE ENERGY
CORPORATION
2017
Form 10-K/A
A l DUKE ENERGY
(Mark One)
Commission
file number
1-32853
Commission
file number
1-4928
1-15929
1-3382
1-6196
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal period ended December 31, 2017 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Registrant, State of Incorporation or Organization, Address of
Principal Executive Offices and Telephone Number
DUKE ENERGY CORPORATION
(a Delaware corporation) 550 South Tryon Street
Charlotte, NC 28202-1803 704-382-3853
IRS Employer
Identification No.
20-2777218
Registrant, State of Incorporation or Organization, Address
of Principal Executive Offices, Telephone Number and
IRS Employer Identification Number
DUKE ENERGY CAROLINAS, LLC
(a North Carolina limited liability company)
526 South Church Street
Charlotte, North Carolina 28202-1803
704-382-3853
56-0205520
PROGRESS ENERGY, INC.
(a North Carolina corporation)
410 South Wilmington Street
Raleigh, North Carolina 27601-1748
704-382-3853
56-2155481
DUKE ENERGY PROGRESS, LLC
(a North Carolina limited liability company)
410 South Wilmington Street
Raleigh, North Carolina 27601-1748
704-382-3853
56-0165465
PIEDMONT NATURAL GAS COMPANY, INC.
(a North Carolina corporation)
4720 Piedmont Row Drive
Charlotte, North Carolina 28210
704-364-3120
56-0556998
Commission
file number
1-3274
1-1232
1-3543
Registrant, State of Incorporation or Organization, Address
of Principal Executive Offices, Telephone Number and
IRS Employer Identification Number
DUKE ENERGY FLORIDA, LLC
(a Florida limited liability company)
299 First Avenue North
St. Petersburg, Florida 33701
704-382-3853
59-0247770
DUKE ENERGY OHIO, INC.
(an Ohio corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
704-382-3853
31-0240030
DUKE ENERGY INDIANA, LLC
(an Indiana limited liability company)
1000 East Main Street
Plainfield, Indiana 46168
704-382-3853
35-0594457
Registrant
Duke Energy Corporation (Duke Energy)
Duke Energy
Title of each class
Common Stock, $0.001 par value
5.125% Junior Subordinated Debentures due January 15, 2073
Name of each exchange on which registered
New York Stock Exchange, Inc.
New York Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Duke Energy
Duke Energy Carolinas, LLC (Duke Energy Carolinas)
Progress Energy, Inc. (Progress Energy)
Duke Energy Progress, LLC (Duke Energy Progress)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes No (Response applicable to all registrants.)
Duke Energy Florida, LLC (Duke Energy Florida)
Duke Energy Ohio, Inc. (Duke Energy Ohio)
Duke Energy Indiana, LLC (Duke Energy Indiana)
Piedmont Natural Gas Company, Inc. (Piedmont)
No
No
No
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
No
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrants have submitted electronically and posted on their corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (Only applicable to Duke Energy)
Indicate by check mark whether Duke Energy is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont are large accelerated filers, accelerated
filers, non-accelerated filers, or smaller reporting companies. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrants are a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Estimated aggregate market value of the common equity held by nonaffiliates of Duke Energy at June 30, 2017.
Number of shares of Common Stock, $0.001 par value, outstanding at January 31, 2018.
$58,468,482,557
700,092,667
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Duke Energy definitive proxy statement for the 2018 Annual Meeting of the Shareholders or an amendment to this Annual Report are incorporated by reference into PART III, Items 10, 11 and 13 hereof.
This combined Form 10-K is filed separately by eight registrants: Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont
(collectively the Duke Energy Registrants). Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information
relating exclusively to the other registrants.
Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont meet the conditions set forth in General Instructions I(1)(a) and (b) of
Form 10-K and are, therefore, filing this Form 10-K with the reduced disclosure format specified in General Instructions I(2) of Form 10-K.
EXPLANATORY NOTE
Duke Energy Corporation and its subsidiaries (collectively, the “Company”) filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the “Original Filing”)
with the U.S. Securities and Exchange Commission (the “SEC”) on February 21, 2018. The Company is filing this Amendment No. 1 (the “Amendment”) to its Original Filing solely to revise two typographical errors as follows:
1)
A date contained in the REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM related to their Opinion on the Financial Statements. In that report, the date cross-referencing their Opinion on Internal Control over
Financial Reporting was inadvertently referenced as February 23, 2018. The correct date of their Opinion on Internal Control over Financial Reporting is February 21, 2018. That error has been corrected in this Amendment.
A date contained in the REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM related to their Opinion on Internal Control over Financial Reporting. In that report, the date cross-referencing their Opinion
on the Financial Statements was inadvertently referenced as February 23, 2018. The correct date of their Opinion on the Financial Statements is February 21, 2018. That error has been corrected in this Amendment.
In addition, pursuant to the rules of the SEC, the exhibit list included in Item 15 of Part IV of the Original Filing has been amended to contain currently-dated certifications from the Company’s Chief Executive Officer and Chief
Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of the Company’s Chief Executive Officer and Chief Financial Officer are attached as exhibits to this Amendment.
Except as described above, this Amendment does not amend or update any other information contained in the Original Filing. The Company has included a complete copy of the Original Filing, as amended per above, in this filing.
2)
TABLE OF CONTENTS
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2017
Item
Page
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
GLOSSARY OF TERMS
PART I.
1.
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DUKE ENERGY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BUSINESS SEGMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMPLOYEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXECUTIVE OFFICERS OF THE REGISTRANTS . . . . . . . . . . . . . . . . . . . .
ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DUKE ENERGY CAROLINAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROGRESS ENERGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DUKE ENERGY PROGRESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DUKE ENERGY FLORIDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DUKE ENERGY OHIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DUKE ENERGY INDIANA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PIEDMONT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1A. RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1B. UNRESOLVED STAFF COMMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.
3.
4.
PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
6
6
6
14
15
15
16
16
16
16
16
16
17
17
23
23
27
27
PART II.
5.
6.
7.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . . . . . .
SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . . . .
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . .
8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
9.
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226
30
65
66
28
30
9A. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226
PART III.
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . . . . . . 228
11.
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . 228
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
14. PRINCIPAL ACCOUNTING FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
PART IV.
15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . 230
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-26
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This document includes forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements are based on management’s beliefs and assumptions and can often be identified by
terms and phrases that include “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,”
“should,” “could,” “may,” “plan,” “project,” “predict,” “will,” “potential,” “forecast,” “target,”
“guidance,” “outlook” or other similar terminology. Various factors may cause actual results to be
materially different than the suggested outcomes within forward-looking statements; accordingly,
there is no assurance that such results will be realized. These factors include, but are not limited to:
• State, federal and foreign legislative and regulatory initiatives, including costs of
compliance with existing and future environmental requirements, including those related
to climate change, as well as rulings that affect cost and investment recovery or have an
impact on rate structures or market prices;
• The extent and timing of costs and liabilities to comply with federal and state laws,
regulations and legal requirements related to coal ash remediation, including amounts for
required closure of certain ash impoundments, are uncertain and difficult to estimate;
• The ability to recover eligible costs, including amounts associated with coal ash impoundment
retirement obligations and costs related to significant weather events, and to earn an
adequate return on investment through rate case proceedings and the regulatory process;
• The costs of decommissioning Crystal River Unit 3 and other nuclear facilities could prove to
be more extensive than amounts estimated and all costs may not be fully recoverable through
the regulatory process;
• Costs and effects of legal and administrative proceedings, settlements, investigations and
claims;
• Industrial, commercial and residential growth or decline in service territories or customer
bases resulting from sustained downturns of the economy and the economic health
of our service territories or variations in customer usage patterns, including energy
efficiency efforts and use of alternative energy sources, such as self-generation and
distributed generation technologies;
• Federal and state regulations, laws and other efforts designed to promote and expand the use
of energy efficiency measures and distributed generation technologies, such as private solar
and battery storage, in Duke Energy service territories could result in customers leaving the
electric distribution system, excess generation resources as well as stranded costs;
• Advancements in technology;
• Additional competition in electric and natural gas markets and continued industry consolidation;
• The influence of weather and other natural phenomena on operations, including the economic,
operational and other effects of severe storms, hurricanes, droughts, earthquakes and
tornadoes, including extreme weather associated with climate change;
• The ability to successfully operate electric generating facilities and deliver electricity to
customers including direct or indirect effects to the company resulting from an incident that
affects the U.S. electric grid or generating resources;
• The ability to complete necessary or desirable pipeline expansion or infrastructure projects in
our natural gas business;
• Operational interruptions to our natural gas distribution and transmission activities;
• The availability of adequate interstate pipeline transportation capacity and natural gas supply;
• The impact on facilities and business from a terrorist attack, cybersecurity threats, data
security breaches and other catastrophic events, such as fires, explosions, pandemic health
events or other similar occurrences;
• The inherent risks associated with the operation of nuclear facilities, including environmental,
health, safety, regulatory and financial risks, including the financial stability of third-party
service providers;
• The timing and extent of changes in commodity prices and interest rates and the ability to
recover such costs through the regulatory process, where appropriate, and their impact on
liquidity positions and the value of underlying assets;
• The results of financing efforts, including the ability to obtain financing on favorable
terms, which can be affected by various factors, including credit ratings, interest rate
fluctuations, compliance with debt covenants and conditions and general market and
economic conditions;
• Credit ratings of the Duke Energy Registrants may be different from what is expected;
• Declines in the market prices of equity and fixed-income securities and resultant cash funding
requirements for defined benefit pension plans, other post-retirement benefit plans and
nuclear decommissioning trust funds;
• Construction and development risks associated with the completion of the Duke Energy
Registrants’ capital investment projects, including risks related to financing, obtaining
and complying with terms of permits, meeting construction budgets and schedules and
satisfying operating and environmental performance standards, as well as the ability to
recover costs from customers in a timely manner, or at all;
• Changes in rules for regional transmission organizations, including changes in rate designs
and new and evolving capacity markets, and risks related to obligations created by the
default of other participants;
• The ability to control operation and maintenance costs;
• The level of creditworthiness of counterparties to transactions;
• Employee workforce factors, including the potential inability to attract and retain key
personnel;
• The ability of subsidiaries to pay dividends or distributions to Duke Energy Corporation holding
company (the Parent);
• The performance of projects undertaken by our nonregulated businesses and the
success of efforts to invest in and develop new opportunities;
• The effect of accounting pronouncements issued periodically by accounting standard-
setting bodies;
• The impact of new U.S. tax legislation to our financial condition, results of operations or
cash flows and our credit ratings;
• The impacts from potential impairments of goodwill or equity method investment
carrying values;
• The ability to successfully complete future merger, acquisition or divestiture plans; and
• The ability to implement our business strategy.
Additional risks and uncertainties are identified and discussed in the Duke Energy
Registrants’ reports filed with the SEC and available at the SEC’s website at www.sec.gov. In
light of these risks, uncertainties and assumptions, the events described in the forward-looking
statements might not occur or might occur to a different extent or at a different time than
described. Forward-looking statements speak only as of the date they are made and the Duke
Energy Registrants expressly disclaim an obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or otherwise.
Glossary of Terms
The following terms or acronyms used in this Form 10-K are defined below:
Term or Acronym
Definition
Term or Acronym
Definition
2013 Settlement . . . . . . . . . . . . . . Revised and Restated Stipulation and
CCS . . . . . . . . . . . . . . . . . . . . . . . . Carbon Capture and Storage
Settlement Agreement approved in November
2013 among Duke Energy Florida, the Florida
OPC and other customer advocates
the 2015 Plan. . . . . . . . . . . . . . . . . . . Duke Energy Corporation 2015 Long-Term
Incentive Plan
2017 Settlement . . . . . . . . . . . . . . Second Revised and Restated Settlement
Agreement in 2017 among Duke Energy
Florida, the Florida OPC and other customer
advocates, which replaces and supplants the
2013 Settlement
ACP . . . . . . . . . . . . . . . . . . . . . . . . Atlantic Coast Pipeline, LLC, a limited liability
company owned by Dominion, Duke Energy
and Southern Company Gas
ACP Pipeline . . . . . . . . . . . . . . . . . The approximately 600-mile proposed
interstate natural gas pipeline
CECPCN. . . . . . . . . . . . . . . . . . . . . Certificate of Environmental Compatibility and
Public Convenience and Necessity
CEO . . . . . . . . . . . . . . . . . . . . . . . . Chief Executive Officer
CertainTeed . . . . . . . . . . . . . . . . . . CertainTeed Gypsum NC, Inc.
Cinergy . . . . . . . . . . . . . . . . . . . . . Cinergy Corp. (collectively with its
subsidiaries)
CO2 . . . . . . . . . . . . . . . . . . . . . . . . Carbon Dioxide
Coal Ash Act . . . . . . . . . . . . . . . . . North Carolina Coal Ash Management Act of
2014
COL . . . . . . . . . . . . . . . . . . . . . . . . Combined Operating License
the Company . . . . . . . . . . . . . . . . . Duke Energy Corporation and its subsidiaries
Consolidated Complaint. . . . . . . . . Corrected Verified Consolidated Shareholder
Derivative Complaint
ADIT . . . . . . . . . . . . . . . . . . . . . . . Net Accumulated Deferred Income Tax
Constitution. . . . . . . . . . . . . . . . . . Constitution Pipeline Company, LLC
AFUDC. . . . . . . . . . . . . . . . . . . . . . Allowance for funds used during construction
COSO. . . . . . . . . . . . . . . . . . . . . . . Committee of Sponsoring Organizations of the
the Agents . . . . . . . . . . . . . . . . . . . Wells Fargo Securities, LLC, Citigroup Global
Treadway Commission
Market Inc.,J.P. Morgan Securities, LLC
CP . . . . . . . . . . . . . . . . . . . . . . . . . Capacity Performance
ALJ . . . . . . . . . . . . . . . . . . . . . . . . Administrative Law Judge
CPCN. . . . . . . . . . . . . . . . . . . . . . . Certificate of Public Convenience and
Amended Complaint . . . . . . . . . . . Amended Verified Consolidated Shareholder
Necessity
Derivative Complaint
CPP . . . . . . . . . . . . . . . . . . . . . . . . Clean Power Plan
AMI . . . . . . . . . . . . . . . . . . . . . . . . Advanced Metering Infrastructure
CRC. . . . . . . . . . . . . . . . . . . . . . . . Cinergy Receivables Company LLC
ANPRM . . . . . . . . . . . . . . . . . . . . . Advance Notice of Proposed Rulemaking
Crystal River Unit 3 . . . . . . . . . . . . Crystal River Unit 3 Nuclear Plant
AOCI . . . . . . . . . . . . . . . . . . . . . . . Accumulated Other Comprehensive Income
(Loss)
ARO. . . . . . . . . . . . . . . . . . . . . . . . Asset Retirement Obligation
the ASR . . . . . . . . . . . . . . . . . . . . . Accelerated Stock Repurchase Program
ASRP . . . . . . . . . . . . . . . . . . . . . . . Accelerated natural gas service line
replacement program
Audit Committee . . . . . . . . . . . . . . Audit Committee of the Board of Directors
Barclays . . . . . . . . . . . . . . . . . . . . Barclays Capital Inc.
BCWF . . . . . . . . . . . . . . . . . . . . . . Benton County Wind Farm, LLC
Beckjord . . . . . . . . . . . . . . . . . . . . Beckjord Generating Station
Belews Creek. . . . . . . . . . . . . . . . . Belews Creek Steam Station
CSA . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive Site Assessment
CSAPR. . . . . . . . . . . . . . . . . . . . . . Cross-State Air Pollution Rule
CT . . . . . . . . . . . . . . . . . . . . . . . . . Combustion Turbine
CTG . . . . . . . . . . . . . . . . . . . . . . . . China Three Gorges Energy S.à.r.l.
CWA . . . . . . . . . . . . . . . . . . . . . . . Clean Water Act
DATC . . . . . . . . . . . . . . . . . . . . . . . Duke-American Transmission Co.
D.C. Circuit Court. . . . . . . . . . . . . . U.S. Court of Appeals for the District of
Columbia
the Dealers . . . . . . . . . . . . . . . . . . Goldman, Sachs & Co. and JPMorgan Chase
Bank
DEFPF . . . . . . . . . . . . . . . . . . . . . . Duke Energy Florida Project Finance, LLC
Bison. . . . . . . . . . . . . . . . . . . . . . . Bison Insurance Company Limited
DEFR . . . . . . . . . . . . . . . . . . . . . . . Duke Energy Florida Receivables, LLC
Board of Directors . . . . . . . . . . . . . Duke Energy Board of Directors
Deloitte . . . . . . . . . . . . . . . . . . . . . Deloitte & Touche LLP, and the member
Bresalier Complaint . . . . . . . . . . . . Shareholder derivative lawsuit filed by Saul
Bresalier related to ash basin management
practices
Bresalier Defendants . . . . . . . . . . . Several current and former Duke Energy
officers and directors named in the Bresalier
Complaint
Bridge Facility . . . . . . . . . . . . . . . . $4.9 billion senior secured financing facility
with Barclays Capital Inc.
Brunswick . . . . . . . . . . . . . . . . . . . Brunswick Nuclear Plant
CAA . . . . . . . . . . . . . . . . . . . . . . . . Clean Air Act
Cardinal. . . . . . . . . . . . . . . . . . . . . Cardinal Pipeline Company, LLC
Catawba . . . . . . . . . . . . . . . . . . . . Catawba Nuclear Station
CC . . . . . . . . . . . . . . . . . . . . . . . . . Combined Cycle
firms of Deloitte Touche Tohmatsu and their
respective affiliates
DEPR. . . . . . . . . . . . . . . . . . . . . . . Duke Energy Progress Receivables, LLC
DERF . . . . . . . . . . . . . . . . . . . . . . . Duke Energy Receivables Finance Company,
LLC
DHHS. . . . . . . . . . . . . . . . . . . . . . . North Carolina Department of Health and
Human Services
Directors’ Savings Plan . . . . . . . . . Duke Energy Corporation Directors’ Savings
Plan
DOE . . . . . . . . . . . . . . . . . . . . . . . . U.S. Department of Energy
DOJ . . . . . . . . . . . . . . . . . . . . . . . . Department of Justice
Dominion. . . . . . . . . . . . . . . . . . . . Dominion Resources
DRIP . . . . . . . . . . . . . . . . . . . . . . . Dividend Reinvestment Program
CCR. . . . . . . . . . . . . . . . . . . . . . . . Coal Combustion Residuals
DSM . . . . . . . . . . . . . . . . . . . . . . . Demand Side Management
Term or Acronym
Definition
Term or Acronym
Definition
Dth . . . . . . . . . . . . . . . . . . . . . . . . Dekatherm
IGCC Settlement . . . . . . . . . . . . . . 2015 Settlement to resolve disputes with
Duke Energy. . . . . . . . . . . . . . . . . . Duke Energy Corporation (collectively with its
intervenors related to five IGCC riders
subsidiaries)
IMR . . . . . . . . . . . . . . . . . . . . . . . . Integrity Management Rider
Duke Energy Carolinas. . . . . . . . . . Duke Energy Carolinas, LLC
International Disposal Group . . . . . Duke Energy’s international business, excluding
Duke Energy Defendants . . . . . . . . Several current and former Duke Energy officers
National Methanol Company
and directors named as defendants in the
Consolidated Complaint
IRP . . . . . . . . . . . . . . . . . . . . . . . . Integrated Resource Plans
IRS . . . . . . . . . . . . . . . . . . . . . . . . Internal Revenue Service
Duke Energy Florida . . . . . . . . . . . . Duke Energy Florida, LLC
Duke Energy Indiana . . . . . . . . . . . Duke Energy Indiana, LLC
Duke Energy Kentucky . . . . . . . . . . Duke Energy Kentucky, Inc.
Duke Energy Ohio. . . . . . . . . . . . . . Duke Energy Ohio, Inc.
Duke Energy Progress . . . . . . . . . . Duke Energy Progress, LLC
ISFSI . . . . . . . . . . . . . . . . . . . . . . . Independent Spent Fuel Storage Installation
ISO . . . . . . . . . . . . . . . . . . . . . . . . Independent System Operator
ITC. . . . . . . . . . . . . . . . . . . . . . . . . Investment Tax Credit
IURC . . . . . . . . . . . . . . . . . . . . . . . Indiana Utility Regulatory Commission
Investment Trusts . . . . . . . . . . . . . Grantor trusts of Duke Energy Progress, Duke
Duke Energy Registrants . . . . . . . . Duke Energy, Duke Energy Carolinas, Progress
Energy Florida and Duke Energy Indiana
Energy, Duke Energy Progress, Duke Energy
Florida, Duke Energy Ohio, Duke Energy Indiana
and Piedmont
JDA . . . . . . . . . . . . . . . . . . . . . . . . Joint Dispatch Agreement
KO Transmission . . . . . . . . . . . . . . KO Transmission Company
Dynegy. . . . . . . . . . . . . . . . . . . . . . Dynegy Inc.
East Bend . . . . . . . . . . . . . . . . . . . East Bend Generating Station
the EDA . . . . . . . . . . . . . . . . . . . . . Equity Distribution Agreement
EE . . . . . . . . . . . . . . . . . . . . . . . . . Energy efficiency
EGU . . . . . . . . . . . . . . . . . . . . . . . . Electric Generating Units
EIS. . . . . . . . . . . . . . . . . . . . . . . . . Environmental Impact Statement
ELG . . . . . . . . . . . . . . . . . . . . . . . . Effluent Limitations Guidelines
EPA . . . . . . . . . . . . . . . . . . . . . . . . U.S. Environmental Protection Agency
EPC . . . . . . . . . . . . . . . . . . . . . . . . Engineering, Procurement and Construction
agreement
EPS . . . . . . . . . . . . . . . . . . . . . . . . Earnings Per Share
ESP . . . . . . . . . . . . . . . . . . . . . . . . Electric Security Plan
ETR . . . . . . . . . . . . . . . . . . . . . . . . Effective tax rate
Exchange Act. . . . . . . . . . . . . . . . . Exchange Act of 1934
FASB . . . . . . . . . . . . . . . . . . . . . . . Financial Accounting Standards Board
FERC . . . . . . . . . . . . . . . . . . . . . . . Federal Energy Regulatory Commission
Fitch . . . . . . . . . . . . . . . . . . . . . . . Fitch Ratings, Inc.
FirstEnergy . . . . . . . . . . . . . . . . . . FirstEnergy Corp.
Florida OPC . . . . . . . . . . . . . . . . . . Florida Office of Public Counsel
Form S-3. . . . . . . . . . . . . . . . . . . . Registration statement
FP&L . . . . . . . . . . . . . . . . . . . . . . . Florida Power & Light Company
FPSC . . . . . . . . . . . . . . . . . . . . . . . Florida Public Service Commission
FRR . . . . . . . . . . . . . . . . . . . . . . . . Fixed Resource Requirement
FTR . . . . . . . . . . . . . . . . . . . . . . . . Financial transmission rights
GAAP . . . . . . . . . . . . . . . . . . . . . . . Generally Accepted Accounting Principles in the
United States
GHG. . . . . . . . . . . . . . . . . . . . . . . . Greenhouse Gas
GWh . . . . . . . . . . . . . . . . . . . . . . . Gigawatt-hours
Hardy Storage . . . . . . . . . . . . . . . . Hardy Storage Company, LLC
Harris . . . . . . . . . . . . . . . . . . . . . . Shearon Harris Nuclear Plant
Hines. . . . . . . . . . . . . . . . . . . . . . . Hines Energy Complex
I Squared. . . . . . . . . . . . . . . . . . . . ISQ Enerlam Aggregator, L.P. and Enerlam
Holding Ltd.
IBNR . . . . . . . . . . . . . . . . . . . . . . . Incurred but not yet reported
ICPA . . . . . . . . . . . . . . . . . . . . . . . Inter-Company Power Agreement
IGCC . . . . . . . . . . . . . . . . . . . . . . . Integrated Gasification Combined Cycle
IGCC Rider. . . . . . . . . . . . . . . . . . . Tracking mechanism used to recover costs
related to the Edwardsport IGCC plant from
retail electric customers
KPSC . . . . . . . . . . . . . . . . . . . . . . . Kentucky Public Service Commission
kV . . . . . . . . . . . . . . . . . . . . . . . . . Kilovolt
kWh. . . . . . . . . . . . . . . . . . . . . . . . Kilowatt-hour
LDC . . . . . . . . . . . . . . . . . . . . . . . . Local Distribution Company
Lee Nuclear Station . . . . . . . . . . . . William States Lee III Nuclear Station
Legacy Duke Energy Directors . . . . Members of the pre-merger Duke Energy Board
of Directors
Levy. . . . . . . . . . . . . . . . . . . . . . . . Duke Energy Florida’s proposed nuclear plant in
Levy County, Florida
LIBOR . . . . . . . . . . . . . . . . . . . . . . London Interbank Offered Rate
Long-Term FERC Mitigation . . . . . . The revised market power mitigation plan
related to the Progress Energy merger
Master Trust . . . . . . . . . . . . . . . . . Duke Energy Master Retirement Trust
McGuire. . . . . . . . . . . . . . . . . . . . . McGuire Nuclear Station
Merger Agreement . . . . . . . . . . . . . The Agreement and Plan of Merger between
Duke Energy and Piedmont
Merger Chancery Litigation . . . . . . Four shareholder derivative lawsuits filed in
the Delaware Chancery Court related to the
Progress Energy merger
MGP . . . . . . . . . . . . . . . . . . . . . . . Manufactured gas plant
Midwest Generation Disposal Group Duke Energy Ohio’s nonregulated Midwest
generation business and Duke Energy Retail
Sales, LLC
MISO . . . . . . . . . . . . . . . . . . . . . . . Midcontinent Independent System Operator, Inc.
MMBtu . . . . . . . . . . . . . . . . . . . . . Million British Thermal Unit
MPP . . . . . . . . . . . . . . . . . . . . . . . Money Purchase Pension
Moody’s . . . . . . . . . . . . . . . . . . . . Moody’s Investors Service, Inc.
MTBE. . . . . . . . . . . . . . . . . . . . . . . Methyl tertiary butyl ether
MTEP. . . . . . . . . . . . . . . . . . . . . . . MISO Transmission Expansion Planning
MW . . . . . . . . . . . . . . . . . . . . . . . . Megawatt
MVP. . . . . . . . . . . . . . . . . . . . . . . . Multi Value Projects
MWh . . . . . . . . . . . . . . . . . . . . . . . Megawatt-hour
NCDEQ . . . . . . . . . . . . . . . . . . . . . North Carolina Department of Environmental
Quality (formerly the North Carolina Department
of Environment and Natural Resources)
NCEMC . . . . . . . . . . . . . . . . . . . . . North Carolina Electric Membership Corporation
NCEMPA . . . . . . . . . . . . . . . . . . . . North Carolina Eastern Municipal Power Agency
NCRC. . . . . . . . . . . . . . . . . . . . . . . Florida’s Nuclear Cost Recovery Clause
NCRS. . . . . . . . . . . . . . . . . . . . . . . Nuclear Power Plant Cost Recovery Statutes
NCUC . . . . . . . . . . . . . . . . . . . . . . North Carolina Utilities Commission
NDTF . . . . . . . . . . . . . . . . . . . . . . . Nuclear decommissioning trust funds
Term or Acronym
Definition
Term or Acronym
Definition
NEIL . . . . . . . . . . . . . . . . . . . . . . . Nuclear Electric Insurance Limited
QF . . . . . . . . . . . . . . . . . . . . . . . . . Qualifying Facility
New Source Review . . . . . . . . . . . . New Source Review (NSR) is a CAA program
RCA . . . . . . . . . . . . . . . . . . . . . . . . Revolving Credit Agreement
that requires industrial facilities to install
modern pollution control equipment when
they are built or when making a change that
increases emissions significantly
RCRA. . . . . . . . . . . . . . . . . . . . . . . Resource Conservation and Recovery Act
Relative TSR . . . . . . . . . . . . . . . . . TSR of Duke Energy stock relative to a
predefined peer group
NYSDEC. . . . . . . . . . . . . . . . . . . . . New York State Department of Environmental
Robinson . . . . . . . . . . . . . . . . . . . . Robinson Nuclear Plant
Conservation
NMC . . . . . . . . . . . . . . . . . . . . . . . National Methanol Company
NOL . . . . . . . . . . . . . . . . . . . . . . . . Net operating loss
NOV. . . . . . . . . . . . . . . . . . . . . . . . Notice of violation
NOx . . . . . . . . . . . . . . . . . . . . . . . . Nitrogen oxide
NPDES. . . . . . . . . . . . . . . . . . . . . . National Pollutant Discharge Elimination
System
NPNS. . . . . . . . . . . . . . . . . . . . . . . Normal purchase/normal sale
NPR. . . . . . . . . . . . . . . . . . . . . . . . Notice of Proposed Rulemaking
NRC. . . . . . . . . . . . . . . . . . . . . . . . U.S. Nuclear Regulatory Commission
NWPA . . . . . . . . . . . . . . . . . . . . . . Nuclear Waste Policy Act of 1982
NYSE . . . . . . . . . . . . . . . . . . . . . . . New York Stock Exchange
Oconee . . . . . . . . . . . . . . . . . . . . . Oconee Nuclear Station
OPEB. . . . . . . . . . . . . . . . . . . . . . . Other Post-Retirement Benefit Obligations
ORS . . . . . . . . . . . . . . . . . . . . . . . . Office of Regulatory Staff
Osprey Plant acquisition . . . . . . . . Duke Energy Florida’s purchase of a Calpine
Corporation’s 599-MW combined-cycle natural
gas plant in Auburndale, Florida
OTTI. . . . . . . . . . . . . . . . . . . . . . . . Other-than-temporary impairment
OVEC . . . . . . . . . . . . . . . . . . . . . . . Ohio Valley Electric Corporation
the Parent . . . . . . . . . . . . . . . . . . . Duke Energy Corporation holding company
PCAOB. . . . . . . . . . . . . . . . . . . . . . Public Company Accounting Oversight Board
PGA . . . . . . . . . . . . . . . . . . . . . . . . Purchased Gas Adjustments
Phase I CCR Compliance Projects Duke Energy Indiana’s federally mandated
compliance projects to comply with the EPA’s
CCR rule
Philadelphia Utility Index . . . . . . . . Philadelphia Sector Index
PHMSA . . . . . . . . . . . . . . . . . . . . . Pipeline and Hazardous Materials Safety
Administration
Piedmont . . . . . . . . . . . . . . . . . . . . Piedmont Natural Gas Company, Inc.
Piedmont Pension Assets. . . . . . . . Qualified pension plan assets associated with
the Retirement Plan of Piedmont
Piedmont Term Loan . . . . . . . . . . . 18-month term loan facility with commitments
totaling $250M entered in June 2017
Pine Needle . . . . . . . . . . . . . . . . . . Pine Needle LNG Company, LLC
Pioneer . . . . . . . . . . . . . . . . . . . . . Pioneer Transmission, LLC
PJM . . . . . . . . . . . . . . . . . . . . . . . . PJM Interconnection, LLC
PMPA. . . . . . . . . . . . . . . . . . . . . . . Piedmont Municipal Power Agency
PPA . . . . . . . . . . . . . . . . . . . . . . . . Purchase Power Agreement
Progress Energy. . . . . . . . . . . . . . . Progress Energy, Inc.
PSCSC. . . . . . . . . . . . . . . . . . . . . . Public Service Commission of South Carolina
PTC . . . . . . . . . . . . . . . . . . . . . . . . Production Tax Credits
PUCO. . . . . . . . . . . . . . . . . . . . . . . Public Utilities Commission of Ohio
PUCO Order . . . . . . . . . . . . . . . . . . Order issued by PUCO approving a settlement
of Duke Energy Ohio’s natural gas base rate
case and authorizing the recovery of certain
MGP costs
PURPA. . . . . . . . . . . . . . . . . . . . . . Public Utility Regulatory Policies Act of 1978
RRBA. . . . . . . . . . . . . . . . . . . . . . . Roanoke River Basin Association
RSU. . . . . . . . . . . . . . . . . . . . . . . . Restricted Stock Unit
RTO . . . . . . . . . . . . . . . . . . . . . . . . Regional Transmission Organization
Sabal Trail . . . . . . . . . . . . . . . . . . . Sabal Trail Transmission, LLC
Sabal Trail Pipeline . . . . . . . . . . . . Sabal Trail Natural Gas Pipeline
SACE . . . . . . . . . . . . . . . . . . . . . . . Southern Alliance of Clean Energy
SAFSTOR . . . . . . . . . . . . . . . . . . . . A method of decommissioning in which a
nuclear facility is placed and maintained in a
condition that allows the facility to be safely
stored and subsequently decontaminated to
levels that permit release for unrestricted use
S.C. Court of Appeals. . . . . . . . . . . Court of Appeals of South Carolina
SCCL . . . . . . . . . . . . . . . . . . . . . . . South Carolina Coastal Conservation League
SEC . . . . . . . . . . . . . . . . . . . . . . . . Securities and Exchange Commission
SEIS. . . . . . . . . . . . . . . . . . . . . . . . Supplemental Environmental Impact Statement
SELC . . . . . . . . . . . . . . . . . . . . . . . Southern Environmental Law Center
Segment Income . . . . . . . . . . . . . . Income from continuing operations net of
income attributable to noncontrolling interests
SO2 . . . . . . . . . . . . . . . . . . . . . . . . Sulfur dioxide
SouthStar . . . . . . . . . . . . . . . . . . . SouthStar Energy Services, LLC
Spectra Capital . . . . . . . . . . . . . . . Spectra Energy Capital, LLC
S&P . . . . . . . . . . . . . . . . . . . . . . . . Standard & Poor’s Rating Services
S&P 500 . . . . . . . . . . . . . . . . . . . . Standard & Poor’s 500 Stock Index
SSO . . . . . . . . . . . . . . . . . . . . . . . . Standard Service Offer
State Utility Commissions . . . . . . . NCUC, PSCSC, FPSC, PUCO, IURC, KPSC and
TPUC (Collectively)
State Electric Utility Commissions NCUC, PSCSC, FPSC, PUCO, IURC and KPSC
(Collectively)
State Gas Utility Commissions. . . . NCUC, PSCSC, PUCO, TPUC and KPSC
(Collectively)
Subsidiary Registrants. . . . . . . . . . Duke Energy Carolinas, Progress Energy, Duke
Energy Progress, Duke Energy Florida, Duke
Energy Ohio, Duke Energy Indiana and Piedmont
Sutton . . . . . . . . . . . . . . . . . . . . . . L.V. Sutton Combined Cycle Plant
the Tax Act. . . . . . . . . . . . . . . . . . . Tax Cut and Jobs Act
T&D Rider . . . . . . . . . . . . . . . . . . . Tracking mechanism to recover grid
infrastructure improvement costs in Indiana
TPUC . . . . . . . . . . . . . . . . . . . . . . . Tennessee Public Utility Commission
TSR . . . . . . . . . . . . . . . . . . . . . . . . Total shareholder return
Uprate Project . . . . . . . . . . . . . . . . Hines Chiller Uprate Project
U.S . . . . . . . . . . . . . . . . . . . . . . . . United States
U.S. Court of Appeals. . . . . . . . . . . U.S. Court of Appeals for the Second Circuit
VEBA . . . . . . . . . . . . . . . . . . . . . . . Voluntary Employees’ Beneficiary Association
VIE. . . . . . . . . . . . . . . . . . . . . . . . . Variable Interest Entity
WACC . . . . . . . . . . . . . . . . . . . . . . Weighted Average Cost of Capital
WNA . . . . . . . . . . . . . . . . . . . . . . . weather normalization adjustment
WVPA. . . . . . . . . . . . . . . . . . . . . . . Wabash Valley Power Association, Inc.
ITEM 1. BUSINESS
DUKE ENERGY
General
Duke Energy Corporation (collectively with its subsidiaries, Duke Energy)
was incorporated on May 3, 2005, and is an energy company headquartered in
Charlotte, North Carolina, subject to regulation by the Federal Energy Regulatory
Commission (FERC). Duke Energy operates in the United States (U.S.) primarily
through its direct and indirect subsidiaries. Certain Duke Energy subsidiaries are
also subsidiary registrants, including Duke Energy Carolinas, LLC (Duke Energy
Carolinas); Progress Energy, Inc. (Progress Energy); Duke Energy Progress, LLC
(Duke Energy Progress); Duke Energy Florida, LLC (Duke Energy Florida); Duke
Energy Ohio, Inc. (Duke Energy Ohio); Duke Energy Indiana, LLC (Duke Energy
Indiana) and Piedmont Natural Gas Company, Inc. (Piedmont). When discussing
Duke Energy’s consolidated financial information, it necessarily includes the
results of its separate subsidiary registrants (collectively referred to as the
Subsidiary Registrants), which along with Duke Energy, are collectively referred
to as the Duke Energy Registrants.
Piedmont, a North Carolina corporation, is an energy services company
whose principal business is the distribution of natural gas to over 1 million
residential, commercial, industrial and power generation customers in portions
of North Carolina, South Carolina and Tennessee, including customers served by
municipalities who are Piedmont’s sales for resale customers. In October 2016,
Duke Energy completed the acquisition of Piedmont. Piedmont’s earnings and
cash flows are only included in Duke Energy’s consolidated results subsequent
to the acquisition date. See Note 2 to the Consolidated Financial Statements,
“Acquisitions and Dispositions,” for additional information regarding the
acquisition.
In December 2016, Duke Energy completed an exit of the Latin American
market to focus on its domestic regulated business, which was further bolstered
by the acquisition of Piedmont. The sale of the International Energy business
segment, excluding an equity method investment in National Methanol Company
(NMC), was completed through two transactions including a sale of assets
in Brazil to China Three Gorges (Luxembourg) Energy S.à.r.l. (CTG) and a sale
of Duke Energy’s remaining Latin American assets in Peru, Chile, Ecuador,
Guatemala, El Salvador and Argentina to ISQ Enerlam Aggregator, L.P. and
Enerlam (UK) Holding Ltd. (I Squared) (collectively, the International Disposal
Group). See Note 2 to the Consolidated Financial Statements, “Acquisitions and
Dispositions,” for additional information on the sale of International Energy.
The Duke Energy Registrants electronically file reports with the Securities
and Exchange Commission (SEC), including Annual Reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, proxies and
amendments to such reports.
The public may read and copy any materials the Duke Energy Registrants
file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, DC 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
also maintains an internet site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC at http://www.sec.gov. Additionally, information about the Duke Energy
Registrants, including reports filed with the SEC, is available through Duke
Energy’s website at http://www.duke-energy.com. Such reports are accessible
at no charge and are made available as soon as reasonably practicable after
such material is filed with or furnished to the SEC.
Business Segments
Duke Energy’s segment structure includes three reportable operating
segments (business segments); Electric Utilities and Infrastructure, Gas
Utilities and Infrastructure and Commercial Renewables. The remainder of
Duke Energy’s operations is presented as Other. Duke Energy’s chief operating
decision-maker routinely reviews financial information about each of these
business segments in deciding how to allocate resources and evaluate the
performance of the business. For additional information on each of these
business segments, including financial and geographic information, see Note 3
to the Consolidated Financial Statements, “Business Segments.” The following
sections describe the business and operations of each of Duke Energy’s
business segments, as well as Other.
ELECTRIC UTILITIES AND INFRASTRUCTURE
Electric Utilities and Infrastructure conducts operations primarily
through the regulated public utilities of Duke Energy Carolinas, Duke Energy
Progress, Duke Energy Florida, Duke Energy Indiana and Duke Energy Ohio.
Electric Utilities and Infrastructure provides retail electric service through the
generation, transmission, distribution and sale of electricity to approximately
7.6 million customers within the Southeast and Midwest regions of the U.S. The
service territory is approximately 95,000 square miles across six states with a
total estimated population of 24 million people. The operations include electricity
sold wholesale to municipalities, electric cooperative utilities and other
load-serving entities. Electric Utilities and Infrastructure is also a joint owner
in certain electric transmission projects. Electric Utilities and Infrastructure
has a 50 percent ownership interest in Duke-American Transmission Co.
(DATC), a partnership with American Transmission Company, formed to design,
build and operate transmission infrastructure. DATC owns 72 percent of the
transmission service rights to Path 15, an 84-mile transmission line in central
California. Electric Utilities and Infrastructure also has a 50 percent ownership
interest in Pioneer Transmission, LLC, which builds, owns and operates electric
transmission facilities in North America.
The electric operations and investments in projects are subject to the
rules and regulations of the FERC, the North Carolina Utilities Commission
(NCUC), the Public Service Commission of South Carolina (PSCSC), the Florida
Public Service Commission (FPSC), the Indiana Utility Regulatory Commission
(IURC), the Public Utilities Commission of Ohio (PUCO) and the Kentucky Public
Service Commission (KPSC).
The following table represents the distribution of billed sales by customer class for the year ended December 31, 2017.
Residential
General service
Industrial
Total retail sales
Wholesale and other sales
Total sales
Duke
Energy
Carolinas
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
30%
33%
25%
88%
12%
26%
23%
16%
65%
35%
49%
37%
8%
94%
6%
34%
38%
23%
95%
5%
26%
25%
32%
83%
17%
100%
100%
100%
100%
100%
6
PART I The number of residential and general service customers within the
Electric Utilities and Infrastructure service territory is expected to increase
over time. While economic conditions within the service territory continue to
improve, sales growth has been hampered by continued adoption of energy
efficiencies and self-generation. The continued adoption of more efficient
housing and appliances is expected to have a negative impact on average usage
per residential customer over time. While residential sales increased in 2017
compared to 2016, the growth rate was modest when compared to historical
periods.
Seasonality and the Impact of Weather
Revenues and costs are influenced by seasonal weather patterns. Peak
sales of electricity occur during the summer and winter months, which results
in higher revenue and cash flows during these periods. By contrast, lower sales
of electricity occur during the spring and fall, allowing for scheduled plant
maintenance. Residential and general service customers are more impacted by
weather than industrial customers. Estimated weather impacts are based on
actual current period weather compared to normal weather conditions. Normal
weather conditions are defined as the long-term average of actual historical
weather conditions.
The estimated impact of weather on earnings is based on the temperature
variances from a normal condition and customers’ historic usage patterns.
The methodology used to estimate the impact of weather does not consider all
variables that may impact customer response to weather conditions such as
humidity in the summer or wind chill in the winter. The precision of this estimate
may also be impacted by applying long-term weather trends to shorter-term
periods.
Heating-degree days measure the variation in weather based on
the extent the average daily temperature falls below a base temperature.
Cooling-degree days measure the variation in weather based on the extent the
average daily temperature rises above the base temperature. Each degree of
temperature below the base temperature counts as one heating-degree day
and each degree of temperature above the base temperature counts as one
cooling-degree day.
Competition
Retail
Electric Utilities and Infrastructure’s businesses operate as the sole
supplier of electricity within their service territories, with the exception of Ohio,
which has a competitive electricity supply market for generation service. Electric
Utilities and Infrastructure owns and operates facilities necessary to transmit
and distribute electricity and, except in Ohio, to generate electricity. Services
are priced by state commission approved rates designed to include the costs
of providing these services and a reasonable return on invested capital. This
regulatory policy is intended to provide safe and reliable electricity at fair prices.
Competition in the regulated electric distribution business is primarily
from the development and deployment of alternative energy sources including
on-site generation from industrial customers and distributed generation, such
as private solar, at residential, general service and/or industrial customer sites.
Duke Energy is not aware of any proposed legislation within any of its
jurisdictions that would provide retail customers the right to choose their
electricity provider or otherwise restructure or deregulate the electric industry,
including broadly subsidizing distributed generation such as private solar.
Although there is no pending legislation at this time, if the retail
jurisdictions served by Electric Utilities and Infrastructure become subject
to deregulation, the recovery of stranded costs could become a significant
consideration. Stranded costs primarily include the generation assets of Electric
Utilities and Infrastructure whose value in a competitive marketplace may be
less than their current book value, as well as above-market purchased power
commitments from qualifying facilities (QFs). The Public Utility Regulatory
Policies Act of 1978 (PURPA) established a new class of generating facilities
as QFs, typically small power production facilities that generate power within
a utility company’s service territory for which the utility companies are legally
obligated to purchase the energy at an avoided cost rate. Thus far, all states
that have passed restructuring legislation have provided for the opportunity to
recover a substantial portion of stranded costs.
Electric Utilities and Infrastructure’s largest stranded cost exposure is
primarily related to Duke Energy Florida’s purchased power commitments with
QFs, under which it has future minimum expected capacity payments through
2043 of $2.4 billion. Duke Energy Florida was obligated to enter into these
contracts under provisions of PURPA. Duke Energy Florida continues to seek
ways to address the impact of escalating payments under these contracts.
However, the FPSC allows full recovery of the retail portion of the cost of power
purchased from QFs. For additional information related to these purchased
power commitments, see Note 5 to the Consolidated Financial Statements,
“Commitments and Contingencies.”
In Ohio, Electric Utilities and Infrastructure conducts competitive auctions
for electricity supply. The cost of energy purchased through these auctions is
recovered from retail customers. Electric Utilities and Infrastructure earns retail
margin in Ohio on the transmission and distribution of electricity and not on the
cost of the underlying energy.
Wholesale
Duke Energy competes with other utilities and merchant generators for
bulk power sales, sales to municipalities and cooperatives and wholesale
transactions under primarily cost-based contracts approved by FERC. The
principal factors in competing for these sales are price, availability of capacity
and power and reliability of service. Prices are influenced primarily by market
conditions and fuel costs.
Increased competition in the wholesale electric utility industry and
the availability of transmission access could affect Electric Utilities and
Infrastructure’s load forecasts, plans for power supply and wholesale energy
sales and related revenues. Wholesale energy sales will be impacted by the
extent to which additional generation is available to sell to the wholesale market
and the ability of Electric Utilities and Infrastructure to attract new customers
and to retain existing customers.
Energy Capacity and Resources
Electric Utilities and Infrastructure owns approximately 49,506 megawatts
(MW) of generation capacity. For additional information on owned generation
facilities, see Item 2, “Properties.”
Energy and capacity are also supplied through contracts with other
generators and purchased on the open market. Factors that could cause
Electric Utilities and Infrastructure to purchase power for its customers may
include, but are not limited to, generating plant outages, extreme weather
conditions, generation reliability, demand growth and price. Electric Utilities
and Infrastructure has interconnections and arrangements with its neighboring
utilities to facilitate planning, emergency assistance, sale and purchase of
capacity and energy and reliability of power supply.
Electric Utilities and Infrastructure’s generation portfolio is a balanced mix
of energy resources having different operating characteristics and fuel sources
designed to provide energy at the lowest possible cost to meet its obligation to
serve retail customers. All options, including owned generation resources and
purchased power opportunities, are continually evaluated on a real-time basis
to select and dispatch the lowest-cost resources available to meet system load
requirements.
Potential Plant Retirements
The Subsidiary Registrants periodically file Integrated Resource Plans
(IRP) with state regulatory commissions. The IRPs provide a view of forecasted
energy needs over a long term (10 to 20 years) and options being considered
to meet those needs. Recent IRPs filed by the Subsidiary Registrants included
7
PART I planning assumptions to potentially retire certain coal-fired generating facilities
earlier than their current estimated useful lives, primarily because these
facilities do not have the requisite emission control equipment to meet United
States Environmental Protection Agency (EPA) regulations recently approved or
proposed. Duke Energy continues to evaluate the potential need to retire these
coal-fired generating facilities earlier than the current estimated useful lives
and plans to seek regulatory recovery for amounts that would not be otherwise
recovered when any of these assets are retired. For additional information
related to potential plant retirements, see Note 4 to the Consolidated Financial
Statements, “Regulatory Matters.”
On October 23, 2015, the EPA published in the Federal Register the final
Clean Power Plan (CPP) rule that regulates carbon dioxide (CO2) emissions from
existing fossil fuel-fired electric generating units (EGUs). The CPP establishes
CO2 emission rates and mass cap goals that apply to existing fossil fuel-fired
EGUs. Petitions challenging the rule were filed by several groups and on
February 9, 2016, the Supreme Court issued a stay of the final CPP rule, halting
implementation of the CPP until legal challenges are resolved. States in which
the Duke Energy Registrants operate have suspended work on the CPP in
response to the stay. Oral arguments before 10 of the 11 judges on D.C. Circuit
Court were heard on September 27, 2016. The court has not issued its opinion
in the case.
On March 28, 2017, President Trump signed an executive order directing
EPA to review the CPP and determine whether to suspend, revise or rescind
the rule. On the same day, the Department of Justice (DOJ) filed a motion with
the D.C. Circuit Court requesting that the court stay the litigation of the rule
while it is reviewed by EPA. On April 28, 2017, the court issued an order to
suspend the litigation for 60 days. On August 8, 2017, the court, on its own
motion, extended the suspension of the litigation for an additional 60 days. On
October 16, 2017, EPA issued a Notice of Proposed Rulemaking (NPR) to repeal
the CPP based on a change to EPA’s legal interpretation of the section of the
Clean Air Act (CAA) on which the CPP was based. In the proposal, EPA indicates
that it has not determined whether it will issue a rule to replace the CPP, and
if it will do so, when and what form that rule will take. The comment period on
EPA’s NPR ends April 26, 2018. On December 28, 2017 EPA issued an Advance
Notice of Proposed Rulemaking (ANPRM) in which it seeks public comment on
various aspects of a potential CPP replacement rule. The comment period on
the ANPRM ends February 26, 2018. If EPA decides to move forward with a CPP
replacement rule, it will need to issue a formal proposal for public comment.
Litigation of the CPP remains on hold in the D.C. Circuit and the February 2016
U.S. Supreme Court stay of the CPP remains in effect.
Should the CPP be upheld, compliance could cause the industry to
replace coal-fired generation with natural gas and renewables. Costs to operate
coal-fired generation plants continue to grow due to increasing environmental
compliance requirements, including ash management costs unrelated to
CPP, which may result in the retirement of coal-fired generation plants earlier
than the current end of useful lives. The Duke Energy Registrants could incur
increased fuel, purchased power, operation and maintenance and other costs for
replacement generation as a result of this rule. Due to the uncertainties related
to the implementation of the CPP, the Duke Energy Registrants cannot predict the
outcome of these matters.
Sources of Electricity
Electric Utilities and Infrastructure relies principally on coal, nuclear fuel and natural gas for its generation of electricity. The following table lists sources of
electricity and fuel costs for the three years ended December 31, 2017.
Coal(a)
Nuclear(a)
Natural gas and oil(a)
All fuels (cost-based on weighted average)(a)
Hydroelectric and solar(b)
Total generation
Purchased power and net interchange
Total sources of energy
Cost of Delivered Fuel per Net
Kilowatt-hour Generated (Cents)
2017
2.72
0.69
2.85
2.04
2016
3.07
0.66
3.07
2.22
2015
3.24
0.65
3.74
2.50
Generation by Source
2017
27.4%
27.8%
23.6%
78.8%
0.7%
79.5%
20.5%
2016
27.1%
27.4%
22.9%
77.4%
0.7%
78.1%
21.9%
2015
29.0%
27.0%
23.1%
79.1%
0.8%
79.9%
20.1%
100.0%
100.0%
100.0%
(a) Statistics related to all fuels reflect Electric Utilities and Infrastructure’s ownership interest in jointly owned generation facilities.
(b) Generating figures are net of output required to replenish pumped storage facilities during off-peak periods.
Coal
Electric Utilities and Infrastructure meets its coal demand through
a portfolio of long-term purchase contracts and short-term spot market
purchase agreements. Large amounts of coal are purchased under long-term
contracts with mining operators who mine both underground and at the
surface. Electric Utilities and Infrastructure uses spot market purchases to
meet coal requirements not met by long-term contracts. Expiration dates
for its long-term contracts, which have various price adjustment provisions
and market re-openers, range from 2018 to 2020 for Duke Energy Carolinas,
2018 to 2020 for Duke Energy Progress, 2018 to 2020 for Duke Energy Florida,
2018 to 2020 for Duke Energy Ohio and 2018 to 2025 for Duke Energy Indiana.
Electric Utilities and Infrastructure expects to renew these contracts or enter
into similar contracts with other suppliers as existing contracts expire, though
prices will fluctuate over time as coal markets change. Electric Utilities and
Infrastructure has an adequate supply of coal under contract to meet its hedging
guidelines regarding projected future consumption. As a result of volatility in
natural gas prices and the associated impacts on coal-fired dispatch within the
generation fleet, coal inventories will continue to fluctuate. Electric Utilities and
Infrastructure continues to actively manage its portfolio and has worked with
suppliers to obtain increased flexibility in its coal contracts.
Coal purchased for the Carolinas is primarily produced from mines in
Central Appalachia, Northern Appalachia and the Illinois Basin. Coal purchased
for Florida is primarily produced from mines in Colorado and the Illinois Basin.
Coal purchased for Kentucky is delivered by barge and is produced from mines
along the Ohio River in Illinois, Ohio, West Virginia and Pennsylvania. Coal
purchased for Indiana is primarily produced in Indiana and Illinois. The current
average sulfur content of coal purchased by Electric Utilities and Infrastructure
is between 1.5 percent and 2 percent for Duke Energy Carolinas, between
1.5 percent and 2 percent for Duke Energy Progress, between 1 percent and
3 percent for Duke Energy Florida, between 3 percent and 3.5 percent for Duke
Energy Ohio and between 2.5 percent and 3 percent for Duke Energy Indiana.
Electric Utilities and Infrastructure’s environmental controls, in combination
with the use of sulfur dioxide (SO2) emission allowances, enable Electric Utilities
and Infrastructure to satisfy current SO2 emission limitations for its existing
facilities.
8
PART I Nuclear
The industrial processes for producing nuclear generating fuel generally
involve the mining and milling of uranium ore to produce uranium concentrates
and services to convert, enrich and fabricate fuel assemblies.
Electric Utilities and Infrastructure has contracted for uranium materials
and services to fuel its nuclear reactors. Uranium concentrates, conversion
services and enrichment services are primarily met through a diversified
portfolio of long-term supply contracts. The contracts are diversified by supplier,
country of origin and pricing. Electric Utilities and Infrastructure staggers its
contracting so that its portfolio of long-term contracts covers the majority
of its fuel requirements in the near term and decreasing portions of its fuel
requirements over time thereafter. Near-term requirements not met by long-term
supply contracts have been and are expected to be fulfilled with spot market
purchases. Due to the technical complexities of changing suppliers of fuel
fabrication services, Electric Utilities and Infrastructure generally sources these
services to a single domestic supplier on a plant-by-plant basis using multiyear
contracts.
Electric Utilities and Infrastructure has entered into fuel contracts that
cover 100 percent of its uranium concentrates, conversion services and
enrichment services requirements through at least 2018 and cover fabrication
services requirements for these plants through at least 2027. For future
requirements not already covered under long-term contracts, Electric Utilities
and Infrastructure believes it will be able to renew contracts as they expire or
enter into similar contractual arrangements with other suppliers of nuclear fuel
materials and services.
Natural Gas and Fuel Oil
Natural gas and fuel oil supply, transportation and storage for Electric
Utilities and Infrastructure’s generation fleet is purchased under standard
industry agreements from various suppliers, including Piedmont. Natural gas
supply agreements typically provide for a percentage of forecasted burns
being procured over time, with varied expiration dates. Electric Utilities and
Infrastructure believes it has access to an adequate supply of natural gas and
fuel oil for the reasonably foreseeable future.
Electric Utilities and Infrastructure has certain dual-fuel generating
facilities that can operate utilizing both natural gas and fuel oil. The cost of
Electric Utilities and Infrastructure’s natural gas and fuel oil is fixed price
or determined by published market prices as reported in certain industry
publications, plus any transportation and freight costs. Duke Energy
Carolinas, Duke Energy Progress, Duke Energy Florida and Duke Energy
Indiana use derivative instruments to manage a portion of their exposure to
price fluctuations for natural gas. For Duke Energy Florida, there is currently
an agreed to moratorium on future hedging with the Florida Public Service
Commission.
Electric Utilities and Infrastructure has firm interstate and intrastate
natural gas transportation agreements and storage agreements in place
to support generation needed for load requirements. Electric Utilities and
Infrastructure may purchase additional shorter-term natural gas transportation
and utilize natural gas interruptible transportation agreements to support
generation needed for load requirements. The Electric Utilities and Infrastructure
natural gas plants are served by various supply zones and multiple pipelines.
Purchased Power
Electric Utilities and Infrastructure purchases a portion of its capacity
and system requirements through purchase obligations, leases and purchase
capacity contracts. Electric Utilities and Infrastructure believes it can obtain
adequate purchased power capacity to meet future system load needs. However,
during periods of high demand, the price and availability of purchased power
may be significantly affected.
The following table summarizes purchased power for the previous three years:
Purchase obligations and leases (in millions of megawatt-hours (MWh))(a)
Purchase capacity under contract (in MW)(b)
(a) Represents approximately 7 percent of total system requirements for 2017 and 2016 and 6 percent for 2015.
(b) These agreements include approximately 451 MW of firm capacity under contract by Duke Energy Florida with QFs.
2017
17.7
4,028
2016
18.0
4,588
2015
14.9
4,573
Inventory
Generation of electricity is capital intensive. Electric Utilities and
Infrastructure must maintain an adequate stock of fuel and materials and
supplies in order to ensure continuous operation of generating facilities and
reliable delivery to customers. As of December 31, 2017, the inventory balance
for Electric Utilities and Infrastructure was approximately $3.1 billion. For
additional information on inventory, see Note 1 to the Consolidated Financial
Statements, “Summary of Significant Accounting Policies.”
Ash Basin Management
The North Carolina Coal Ash Management Act of 2014 (Coal Ash Act)
regulates the handling of coal ash within the state and requires closure
of ash impoundments by no later than December 31, 2029, based on risk
rankings, among other detailed requirements. The Coal Ash Act leaves the
decision on cost recovery determinations related to closure of coal ash surface
impoundments (ash basins or impoundments) to the normal ratemaking
processes before utility regulatory commissions. Duke Energy has and will
periodically submit to applicable authorities required site-specific coal ash
impoundment remediation or closure plans. These plans and all associated
permits must be approved before any work can begin.
On April 17, 2015, the EPA published in the Federal Register a rule to
regulate the disposal of coal combustion residuals (CCR) from electric utilities
as solid waste. The rule classifies CCR as nonhazardous under Subtitle D of the
Resource Conservation and Recovery Act (RCRA). The EPA CCR rule has certain
requirements, which if not met could initiate impoundment closure and require
closure completion within five years. The EPA CCR rule includes extension
requirements, which if met could allow the extension of closure completion by
up to 10 years. The RCRA and the Coal Ash Act finalized the legal framework
related to coal ash management practices and ash basin closure.
Duke Energy has advanced the strategy and implementation for the
remediation or closure of coal ash basins. In 2015, Duke Energy began activities
at certain North Carolina sites specified as high priority by the Coal Ash Act,
including moving coal ash off-site for use in structural fill or to lined landfills.
Additional modifications to operating coal plants are underway to comply with
the Coal Ash Act and RCRA.
Duke Energy Carolinas and Duke Energy Progress have included
compliance costs associated with the EPA CCR rule and the Coal Ash Act in
their respective rate case filings. During 2017, Duke Energy Carolinas’ and Duke
Energy Progress’ wholesale contracts were amended to include the recovery of
expenditures related to asset retirement obligations for the closure of coal ash
basins. The amended contracts have retail disallowance parity or provisions
limiting challenges to CCR cost recovery actions at FERC. FERC approved the
amended wholesale rate schedules in 2017. For additional information on the
ash basins and recovery, see Notes 4, 5 and 9 to the Consolidated Financial
Statements, “Regulatory Matters,” “Commitments and Contingencies” and
“Asset Retirement Obligations,” respectively.
9
PART I Nuclear Matters
Duke Energy owns, wholly or partially, 11 operating nuclear reactors
located at six stations. The Crystal River Unit 3 Nuclear Plant (Crystal River
Unit 3) permanently ceased operation in February 2013. Nuclear insurance
includes: nuclear liability coverage; property damage coverage; nuclear accident
decontamination and premature decommissioning coverage; and accidental
outage coverage for losses in the event of a major accidental outage. Joint
owners reimburse Duke Energy for certain expenses associated with nuclear
insurance in accordance with joint owner agreements. The Price-Anderson Act
requires plant owners to provide for public nuclear liability claims resulting
from nuclear incidents to the maximum total financial protection liability, which
is approximately $13.4 billion. For additional information on nuclear insurance
see Note 5 to the Consolidated Financial Statements, “Commitments and
Contingencies.”
Duke Energy has a significant future financial commitment to dispose of
spent nuclear fuel and decommission and decontaminate each plant safely. The
NCUC, PSCSC and FPSC require Duke Energy to update their cost estimates for
decommissioning their nuclear plants every five years.
The following table summarizes the fair value of nuclear decommissioning trust fund (NDTF) balances and cost study results for Duke Energy Carolinas, Duke
Energy Progress and Duke Energy Florida. Decommissioning costs in the table below are stated in 2013 or 2014 dollars, depending the year of the cost study, and
include costs to decommission plant components not subject to radioactive contamination.
(in millions)
Duke Energy
Duke Energy Carolinas
Duke Energy Progress
Duke Energy Florida(c)
NDTF(a)
December 31, 2017
December 31, 2016
$
$
7,097
3,772
2,588
736
6,205
3,273
2,217
715
Decommissioning
Costs(a)(b)
$
8,150
3,420
3,550
1,180
Year of
Cost Study
2013 and 2014
2013
2014
2013
(a) Amounts for Progress Energy equal the sum of Duke Energy Progress and Duke Energy Florida.
(b) Amounts include the Subsidiary Registrants’ ownership interest in jointly owned reactors. Other joint owners are responsible for decommissioning costs related to their interest in the reactors.
(c) Duke Energy Florida received reimbursements from the NDTF for costs related to ongoing decommissioning activity of Crystal River Unit 3.
The NCUC, PSCSC, FPSC and FERC have allowed Electric Utilities and
Infrastructure to recover estimated decommissioning costs through retail and
wholesale rates over the expected remaining service periods of their nuclear
stations. Electric Utilities and Infrastructure believes the decommissioning costs
being recovered through rates, when coupled with the existing fund balances
and expected fund earnings, will be sufficient to provide for the cost of future
decommissioning. For additional information, see Note 9 to the Consolidated
Financial Statements, “Asset Retirement Obligations.”
The Nuclear Waste Policy Act of 1982 (as amended) (NWPA) provides the
framework for development by the federal government of interim storage and
permanent disposal facilities for high-level radioactive waste materials. The
government has not yet developed a storage facility or disposal capacity, so
Electric Utilities and Infrastructure will continue to store spent fuel on its reactor
sites.
Under federal law, the U.S. Department of Energy (DOE) is responsible for
the selection and construction of a facility for the permanent disposal of spent
nuclear fuel and high-level radioactive waste. The DOE terminated the project to
license and develop a geologic repository at Yucca Mountain, Nevada in 2010, and
is currently taking no action to fulfill its responsibilities to dispose of spent fuel.
Until the DOE begins to accept the spent nuclear fuel, Duke Energy
Carolinas, Duke Energy Progress and Duke Energy Florida will continue to
safely manage their spent nuclear fuel. Under current regulatory guidelines,
Shearon Harris Nuclear Plant (Harris) has sufficient storage capacity in its
spent fuel pools through the expiration of its renewed operating license. Crystal
River Unit 3 ceased operation in 2013 and was placed in a SAFSTOR condition
in January 2018. As of January 2018, all spent fuel at Crystal River Unit 3
has been transferred from the spent fuel pool to dry storage at an on-site
independent spent fuel storage installation where it will be stored until the
DOE removes it. With certain modifications and approvals by the U.S. Nuclear
Regulatory Commission (NRC) to expand the on-site dry cask storage facilities,
spent nuclear fuel dry storage facilities will be sufficient to provide storage
space of spent fuel through the expiration of the operating licenses, including
any license renewals, for the Brunswick Nuclear Plant (Brunswick), Catawba
Nuclear Station (Catawba), McGuire Nuclear Station (McGuire), Oconee Nuclear
Station (Oconee) and Robinson Nuclear Plant (Robinson).
The nuclear power industry faces uncertainties with respect to the cost
and long-term availability of disposal sites for spent nuclear fuel and other
radioactive waste, compliance with changing regulatory requirements, capital
outlays for modifications and new plant construction.
Electric Utilities and Infrastructure is subject to the jurisdiction of the NRC
for the design, construction and operation of its nuclear generating facilities.
The following table includes the current year of expiration of nuclear operating
licenses for nuclear stations in operation. Nuclear operating licenses are
potentially subject to extension.
Unit
Duke Energy Carolinas
Catawba Units 1 and 2
McGuire Unit 1
McGuire Unit 2
Oconee Units 1 and 2
Oconee Unit 3
Duke Energy Progress
Brunswick Unit 1
Brunswick Unit 2
Harris
Robinson
Year of Expiration
2043
2041
2043
2033
2034
2036
2034
2046
2030
The NRC has acknowledged permanent cessation of operation and
permanent removal of fuel from the reactor vessel at Crystal River Unit 3.
Therefore, the license no longer authorizes operation of the reactor. For
additional information on decommissioning activity, see Note 4 to the
Consolidated Financial Statements, “Regulatory Matters.”
On October 27, 2016, and December 15, 2016, the NRC issued combined
operating licenses for Duke Energy Florida’s proposed Levy Nuclear Plant
Units 1 and 2 (Levy) and Duke Energy Carolinas’ William States Lee III Nuclear
Station Units 1 and 2, respectively. On August 25, 2017, as part of Duke Energy
Carolinas rate case filing, Duke Energy Carolinas requested NCUC approval to
cancel the development of the Lee Nuclear Station project with the intent to
maintain the combined operating licenses. On August 29, 2017, Duke Energy
announced the complete abandonment of the Levy project with the intent to
terminate the combined operating licenses. For additional information on these
proposed nuclear plants, see Note 4 to the Consolidated Financial Statements,
“Regulatory Matters.”
10
PART I Regulation
State
The NCUC, PSCSC, FPSC, PUCO, IURC and KPSC (collectively, the state
electric utility commissions) approve rates for Duke Energy’s retail electric
service within their respective states. The state electric utility commissions,
to varying degrees, have authority over the construction and operation of
Electric Utilities and Infrastructure’s generating facilities. Certificates of Public
Convenience and Necessity issued by the state electric utility commissions,
as applicable, authorize Electric Utilities and Infrastructure to construct and
operate its electric facilities and to sell electricity to retail and wholesale
customers. Prior approval from the relevant state electric utility commission
is required for the entities within Electric Utilities and Infrastructure to issue
securities. The underlying concept of utility ratemaking is to set rates at a level
that allows the utility to collect revenues equal to its cost of providing service
plus earn a reasonable rate of return on its invested capital, including equity.
In addition to rates approved in base rate cases, each of the state
electric utility commissions allow recovery of certain costs through various
cost-recovery clauses to the extent the respective commission determines in
periodic hearings that such costs, including any past over or under-recovered
costs, are prudent.
Fuel, fuel-related costs and certain purchased power costs are eligible
for recovery by Electric Utilities and Infrastructure. Electric Utilities and
Infrastructure uses coal, hydroelectric, natural gas, oil, renewable generation
and nuclear fuel to generate electricity, thereby maintaining a diverse fuel mix
that helps mitigate the impact of cost increases in any one fuel. Due to the
associated regulatory treatment and the method allowed for recovery, changes
in fuel costs from year to year have no material impact on operating results of
Electric Utilities and Infrastructure, unless a commission finds a portion of such
costs to have been imprudent. However, delays between the expenditure for fuel
costs and recovery from customers can adversely impact the timing of cash
flows of Electric Utilities and Infrastructure.
The table below reflects significant electric rate case applications approved and effective in the past three years or applications currently pending approval.
Regulatory
Body
Annual
Increase
(in millions)
Return on
Equity
Equity
Component of
Capital Structure
Approved Rate Cases:
Duke Energy Progress 2016 South Carolina Rate Case(a)
PSCSC
(a)
10.1%
Pending Rate Cases:
Duke Energy Carolinas 2017 North Carolina Rate Case
Duke Energy Progress 2017 North Carolina Rate Case(b)
Duke Energy Progress 2017 North Carolina Rate Case(c)
Duke Energy Kentucky 2017 Kentucky Rate Case
Duke Energy Ohio 2017 Ohio Rate Case
NCUC
NCUC
NCUC
KPSC
PUCO
$
647
85
221
49
15
10.75%
9.9%
9.9%
10.3%
10.4%
53%
53%
52%
52%
49%
50.75%
Effective Date
1/1/2017
5/1/2018(d)
2/1/2018(d)
2/1/2018(d)
4/15/2018(d)
1/1/2018(d)
(a) An increase of approximately $38 million in revenues was effective January 1, 2017, and an additional increase of approximately $18.5 million in revenues was effective January 1, 2018. Duke Energy Progress amortized
approximately $18.5 million from the cost of removal reserve in 2017.
(b) On November 22, 2017, Duke Energy Progress and the North Carolina Public Staff filed an Agreement and Stipulation of Partial Settlement resolving certain portions of the proceeding, pending NCUC approval.
(c) Represents portions in the original 2017 rate case application not covered by the Agreement and Stipulation of Partial Settlement.
(d) Represents the requested effective dates in the filings. Actual effective dates may differ based on orders from the respective commission.
For more information on rate matters and other regulatory proceedings,
see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.”
Federal
The FERC approves Electric Utilities and Infrastructure’s cost-based
rates for electric sales to certain power and transmission wholesale customers.
Regulations of FERC and the state electric utility commissions govern access to
regulated electric and other data by nonregulated entities and services provided
between regulated and nonregulated energy affiliates. These regulations affect
the activities of nonregulated affiliates with Electric Utilities and Infrastructure.
Regional Transmission Organizations (RTO). PJM Interconnection,
LLC (PJM) and Midcontinent Independent System Operator, Inc. (MISO) are
the Independent System Operators (ISO) and FERC-approved RTOs for the
regions in which Duke Energy Ohio and Duke Energy Indiana operate. PJM and
MISO operate energy, capacity and other markets, and control the day-to-day
operations of bulk power systems through central dispatch.
Duke Energy Ohio is a member of PJM and Duke Energy Indiana is a
member of MISO. Transmission owners in these RTOs have turned over control
of their transmission facilities and their transmission systems are currently
under the dispatch control of the RTOs. Transmission service is provided on
a regionwide, open-access basis using the transmission facilities of the RTO
members at rates based on the costs of transmission service.
Environmental. Electric Utilities and Infrastructure is subject to the
jurisdiction of the EPA and state and local environmental agencies. For a
discussion of environmental regulation, see “Environmental Matters” in this
section. See “Other Matters” section of MD&A for a discussion about potential
Global Climate Change legislation and other EPA regulations under development
and the potential impacts such legislation and regulation could have on Duke
Energy’s operations.
GAS UTILITIES AND INFRASTRUCTURE
Gas Utilities and Infrastructure conducts natural gas operations primarily
through the regulated public utilities of Piedmont and Duke Energy Ohio. The
natural gas operations are subject to the rules and regulations of the NCUC,
PSCSC, PUCO, KPSC, Tennessee Public Utility Commission (TPUC), Pipeline
and Hazardous Materials Safety Administration (PHMSA) and the FERC. Gas
Utilities and Infrastructure serves residential, commercial, industrial and power
generation natural gas customers. Gas Utilities and Infrastructure has over
1.5 million customers, including more than 1 million customers located in North
Carolina, South Carolina and Tennessee, and an additional 526,000 customers
located within southwestern Ohio and northern Kentucky. In the Carolinas,
Ohio and Kentucky, the service areas are comprised of numerous cities, towns
and communities. In Tennessee, the service area is the metropolitan area of
Nashville.
The number of residential, commercial and industrial customers within
the Gas Utilities and Infrastructure service territory is expected to increase
over time. Average usage per residential customer is expected to remain flat or
decline for the foreseeable future, however decoupled rates in North Carolina
and various rate design mechanisms in other jurisdictions partially mitigate the
impact of the declining usage per customer on overall profitability. While total
11
PART I industrial and general service sales increased in 2017 when compared to 2016,
the growth rate was modest when compared to historical periods.
Gas Utilities and Infrastructure also owns, operates and has investments
in various pipeline transmission and natural gas storage facilities.
Natural Gas for Retail Distribution
Gas Utilities and Infrastructure is responsible for the distribution of
natural gas to retail customers in its North Carolina, South Carolina, Tennessee,
Ohio and Kentucky service territories. Gas Utilities and Infrastructure’s natural
gas procurement strategy is to contract primarily with major and independent
producers and marketers for natural gas supply. It also purchases a diverse
portfolio of transportation and storage service from interstate pipelines. This
strategy allows Gas Utilities and Infrastructure to assure reliable natural gas
supply and transportation for its firm customers during peak winter conditions.
When firm pipeline services or contracted natural gas supplies are temporarily
not needed due to market demand fluctuations, Gas Utilities and Infrastructure
may release these services and supplies in the secondary market under
FERC-approved capacity release provisions or make wholesale secondary
market sales. In 2017, firm supply purchase commitment agreements provided
100 percent of the natural gas supply for Piedmont and 100 percent for Duke
Energy Ohio.
Seasonality and the Impact of Weather
Gas Utilities and Infrastructure’s costs and revenues are influenced by
seasonal patterns due to peak natural gas sales occurring during the winter
months. Residential customers are the most impacted by weather. There are
certain regulatory mechanisms for the North Carolina, South Carolina and
Tennessee service territories that normalize the margins collected from certain
customer classes during the winter, providing for an adjustment either up or
down. In North Carolina, rate design provides protection from both weather and
other usage variations such as conservation. In South Carolina and Tennessee,
revenues are adjusted solely based on weather during the periods of November
through March and October through April, respectively. Rate design for the
Ohio service territory also mitigates the impacts of weather on customer
bills. Estimated weather impacts are based on actual current period weather
compared to normal weather conditions. Normal weather conditions are defined
as the long-term average of actual historical weather conditions.
Degree-day data are used to estimate energy required to maintain
comfortable indoor temperatures based on each day’s average temperature.
Heating-degree days measure the variation in weather based on the extent the
average daily temperature falls below a base temperature. The methodology
used to estimate the applicable impact of weather does not consider all
variables that may impact customer response to weather conditions, such as
wind chill. The precision of this estimate may also be impacted by applying
long-term weather trends to shorter-term periods.
Competition
Gas Utilities and Infrastructure’s businesses operate as the sole supplier
of natural gas within their retail service territories, with the exception of Ohio,
which has a competitive natural gas supply market for distribution service. Gas
Utilities and Infrastructure owns and operates facilities necessary to transport
and distribute natural gas. Gas Utilities and Infrastructure earns retail margin
on the transmission and distribution of natural gas and not on the cost of the
underlying commodity. Services are priced by state commission approved rates
designed to include the costs of providing these services and a reasonable
return on invested capital. This regulatory policy is intended to provide safe and
reliable natural gas service at fair prices.
In residential, commercial and industrial customer markets, natural
gas distribution operations compete with other companies that supply energy,
primarily electric companies, propane and fuel oil dealers, renewable energy
providers and coal companies in relation to sources of energy for electric
power plants, as well as nuclear energy. A significant competitive factor is
price. Gas Utilities and Infrastructure’s primary product competition is with
electricity for heating, water heating and cooking. Increases in the price of
natural gas or decreases in the price of other energy sources could negatively
impact competitive position by decreasing the price benefits of natural gas
to the consumer. In the case of industrial customers, such as manufacturing
plants, adverse economic or market conditions, including higher natural gas
costs, could cause these customers to suspend business operations or to use
alternative sources of energy in favor of energy sources with lower per-unit
costs.
Higher natural gas costs or decreases in the price of other energy sources
may allow competition from alternative energy sources for applications that
have traditionally used natural gas, encouraging some customers to move
away from natural gas-fired equipment to equipment fueled by other energy
sources. Competition between natural gas and other forms of energy is also
based on efficiency, performance, reliability, safety and other non-price factors.
Technological improvements in other energy sources and events that impair
the public perception of the non-price attributes of natural gas could erode
our competitive advantage. These factors in turn could decrease the demand
for natural gas, impair our ability to attract new customers and cause existing
customers to switch to other forms of energy or to bypass our systems in favor
of alternative competitive sources. This could result in slow or no customer
growth and could cause customers to reduce or cease using our product,
thereby reducing our ability to make capital expenditures and otherwise grow
our business, adversely affecting our earnings.
Pipeline and Storage Investments
Duke Energy, through its Gas Utilities and Infrastructure segment, is a
47 percent equity member of Atlantic Coast Pipeline, LLC (ACP) that plans
to build and own the proposed Atlantic Coast Pipeline (ACP Pipeline), an
approximately 600-mile interstate natural gas pipeline, regulated by FERC. Prior
to the Piedmont acquisition, Duke Energy owned a 40 percent equity ownership
in ACP. The ACP pipeline is intended to transport diverse natural gas supplies
into southeastern markets. Duke Energy Carolinas, Duke Energy Progress and
Piedmont, among others, will be customers of the ACP pipeline. The targeted
in-service date of the pipeline is late 2019.
Gas Utilities and Infrastructure also has a 7.5 percent equity ownership
interest in Sabal Trail Transmission, LLC (Sabal Trail). Sabal Trail is a joint
venture that owns a 515-mile natural gas pipeline (Sabal Trail pipeline) to
transport natural gas to Florida, regulated by FERC. The Sabal Trail phase one
mainline was placed into service in July 2017 and traverses Alabama, Georgia
and Florida. A request to place in-service a lateral line to the Duke Energy
Florida’s Citrus County Combined Cycle facility is pending with FERC. Current
legal challenges to the Sabal Trail pipeline are ongoing, which may have an
impact on continuing operations of the pipeline.
Gas Utilities and Infrastructure has a 24 percent equity ownership
interest in Constitution Pipeline Company, LLC (Constitution), an interstate
pipeline development company formed to develop, construct, own and operate
a 124-mile natural gas pipeline and related facilities connecting shale natural
gas supplies and gathering systems in Susquehanna County, Pennsylvania, to
Iroquois Gas Transmission and Tennessee Gas Pipeline systems in New York,
regulated by FERC. As a result of permitting delays and project uncertainty,
Constitution is unable to approximate an in-service date.
As a result of the Piedmont acquisition, Duke Energy, through its Gas
Utilities and Infrastructure segment, has a 21.49 percent equity ownership
interest in Cardinal Pipeline Company, LLC (Cardinal), an intrastate pipeline
located in North Carolina regulated by the NCUC, a 45 percent equity ownership
in Pine Needle LNG Company, LLC (Pine Needle), an interstate liquefied natural
gas storage facility located in North Carolina and a 50 percent equity ownership
interest in Hardy Storage Company, LLC (Hardy Storage), an underground
interstate natural gas storage facility located in Hardy and Hampshire counties
in West Virginia. Pine Needle and Hardy Storage are regulated by FERC.
KO Transmission Company (KO Transmission), a wholly owned subsidiary
of Duke Energy Ohio, is an interstate pipeline company engaged in the business
12
PART I of transporting natural gas and is subject to the rules and regulations of FERC.
KO Transmission’s 90-mile pipeline supplies natural gas to Duke Energy Ohio
and interconnects with the Columbia Gulf Transmission pipeline and Tennessee
Gas Pipeline. An approximately 70-mile portion of KO Transmission’s pipeline
facilities is co-owned by Columbia Gas Transmission Corporation.
See Notes 4, 12 and 17 to the Consolidated Financial Statements,
“Regulatory Matters,” “Investments in Unconsolidated Affiliates” and “Variable
Interest Entities,” respectively, for further information on Duke Energy’s pipeline
investments.
Inventory
Gas Utilities and Infrastructure must maintain adequate natural gas
inventory in order to provide reliable delivery to customers. As of December 31,
2017, the inventory balance for Gas Utilities and Infrastructure was $106
million. For more information on inventory, see Note 1 to the Consolidated
Financial Statements, “Summary of Significant Accounting Policies.”
Regulation
State
The NCUC, PSCSC, PUCO, TPUC and KPSC (collectively, the state gas
utility commissions) approve rates for Duke Energy’s retail natural gas service
within their respective states. The state gas utility commissions, to varying
degrees, have authority over the construction and operation of Gas Utilities
and Infrastructure’s natural gas distribution facilities. Certificates of Public
Convenience and Necessity or Certificates of Environmental Compatibility
and Public Necessity issued by the state gas utility commissions or other
government agencies, as applicable, authorize Gas Utilities and Infrastructure
to construct and operate its natural gas distribution facilities and to sell natural
gas to retail and wholesale customers. Prior approval from the relevant state
gas utility commission is required for Gas Utilities and Infrastructure to issue
securities. The underlying concept of utility ratemaking is to set rates at a level
that allows the utility to collect revenues equal to its cost of providing service
plus a reasonable rate of return on its invested capital, including equity.
In addition to amounts collected from customers though approved base
rates, each of the state gas utility commissions allow recovery of certain costs
through various cost-recovery clauses to the extent the respective commission
determines in periodic hearings that such costs, including any past over- or
under-recovered costs, are prudent.
Natural gas costs are eligible for recovery by Gas Utilities and
Infrastructure. Due to the associated regulatory treatment and the method
allowed for recovery, changes in natural gas costs from year to year have no
material impact on operating results of Gas Utilities and Infrastructure, unless
a commission finds a portion of such costs to have not been prudent. However,
delays between the expenditure for natural gas and recovery from customers
can adversely impact the timing of cash flows of Gas Utilities and Infrastructure.
The following table summarizes certain components underlying recently approved and effective base rates or rate stabilization filings in the last three years.
Piedmont 2016 South Carolina Rate Stabilization Adjustment Filing(a)
Piedmont 2017 South Carolina Rate Stabilization Adjustment Filing(a)
Annual
Increase
(in millions)
8
6
Return on
Equity
10.2%
10.2%
Equity
Component of
Capital Structure
53.0%
53.0%
Effective Date
November 2016
November 2017
(a) Under the rate stabilization adjustment mechanism, Piedmont resets rates in South Carolina based on updated costs and revenues on an annual basis.
Gas Utilities and Infrastructure has integrity management rider (IMR) mechanisms in North Carolina and Tennessee designed to separately track and recover
certain costs associated with capital investments incurred to comply with federal pipeline safety and integrity programs, as well as additional state safety and
integrity requirements in Tennessee. The following table summarizes information related to recently approved or pending IMR filings.
(in millions)
Piedmont 2017 IMR Filing – North Carolina(a)
Piedmont 2016 IMR Filing – Tennessee(b)
Pending Filing:
Piedmont 2017 IMR Filing – Tennessee(c)
(a) Cumulative investment amounts through September 30, 2017.
(b) Cumulative investment amounts through October 31, 2016.
(c) Cumulative investment amounts through October 31, 2017. A ruling from the TPUC is pending.
For more information on rate matters and other regulatory proceedings,
see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.”
Federal
Gas Utilities and Infrastructure is subject to various federal regulations,
including regulations that are particular to the natural gas industry. These
federal regulations include but are not limited to the following:
• Regulations of the FERC affect the certification and siting of new
interstate natural gas pipeline projects, the purchase and sale of,
the prices paid for, and the terms and conditions of service for the
interstate transportation and storage of natural gas.
Cumulative
Investment
Annual Margin
Revenues
Effective
Date
$
738
193
$
77
23
December 2017
January 2017
Proposed
Effective Date
$
231
$
23.4
January 2018
• Regulations of the PHMSA affect the design, construction, operation,
maintenance, integrity, safety and security of natural gas distribution
and transmission systems.
• Regulations of the EPA relate to the environment including proposed
air emissions regulations that would expand to include emissions
of methane. For a discussion of environmental regulation, see
“Environmental Matters” in this section. Refer to “Other Matters”
section of Management’s Discussion and Analysis of Financial
Condition and Results of Operations for a discussion about potential
Global Climate Change legislation and other EPA regulations under
development and the potential impacts such legislation and regulation
could have on Duke Energy’s operations.
13
PART I Regulations of FERC and the state gas utility commissions govern
access to regulated natural gas and other data by nonregulated entities and
services provided between regulated and nonregulated energy affiliates. These
regulations affect the activities of nonregulated affiliates with Gas Utilities and
Infrastructure.
Market Environment and Competition
The market price of commodities and services, along with the quality
and reliability of services provided, drive competition in the wholesale
energy business. Commercial Renewables’ main competitors include other
nonregulated generators and wholesale power providers.
COMMERCIAL RENEWABLES
Commercial Renewables primarily acquires, builds, develops and
operates wind and solar renewable generation throughout the continental
U.S. The portfolio includes nonregulated renewable energy and energy storage
businesses.
Commercial Renewables’ renewable energy includes utility-scale wind
and solar generation assets, which total 2,907 MW across 14 states from
21 wind facilities and 63 solar facilities. Revenues are primarily generated
by selling the power produced from renewable generation through long-term
contracts to utilities, electric cooperatives, municipalities and commercial and
industrial customers. In most instances, these customers have obligations
under state-mandated renewable energy portfolio standards or similar state or
local renewable energy goals. Energy and renewable energy credits generated by
wind and solar projects are generally sold at contractual prices. In addition, as
eligible wind and solar projects are placed in service, Commercial Renewables
recognizes either investment tax credits (ITCs) when the renewable solar or
wind project achieves commercial availability or production tax credits (PTC)
as power is generated by wind projects over 10 years. Renewable ITCs are
recognized over the useful life of the asset as a reduction to depreciation
expense with the benefit of the tax basis adjustment due to the ITC recognized in
income in the year of commercial availability.
As part of its growth strategy, Commercial Renewables has expanded
its investment portfolio through the addition of distributed solar companies
and projects, energy storage systems and energy management solutions
specifically tailored to commercial businesses. These investments include the
2015 acquisition of a controlling interest in REC Solar Corp., a California-based
provider of solar installations for retail, manufacturing, agriculture, technology,
government and nonprofit customers across the U.S. and Phoenix Energy
Technologies Inc., a California-based provider of enterprise energy management
and information software to commercial businesses. In 2017, Duke Energy
acquired the remaining interest in REC Solar.
For additional information on Commercial Renewables’ generation
facilities, see Item 2, “Properties.”
Regulation
Commercial Renewables is subject to regulation at the federal level,
primarily from the FERC. Regulations of the FERC govern access to regulated
market information by nonregulated entities and services provided between
regulated and nonregulated utilities.
Sources of Electricity
Commercial Renewables relies on wind and solar resources for its
generation of electric energy.
OTHER
The remainder of Duke Energy’s operations is presented as Other. While
it is not an operating segment, Other primarily includes interest expense on
holding company debt, unallocated corporate costs including costs to achieve
strategic acquisitions, amounts related to certain companywide initiatives and
contributions made to the Duke Energy Foundation. Other also includes Bison
Insurance Company Limited (Bison) and an investment in NMC.
The Duke Energy Foundation is a nonprofit organization funded by Duke
Energy shareholders that makes charitable contributions to selected nonprofits
and government subdivisions.
Bison, a wholly owned subsidiary of Duke Energy, is a captive insurance
company with the principal activity of providing Duke Energy subsidiaries with
indemnification for financial losses primarily related to property, workers’
compensation and general liability.
NMC is a joint venture that operates in Jubail, Saudi Arabia, as a large
regional producer of methanol and methyl tertiary butyl ether (MTBE), an
additive to gasoline. In 2017, NMC produced approximately 934,000 metric tons
of methanol and approximately 1,087,000 metric tons of MTBE. Approximately
40 percent of methanol is normally used in MTBE production. Upon the
successful startup of NMC’s polyacetal production facility during the fourth
quarter of 2017, Duke Energy’s ownership interest in NMC decreased from
25 percent to 17.5 percent. Duke Energy records the investment activity of NMC
using the equity method of accounting and retains 25 percent of NMC’s board of
directors representation and voting rights.
Regulation
Certain entities within Other are subject to the jurisdiction of federal, state
and local agencies.
Employees
On December 31, 2017, Duke Energy had a total of 29,060 employees
on its payroll. The total includes 5,483 employees who are represented by
labor unions under various collective bargaining agreements that generally
cover wages, benefits, working practices, and other terms and conditions of
employment.
14
PART I Executive Officers of the Registrants
The following table sets forth the individuals who currently serve as executive officers. Executive officers serve until their successors are duly elected or appointed.
Name
Lynn J. Good
Steven K. Young
Douglas F Esamann
Lloyd M. Yates
Dhiaa M. Jamil
Franklin H. Yoho
Julia S. Janson
Melissa H. Anderson
William E. Currens Jr.
Age(a)
Current and Recent Positions Held
58
59
60
57
61
58
53
53
48
Chairman, President and Chief Executive Officer. Ms. Good was elected as Chairman of the Board, effective January 1, 2016, and assumed
her position as President and Chief Executive Officer in July 2013. Prior to that, she served as Executive Vice President and Chief Financial
Officer since 2009.
Executive Vice President and Chief Financial Officer. Mr. Young assumed his current position in August 2013. Prior to that, he had served as
Senior Vice President, Chief Accounting Officer and Controller since April 2006.
Executive Vice President, Energy Solutions and President, Midwest and Florida Regions. Mr. Esamann assumed his current position in
September 2016 and was Executive Vice President and President, Midwest and Florida Regions since June 2015. Prior to that, he was President,
Duke Energy Indiana since November 2010.
Executive Vice President, Customer and Delivery Operations and President, Carolinas Region. Mr. Yates assumed his current position in
September 2016 and was Executive Vice President, Market Solutions and President, Carolinas Region since August 2014. He held the position
of Executive Vice President, Regulated Utilities from December 2012 to August 2014, and prior to that, had served as Executive Vice President,
Customer Operations since July 2012, upon the merger of Duke Energy and Progress Energy. Prior to the merger, Mr. Yates was President and
Chief Executive Officer of Progress Energy Carolinas, Inc., which is now known as Duke Energy Progress, LLC since July 2007.
Executive Vice President and Chief Operating Officer. Mr. Jamil assumed the role of Chief Operating Officer in May 2016. Prior to his current
position, he had held the title Executive Vice President and President, Regulated Generation and Transmission since June 2015. Prior to that,
he had served as Executive Vice President and President, Regulated Generation since August 2014. He served as Executive Vice President and
President of Duke Energy Nuclear from March 2013 to August 2014, and Chief Nuclear Officer from February 2008 to February 2013. He also
served as Chief Generation Officer for Duke Energy from July 2009 to June 2012.
Executive Vice President and President, Natural Gas. Mr. Yoho assumed his current position in October 2016 upon the acquisition of
Piedmont by Duke Energy. Prior to this appointment, he served as Senior Vice President and Chief Commercial Officer of Piedmont since August
2011. Prior to that, he served as Senior Vice President, Commercial Operations since March 2002.
Executive Vice President, External Affairs, Chief Legal Officer and Corporate Secretary. Ms. Janson assumed her current position in
December 2012 and, in May 2017, assumed the responsibilities for the External Affairs and Strategic Policy organization. Prior to that, she had
held the position of President of Duke Energy Ohio and Duke Energy Kentucky since 2008.
Executive Vice President, Administration and Chief Human Resources Officer. Ms. Anderson assumed her position in May 2016 and had
been Executive Vice President and Chief Human Resources Officer since January 2015. Prior to joining Duke Energy, she served as Senior Vice
President of Human Resources at Domtar Inc. since 2010.
Senior Vice President, Chief Accounting Officer and Controller. Mr. Currens assumed his current position in May 2016. Prior to that, he had
held the position of Vice President, Investor Relations since 2009.
(a) The ages of the officers provided are as of December 31, 2017.
There are no family relationships between any of the executive officers,
nor any arrangement or understanding between any executive officer and any
other person involved in officer selection.
• The National Environmental Policy Act, which requires federal agencies
to consider potential environmental impacts in their permitting and
licensing decisions, including siting approvals.
Environmental Matters
The Duke Energy Registrants are subject to federal, state and local laws
and regulations with regard to air and water quality, hazardous and solid waste
disposal and other environmental matters. Environmental laws and regulations
affecting the Duke Energy Registrants include, but are not limited to:
• The Clean Air Act (CAA), as well as state laws and regulations
impacting air emissions, including State Implementation Plans related
to existing and new national ambient air quality standards for ozone
and particulate matter. Owners and/or operators of air emission sources
are responsible for obtaining permits and for annual compliance and
reporting.
• The Clean Water Act (CWA), which requires permits for facilities that
discharge wastewaters into navigable waters.
• The Comprehensive Environmental Response, Compensation and
Liability Act, which can require any individual or entity that currently
owns or in the past owned or operated a disposal site, as well as
transporters or generators of hazardous substances sent to a disposal
site, to share in remediation costs.
• Coal Ash Act, as amended, which establishes requirements regarding
the use and closure of existing ash basins, the disposal of ash at active
coal plants and the handling of surface water and groundwater impacts
from ash basins in North Carolina.
• The Solid Waste Disposal Act, as amended by the Resource Conservation
and Recovery Act (RCRA), which creates a framework for the proper
management of hazardous and nonhazardous solid waste; classifies
CCR as nonhazardous waste; and establishes standards for landfill
and surface impoundment placement, design, operation and closure,
groundwater monitoring, corrective action, and post-closure care.
• The Toxic Substances Control Act (TSCA), which gives EPA the authority
to require reporting, recordkeeping and testing requirements, and to
place restrictions relating to chemical substances and/or mixtures,
including polychlorinated biphenyls.
For more information on environmental matters, see Notes 5 and 9 to
the Consolidated Financial Statements, “Commitments and Contingencies –
Environmental” and “Asset Retirement Obligations,” respectively, and the “Other
Matters” section of MD&A. Except as otherwise described in these sections,
costs to comply with current federal, state and local provisions regulating the
discharge of materials into the environment or other potential costs related to
protecting the environment are incorporated into the routine cost structure of
15
PART I our various business segments and are not expected to have a material adverse
effect on the competitive position, consolidated results of operations, cash flows
or financial position of the Duke Energy Registrants.
The “Other Matters” section of MD&A includes an estimate of future
capital expenditures required to comply with environmental regulations and a
discussion of Global Climate Change including the potential impact of current
and future legislation related to greenhouse gas (GHG) emissions on the
Duke Energy Registrants’ operations. Recently passed and potential future
environmental statutes and regulations could have a significant impact on the
Duke Energy Registrants’ results of operations, cash flows or financial position.
However, if and when such statutes and regulations become effective, the Duke
Energy Registrants will seek appropriate regulatory recovery of costs to comply
within its regulated operations.
DUKE ENERGY CAROLINAS
Duke Energy Carolinas is a regulated public utility primarily engaged in
the generation, transmission, distribution and sale of electricity in portions of
North Carolina and South Carolina. Duke Energy Carolinas’ service area covers
approximately 24,000 square miles and supplies electric service to 2.5 million
residential, commercial and industrial customers. For information about Duke
Energy Carolinas’ generating facilities, see Item 2, “Properties.” Duke Energy
Carolinas is subject to the regulatory provisions of the NCUC, PSCSC, NRC
and FERC.
Substantially all of Duke Energy Carolinas’ operations are regulated
and qualify for regulatory accounting. Duke Energy Carolinas operates one
reportable business segment, Electric Utilities and Infrastructure. For additional
information regarding this business segment, including financial information,
see Note 3 to the Consolidated Financial Statements, “Business Segments.”
PROGRESS ENERGY
Progress Energy is a public utility holding company primarily engaged in
the regulated electric utility business and is subject to regulation by the FERC.
Progress Energy conducts operations through its wholly owned subsidiaries,
Duke Energy Progress and Duke Energy Florida. When discussing Progress
Energy’s financial information, it necessarily includes the results of Duke Energy
Progress and Duke Energy Florida.
Substantially all of Progress Energy’s operations are regulated and qualify
for regulatory accounting. Progress Energy operates one reportable business
segment, Electric Utilities and Infrastructure. For additional information
regarding this business segment, including financial information, see Note 3 to
the Consolidated Financial Statements, “Business Segments.”
DUKE ENERGY PROGRESS
Duke Energy Progress is a regulated public utility primarily engaged in
the generation, transmission, distribution and sale of electricity in portions
of North Carolina and South Carolina. Duke Energy Progress’ service area
covers approximately 32,000 square miles and supplies electric service to
approximately 1.5 million residential, commercial and industrial customers.
For information about Duke Energy Progress’ generating facilities, see Item 2,
“Properties.” Duke Energy Progress is subject to the regulatory provisions of the
NCUC, PSCSC, NRC and FERC.
Substantially all of Duke Energy Progress’ operations are regulated
and qualify for regulatory accounting. Duke Energy Progress operates one
reportable business segment, Electric Utilities and Infrastructure. For additional
information regarding this business segment, including financial information,
see Note 3 to the Consolidated Financial Statements, “Business Segments.”
DUKE ENERGY FLORIDA
Duke Energy Florida is a regulated public utility primarily engaged in
the generation, transmission, distribution and sale of electricity in portions of
Florida. Duke Energy Florida’s service area covers approximately 13,000 square
miles and supplies electric service to approximately 1.8 million residential,
commercial and industrial customers. For information about Duke Energy
Florida’s generating facilities, see Item 2, “Properties.” Duke Energy Florida is
subject to the regulatory provisions of the FPSC, NRC and FERC.
Substantially all of Duke Energy Florida’s operations are regulated
and qualify for regulatory accounting. Duke Energy Florida operates one
reportable business segment, Electric Utilities and Infrastructure. For additional
information regarding this business segment, including financial information,
see Note 3 to the Consolidated Financial Statements, “Business Segments.”
DUKE ENERGY OHIO
Duke Energy Ohio is a regulated public utility primarily engaged in the
transmission and distribution of electricity in portions of Ohio and Kentucky,
in the generation and sale of electricity in portions of Kentucky and the
transportation and sale of natural gas in portions of Ohio and Kentucky. Duke
Energy Ohio also conducts competitive auctions for retail electricity supply in
Ohio whereby recovery of the energy price is from retail customers. Operations
in Kentucky are conducted through its wholly owned subsidiary, Duke Energy
Kentucky, Inc. (Duke Energy Kentucky). References herein to Duke Energy Ohio
include Duke Energy Ohio and its subsidiaries, unless otherwise noted. Duke
Energy Ohio is subject to the regulatory provisions of the PUCO, KPSC and FERC.
Duke Energy Ohio’s service area covers approximately 3,000 square miles
and supplies electric service to approximately 850,000 residential, commercial
and industrial customers and provides transmission and distribution services
for natural gas to approximately 529,000 customers. For information about Duke
Energy Ohio’s generating facilities, see Item 2, “Properties.”
KO Transmission, a wholly owned subsidiary of Duke Energy Ohio, is an
interstate pipeline company engaged in the business of transporting natural
gas and is subject to the rules and regulations of FERC. KO Transmission’s
90-mile pipeline supplies natural gas to Duke Energy Ohio and interconnects
with the Columbia Gulf Transmission pipeline and Tennessee Gas Pipeline. An
approximately 70-mile portion of KO Transmission’s pipeline facilities is co-
owned by Columbia Gas Transmission Corporation.
On April 2, 2015, Duke Energy completed the sale of its nonregulated
Midwest generation business, which sold power into wholesale energy markets,
to a subsidiary of Dynegy. For further information about the sale of the Midwest
Generation business, refer to Note 2 to the Consolidated Financial Statements,
“Acquisitions and Dispositions.”
Substantially all of Duke Energy Ohio’s operations that remain after the
sale qualify for regulatory accounting.
Business Segments
Duke Energy Ohio has two reportable operating segments, Electric
Utilities and Infrastructure and Gas Utilities and Infrastructure. For additional
information on these business segments, including financial information, see
Note 3 to the Consolidated Financial Statements, “Business Segments.”
DUKE ENERGY INDIANA
Duke Energy Indiana is a regulated public utility primarily engaged in
the generation, transmission, distribution and sale of electricity in portions of
Indiana. Duke Energy Indiana’s service area covers 23,000 square miles and
supplies electric service to 820,000 residential, commercial and industrial
customers. See Item 2, “Properties” for further discussion of Duke Energy
16
PART I Indiana’s generating facilities, transmission and distribution. Duke Energy
Indiana is subject to the regulatory provisions of the IURC and FERC.
Substantially all of Duke Energy Indiana’s operations are regulated
and qualify for regulatory accounting. Duke Energy Indiana operates one
reportable business segment, Electric Utilities and Infrastructure. For additional
information regarding this business segment, including financial information,
see Note 3 to the Consolidated Financial Statements, “Business Segments.”
PIEDMONT
Piedmont is a regulated public utility primarily engaged in the distribution
of natural gas to over 1 million residential, commercial, industrial and power
generation customers in portions of North Carolina, South Carolina and
Tennessee, including customers served by municipalities who are wholesale
customers. Piedmont is subject to the regulatory provisions of the NCUC,
PSCSC, TPUC and FERC.
Substantially all of Piedmont’s operations are regulated and qualify for
regulatory accounting. Piedmont operates one reportable business segment, Gas
Utilities and Infrastructure. For additional information regarding this business
segment, including financial information, see Note 3 to the Consolidated
Financial Statements, “Business Segments.”
ITEM 1A. RISK FACTORS
In addition to other disclosures within this Form 10-K, including
“Management’s Discussion and Analysis of Financial Condition and Results
of Operations – Matters Impacting Future Results” for each registrant in Item 7,
and other documents filed with the SEC from time to time, the following
factors should be considered in evaluating Duke Energy and its subsidiaries.
Such factors could affect actual results of operations and cause results to
differ substantially from those currently expected or sought. Unless otherwise
indicated, risk factors discussed below generally relate to risks associated with
all of the Duke Energy Registrants. Risks identified at the Subsidiary Registrant
level are generally applicable to Duke Energy.
BUSINESS STRATEGY RISKS
Duke Energy’s future results could be adversely affected if it is unable to
implement its business strategy.
Duke Energy’s future results of operations depend, in significant part,
on the extent to which it can implement its business strategy successfully.
Duke Energy’s strategy, including transforming the customer experience,
modernizing the energy grid, generating cleaner energy, expansion of natural gas
infrastructure, modernizing the regulatory construct and engaging employees
and stakeholders to accomplish these priorities, is subject to business,
economic and competitive uncertainties and contingencies, many of which are
beyond its control. As a consequence, Duke Energy may not be able to fully
implement or realize the anticipated results of its strategy.
REGULATORY, LEGISLATIVE AND LEGAL RISKS
The Duke Energy Registrants’ regulated utility revenues, earnings and
results are dependent on state legislation and regulation that affect
electric generation, electric and natural gas transmission, distribution and
related activities, which may limit their ability to recover costs.
The Duke Energy Registrants’ regulated electric and natural gas utility
businesses are regulated on a cost-of-service/rate-of-return basis subject to
statutes and regulatory commission rules and procedures of North Carolina,
South Carolina, Florida, Ohio, Tennessee, Indiana and Kentucky. If the Duke
Energy Registrants’ regulated utility earnings exceed the returns established
by the state utility commissions, retail electric and natural gas rates may
be subject to review and possible reduction by the commissions, which may
decrease the Duke Energy Registrants’ future earnings. Additionally, if regulatory
bodies do not allow recovery of costs incurred in providing service on a timely
basis, the Duke Energy Registrants’ future earnings could be negatively
impacted.
If legislative and regulatory structures were to evolve in such a way that
the Duke Energy Registrants’ exclusive rights to serve their regulated customers
were eroded, their future earnings could be negatively impacted. Federal and
state regulations, laws and other efforts designed to promote and expand the
use of energy efficiency measures and distributed generation technologies, such
as private solar and battery storage, in Duke Energy service territories could
result in customers leaving the electric distribution system and an increase
in customer net energy metering, which allows customers with private solar
to receive bill credits for surplus power at the full retail amount. Over time,
customer adoption of these technologies and increased energy efficiency could
result in excess generation resources as well as stranded costs if Duke Energy is
not able to fully recover the costs and investment in generation.
State regulators have approved various mechanisms to stabilize natural
gas utility margins, including margin decoupling in North Carolina, rate
stabilization in South Carolina and uncollectible natural gas cost recovery in all
states. State regulators have approved other margin stabilizing mechanisms
that, for example, allow for recovery of margin losses associated with
negotiated transactions designed to retain large volume customers that could
use alternative fuels or that may otherwise directly access natural gas supply
through their own connection to an interstate pipeline. If regulators decided to
discontinue the Duke Energy Registrants’ use of tariff mechanisms, it would
negatively impact results of operations, financial condition and cash flows.
In addition, regulatory authorities also review whether natural gas costs are
prudent and can disallow the recovery of a portion of natural gas costs that the
Duke Energy Registrants seek to recover from customers, which would adversely
impact earnings.
The rates that the Duke Energy Registrants’ regulated utility businesses
are allowed to charge are established by state utility commissions in rate
case proceedings, which may limit their ability to recover costs and earn
an appropriate return on investment.
The rates that the Duke Energy Registrants’ regulated utility business are
allowed to charge significantly influences the results of operations, financial
position and liquidity of the Duke Energy Registrants. The regulation of the
rates that the regulated utility businesses charge customers is determined,
in large part, by state utility commissions in rate case proceedings. Negative
decisions made by these regulators could have a material adverse effect on
the Duke Energy Registrants’ results of operations, financial position or liquidity
and affect the ability of the Duke Energy Registrants to recover costs and an
appropriate return on the significant infrastructure investments being made.
Duke Energy cannot predict the outcome of these rate case proceedings.
Deregulation or restructuring in the electric industry may result in
increased competition and unrecovered costs that could adversely affect
the Duke Energy Registrants’ financial position, results of operations or
cash flows and their utility businesses.
Increased competition resulting from deregulation or restructuring
legislation could have a significant adverse impact on the Duke Energy
Registrants’ results of operations, financial position or cash flows. Retail
competition and the unbundling of regulated electric service could have a
significant adverse financial impact on the Duke Energy Registrants due to
an impairment of assets, a loss of retail customers, lower profit margins or
increased costs of capital. The Duke Energy Registrants cannot predict the
17
PART I extent and timing of entry by additional competitors into the electric markets.
The Duke Energy Registrants cannot predict if or when they will be subject to
changes in legislation or regulation, nor can they predict the impact of these
changes on their financial position, results of operations or cash flows.
The Duke Energy Registrants’ businesses are subject to extensive federal
regulation and a wide variety of laws and governmental policies, including
taxes, that may change over time in ways that affect operations and costs.
Duke Energy is subject to regulations under a wide variety of U.S. federal
and state regulations and policies. There can be no assurance that laws,
regulations and policies will not be changed in ways that result in material
modifications of business models and objectives or affect returns on investment
by restricting activities and products, subjecting them to escalating costs or
prohibiting them outright.
On December 22, 2017, President Trump signed the Tax Cuts and
Jobs Acts (the Tax Act) into law which, among other provisions, reduces the
maximum federal corporate income tax rate from 35 percent to 21 percent
and limits interest deductions outside of regulated utility operations effective
January 1, 2018. The resulting revaluation of existing deferred tax assets
and liabilities to the lower federal corporate tax rate were recognized in Duke
Energy’s December 31, 2017, financial statements. Guidance issued by the
SEC indicates that additional adjustments for items that were estimated may
be recorded during 2018 if new information becomes available. The Tax Act also
could be amended or subject to technical correction, which could change the
financial impacts that were recorded at December 31, 2017, or are expected
to be recorded in future periods. The FERC and state utility commissions
will determine the regulatory treatment of the impacts of the Tax Act. Duke
Energy’s future results of operations, financial condition and cash flows could
be adversely impacted by the Tax Act, subsequent amendments or corrections,
or the actions of the FERC, state utility commissions or credit rating agencies
related to the Tax Act.
The Duke Energy Registrants are subject to regulation by FERC, NRC,
EPA and various other federal agencies as well as the North American Electric
Reliability Corporation. Regulation affects almost every aspect of the Duke
Energy Registrants’ businesses, including, among other things, their ability
to: take fundamental business management actions; determine the terms
and rates of transmission and distribution services; make acquisitions; issue
equity or debt securities; engage in transactions with other subsidiaries and
affiliates; and pay dividends upstream to the Duke Energy Registrants. Changes
to federal regulations are continuous and ongoing. The Duke Energy Registrants
cannot predict the future course of regulatory changes or the ultimate effect
those changes will have on their businesses. However, changes in regulation
can cause delays in or affect business planning and transactions and can
substantially increase the Duke Energy Registrants’ costs.
The Duke Energy Registrants are subject to numerous environmental
laws and regulations requiring significant capital expenditures that can
increase the cost of operations, and which may impact or limit business
plans, or cause exposure to environmental liabilities.
The Duke Energy Registrants are subject to numerous environmental laws
and regulations affecting many aspects of their present and future operations,
including CCRs, air emissions, water quality, wastewater discharges, solid
waste and hazardous waste. These laws and regulations can result in
increased capital, operating and other costs. These laws and regulations
generally require the Duke Energy Registrants to obtain and comply with a wide
variety of environmental licenses, permits, inspections and other approvals.
Compliance with environmental laws and regulations can require significant
expenditures, including expenditures for cleanup costs and damages arising
from contaminated properties. Failure to comply with environmental regulations
may result in the imposition of fines, penalties and injunctive measures
affecting operating assets. The steps the Duke Energy Registrants could be
required to take to ensure their facilities are in compliance could be prohibitively
expensive. As a result, the Duke Energy Registrants may be required to shut
down or alter the operation of their facilities, which may cause the Duke Energy
Registrants to incur losses. Further, the Duke Energy Registrants may not be
successful in recovering capital and operating costs incurred to comply with
new environmental regulations through existing regulatory rate structures
and their contracts with customers. Also, the Duke Energy Registrants may
not be able to obtain or maintain from time to time all required environmental
regulatory approvals for their operating assets or development projects. Delays
in obtaining any required environmental regulatory approvals, failure to obtain
and comply with them or changes in environmental laws or regulations to more
stringent compliance levels could result in additional costs of operation for
existing facilities or development of new facilities being prevented, delayed or
subject to additional costs. Although it is not expected that the costs to comply
with current environmental regulations will have a material adverse effect on
the Duke Energy Registrants’ financial position, results of operations or cash
flows due to regulatory cost recovery, the Duke Energy Registrants are at risk
that the costs of complying with environmental regulations in the future will
have such an effect.
The EPA has recently enacted or proposed new federal regulations
governing the management of cooling water intake structures, wastewater and
CO2 emissions. These regulations may require the Duke Energy Registrants to
make additional capital expenditures and increase operating and maintenance
costs.
The Duke Energy Registrants’ operations, capital expenditures and
financial results may be affected by regulatory changes related to the
impacts of global climate change.
There is continued concern, both nationally and internationally, about
climate change. The EPA may adopt and implement regulations to restrict
emissions of GHGs. Increased regulation of GHG emissions could impose
significant additional costs on the Duke Energy Registrants’ operations, their
suppliers and customers. Regulatory changes could also result in generation
facilities to be retired early and result in stranded costs if Duke Energy is not
able to fully recover the costs and investment in generation. At this time, the
effect that climate change regulation may have in the future on Duke Energy’s
business, financial condition or results of operations is not able to be predicted.
OPERATIONAL RISKS
The Duke Energy Registrants’ results of operations may be negatively
affected by overall market, economic and other conditions that are beyond
their control.
Sustained downturns or sluggishness in the economy generally affect the
markets in which the Duke Energy Registrants operate and negatively influence
operations. Declines in demand for electricity or natural gas as a result of
economic downturns in the Duke Energy Registrants’ regulated service territories
will reduce overall sales and lessen cash flows, especially as industrial
customers reduce production and, therefore, consumption of electricity and the
use of natural gas. Although the Duke Energy Registrants’ regulated electric
and natural gas businesses are subject to regulated allowable rates of return
and recovery of certain costs, such as fuel and purchased natural gas costs,
under periodic adjustment clauses, overall declines in electricity or natural gas
sold as a result of economic downturn or recession could reduce revenues and
cash flows, thereby diminishing results of operations. Additionally, prolonged
economic downturns that negatively impact the Duke Energy Registrants’ results
of operations and cash flows could result in future material impairment charges
to write-down the carrying value of certain assets, including goodwill, to their
respective fair values.
18
PART I The Duke Energy Registrants also sell electricity into the spot market or
other competitive power markets on a contractual basis. With respect to such
transactions, the Duke Energy Registrants are not guaranteed any rate of return
on their capital investments through mandated rates, and revenues and results
of operations are likely to depend, in large part, upon prevailing market prices.
These market prices may fluctuate substantially over relatively short periods
of time and could reduce the Duke Energy Registrants’ revenues and margins,
thereby diminishing results of operations.
Factors that could impact sales volumes, generation of electricity and
market prices at which the Duke Energy Registrants are able to sell electricity
and natural gas are as follows:
• weather conditions, including abnormally mild winter or summer
weather that cause lower energy or natural gas usage for heating
or cooling purposes, as applicable, and periods of low rainfall that
decrease the ability to operate facilities in an economical manner;
• supply of and demand for energy commodities;
• transmission or transportation constraints or inefficiencies that impact
nonregulated energy operations;
• availability of competitively priced alternative energy sources, which
are preferred by some customers over electricity produced from coal,
nuclear or natural gas plants, and customer usage of energy-efficient
equipment that reduces energy demand;
• natural gas, crude oil and refined products production levels and prices;
• ability to procure satisfactory levels of inventory, such as coal, natural
gas and uranium; and
• capacity and transmission service into, or out of, the Duke Energy
Registrants’ markets.
Natural disasters or operational accidents may adversely affect the Duke
Energy Registrants’ operating results.
Natural disasters (such as electromagnetic events or the 2011 earthquake
and tsunami in Japan) or other operational accidents within the company or
industry (such as the San Bruno, California natural gas transmission pipeline
failure) could have direct significant impacts on the Duke Energy Registrants as
well as on key contractors and suppliers. Such events could indirectly impact
the Duke Energy Registrants through changes to policies, laws and regulations
whose compliance costs have a significant impact on the Duke Energy
Registrants’ financial position, results of operations and cash flows.
The reputation and financial condition of the Duke Energy Registrants
could be negatively impacted due to their obligations to comply with
federal and state regulations, laws, and other legal requirements that
govern the operations, assessments, storage, closure, remediation,
disposal and monitoring relating to CCR, the high costs and new
rate impacts associated with implementing these new CCR-related
requirements and the strategies and methods necessary to implement
these requirements in compliance with these legal obligations.
As a result of electricity produced for decades at coal-fired power plants,
the Duke Energy Registrants manage large amounts of CCR that are primarily
stored in dry storage within landfills or combined with water in other surface
impoundments, all in compliance with applicable regulatory requirements.
However, the potential exists for another CCR-related incident, such as the one
that occurred during the 2014 Dan River Steam Station ash basin release, that
could raise environmental or general public health concerns. Such a CCR-
related incident could have a material adverse impact on the reputation and
financial condition of the Duke Energy Registrants.
During 2015, EPA regulations were enacted related to the management of
CCR from power plants. These regulations classify CCR as nonhazardous waste
under the RCRA and apply to electric generating sites with new and existing
landfills, new and existing surface impoundments, structural fills and CCR
piles, and establishes requirements regarding landfill design, structural integrity
design and assessment criteria for surface impoundments, groundwater
monitoring, protection and remedial procedures and other operational and
reporting procedures for the disposal and management of CCR. In addition to
the federal regulations, CCR landfills and surface impoundments will continue
to be independently regulated by existing state laws, regulations and permits, as
well as additional legal requirements that may be imposed in the future. These
federal and state laws, regulations and other legal requirements may require
or result in additional expenditures, increased operating and maintenance
costs and/or result in closure of certain power generating facilities, which
could affect the financial position, results of operations and cash flows of the
Duke Energy Registrants. The Duke Energy Registrants intend to seek full cost
recovery for expenditures through the normal ratemaking process with state
and federal utility commissions, who permit recovery in rates of necessary and
prudently incurred costs associated with the Duke Energy Registrants’ regulated
operations, and through other wholesale contracts with terms that contemplate
recovery of such costs, although there is no guarantee of full cost recovery. In
addition, the timing for recovery of such costs could have a material adverse
impact on Duke Energy’s cash flows.
The Duke Energy Registrants have recognized significant asset retirement
obligations related to these CCR-related requirements. Closure activities
began in 2015 at the four sites specified as high priority by the Coal Ash Act
and at the W.S. Lee Steam Station site in South Carolina in connection with
other legal requirements. Excavation at these sites involves movement of
large amounts of CCR materials to off-site locations for use as structural fill,
to appropriate engineered off-site or on-site lined landfills or conversion of
the ash for beneficial use. At other sites, preliminary planning and closure
methods have been studied and factored into the estimated retirement and
management costs. The Coal Ash Act requires CCR surface impoundments in
North Carolina to be closed, with the closure method and timing based on a risk
ranking classification determined by legislation or state regulators. Additionally,
the RCRA required closure timing depends upon meeting or continuing to meet
certain criteria. As the closure and CCR management work progresses and final
closure plans and corrective action measures are developed and approved at
each site, the scope and complexity of work and the amount of CCR material
could be greater than estimates and could, therefore, materially increase
compliance expenditures and rate impacts.
The Duke Energy Registrants’ financial position, results of operations and
cash flows may be negatively affected by a lack of growth or slower growth
in the number of customers, or decline in customer demand or number of
customers.
Growth in customer accounts and growth of customer usage each directly
influence demand for electricity and natural gas and the need for additional
power generation and delivery facilities. Customer growth and customer usage
are affected by a number of factors outside the control of the Duke Energy
Registrants, such as mandated energy efficiency measures, demand-side
management goals, distributed generation resources and economic and
demographic conditions, such as population changes, job and income growth,
housing starts, new business formation and the overall level of economic
activity.
Certain regulatory and legislative bodies have introduced or are
considering requirements and/or incentives to reduce energy consumption
by certain dates. Additionally, technological advances driven by federal laws
mandating new levels of energy efficiency in end-use electric devices or other
improvements in or applications of technology could lead to declines in per
capita energy consumption.
19
PART I Advances in distributed generation technologies that produce power,
including fuel cells, microturbines, wind turbines and solar cells, may reduce
the cost of alternative methods of producing power to a level competitive with
central power station electric production utilized by the Duke Energy Registrants.
Some or all of these factors could result in a lack of growth or decline in
customer demand for electricity or number of customers and may cause the
failure of the Duke Energy Registrants to fully realize anticipated benefits from
significant capital investments and expenditures, which could have a material
adverse effect on their financial position, results of operations and cash flows.
Furthermore, the Duke Energy Registrants currently have energy efficiency
riders in place to recover the cost of energy efficiency programs in North
Carolina, South Carolina, Florida, Indiana, Ohio and Kentucky. Should the Duke
Energy Registrants be required to invest in conservation measures that result in
reduced sales from effective conservation, regulatory lag in adjusting rates for
the impact of these measures could have a negative financial impact.
The Duke Energy Registrants’ operating results may fluctuate on a
seasonal and quarterly basis and can be negatively affected by changes
in weather conditions and severe weather, including extreme weather
conditions associated with climate change.
Electric power generation and natural gas distribution are generally
seasonal businesses. In most parts of the U.S., the demand for power peaks
during the warmer summer months, with market prices also typically peaking at
that time. In other areas, demand for power peaks during the winter. Demand for
natural gas peaks during the winter months. Further, extreme weather conditions
such as heat waves, winter storms and severe weather associated with climate
change could cause these seasonal fluctuations to be more pronounced. As a
result, the overall operating results of the Duke Energy Registrants’ businesses
may fluctuate substantially on a seasonal and quarterly basis and thus make
period-to-period comparison less relevant.
Sustained severe drought conditions could impact generation by
hydroelectric plants, as well as fossil and nuclear plant operations, as these
facilities use water for cooling purposes and for the operation of environmental
compliance equipment. Furthermore, destruction caused by severe weather
events, such as hurricanes, tornadoes, severe thunderstorms, snow and ice
storms, can result in lost operating revenues due to outages, property damage,
including downed transmission and distribution lines, and additional and
unexpected expenses to mitigate storm damage. The cost of storm restoration
efforts may not be fully recoverable through the regulatory process.
The Duke Energy Registrants’ sales may decrease if they are unable to gain
adequate, reliable and affordable access to transmission assets.
The Duke Energy Registrants depend on transmission and distribution
facilities owned and operated by utilities and other energy companies to deliver
electricity sold to the wholesale market. The FERC’s power transmission
regulations require wholesale electric transmission services to be offered on
an open-access, non-discriminatory basis. If transmission is disrupted, or if
transmission capacity is inadequate, the Duke Energy Registrants’ ability to sell
and deliver products may be hindered.
The different regional power markets have changing regulatory structures,
which could affect growth and performance in these regions. In addition, the
ISOs who oversee the transmission systems in regional power markets have
imposed in the past, and may impose in the future, price limitations and other
mechanisms to address volatility in the power markets. These types of price
limitations and other mechanisms may adversely impact the profitability of the
Duke Energy Registrants’ wholesale power marketing business.
Duke Energy may be unable to complete necessary or desirable pipeline
expansion or infrastructure development or maintenance projects, which
may delay or prevent the Duke Energy Registrants from serving natural gas
customers or expanding the natural gas business.
In order to serve current or new natural gas customers or expand the
service to existing customers, the Duke Energy Registrants need to maintain,
expand or upgrade distribution, transmission and/or storage infrastructure,
including laying new pipeline and building compressor stations. Duke Energy
Registrants have made significant investments in a number of pipeline
development projects, which are being operated and constructed by third party
joint venture partners. Various factors, such as the inability to obtain required
approval from local, state and/or federal regulatory and governmental bodies,
public opposition to projects, inability to obtain adequate financing, competition
for labor and materials, construction delays, cost overruns and the inability
to negotiate acceptable agreements relating to rights of way, construction or
other material development components, may prevent or delay the completion
of projects or increase costs. As a result, the Duke Energy Registrants may be
unable to adequately serve existing natural gas customers or support customer
growth or could incur higher than anticipated costs, which could have a negative
financial impact.
The availability of adequate interstate pipeline transportation capacity and
natural gas supply may decrease.
The Duke Energy Registrants purchase almost all of their natural gas
supply from interstate sources that must be transported to the applicable
service territories. Interstate pipeline companies transport the natural gas to
the Duke Energy Registrants’ systems under firm service agreements that are
designed to meet the requirements of their core markets. A significant disruption
to interstate pipelines capacity or reduction in natural gas supply due to events
including, but not limited to, operational failures or disruptions, hurricanes,
tornadoes, floods, freeze off of natural gas wells, terrorist or cyberattacks or
other acts of war or legislative or regulatory actions or requirements, including
remediation related to integrity inspections, could reduce the normal interstate
supply of natural gas and thereby reduce earnings. Moreover, if additional
natural gas infrastructure, including, but not limited to, exploration and drilling
rigs and platforms, processing and gathering systems, off-shore pipelines,
interstate pipelines and storage, cannot be built at a pace that meets demand,
then growth opportunities could be limited and earnings negatively impacted.
Fluctuations in commodity prices or availability may adversely affect
various aspects of the Duke Energy Registrants’ operations as well as their
financial condition, results of operations and cash flows.
The Duke Energy Registrants are exposed to the effects of market
fluctuations in the price of natural gas, coal, fuel oil, nuclear fuel, electricity
and other energy-related commodities as a result of their ownership of
energy-related assets. Fuel costs are recovered primarily through cost-recovery
clauses, subject to the approval of state utility commissions.
Additionally, the Duke Energy Registrants are exposed to risk that
counterparties will not be able to fulfill their obligations. Disruption in the
delivery of fuel, including disruptions as a result of, among other things,
transportation delays, weather, labor relations, force majeure events or
environmental regulations affecting any of these fuel suppliers, could limit the
Duke Energy Registrants’ ability to operate their facilities. Should counterparties
fail to perform, the Duke Energy Registrants might be forced to replace the
underlying commitment at prevailing market prices possibly resulting in losses
in addition to the amounts, if any, already paid to the counterparties.
Certain of the Duke Energy Registrants’ hedge agreements may result
in the receipt of, or posting of, derivative collateral with counterparties,
depending on the daily derivative position. Fluctuations in commodity prices
that lead to the return of collateral received and/or the posting of collateral
with counterparties negatively impact liquidity. Downgrades in the Duke
20
PART I Energy Registrants’ credit ratings could lead to additional collateral posting
requirements. The Duke Energy Registrants continually monitor derivative
positions in relation to market price activity.
Potential terrorist activities, or military or other actions, could adversely
affect the Duke Energy Registrants’ businesses.
The continued threat of terrorism and the impact of retaliatory military
and other action by the U.S. and its allies may lead to increased political,
economic and financial market instability and volatility in prices for natural
gas and oil, which may have material adverse effects in ways the Duke Energy
Registrants cannot predict at this time. In addition, future acts of terrorism and
possible reprisals as a consequence of action by the U.S. and its allies could
be directed against companies operating in the U.S. Information technology
systems, transmission and distribution and generation facilities such as nuclear
plants could be potential targets of terrorist activities or harmful activities
by individuals or groups. The potential for terrorism has subjected the Duke
Energy Registrants’ operations to increased risks and could have a material
adverse effect on their businesses. In particular, the Duke Energy Registrants
may experience increased capital and operating costs to implement increased
security for their information technology systems, transmission and distribution
and generation facilities, including nuclear power plants under the NRC’s design
basis threat requirements. These increased costs could include additional
physical plant security and security personnel or additional capability following
a terrorist incident.
Cyberattacks and data security breaches could adversely affect the Duke
Energy Registrants’ businesses.
Information security risks have generally increased in recent years as a
result of the proliferation of new technologies and the increased sophistication
and frequency of cyberattacks and data security breaches. The utility industry
requires the continued operation of sophisticated information technology
systems and network infrastructure, which are part of an interconnected
regional grid. Additionally, connectivity to the internet continues to increase
through smart grid and other initiatives. Because of the critical nature of the
infrastructure, increased connectivity to the internet and technology systems’
inherent vulnerability to disability or failures due to hacking, viruses, acts of
war or terrorism or other types of data security breaches, the Duke Energy
Registrants face a heightened risk of cyberattack. In the event of such an attack,
the Duke Energy Registrants could (i) have business operations disrupted,
property damaged, customer information stolen and other private information
accessed, (ii) experience substantial loss of revenues, repair and restoration
costs, implementation costs for additional security measures to avert future
cyberattacks and other financial loss and (iii) be subject to increased regulation,
litigation and reputational damage.
Failure to attract and retain an appropriately qualified workforce could
unfavorably impact the Duke Energy Registrants’ results of operations.
Certain events, such as an aging workforce, mismatch of skill set or
complement to future needs, or unavailability of contract resources may lead
to operating challenges and increased costs. The challenges include lack
of resources, loss of knowledge base and the lengthy time required for skill
development. In this case, costs, including costs for contractors to replace
employees, productivity costs and safety costs, may increase. Failure to
hire and adequately train replacement employees, including the transfer of
significant internal historical knowledge and expertise to new employees, or
future availability and cost of contract labor may adversely affect the ability to
manage and operate the business, especially considering the workforce needs
associated with nuclear generation facilities and new skills required to operate a
modernized, technology-enabled power grid. If the Duke Energy Registrants are
unable to successfully attract and retain an appropriately qualified workforce,
their financial position, results of operations or cash flows could be negatively
affected.
The costs of retiring Duke Energy Florida’s Crystal River Unit 3 could prove
to be more extensive than is currently identified.
Costs to retire and decommission the plant could exceed estimates and,
if not recoverable through the regulatory process, could adversely affect Duke
Energy’s, Progress Energy’s and Duke Energy Florida’s financial condition,
results of operations and cash flows.
Duke Energy Ohio’s and Duke Energy Indiana’s membership in an RTO
presents risks that could have a material adverse effect on their results of
operations, financial condition and cash flows.
The rules governing the various regional power markets may change,
which could affect Duke Energy Ohio’s and Duke Energy Indiana’s costs and/or
revenues. To the degree Duke Energy Ohio and Duke Energy Indiana incur
significant additional fees and increased costs to participate in an RTO, their
results of operations may be impacted. Duke Energy Ohio and Duke Energy
Indiana may be allocated a portion of the cost of transmission facilities built
by others due to changes in RTO transmission rate design. Duke Energy Ohio
and Duke Energy Indiana may be required to expand their transmission system
according to decisions made by an RTO rather than their own internal planning
process. While RTO transmission rates were initially designed to be revenue
neutral, various proposals and proceedings currently taking place by the FERC
may cause transmission rates to change from time to time. In addition, RTOs
have been developing rules associated with the allocation and methodology
of assigning costs associated with improved transmission reliability, reduced
transmission congestion and firm transmission rights that may have a financial
impact on Duke Energy Ohio and Duke Energy Indiana.
As members of an RTO, Duke Energy Ohio and Duke Energy Indiana are
subject to certain additional risks, including those associated with the allocation
among RTO members, of losses caused by unreimbursed defaults of other
participants in the RTO markets and those associated with complaint cases filed
against an RTO that may seek refunds of revenues previously earned by RTO
members.
The Duke Energy Registrants may not recover costs incurred to begin
construction on projects that are canceled.
Duke Energy’s long-term strategy requires the construction of new
projects, either wholly owned or partially owned, which involve a number of
risks, including construction delays, nonperformance by equipment and other
third party suppliers, and increases in equipment and labor costs. To limit the
risks of these construction projects, the Duke Energy Registrants enter into
equipment purchase orders and construction contracts and incur engineering
and design service costs in advance of receiving necessary regulatory approvals
and/or siting or environmental permits. If any of these projects are canceled
for any reason, including failure to receive necessary regulatory approvals and/
or siting or environmental permits, significant cancellation penalties under the
equipment purchase orders and construction contracts could occur. In addition,
if any construction work or investments have been recorded as an asset, an
impairment may need to be recorded in the event the project is canceled.
21
PART I NUCLEAR GENERATION RISKS
Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida
may incur substantial costs and liabilities due to their ownership and
operation of nuclear generating facilities.
Ownership interest in and operation of nuclear stations by Duke Energy
Carolinas, Duke Energy Progress and Duke Energy Florida subject them to various
risks. These risks include, among other things: the potential harmful effects on
the environment and human health resulting from the current or past operation
of nuclear facilities and the storage, handling and disposal of radioactive
materials; limitations on the amounts and types of insurance commercially
available to cover losses that might arise in connection with nuclear operations;
and uncertainties with respect to the technological and financial aspects of
decommissioning nuclear plants at the end of their licensed lives.
Ownership and operation of nuclear generation facilities requires
compliance with licensing and safety-related requirements imposed by the NRC.
In the event of non-compliance, the NRC may increase regulatory oversight,
impose fines or shut down a unit depending upon its assessment of the severity
of the situation. Revised security and safety requirements promulgated by
the NRC, which could be prompted by, among other things, events within or
outside of the control of Duke Energy Carolinas, Duke Energy Progress and Duke
Energy Florida, such as a serious nuclear incident at a facility owned by a third
party, could necessitate substantial capital and other expenditures, as well
as assessments to cover third-party losses. In addition, if a serious nuclear
incident were to occur, it could have a material adverse effect on the results of
operations, financial condition, cash flows and reputation of the Duke Energy
Registrants.
LIQUIDITY, CAPITAL REQUIREMENTS AND COMMON STOCK RISKS
The Duke Energy Registrants rely on access to short-term borrowings and
longer-term debt and equity markets to finance their capital requirements
and support their liquidity needs. Access to those markets can be
adversely affected by a number of conditions, many of which are beyond
the Duke Energy Registrants’ control.
The Duke Energy Registrants’ businesses are significantly financed
through issuances of debt and equity. The maturity and repayment profile of
debt used to finance investments often does not correlate to cash flows from
their assets. Accordingly, as a source of liquidity for capital requirements not
satisfied by the cash flows from their operations and to fund investments
originally financed through debt instruments with disparate maturities, the
Duke Energy Registrants rely on access to short-term money markets as well as
longer-term capital markets. The Subsidiary Registrants also rely on access to
short-term intercompany borrowings. If the Duke Energy Registrants are not able
to access debt or equity at competitive rates or at all, the ability to finance their
operations and implement their strategy and business plan as scheduled could
be adversely affected. An inability to access debt and equity may limit the Duke
Energy Registrants’ ability to pursue improvements or acquisitions that they
may otherwise rely on for future growth.
Market disruptions may increase the cost of borrowing or adversely affect
the ability to access one or more financial markets. Such disruptions could
include: economic downturns, the bankruptcy of an unrelated energy company,
unfavorable capital market conditions, market prices for electricity and natural
gas, actual or threatened terrorist attacks, or the overall health of the energy
industry. The availability of credit under Duke Energy’s Master Credit Facility
depends upon the ability of the banks providing commitments under the facility
to provide funds when their obligations to do so arise. Systematic risk of the
banking system and the financial markets could prevent a bank from meeting its
obligations under the facility agreement.
Duke Energy maintains a revolving credit facility to provide backup for its
commercial paper program and letters of credit to support variable rate demand
tax-exempt bonds that may be put to the Duke Energy Registrant issuer at
the option of the holder. The facility includes borrowing sublimits for the Duke
Energy Registrants, each of whom is a party to the credit facility, and financial
covenants that limit the amount of debt that can be outstanding as a percentage
of the total capital for the specific entity. Failure to maintain these covenants at
a particular entity could preclude Duke Energy from issuing commercial paper or
the Duke Energy Registrants from issuing letters of credit or borrowing under the
Master Credit Facility.
The Duke Energy Registrants must meet credit quality standards and
there is no assurance they will maintain investment grade credit ratings.
If the Duke Energy Registrants are unable to maintain investment grade
credit ratings, they would be required under credit agreements to provide
collateral in the form of letters of credit or cash, which may materially
adversely affect their liquidity.
Each of the Duke Energy Registrants’ senior long-term debt issuances is
currently rated investment grade by various rating agencies. The Duke Energy
Registrants cannot ensure their senior long-term debt will be rated investment
grade in the future.
If the rating agencies were to rate the Duke Energy Registrants below
investment grade, borrowing costs would increase, perhaps significantly.
In addition, the potential pool of investors and funding sources would likely
decrease. Further, if the short-term debt rating were to fall, access to the
commercial paper market could be significantly limited.
A downgrade below investment grade could also require the posting of
additional collateral in the form of letters of credit or cash under various credit,
commodity and capacity agreements and trigger termination clauses in some
interest rate derivative agreements, which would require cash payments. All
of these events would likely reduce the Duke Energy Registrants’ liquidity and
profitability and could have a material effect on their financial position, results
of operations or cash flows.
Non-compliance with debt covenants or conditions could adversely affect
the Duke Energy Registrants’ ability to execute future borrowings.
The Duke Energy Registrants’ debt and credit agreements contain
various financial and other covenants. Failure to meet those covenants
beyond applicable grace periods could result in accelerated due dates and/or
termination of the agreements.
Market performance and other changes may decrease the value of the
NDTF investments of Duke Energy Carolinas, Duke Energy Progress and
Duke Energy Florida, which then could require significant additional
funding.
Ownership and operation of nuclear generation facilities also requires the
maintenance of funded trusts that are intended to pay for the decommissioning
costs of the respective nuclear power plants. The performance of the capital
markets affects the values of the assets held in trust to satisfy these future
obligations. Duke Energy Carolinas, Duke Energy Progress and Duke Energy
Florida have significant obligations in this area and hold significant assets in
these trusts. These assets are subject to market fluctuations and will yield
uncertain returns, which may fall below projected rates of return. Although
a number of factors impact funding requirements, a decline in the market
value of the assets may increase the funding requirements of the obligations
for decommissioning nuclear plants. If Duke Energy Carolinas, Duke Energy
Progress and Duke Energy Florida are unable to successfully manage their NDTF
assets, their financial condition, results of operations and cash flows could be
negatively affected.
22
PART I Poor investment performance of the Duke Energy pension plan holdings
and other factors impacting pension plan costs could unfavorably impact
the Duke Energy Registrants’ liquidity and results of operations.
The costs of providing non-contributory defined benefit pension plans
are dependent upon a number of factors, such as the rates of return on plan
assets, discount rates, the level of interest rates used to measure the required
minimum funding levels of the plans, future government regulation and required
or voluntary contributions made to the plans. The Subsidiary Registrants
are allocated their proportionate share of the cost and obligations related to
these plans. Without sustained growth in the pension investments over time
to increase the value of plan assets and, depending upon the other factors
impacting costs as listed above, Duke Energy could be required to fund its
plans with significant amounts of cash. Such cash funding obligations, and the
Subsidiary Registrants’ proportionate share of such cash funding obligations,
could have a material impact on the Duke Energy Registrants’ financial position,
results of operations or cash flows.
Duke Energy is a holding company and depends on the cash flows from its
subsidiaries to meet its financial obligations.
Because Duke Energy is a holding company with no operations or cash
flows of its own, its ability to meet its financial obligations, including making
interest and principal payments on outstanding indebtedness and to pay
dividends on its common stock, is primarily dependent on the net income
and cash flows of its subsidiaries and the ability of those subsidiaries to pay
upstream dividends or to repay borrowed funds. Prior to funding Duke Energy, its
subsidiaries have regulatory restrictions and financial obligations that must be
satisfied. These subsidiaries are separate legal entities and have no obligation
to provide Duke Energy with funds. In addition, Duke Energy may provide capital
contributions or debt financing to its subsidiaries under certain circumstances,
which would reduce the funds available to meet its financial obligations,
including making interest and principal payments on outstanding indebtedness
and to pay dividends on Duke Energy’s common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
ELECTRIC UTILITIES AND INFRASTRUCTURE
The following table provides information related to the Electric Utilities and Infrastructure’s generation stations as of December 31, 2017. The MW displayed in
the table below are based on summer capacity. Ownership interest in all facilities is 100 percent unless otherwise indicated.
Facility
Duke Energy Carolinas
Oconee
McGuire
Catawba(a)
Belews Creek
Marshall
J.E. Rogers
Lincoln Combustion Turbine (CT)
Allen
Rockingham CT
Buck Combined Cycle (CC)
Dan River CC
Mill Creek CT
W.S. Lee
W.S. Lee CT
Bad Creek
Jocassee
Cowans Ford
Keowee
Other small facilities (25 plants)
Distributed generation
Total Duke Energy Carolinas
Plant Type
Primary Fuel
Location
Owned MW
Capacity
Nuclear
Nuclear
Nuclear
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Hydro
Hydro
Hydro
Hydro
Hydro
Renewable
Uranium
Uranium
Uranium
Coal
Coal
Coal
Gas/Oil
Coal
Gas/Oil
Gas
Gas
Gas/Oil
Gas
Gas/Oil
Water
Water
Water
Water
Water
Solar
SC
NC
SC
NC
NC
NC
NC
NC
NC
NC
NC
SC
SC
SC
SC
SC
NC
SC
NC/SC
NC
2,554
2,316
445
2,220
2,058
1,388
1,193
1,098
825
668
662
563
170
84
1,360
780
324
152
669
39
19,568
23
PART I
Facility
Duke Energy Progress
Brunswick
Harris
Robinson
Roxboro
Smith CC
H.F. Lee CC
Wayne County CT
Smith CT
Darlington CT
Mayo
L.V. Sutton CC
Asheville
Asheville CT
Weatherspoon CT
L.V. Sutton CT (Black Start)
Blewett CT
Walters
Other small facilities (three plants)
Distributed generation
Total Duke Energy Progress
Duke Energy Florida
Crystal River
Hines CC
Bartow CC
Anclote
Intercession City CT
Osprey CC
DeBary CT
Tiger Bay CC
Bartow CT
Bayboro CT
Suwannee River CT
Higgins CT
Avon Park CT
University of Florida CoGen CT
Distributed generation
Total Duke Energy Florida
Duke Energy Ohio
East Bend
Woodsdale CT
Beckjord Battery Storage
Total Duke Energy Ohio
Duke Energy Indiana
Gibson(b)
Cayuga(c)
Edwardsport
Madison CT
Vermillion CT(d)
Wheatland CT
Noblesville CC
Gallagher
Henry County CT
Cayuga CT
Connersville CT
Miami Wabash CT
Markland
Distributed generation
Total Duke Energy Indiana
Plant Type
Primary Fuel
Location
Owned MW
Capacity
Uranium
Uranium
Uranium
Coal
Gas/Oil
Gas/Oil
Gas/Oil
Gas/Oil
Gas/Oil
Coal
Gas/Oil
Coal
Gas/Oil
Gas/Oil
Gas/Oil
Oil
Water
Water
Solar
Coal
Gas/Oil
Gas/Oil
Gas
Gas/Oil
Gas/Oil
Gas/Oil
Gas/Oil
Gas/Oil
Oil
Gas
Gas/Oil
Gas/Oil
Gas
Solar
Coal
Gas/Propane
Storage
Coal
Coal/Oil
Coal
Gas
Gas
Gas
Gas/Oil
Coal
Gas/Oil
Gas/Oil
Oil
Oil
Water
Solar
Nuclear
Nuclear
Nuclear
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Hydro
Hydro
Renewable
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Renewable
Fossil
Fossil
Renewable
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Fossil
Hydro
Renewable
24
NC
NC
SC
NC
NC
NC
NC
NC
SC
NC
NC
NC
NC
NC
NC
NC
NC
NC
NC
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
KY
OH
OH
IN
IN
IN
OH
IN
IN
IN
IN
IN
IN
IN
IN
IN
IN
1,870
928
741
2,439
1,073
888
857
772
664
727
607
378
320
124
80
52
112
115
62
12,809
2,188
2,032
1,080
1,013
951
582
561
200
168
171
149
107
48
47
8
9,305
600
476
4
1,080
2,822
1,005
595
566
360
450
264
280
129
80
74
64
45
10
6,744
PART I
Totals by Type
Total Electric Utilities
Totals By Plant Type
Nuclear
Fossil
Hydro
Renewable
Total Electric Utilities
Owned MW
Capacity
49,506
8,854
36,972
3,557
123
49,506
(a)
Jointly owned with North Carolina Municipal Power Agency Number 1, North Carolina Electric Membership Corporation and Piedmont Municipal Power Agency. Duke Energy Carolinas’ ownership is 19.25 percent of the facility.
(b) Duke Energy Indiana owns and operates Gibson Station Units 1 through 4 and is a joint owner of unit 5 with Wabash Valley Power Association, Inc. (WVPA) and Indiana Municipal Power Agency. Duke Energy Indiana operates
unit 5 and owns 50.05 percent.
Includes Cayuga Internal Combustion.
Jointly owned with WVPA. Duke Energy Indiana’s ownership is 62.5 percent of the facility.
(c)
(d)
The following table provides information related to Electric Utilities and Infrastructure’s electric transmission and distribution properties as of December 31, 2017.
Duke
Energy
Carolinas
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Duke
Energy
Electric Transmission Lines
Miles of 500 to 525 kilovolt (kV)
Miles of 345 kV
Miles of 230 kV
Miles of 100 to 161 kV
Miles of 13 to 69 kV
Total conductor miles of electric transmission lines
Electric Distribution Lines
Miles of overhead lines
Miles of underground line
Total conductor miles of electric distribution lines
Number of electric transmission and distribution substations
1,100
1,700
8,400
12,300
8,400
31,900
600
—
2,700
6,800
3,000
300
—
3,400
2,500
200
—
— 1,000
—
700
700
1,600
900
— 2,200
13,100
6,200
4,900
2,400
174,300
102,800
66,600
37,800
46,400
29,400
25,200
20,800
13,700
5,900
277,100
104,400
75,800
46,000
19,600
3,300
1,500
500
500
300
—
700
700
1,400
2,500
5,300
22,400
8,900
31,300
500
Substantially all of Electric Utilities and Infrastructure’s electric plant in service is mortgaged under indentures relating to Duke Energy Carolinas’, Duke Energy
Progress’, Duke Energy Florida’s, Duke Energy Ohio’s and Duke Energy Indiana’s various series of First Mortgage Bonds.
GAS UTILITIES AND INFRASTRUCTURE
Gas Utilities and Infrastructure owns transmission pipelines and distribution mains that are generally underground, located near public streets and highways, or
on property owned by others for which Duke Energy Ohio and Piedmont have obtained the necessary legal rights to place and operate facilities on such property located
within the Gas Utilities and Infrastructure service territories. The following table provides information related to Gas Utilities and Infrastructure’s natural gas distribution.
Miles of natural gas distribution and transmission pipelines
Miles of natural gas service lines
Duke
Energy
Ohio Piedmont
7,200
6,900
25,900
20,500
Duke
Energy
33,100
27,400
25
PART I
COMMERCIAL RENEWABLES
The following table provides information related to Commercial Renewables’ electric generation facilities as of December 31, 2017. The MW displayed in the
table below are based on nameplate capacity. Ownership interest in all facilities is 100 percent unless otherwise indicated.
Facility
Commercial Renewables – Wind
Los Vientos Windpower (five sites)
Top of the World
Frontier
Notrees
Campbell Hill
North Allegheny
Laurel Hill Wind Energy
Ocotillo
Kit Carson
Silver Sage
Happy Jack
Shirley
Sweetwater IV(a)
Sweetwater V(a)
Ironwood(a)
Cimarron II(a)
Mesquite Creek(a)
Total Renewables – Wind
Commercial Renewables – Solar
Conetoe II
Seville I & II
Rio Bravo I & II
Wildwood I & II
Caprock
Kelford
Highlander
Dogwood
Halifax Airport
Pasquotank
Pumpjack
Shawboro
Longboat
Bagdad
TX Solar
Creswell Alligood
Victory
Washington White Post
Whitakers
Other small solar
Total Renewables – Solar
Total Commercial Renewables
Plant Type
Primary Fuel
Location
Owned MW
Capacity
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Renewable
Wind
Wind
Wind
Wind
Wind
Wind
Wind
Wind
Wind
Wind
Wind
Wind
Wind
Wind
Wind
Wind
Wind
Solar
Solar
Solar
Solar
Solar
Solar
Solar
Solar
Solar
Solar
Solar
Solar
Solar
Solar
Solar
Solar
Solar
Solar
Solar
Solar
TX
WY
OK
TX
WY
PA
PA
TX
CO
WY
WY
WI
TX
TX
KS
KS
TX
NC
CA
CA
CA
NM
NC
CA
NC
NC
NC
CA
NC
CA
AZ
TX
NC
CO
NC
NC
Various
912
200
200
153
99
70
69
59
51
42
29
20
113
38
84
66
106
2,311
80
50
40
35
25
22
21
20
20
20
20
20
20
15
14
14
13
12
12
123
596
2,907
(a) Commercial Renewables owns 47 percent of Sweetwater IV and V and 50 percent of Ironwood, Cimarron II and Mesquite Creek.
26
PART I
OTHER
Duke Energy owns approximately 8 million square feet and leases approximately 2 million square feet of corporate, regional and district office space spread
throughout its service territories.
ITEM 3. LEGAL PROCEEDINGS
For information regarding legal proceedings, including regulatory and environmental matters, see Note 4, “Regulatory Matters,” and Note 5, “Commitments and
Contingencies,” to the Consolidated Financial Statements.
MTBE Litigation
On June 19, 2014, the Commonwealth of Pennsylvania filed suit against, among others, Duke Energy Merchants, alleging contamination of “waters of the state”
by MTBE from leaking gasoline storage tanks. MTBE is a gasoline additive intended to increase the oxygen level in gasoline and make it burn cleaner. The lawsuit
was moved to federal court and consolidated into an existing multidistrict litigation docket of pending MTBE cases. This suit was settled for an immaterial amount in
December 2017.
In December 2017, the state of Maryland filed a lawsuit in Baltimore City Circuit Court against Duke Energy Merchants and other defendants alleging
contamination of its water supplies from MTBE. Discovery is underway. Duke Energy cannot predict the outcome of this matter.
ITEM 4. MINE SAFETY DISCLOSURES
This is not applicable for any of the Duke Energy Registrants.
27
PART I ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
The common stock of Duke Energy is listed and traded on the New York Stock Exchange (NYSE) (ticker symbol DUK). As of January 31, 2018, there were 166,271
Duke Energy common stockholders of record.
There is no market for common stock of the Subsidiary Registrants, all of which is owned by Duke Energy.
Common Stock Data by Quarter
The following chart provides Duke Energy common stock trading prices as reported on the NYSE and information on common stock dividends declared. Stock
prices represent the intraday high and low stock price.
80.71
70.16
0.825
1Q 16
85.79
75.72
0.825
2Q 16
87.75
77.90
0.855
3Q 16
80.49
72.34
0.855
4Q 16
83.59
76.14
0.855
1Q 17
87.49
81.27
0.855
2Q 17
88.40
82.72
0.890
3Q 17
91.80
83.52
0.890
4Q 17
Stock Price High
Stock Price Low
Dividends Declared Per Share
Duke Energy expects to continue its policy of paying regular cash dividends; however, there is no assurance as to the amount of future dividends as they depend
on future earnings, capital requirements and financial condition, and are subject to declaration by the Duke Energy Board of Directors.
Duke Energy’s operating subsidiaries have certain restrictions on their ability to transfer funds in the form of dividends or loans to Duke Energy. See Note 4 to
the Consolidated Financial Statements, “Regulatory Matters” for further information regarding these restrictions.
Securities Authorized for Issuance Under Equity Compensation Plans
See Item 12 of Part III within this Annual Report for information regarding Securities Authorized for Issuance Under Equity Compensation Plans.
Issuer Purchases of Equity Securities for Fourth Quarter 2017
There were no repurchases of equity securities during the fourth quarter of 2017.
28
PART II Stock Performance Graph
The following performance graph compares the cumulative total shareholder return from Duke Energy Corporation common stock, as compared with the
Standard & Poor’s 500 Stock Index (S&P 500) and the Philadelphia Utility Sector Index (Philadelphia Utility Index) for the past five years. The graph assumes an initial
investment of $100 on December 31, 2012, in Duke Energy common stock, in the S&P 500 and in the Philadelphia Utility Index and that all dividends were reinvested.
The stockholder return shown below for the five-year historical period may not be indicative of future performance.
$250
$200
$150
$100
$50
$0
2012
2013
2014
2015
2016
2017
Duke Energy Corporation
Philadelphia Utility Index
S&P 500
NYSE CEO Certification
Duke Energy has filed the certification of its Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 as
exhibits to this Annual Report on Form 10-K for the year ended December 31, 2017.
29
PART II ITEM 6. SELECTED FINANCIAL DATA
The following table provides selected financial data for the years of 2013 through 2017. See also Item 7.
(in millions, except per share amounts)
2017
2016
2015
2014
2013
Statement of Operations(a)
Total operating revenues
Operating income
Income from continuing operations
(Loss) Income from discontinued operations, net of tax
Net income
Net income attributable to Duke Energy Corporation
Common Stock Data
Income from continuing operations attributable to Duke Energy Corporation common stockholders
Basic
Diluted
(Loss) Income from discontinued operations attributable to Duke Energy Corporation common stockholders
Basic
Diluted
Net income attributable to Duke Energy Corporation common stockholders
Basic
Diluted
Dividends declared per share of common stock
Balance Sheet
Total assets
Long-term debt including capital leases, less current maturities
$ 23,565
5,781
3,070
(6)
3,064
3,059
$ 22,743
5,341
2,578
(408)
2,170
2,152
$ 22,371
5,078
2,654
177
2,831
2,816
$ 22,509
$
4,842
2,538
(649)
1,889
1,883
$
$
$
4.37
4.37
(0.01)
(0.01)
4.36
4.36
3.49
$
$
$
3.71
3.71
(0.60)
(0.60)
3.11
3.11
3.36
$
$
$
3.80
3.80
0.25
0.25
4.05
4.05
3.24
$
$
$
$
$
$
3.58
3.58
(0.92)
(0.92)
2.66
2.66
3.15
21,211
4,305
2,278
398
2,676
2,665
3.21
3.21
0.56
0.55
3.77
3.76
3.09
$ 137,914
49,035
$ 132,761
45,576
$ 121,156
36,842
$ 120,557
36,075
$ 114,779
37,065
(a) Significant transactions reflected in the results above include: (i) the sale of the International Disposal Group in 2016, including a loss on sale recorded within discontinued operations (see Note 2 to the Consolidated Financial
Statements, “Acquisitions and Dispositions”) (ii) the acquisition of Piedmont in 2016, including losses on interest rate swaps related to the acquisition financing (see Note 2); (iii) 2014 impairment related to the disposal of
the Midwest Generation Disposal Group; (iv) 2014 incremental tax expense resulting from the decision to repatriate all cumulative historical undistributed foreign earnings; (v) 2014 increase in the litigation reserve related to
a criminal investigation of the Dan River release; (vi) 2013 charges related to Crystal River Unit 3 and nuclear development costs; and (vii) costs to achieve mergers in all periods.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DUKE ENERGY
Duke Energy is an energy company headquartered in Charlotte, North
Carolina. Duke Energy operates in the U.S. primarily through its wholly owned
subsidiaries, Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida,
Duke Energy Ohio, Duke Energy Indiana and Piedmont. When discussing Duke
Energy’s consolidated financial information, it necessarily includes the results
of the Subsidiary Registrants, which, along with Duke Energy, are collectively
referred to as the Duke Energy Registrants.
Management’s Discussion and Analysis should be read in conjunction
with the Consolidated Financial Statements and Notes for the years ended
December 31, 2017, 2016 and 2015.
Executive Overview
With our multiyear portfolio transition complete, we operated in 2017 as a
domestic, regulated energy infrastructure business. Our long-term view provides
a compelling vision to advance our strategy, leveraging scale and a focused
portfolio to deliver a reliable dividend with 4 to 6 percent earnings per share
(EPS) growth during our five year planning horizon. We have made progress
advancing our long-term strategy to invest in our growth drivers of cleaner
energy, grid modernization and natural gas infrastructure, while also improving
customer satisfaction.
Management’s Discussion and Analysis includes financial information
prepared in accordance with generally accepted accounting principles (GAAP)
in the United States (U.S.), as well as certain non-GAAP financial measures
such as adjusted earnings and adjusted earnings per share discussed below.
Generally, a non-GAAP financial measure is a numerical measure of financial
performance, financial position or cash flows that excludes (or includes)
amounts that are included in (or excluded from) the most directly comparable
measure calculated and presented in accordance with GAAP. The non-GAAP
financial measures should be viewed as a supplement to, and not a substitute
for, financial measures presented in accordance with GAAP. Non-GAAP
measures as presented herein may not be comparable to similarly titled
measures used by other companies.
The following combined Management’s Discussion and Analysis of
Financial Condition and Results of Operations is separately filed by Duke Energy
Corporation (collectively with its subsidiaries, Duke Energy) and its subsidiaries
Duke Energy Carolinas, LLC (Duke Energy Carolinas), Progress Energy, Inc.
(Progress Energy), Duke Energy Progress, LLC (Duke Energy Progress), Duke
Energy Florida, LLC (Duke Energy Florida), Duke Energy Ohio, Inc. (Duke
Energy Ohio), Duke Energy Indiana, LLC (Duke Energy Indiana) and Piedmont
Natural Gas Company, Inc. (Piedmont). However, none of the registrants make
any representation as to information related solely to Duke Energy or the
subsidiary registrants of Duke Energy other than itself. Subsequent to Duke
Energy’s acquisition of Piedmont on October 3, 2016, Piedmont is a wholly
owned subsidiary of Duke Energy. The financial information for Duke Energy
includes results of Piedmont subsequent to October 3, 2016. See Note 2 to
the Consolidated Financial Statements, “Acquisitions and Dispositions,” for
additional information regarding the acquisition.
30
PART II
Financial Results
Annual Earnings (in millions)
Annual Earnings Per Diluted Share
Net Income Attributable to Duke Energy Corporation (GAAP)
Net Income Attributable to Duke Energy Corporation common
stockholders per diluted share (GAAP)
Adjusted Earnings (a)
Adjusted Diluted Earnings Per Share (a)
$3,152
$2,816
$2,152
$3,244
$3,059
$3,199
$4.54
$4.05
$4.69
$4.36
$4.57
$3.11
2015
2016
2017
2015
2016
2017
(a) See Results of Operations below for Duke Energy’s definition of adjusted earnings and adjusted earnings per share as well as a reconciliation of this non-GAAP financial measure to net income attributable to Duke Energy and
net income attributable to Duke Energy per diluted share.
Duke Energy’s 2017 GAAP reported earnings were impacted by
unfavorable weather and the absence of International Energy partially offset by
growth in the electric and gas businesses, including the addition of a full year’s
earnings contribution from Piedmont and ongoing cost management efforts.
See “Results of Operations” below for a detailed discussion of the consolidated
results of operations, as well as a detailed discussion of financial results for
each of Duke Energy’s reportable business segments, as well as Other.
2017 Areas of Focus and Accomplishments
Duke Energy advanced a number of important strategic initiatives to
transform its energy future with a focus on customers, employees, operations
and growth. The company has responded to an environment of changing
customer demands by investing in electric and natural gas infrastructure that
customers value and that provide an opportunity for sustainable growth.
Portfolio Transition. On October 3, 2016, Duke Energy completed the
acquisition of Piedmont, a North Carolina corporation primarily engaged in
regulated natural gas distribution to residential, commercial, industrial and
power generation customers in portions of North Carolina, South Carolina and
Tennessee. In December 2016, Duke Energy completed the sale of its Latin
American generation businesses in two separate transactions. See Note 2 to
the Consolidated Financial Statements, “Acquisitions and Dispositions,” for
additional information regarding these transactions.
With the acquisition of Piedmont and the sale of International Energy,
Duke Energy completed a multiyear portfolio transition. The Piedmont
acquisition reflects the growing importance of natural gas to the future of the
energy infrastructure within the company’s service territory and throughout
the U.S. and establishes a strategic platform for future growth in natural gas
infrastructure. The growth opportunities reflected in our 10-year strategy are
expected to increase the earnings contributions from the natural gas business
from 8 percent to 15 percent.
Operational Excellence. Duke Energy continues to focus on the safe
and efficient operation of its generation fleet. During 2017, we delivered strong
overall safety and environmental performance, with our key employee safety
metric, total incident case rate, and our reportable environmental events
both improving from last year. Our nuclear and fossil/hydro generation fleets
demonstrated strong performance, exceeding their respective reliability targets.
Storm Response and System Restoration. Hurricane Irma, in October
2017, was one of the most powerful storms ever to hit the southern U.S. During
Hurricane Irma, over 1.3 million customers in Florida were without power. Our
restoration efforts involved coordination and communication with more than
12,000 line and fieldworkers and our team restored power to 99 percent of
customers within eight days.
Customer Satisfaction. Higher J.D. Power residential customer
satisfaction scores in 2017 reflect progress in the company’s efforts to meet
customers’ expectations. The work to improve customer satisfaction will
continue, but all jurisdictions remain on track to make steady gains in the years
ahead as Duke Energy continues to transform the customer experience through
its Customer Connect Program.
Constructive Regulatory Outcomes. One of our long-term strategic
goals is to achieve modernized regulatory constructs in all of our jurisdictions
within 10 years. Modernized constructs provide a number of benefits, including
improved earnings and cash flows through more timely recovery of investments,
as well as stable pricing for customers. We filed several base rate cases during
2017 to recover a range of strategic investments, such as customer service
technologies, coal ash costs in the Carolinas, smart meters, natural gas and
solar generation. We continue to pursue additional legislative and regulatory
outcomes, both in Washington and across our service territories, that make
sense for our customers and investors.
31
PART II Cost Management and Efficiencies. Duke Energy has a demonstrated
track record of driving efficiencies and productivity, including merger integration
and continuous improvement efforts. These efficiencies will help in Duke
Energy’s objective to keep overall customer rates below the national average,
while moderating customer bill increases over time. We are on track to exceed
targeted Piedmont merger cost synergies without significant disruptions to
the business or culture, integrating the Piedmont and Midwest natural gas
operations, and moving to a shared services model. We continue to leverage
new technology and data analytics to drive additional efficiencies across the
business.
Dividend Growth. In 2017, Duke Energy continued to grow the dividend
payment to shareholders by approximately 4 percent. 2017 represented the 91st
consecutive year Duke Energy paid a cash dividend on its common stock.
Duke Energy Objectives – 2018 and Beyond
Duke Energy will continue to deliver exceptional value to customers, be
an integral part of the communities in which it does business, and provide
attractive returns to investors. Duke Energy is committed to lead the way to
cleaner, smarter energy solutions that customers value through a strategy
focused on:
• Transformation of the customer experience to meet changing customer
expectations through enhanced convenience, control and choice in
energy supply and usage.
• Modernization of the electric grid, including smart meters, storm
hardening, self-healing and targeted undergrounding to ensure
the system is better prepared for severe weather and to improve
the system’s reliability and flexibility, as well as to provide better
information and services for customers.
• Generation of cleaner energy through an increased amount of natural
gas, renewables generation and the continued safe and reliable
operation of nuclear plants.
• Expansion of natural gas infrastructure, from midstream gas pipelines
to local distribution systems.
• Operational excellence through engagement with employees and being
an industry leader in safety performance and efficient operations.
• Stakeholder engagement to ensure the regulatory rules in the states
in which Duke Energy operates benefit customers and allow Duke
Energy to recover its significant investments in a timely manner while
maintaining affordable rates.
• Engagement with regulatory commissions to determine the regulatory
treatment of the impact of the Tax Act.
Primary objectives toward the implementation of this strategy include:
Growth Initiatives. Growth in the Electric Utilities and Infrastructure
business is expected to be supported by the investment of significant capital
in the electric transmission and distribution grid, and in cleaner, more efficient
generation. Duke Energy expects to invest approximately $30 billion in Electric
Utilities and Infrastructure growth projects over the next five years (2018-2022),
continuing its efforts to generate cleaner energy. Duke Energy intends to work
constructively with regulators to evaluate the current regulatory construct
and seek modernized recovery solutions, such as riders, rate decoupling and
multiyear rate plans, that benefit both customers and shareholders.
Investment projects at Electric Utilities and Infrastructure currently
underway that will support growth initiatives include:
• Duke Energy Indiana’s $1.4 billion grid modernization plan, which is
aimed at improving reliability, including fewer outages and quicker
restoration.
• Significant investments in combined-cycle natural gas plants,
including completing the $1.5 billion Citrus County plant in Florida, the
$600 million W.S. Lee facility in South Carolina and the $900 million
investment in the Western Carolinas Modernization Project. These
investments will allow Duke Energy to replace older, less efficient coal
units.
• Duke Energy expects to continue to advance other cleaner energy
sources within its regulated electric jurisdictions, including hydro, wind,
solar and combined heat and power projects, increasing the flexibility
of the system and allowing Duke Energy to continue lowering carbon
emissions.
• In North Carolina, HB 589 provides a timely cost recovery
mechanism for any solar investments we are able to make through a
competitive market process.
• In Florida, as part of the comprehensive multi-year rate settlement,
we committed to invest in approximately 700 MW of solar capacity
over the next five years and will be authorized to recover the cost of
that investment through a single issue base rate increase. We also
advanced our strategic priority of energy grid investment, establishing
a multiyear recovery method for $1 billion of grid investments.
Duke Energy expects to invest around $7 billion growing its Gas Utilities
and Infrastructure business over the next five years. Growth in Gas Utilities and
Infrastructure will be focused on the following:
• With the acquisition of Piedmont, Duke Energy now operates natural gas
distribution businesses across five states. The continued integration of
Piedmont, as well as additional investments in the natural gas Local
Distribution Company (LDC) system, will help maintain system integrity
and expand natural gas distribution to new customers.
• Duke Energy will continue to grow its midstream pipeline business,
underpinned by investments in the Atlantic Coast Pipeline, Sabal Trail
and Constitution pipeline projects. These highly contracted pipelines will
bring much needed, low-cost natural gas supplies to the eastern U.S.,
spurring economic growth and helping Duke Energy to grow its customer
base in the Southeast.
For Commercial Renewables, Duke Energy will continue to pursue long-
term contracted wind and solar projects that meet its return criteria.
Cost Management. Duke Energy has a demonstrated track record of
driving efficiencies and productivity into the business, leveraging its scale
through competitive procurement initiatives, deploying digital transformation
and continuing to identify sustainable cost savings as an essential element in
response to a transforming industry.
Execute on Coal Ash Management Strategy. Duke Energy will
continue the company’s compliance strategy with the North Carolina Coal
Ash Management Act of 2014 (Coal Ash Act) and Resource Conservation and
Recovery Act. Duke Energy will update ash management plans to comply with
the appropriate regulations and expand excavation and other compliance work
at additional sites once plans and permits are approved.
32
PART II Results of Operations
Non-GAAP Measures
Management evaluates financial performance in part based on non-GAAP
financial measures, including adjusted earnings and adjusted diluted EPS.
These items represent income from continuing operations attributable to
Duke Energy, adjusted for the dollar and per share impact of special items.
As discussed below, special items include certain charges and credits, which
management believes are not indicative of Duke Energy’s ongoing performance.
Management believes the presentation of adjusted earnings and adjusted
diluted EPS provides useful information to investors, as it provides them with an
additional relevant comparison of Duke Energy’s performance across periods.
Management uses these non-GAAP financial measures for planning and
forecasting, and for reporting financial results to the Duke Energy Board of
Directors (Board of Directors), employees, stockholders, analysts and investors.
Adjusted diluted EPS is also used as a basis for employee incentive bonuses.
The most directly comparable GAAP measures for adjusted earnings and
adjusted diluted EPS are Net Income Attributable to Duke Energy Corporation
(GAAP Reported Earnings) and Diluted EPS Attributable to Duke Energy
Corporation common stockholders (GAAP Reported EPS), respectively.
Special items included in the periods presented include the following,
which management believes do not reflect ongoing costs:
• Costs to Achieve Mergers represents charges that result from strategic
acquisitions.
• Cost Savings Initiatives represent severance charges related to
company-wide initiatives, excluding merger integration, to standardize
processes and systems, leverage technology and workforce
optimization.
• Regulatory Settlements in 2017 represent charges related to the Levy
nuclear project in Florida and the Mayo Zero Liquid Discharge and
Sutton combustion turbine projects in North Carolina. The 2015 amount
represents charges related to the IGCC Settlement.
• Commercial Renewables Impairments represent other-than-temporary,
asset and goodwill impairments.
• Impacts of the Tax Act represent estimated amounts recognized related
to the Tax Cuts and Jobs Act.
• Ash Basin Settlement and Penalties represent charges related to Plea
Agreements and settlement agreements with regulators and other
governmental entities.
Adjusted earnings also include the operating results of the nonregulated
Midwest generation business and Duke Energy Retail Sales (collectively, the
Midwest Generation Disposal Group) and the International Disposal Group,
which have been classified as discontinued operations. Management believes
inclusion of the operating results of the Disposal Groups within adjusted
earnings and adjusted diluted EPS results in a better reflection of Duke Energy’s
financial performance during the period.
Duke Energy’s adjusted earnings and adjusted diluted EPS may not be
comparable to similarly titled measures of another company because other
companies may not calculate the measures in the same manner.
Reconciliation of GAAP Reported Amounts to Adjusted Amounts
The following table presents a reconciliation of adjusted earnings and adjusted diluted EPS to the most directly comparable GAAP measures.
(in millions, except per share amounts)
GAAP Reported Earnings/EPS
Adjustments to Reported:
Costs to Achieve Mergers
Regulatory Settlements
Commercial Renewables Impairments
Impacts of the Tax Act(c)
Cost Savings Initiatives
Ash Basin Settlement and Penalties
Discontinued Operations(a)(b)
Adjusted Earnings/Adjusted Diluted EPS
2017
Earnings
$ 3,059
64
98
74
(102)
—
—
6
$ 3,199
Years Ended December 31,
2016
2015
EPS
$ 4.36
0.09
0.14
0.11
(0.14)
—
—
0.01
$ 4.57
Earnings
$ 2,152
329
—
45
—
57
—
661
$ 3,244
EPS
$ 3.11
0.48
—
0.07
—
0.08
—
0.95
$ 4.69
Earnings
$ 2,816
60
58
—
—
88
11
119
$ 3,152
EPS
4.05
0.09
0.08
—
—
0.13
0.02
0.17
4.54
$
$
(a) For 2016, includes a loss on sale of the International Disposal Group. Represents the GAAP reported Loss from Discontinued Operations, less the International Disposal Group operating results, which are included in adjusted
earnings.
(b) For 2015, includes the impact of a litigation reserve related to the Midwest Generation Disposal Group. Represents (i) GAAP reported Income from Discontinued Operations, less the International Disposal Group operating
results and Midwest Generation Disposal Group operating results, which are included in adjusted earnings, and (ii) a state tax charge resulting from the completion of the sale of the Midwest Generation Disposal Group but not
reported as discontinued operations.
(c) The Tax Act reduced the corporate income tax rate from 35 percent to 21 percent, effective January 1, 2018. As the tax change was enacted in 2017, Duke Energy is required to remeasure its existing deferred tax assets and
liabilities at the lower rate. For Duke Energy’s regulated operations, where the reduction in the net accumulated deferred income tax liability is expected to be returned to customers in future rates, the remeasurement has
been deferred as a regulatory liability.
33
PART II Year Ended December 31, 2017, as compared to 2016
Partially offset by:
Duke Energy’s full-year 2017 GAAP Reported EPS was $4.36 compared
• Higher storm costs at Electric Utilities and Infrastructure due to
significant 2016 storms;
• Higher interest expense related to additional debt outstanding; and
• Higher depreciation and amortization expense at Electric Utilities and
Infrastructure primarily due to higher depreciable base.
SEGMENT RESULTS
The remaining information presented in this discussion of results of
operations is on a GAAP basis. Management evaluates segment performance
based on segment income. Segment income is defined as income from
continuing operations net of income attributable to noncontrolling interests.
Segment income includes intercompany revenues and expenses that are
eliminated in the Consolidated Financial Statements.
Duke Energy’s segment structure includes the following segments: Electric
Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial
Renewables. The remainder of Duke Energy’s operations is presented as Other.
See Note 3 to the Consolidated Financial Statements, “Business Segments,” for
additional information on Duke Energy’s segment structure.
Tax Cuts and Jobs Act (the Tax Act)
On December 22, 2017, President Trump signed the Tax Act into law.
Among other provisions, the Tax Act lowers the corporate federal income tax rate
from 35 percent to 21 percent, limits interest deductions outside of regulated
utility operations, and eliminates bonus depreciation for regulated utilities,
effective January 1, 2018. The Tax Act also could be amended or subject to
technical correction, which could change the financial impacts that were
recorded at December 31, 2017, or are expected to be recorded in future periods.
See Note 22 to the Consolidated Financial Statements, “Income Taxes,” for
additional information on the Tax Act. The FERC and state utility commissions
will determine the regulatory treatment of the impacts of the Tax Act for the
Subsidiary Registrants. Duke Energy’s segments’ future results of operations,
financial condition and cash flows could be adversely impacted by the Tax
Act, subsequent amendments or corrections, or the actions of the FERC, state
utility commissions or credit rating agencies related to the Tax Act. Duke Energy
is reviewing orders to address the rate treatment of the Tax Act by each state
utility commission in which the Subsidiary Registrants operate. See Note 4 to
the Consolidated Financial Statements, “Regulatory Matters,” for additional
information. Beginning in January 2018, the Subsidiary Registrants will defer
the estimated ongoing impacts of the Tax Act that are expected to be returned to
customers. See the Credit Ratings section below for additional information on the
impact of the Tax Act on the Duke Energy Registrants’ credit ratings.
As a result of the Tax Act, Duke Energy revalued its existing deferred tax
assets and deferred tax liabilities as of December 31, 2017, to account for
the estimated future impact of lower corporate tax rates on these deferred tax
amounts. For Duke Energy’s regulated operations, where the net reduction in
the net accumulated deferred income tax liability is expected to be returned to
customers in future rates, the remeasurement has been deferred as a regulatory
liability. See Note 4 to the Consolidated Financial Statements, “Regulatory
Matters,” for additional information on the Tax Act’s impact to the regulatory
asset and liability accounts.
to $3.11 for full-year 2016. In addition to the adjusted diluted EPS drivers
discussed below, GAAP Reported EPS in 2017 was higher primarily due to a
$0.14 benefit per share related to the Tax Act in 2017, lower costs to achieve the
Piedmont merger and a loss on sale and impairments associated with the sale
of the International Disposal Group in 2016, partially offset by charges of $0.14
related to regulatory settlements in Electric Utilities and Infrastructure.
As discussed, management also evaluates financial performance based on
adjusted earnings. Duke Energy’s full-year 2017 adjusted diluted EPS was $4.57
compared to $4.69 for full-year 2016. The decrease in adjusted diluted EPS was
primarily due to:
• Lower regulated electric revenues of $0.26 per share due to less
favorable weather in the current year, including lost revenues related to
Hurricane Irma;
• The prior year operating results from the International Disposal Group,
which was sold in December 2016. The 2016 operating results included
a benefit from the valuation of deferred income taxes. See Note 22 to
the Consolidated Financial Statements, Income Taxes,” for additional
information;
• Higher financing costs, primarily due to the Piedmont acquisition; and
• Higher depreciation and amortization expense at Electric Utilities and
Infrastructure primarily due to higher depreciable base.
Partially offset by:
• Higher regulated electric revenues from increased pricing and riders
driven by new rates in Duke Energy Progress South Carolina, base rate
adjustments in Florida and energy efficiency rider revenues in North
Carolina, as well as growth in weather-normal retail volumes;
• Lower operations, maintenance and other expenses, net of amounts
recoverable in rates, at Electric Utilities and Infrastructure resulting from
ongoing cost efficiency efforts and lower year-to-date storm costs than
the prior year; and
• Additional earnings from incremental investments in Atlantic Coast
Pipeline, LLC (ACP) and Sabal Trail natural gas pipelines.
Year Ended December 31, 2016, as compared to 2015
Duke Energy’s full-year 2016 GAAP Reported EPS was $3.11 compared
to $4.05 for full-year 2015. GAAP Reported EPS was lower primarily due to a
$0.93 loss on sale of the International business, which has been presented as
discontinued operations. Duke Energy also recorded $0.40 of after-tax costs to
achieve the Piedmont merger in 2016, including losses on interest rate swaps
related to the acquisition financing. See Note 2, “Acquisitions and Dispositions,”
for additional information on the Piedmont and International transactions.
As discussed, management also evaluates financial performance based on
adjusted earnings. Duke Energy’s full-year 2016 adjusted diluted EPS was $4.69
compared to $4.54 for full-year 2015. The variance in adjusted diluted EPS was
primarily due to:
• More favorable weather in 2016 compared to 2015;
• Increased retail revenues from pricing and riders, including energy
efficiency programs;
• Strong operations and maintenance cost control at Electric Utilities and
Infrastructure; and
• Piedmont’s earnings contribution subsequent to the acquisition in
October 2016.
34
PART II The following table shows the expense (benefit) recorded on Duke Energy’s Consolidated Statement of Operations for the year ended December 31, 2017.
(in millions)
Electric Utilities and Infrastructure(c)
Gas Utilities and Infrastructure(d)(e)
Commercial Renewables
Other(f)
Total impact of the Tax Act(d)
(a) Except where noted below, amounts are included within Income Tax Expense From Continuing Operations on the Consolidated Statement of Operations.
(b) See Note 4 and Note 22 to the Consolidated Financial Statements, “Regulatory Matters” and “Income Taxes,” for information about the Tax Act’s impact on Duke Energy’s Consolidated Balance Sheets.
(c) Amount primarily relates to the remeasurement of net deferred tax liabilities that are excluded for ratemaking purposes related to abandoned or impaired assets and certain wholesale fixed rate contracts.
(d)
(e) Amount primarily relates to the remeasurement of net deferred tax liabilities that relates to equity method investments and certain wholesale fixed rate contracts.
(f) Amount primarily relates to the remeasurement of Foreign Tax Credits, federal net operating losses and non-regulated deferred tax assets.
Includes a $16 million expense recorded within Equity in earnings (losses) of unconsolidated affiliates on the Consolidated Statement of Operations.
Impacts of
the Tax Act(a)(b)
$
(231)
(26)
(442)
597
$
(102)
Electric Utilities and Infrastructure
(in millions)
Operating Revenues
Operating Expenses
Fuel used in electric generation and purchased power
Operations, maintenance and other
Depreciation and amortization
Property and other taxes
Impairment charges
Total operating expenses
Gains on Sales of Other Assets and Other, net
Operating Income
Other Income and Expenses
Interest Expense
Income Before Income Taxes
Income Tax Expense
Segment Income
Duke Energy Carolinas Gigawatt-Hours (GWh) sales
Duke Energy Progress GWh sales
Duke Energy Florida GWh sales
Duke Energy Ohio GWh sales
Duke Energy Indiana GWh sales
Total Electric Utilities and Infrastructure GWh sales
Net proportional MW capacity in operation
Years Ended December 31,
2017
2016
Variance
2017 vs.
2016
Variance
2016 vs.
2015
2015
$ 21,331
$ 21,366
$
(35)
$ 21,521
$ (155)
6,379
5,196
3,010
1,079
176
15,840
6
5,497
308
1,240
4,565
1,355
3,210
87,305
66,822
40,591
24,639
33,145
252,502
48,828
$
6,595
5,292
2,897
1,021
16
15,821
—
5,545
303
1,136
4,712
1,672
3,040
88,545
69,049
40,404
25,163
34,368
257,529
49,295
$
(216)
(96)
113
58
160
19
6
(48)
5
104
(147)
(317)
170
(1,240)
(2,227)
187
(524)
(1,223)
(5,027)
(467)
$
7,308
5,138
2,735
1,013
101
16,295
5
5,231
264
1,074
4,421
1,602
2,819
86,950
64,881
40,053
25,439
33,518
250,841
50,170
$
(713)
154
162
8
(85)
(474)
(5)
314
39
62
291
70
$ 221
1,595
4,168
351
(276)
850
6,688
(875)
Year Ended December 31, 2017, as Compared to 2016
Partially offset by:
Electric Utilities and Infrastructure’s results were impacted by the Tax Act,
growth from investments, lower operations and maintenance expense and higher
weather-normal retail sales volumes, partially offset by less favorable weather,
impairment charges due to regulatory settlements, increased depreciation and
amortization, higher interest expense and higher property and other taxes. The
following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
• a $292 million decrease in retail sales, net of fuel revenue, due to less
favorable weather in the current year; and
• a $235 million decrease in fuel revenues driven by lower retail sales
volumes, lower fuel prices included in rates and changes in the
generation mix.
35
• a $364 million increase in rider revenues including increased revenues
related to energy efficiency programs, Duke Energy Florida’s nuclear
asset securitization, Midwest transmission and distribution capital
investments and Duke Energy Indiana’s Edwardsport Integrated
Gasification Combined Cycle (IGCC) plant, as well as an increase in
retail pricing due to base rate adjustments for Duke Energy Florida’s
Osprey acquisition and Hines Chillers and the Duke Energy Progress
South Carolina rate case;
• an $86 million increase in weather-normal sales volumes to customers; and
• a $26 million increase in other revenues primarily due to favorable
transmission revenues.
PART II Operating Expenses. The variance was driven primarily by:
• a $101 million increase in retail sales, net of fuel revenue, due to
• a $160 million increase in impairment charges primarily due to the
write-off of remaining unrecovered Levy Nuclear Project costs in the
current year at Duke Energy Florida and the disallowance from rate
base of certain projects at the Mayo and Sutton plants in the current
year at Duke Energy Progress related to the partial settlement in the
North Carolina rate case;
• a $113 million increase in depreciation and amortization expense
primarily due to additional plant in service; and
• a $58 million increase in property and other taxes primarily due to
higher property taxes.
Partially offset by:
favorable weather compared to the prior year; and
• a $76 million increase in wholesale power revenues primarily due to
additional volumes and capacity charges for customers served under
long-term contracts, including the NCEMPA wholesale contract.
Operating Expenses. The variance was driven primarily by:
• a $713 million decrease in fuel expense (including purchased power
and natural gas purchases for resale) primarily due to lower natural gas
and coal prices, and lower volumes of coal and oil, partially offset by
higher volumes of natural gas; and
• an $85 million decrease in pretax impairment charges in the prior year
primarily due to the 2015 Edwardsport IGCC settlement.
• a $216 million decrease in fuel expense (including purchased power)
primarily due to lower retail sales and changes in the generation mix; and
Partially offset by:
• a $96 million decrease in operation, maintenance and other expense
primarily due to lower plant outage, storm restoration and labor and
benefits costs partially offset by higher operational costs that are
recoverable in rates.
Interest Expense. The variance was due to higher debt outstanding in
the current year and Duke Energy Florida’s Crystal River 3 (CR3) regulatory
asset debt return ending in June 2016 upon securitization.
• a $162 million increase in depreciation and amortization expense primarily
due to additional plant in service, including the additional ownership
interest in generating assets acquired from NCEMPA, as well as the
expiration of the North Carolina cost of removal decrement rider; and
• a $154 million increase in operations and maintenance expense
primarily due to higher environmental and operational costs that are
recoverable in rates, increased employee benefit costs, and higher
storm restoration costs, partially offset by lower costs due to effective
cost control efforts.
Income Tax Expense. The variance was primarily due to a decrease in
pretax income and the impact of the Tax Act. The effective tax rates for the years
ended December 31, 2017, and 2016 were 29.7 percent and 35.5 percent,
respectively. The decrease in the effective tax rate was primarily due to the
impact of the Tax Act. See the Tax Cuts and Jobs Act section above for additional
information on the Tax Act.
Other Income and Expenses. The variance was primarily driven by
higher AFUDC equity.
Interest Expense. The variance was due to higher debt outstanding in
the current year.
Year Ended December 31, 2016, as Compared to 2015
Electric Utilities and Infrastructure’s higher earnings were primarily due to
increased pricing and rider revenues, favorable weather, a prior year impairment
charge associated with the 2015 Edwardsport IGCC settlement and an increase
in wholesale power margins. These impacts were partially offset by increased
depreciation and amortization expense, higher interest expense and higher
operations and maintenance expense. The following is a detailed discussion of
the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
• a $768 million decrease in fuel revenues driven by lower fuel prices
included in rates.
Partially offset by:
• a $414 million increase in rider revenues including increased revenues
related to energy efficiency programs, the additional ownership interest
in generating assets acquired from NCEMPA in the third quarter of 2015
and increased revenues related to Duke Energy Indiana’s clean coal
equipment, and increased retail electric pricing primarily due to the
expiration of the North Carolina cost of removal decrement rider;
Income Tax Expense. The variance was primarily due to an increase in
pretax income. The effective tax rates for the years ended December 31, 2016,
and 2015 were 35.5 percent and 36.2 percent, respectively.
Matters Impacting Future Electric Utilities and Infrastructure Results
An order from regulatory authorities disallowing recovery of costs related
to closure of ash impoundments could have an adverse impact on Electric
Utilities and Infrastructure’s financial position, results of operations and
cash flows. See Note 4 and Note 9 to the Consolidated Financial Statements,
“Regulatory Matters” and “Asset Retirement Obligations,” respectively, for
additional information.
On May 18, 2016, the North Carolina Department of Environmental
Quality (NCDEQ) issued proposed risk classifications for all coal ash surface
impoundments in North Carolina. All ash impoundments not previously
designated as high priority by the North Carolina Coal Ash Management
Act of 2014 (Coal Ash Act) were designated as intermediate risk. Certain
impoundments classified as intermediate risk, however, may be reassessed in
the future as low risk pursuant to legislation enacted on July 14, 2016. Electric
Utilities and Infrastructure’s estimated asset retirement obligations (AROs)
related to the closure of North Carolina ash impoundments are based upon
the mandated closure method or a probability weighting of potential closure
36
PART II methods for the impoundments that may be reassessed to low risk. As the
final risk ranking classifications in North Carolina are delineated, final closure
plans and corrective action measures are developed and approved for each
site, the closure work progresses and the closure method scope and remedial
methods are determined, the complexity of work and the amount of coal
combustion material could be different than originally estimated and, therefore,
could materially impact Electric Utilities and Infrastructure’s financial position.
See Note 9 to the Consolidated Financial Statements, “Asset Retirement
Obligations,” for additional information.
Duke Energy is a party to multiple lawsuits and could be subject to fines
and other penalties related to operations at certain North Carolina facilities with
ash basins. The outcome of these lawsuits and potential fines and penalties
could have an adverse impact on Electric Utilities and Infrastructure’s financial
position, results of operations and cash flows. See Note 5 to the Consolidated
Financial Statements, “Commitments and Contingencies,” for additional
information.
In the fourth quarter of 2016, Hurricane Matthew caused historic flooding,
extensive damage and widespread power outages within the Duke Energy
Progress service territory. Duke Energy Progress filed a petition with the North
Carolina Utilities Commission (NCUC) requesting an accounting order to defer
incremental operation and maintenance and capital costs incurred in response
to Hurricane Matthew and other significant 2016 storms. The NCUC will address
this request in Duke Energy Progress’ currently pending rate case. A final
order from the NCUC that disallows the deferral and future recovery of all or
a significant portion of the incremental storm restoration costs incurred could
result in an adverse impact on Electric Utilities and Infrastructure’s financial
position, results of operations and cash flows. See Note 4 to the Consolidated
Financial Statements, “Regulatory Matters,” for additional information.
Duke Energy has several rate cases pending. Duke Energy Kentucky filed
an electric rate case with the Kentucky Public Service Commission (KPSC)
Gas Utilities and Infrastructure
on September 1, 2017, to recover costs of capital investments in generation,
transmission and distribution systems and to recover other incremental
expenses since its previous rate case. Duke Energy Carolinas and Duke Energy
Progress filed general rate cases with the NCUC on August 25, 2017, and June
1, 2017, respectively, to recover costs of complying with Coal Combustion
Residuals (CCR) regulations and the Coal Ash Act, as well as costs of capital
investments in generation, transmission and distribution systems and any
increase in expenditures subsequent to previous rate cases. In March 2017,
Duke Energy Ohio filed an electric distribution base rate case application and
supporting testimony with the Public Utility Commission of Ohio (PUCO). Electric
Utilities and Infrastructure’s earnings could be impacted adversely if these
rate increases are delayed or denied by the KPSC, NCUC or PUCO. See Note 4
to the Consolidated Financial Statements, “Regulatory Matters,” for additional
information.
On August 29, 2017, Duke Energy Florida filed a 2017 Second Revised
and Restated Settlement Agreement (2017 Settlement) with the FPSC. On
November 20, 2017, the FPSC issued an order to approve the 2017 Settlement.
See Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” for
additional information about the 2017 Settlement. In accordance with the 2017
Settlement, Duke Energy Florida will not seek recovery of any costs associated
with the ongoing Westinghouse contract litigation, which is currently being
appealed. See Note 5 to the Consolidated Financial Statements, “Commitments
and Contingencies,” for additional information about the litigation. An
unfavorable appeals ruling on that matter could have an adverse impact on
Electric Utilities and Infrastructure’s financial position, results of operations and
cash flows.
Within this Item 7, see the Tax Cuts and Jobs Act above as well as
Liquidity and Capital Resources below for risks associated with the Tax Act.
Years Ended December 31,
2017
$
1,836
$
2016
901
632
393
231
106
1,362
—
474
66
105
435
116
319
$
265
186
115
70
636
(1)
264
24
46
242
90
152
$
Variance
2017 vs.
2016
$ 935
$
367
207
116
36
726
1
210
42
59
193
26
$ 167
$
2015
541
141
126
79
62
408
6
139
3
25
117
44
73
Variance
2016 vs.
2015
$ 360
124
60
36
8
228
(7)
125
21
21
125
46
79
$
468,259,777 120,908,508 347,351,269
81,870,489
80,934,836
(935,653) 84,523,814
— 120,908,508
(2,653,325)
(in millions)
Operating Revenues
Operating Expenses
Cost of natural gas
Operation, maintenance and other
Depreciation and amortization
Property and other taxes
Total operating expenses
(Loss) Gains on Sales of Other Assets and Other, net
Operating Income
Other Income and Expenses
Interest Expense
Income Before Income Taxes
Income Tax Expense
Segment Income
Piedmont LDC throughput (dekatherms)(a)
Duke Energy Midwest LDC throughput (MCF)
(a)
Includes throughput subsequent to Duke Energy’s acquisition of Piedmont on October 3, 2016.
37
PART II Year Ended December 31, 2017, as Compared to 2016
Partially offset by:
Gas Utilities and Infrastructure’s higher results were primarily due to the
inclusion of Piedmont’s earnings in the current year as a result of Duke Energy’s
acquisition of Piedmont on October 3, 2016, as well as additional equity
earnings from investments in the ACP and Sabal Trail pipelines.
• a $38 million decrease in the cost of natural gas, primarily due
to decreased volumes and lower natural gas prices for Midwest
operations.
Other Income and Expenses. The increase was driven primarily by
Operating Revenues. The variance was driven primarily by:
higher equity earnings from pipeline investments.
• an $884 million increase in operating revenues due to the inclusion of
Piedmont’s operating revenues beginning in October 2016; and
• a $47 million increase in Piedmont’s fourth quarter results due to colder
weather, higher natural gas prices, Integrity Management Rider (IMR) rate
adjustments, customer growth and new power generation customers.
Operating Expenses. The variance was driven primarily by:
• a $686 million increase in operating expenses due to the inclusion of
Piedmont’s operating expenses beginning in October 2016; and
• a $34 million increase in Piedmont’s fourth quarter results primarily
due to higher natural gas costs passed through to customers due to the
higher price per dekatherm of natural gas.
Other Income and Expenses. The increase was driven primarily by
higher equity earnings from pipeline investments.
Interest Expense. The variance was primarily due to the inclusion of
Piedmont’s interest expense beginning in October 2016.
Income Tax Expense. The variance was primarily due to an increase in
pretax income due to the inclusion of Piedmont’s earnings beginning in October
2016, partially offset by prior period true-ups. The effective tax rates for the
years ended December 31, 2017, and 2016 were 26.7 percent and 37.2 percent,
respectively. The decrease in the effective tax rate was primarily due to the prior
period true-ups and the impact of the Tax Act. See the Tax Cuts and Jobs Act
section above for additional information on the Tax Act.
Year Ended December 31, 2016, as Compared to 2015
Gas Utilities and Infrastructure’s higher results were primarily due to the
inclusion of Piedmont’s earnings subsequent to the merger on October 3, 2016,
and higher equity earnings from pipeline investments. Piedmont’s earnings
included in Gas Utilities and Infrastructure’s results were $67 million for the
year ended December 31, 2016.
Operating Revenues. The variance was driven primarily by:
• a $398 million increase in operating revenues due to the inclusion of
Piedmont’s operating revenues beginning in October 2016,
Partially offset by:
• a $38 million decrease in fuel revenues driven by lower natural gas
prices and decreased sales volumes for Midwest operations.
Operating Expenses. The variance was driven primarily by:
• a $276 million increase in operating expenses due to the inclusion of
Piedmont’s operating expenses beginning in October 2016.
Interest Expense. The variance was primarily due to the inclusion of
Piedmont’s interest expenses beginning in October 2016.
Income Tax Expense. The variance was primarily due to an increase in
pretax income. The effective tax rates for the years ended December 31, 2016,
and 2015 were 37.2 percent and 37.6 percent, respectively.
Matters Impacting Future Gas Utilities and Infrastructure Results
Gas Utilities and Infrastructure has a 24 percent ownership interest in
Constitution Pipeline Company, LLC (Constitution), a natural gas pipeline project
slated to transport natural gas supplies to major northeastern markets. On
April 22, 2016, the New York State Department of Environmental Conservation
denied Constitution’s application for a necessary water quality certification
for the New York portion of the Constitution pipeline. Constitution has stopped
construction and discontinued capitalization of future development costs until
the project’s uncertainty is resolved. As a result of the permitting delays and
project uncertainty, total anticipated contributions by Duke Energy can no longer
be reasonably estimated. To the extent the legal and regulatory proceedings
have unfavorable outcomes, or if Constitution concludes that the project is
not viable or does not go forward, an impairment charge of up to the recorded
investment in the project, net of salvage value and any cash and working
capital returned, may be recorded. Due to the FERC’s January 2018 ruling and
the resulting increase in uncertainty, Duke Energy is evaluating the potential to
recognize a pretax impairment charge on its investment in Constitution during
the first quarter of 2018 of up to the current carrying amount of the investment,
net of salvage value and any cash and working capital returned. With the project
on hold, funding of project costs has ceased until resolution of legal actions. At
December 31, 2017, Duke Energy’s investment in Constitution was $81 million.
See Note 4 and Note 12 to the Consolidated Financial Statements, “Regulatory
Matters,” and “Investments in Unconsolidated Affiliates,” respectively, for
additional information.
Gas Utilities and Infrastructure has a 47 percent ownership interest
in ACP, which is building an approximately 600-mile interstate natural gas
pipeline intended to transport diverse natural gas supplies into southeastern
markets. Affected states (West Virginia, Virginia and North Carolina) have
issued certain necessary permits; the project remains subject to other pending
federal and state approvals, which will allow full construction activities to
begin. In early 2018, the FERC issued series of Partial Notices to Proceed which
authorized the project to begin limited construction-related activities along the
pipeline route. The project has a targeted in-service date of late 2019. Due to
delays in obtaining the required permits to commence construction and the
conditions imposed upon the project by the permits, ACP’s project manager
estimates the project pipeline development costs have increased from a range
of $5.0 billion to $5.5 billion to a range of $6.0 billion to $6.5 billion, excluding
financing costs. Project construction activities, schedule and final costs are still
subject to uncertainty due to potential additional permitting delays, construction
productivity and other conditions and risks that could result in potential higher
project costs and a potential delay in the targeted in-service date. See Note 4
38
PART II to the Consolidated Financial Statements, “Regulatory Matters,” for additional
information.
Rapidly rising interest rates without timely or adequate updates to the
regulated allowed return on equity or failure to achieve the anticipated benefits
of the Piedmont merger, including cost savings and growth targets, could
significantly impact the estimated fair value of reporting units in Gas Utilities
and Infrastructure. In the event of a significant decline in the estimated fair
value of the reporting units, goodwill impairment charges could be recorded.
The carrying value of goodwill within Gas Utilities and Infrastructure was
approximately $1,924 million at December 31, 2017.
Within this Item 7, see the Tax Cuts and Jobs Act above as well as
Liquidity and Capital Resources below for risks associated with the Tax Act.
Commercial Renewables
(in millions)
Operating Revenues
Operating Expenses
Operation, maintenance and other
Depreciation and amortization
Property and other taxes
Impairment charges
Total operating expenses
Gains on Sales of Other Assets and Other, net
Operating Loss
Other Income and Expenses
Interest Expense
Loss Before Income Taxes
Income Tax Benefit
Less: Loss Attributable to Noncontrolling Interests
Segment Income
Renewable plant production, GWh
Net proportional MW capacity in operation
Years Ended December 31,
2017
460
$
2016
484
$
267
155
33
99
554
1
(93)
(12)
87
(192)
(628)
(5)
441
337
130
25
—
492
5
(3)
(83)
53
(139)
(160)
(2)
23
$
$
Variance
2017 vs.
2016
$
(24)
$
(70)
25
8
99
62
(4)
(90)
71
34
(53)
(468)
(3)
$ 418
$
2015
286
197
104
18
3
322
1
(35)
2
44
(77)
(128)
(1)
52
Variance
2016 vs.
2015
$ 198
140
26
7
(3)
170
4
32
(85)
9
(62)
(32)
(1)
(29)
$
8,260
2,907
7,446
2,892
814
15
5,577
1,943
1,869
949
Year Ended December 31, 2017, as Compared to 2016
Commercial Renewables’ higher earnings were primarily due to the Tax
Act, partially offset by pretax impairment charges. The following is a detailed
discussion of the variance drivers by line item.
Operating Revenues. The decrease was primarily due to lower
engineering, procurement and construction revenues from REC Solar, a
California-based provider of solar installations acquired by Duke Energy in 2015.
Operating Expenses. The increase was primarily due to $99 million in
pretax impairment charges in the current year related to a wholly owned non-
contracted wind project and other investments and higher expenses associated
with new wind and solar projects, partially offset by lower operations and
maintenance expense at REC Solar due to fewer projects under construction.
See Notes 10 and 11 to the Consolidated Financial Statements, “Property,
Plant and Equipment” and “Goodwill and Intangible Assets,” respectively, for
additional information.
Other Income and Expenses. The variance was primarily due to a $71
million pretax impairment charge in the prior year related to certain equity
method investments. For additional information, see Note 12 to the Consolidated
Financial Statements, “Investments in Unconsolidated Affiliates.”
Interest Expense. The variance was primarily due to new project
financings and less capitalized interest due to fewer projects under construction.
Income Tax Benefit. The variance was primarily due to the impact of
the Tax Act and higher production tax credits (PTCs), partially offset by lower
investment tax credits (ITCs). See the Tax Cuts and Jobs Act section above for
additional information on the Tax Act and the impact on the effective tax rate.
Year Ended December 31, 2016, as Compared to 2015
Commercial Renewables’ lower earnings were primarily due to an
impairment charge related to certain equity method investments in wind
projects, partially offset by new wind and solar generation placed in service and
improved wind production. The following is a detailed discussion of variance
drivers by line item.
Operating Revenues. The variance was primarily due to a $135 million
increase due to growth of REC Solar and a $66 million increase from new wind
and solar generation placed in service and improved wind production.
Operating Expenses. The variance was primarily due to a $130 million
increase in operating expenses due to growth of REC Solar and a $36 million increase
in operating expenses due to new wind and solar generation placed in service.
Other Income and Expenses. The variance was due to a $71 million
pretax impairment charge related to certain equity method investments in wind
projects. See Note 12 to the Consolidated Financial Statements, “Investments in
Unconsolidated Affiliates,” for additional information.
39
PART II Income Tax Benefit. The variance was primarily due to a decrease in
pretax income and the impact of PTCs for the renewables portfolio.
Matters Impacting Future Commercial Renewables Results
Changes or variability in assumptions used in calculating the fair value
of the Commercial Renewables reporting units for goodwill testing purposes,
including but not limited to legislative actions related to tax credit extensions,
long-term growth rates and discount rates could significantly impact the
estimated fair value of the Commercial Renewables reporting units. In the
event of a significant decline in the estimated fair value of the Commercial
Renewables reporting units, goodwill or other asset impairment charges could
be recorded. The carrying value of goodwill within Commercial Renewables was
approximately $93 million at December 31, 2017.
Persistently low market pricing for wind resources, primarily in the
Electric Reliability Council of Texas West market and the future expiration of tax
incentives including ITCs and PTCs could result in adverse impacts to the future
results of Commercial Renewables.
Within this Item 7, see the Tax Cuts and Jobs Act above as well as
Liquidity and Capital Resources below for risks associated with the Tax Act.
Other
(in millions)
Operating Revenues
Operating Expenses
Fuel used in electric generation and purchased power
Operation, maintenance and other
Depreciation and amortization
Property and other taxes
Impairment charges
Total operating expenses
Gains on Sales of Other Assets and Other, net
Operating Loss
Other Income and Expenses
Interest Expense
Loss Before Income Taxes
Income Tax Expense (Benefit)
Less: Income attributable to Noncontrolling Interests
Net Expense
Year Ended December 31, 2017, as Compared to 2016
Other’s higher net expense was driven by the Tax Act, partially offset
by prior year losses on forward-starting interest rate swaps and other costs
related to the Piedmont acquisition, decreased severance expenses, prior year
donations to the Duke Energy Foundation and insurance proceeds resulting from
settlement of the shareholder litigation related to the Progress Energy merger.
The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The increase was primarily due to higher OVEC
(Ohio Valley Electric Corporation) revenues and prior year customer credits
related to Piedmont merger commitments. See Note 2 to the Consolidated
Financial Statements, “Acquisitions and Dispositions,” for additional information.
Operating Expenses. The decrease was primarily due to lower
transaction and integration costs associated with the Piedmont acquisition, prior
year severance expenses related to cost savings initiatives, donations to the
Duke Energy Foundation in 2016 as well as prior year depreciation expense and
other integration costs related to the Progress Energy merger. The Duke Energy
Foundation is a nonprofit organization funded by Duke Energy shareholders
that makes charitable contributions to selected nonprofits and government
subdivisions.
Other Income and Expenses. The increase was primarily driven by
insurance proceeds resulting from settlement of the shareholder litigation
related to the Progress Energy merger, higher earnings from the equity method
investment in NMC and increased returns on investments that fund certain
employee benefit obligations.
40
Years Ended December 31,
2017
138
$
2016
117
$
Variance
2017 vs.
2016
$
21
$
58
44
131
14
7
254
21
(95)
127
574
(542)
353
10
(905)
51
371
152
28
2
604
23
(464)
75
693
(1,082)
(446)
9
(645)
$
$
7
(327)
(21)
(14)
5
(350)
(2)
369
52
(119)
540
799
1
$ (260)
$
Variance
2016 vs.
2015
$
(18)
3
183
17
(7)
(1)
195
5
(208)
(23)
300
(531)
(184)
(1)
$ (346)
2015
135
48
188
135
35
3
409
18
(256)
98
393
(551)
(262)
10
(299)
Interest Expense. The decrease was primarily due to prior year losses
on forward-starting interest rate swaps related to Piedmont pre-acquisition
financing, partially offset by higher interest costs on $3.75 billion of debt
issued in August 2016 to fund the acquisition. For additional information see
Notes 2, 6 and 14 to the Consolidated Financial Statements, “Acquisitions and
Dispositions,” “Debt and Credit Facilities” and “Derivatives and Hedging,”
respectively.
Income Tax Benefit. The variance was primarily due to the impact of
the Tax Act and a decrease in pretax loss. See the Tax Cuts and Jobs Act section
above for additional information on the Tax Act and the impact on the effective
tax rate.
Year Ended December 31, 2016, as Compared to 2015
Other’s higher net expense was driven by costs related to the Piedmont
acquisition, higher charitable donations and higher interest expense related to
the Piedmont acquisition financing. The following is a detailed discussion of the
variance drivers by line item.
Operating Revenues. The decrease was primarily due to customer
credits recorded related to Piedmont merger commitments. See Note 2 to
the Consolidated Financial Statements, “Acquisitions and Dispositions,” for
additional information.
PART II Operating Expenses. The increase was primarily due to transaction
Matters Impacting Future Other Results
and integration costs associated with the Piedmont acquisition and increased
donations to the Duke Energy Foundation, partially offset by a decrease in
severance accruals.
Other Income and Expenses. The variance was primarily due to lower
earnings from NMC, partially offset by higher returns on investments that
support employee benefit obligations.
Interest Expense. The increase was primarily due to Piedmont
acquisition financing, including bridge facility costs and losses on forward-
starting interest rate swaps. For additional information see Notes 2 and 14 to
the Consolidated Financial Statements, “Acquisitions and Dispositions” and
“Derivatives and Hedging,” respectively.
Income Tax Benefit. The variance was primarily due to an increase in
pretax losses, partially offset by a decrease in the effective tax rate. The effective
tax rates for the years ended December 31, 2016, and 2015 were 41.2 percent
and 47.5 percent, respectively. The decrease in the effective tax rate was
primarily due to the benefit from legal entity restructuring recorded in 2015.
Included in Other is Duke Energy Ohio’s 9 percent ownership interest
in the Ohio Valley Electric Corporation (OVEC), which owns 2,256 MW of
coal-fired generation capacity. As a counterparty to an inter-company
power agreement (ICPA), Duke Energy Ohio has a contractual arrangement
to receive entitlements to capacity and energy from OVEC’s power plants
through June 2040 commensurate with its power participation ratio, which
is equivalent to Duke Energy Ohio’s ownership interest. Costs, including fuel,
operating expenses, fixed costs, debt amortization and interest expense,
are allocated to counterparties to the ICPA, including Duke Energy Ohio,
based on their power participation ratio. The value of the ICPA is subject to
variability due to fluctuations in power prices and changes in OVEC’s costs
of business. Deterioration in the credit quality or bankruptcy of one or more
parties to the ICPA could increase the costs of OVEC. In addition, certain
proposed environmental rulemaking costs could result in future increased cost
allocations. For information on Duke Energy’s regulatory filings related to OVEC,
see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.”
The retired Beckjord generating station (Beckjord), a nonregulated facility
retired during 2014, is not subject to the U.S. Environmental Protection Agency
(EPA) rule related to the disposal of CCR from electric utilities. However, if
costs are incurred as a result of environmental regulations or to mitigate risk
associated with on-site storage of coal ash, the costs could have an adverse
impact on Other’s financial position, results of operations and cash flows.
Within this Item 7, see the Tax Cuts and Jobs Act above as well as
Liquidity and Capital Resources below for risks associated with the Tax Act.
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
(in millions)
Years Ended December 31,
2017
2016
Variance
2017 vs.
2016
(Loss) Income From Discontinued Operations, net of tax
$
(6)
$
(408)
$ 402
$
Variance
2016 vs.
2015
$ (585)
2015
177
Year Ended December 31, 2017, as Compared to 2016
Year Ended December 31, 2016, as Compared to 2015
The variance was primarily driven by the prior year loss on the disposal of
The variance was primarily driven by the 2016 loss on the disposal of
Duke Energy’s Latin American generation business and an impairment charge
related to certain assets in Central America, partially offset by a tax benefit
related to historic unremitted foreign earnings and immaterial out of period tax
adjustments unrelated to the Disposal Groups. See Note 2 to the Consolidated
Financial Statements, “Acquisitions and Dispositions,” for additional
information.
Duke Energy’s Latin American generation business and an impairment charge
related to certain assets in Central America, partially offset by a tax benefit
related to historic unremitted foreign earnings and immaterial out of period tax
adjustments unrelated to the Disposal Groups. See Note 2 to the Consolidated
Financial Statements, “Acquisitions and Dispositions,” for additional
information.
SUBSIDIARY REGISTRANTS
As a result of the Tax Act, the Subsidiary Registrants revalued their
deferred tax assets and deferred tax liabilities, as of December 31, 2017, to
account for the future impact of lower corporate tax rates on these deferred
tax amounts. For the Subsidiary Registrants regulated operations, where
the reduction is expected to be returned to customers in future rates, the
remeasurement has been deferred as a regulatory liability. See Note 4 to
the Consolidated Financial Statements, “Regulatory Matters” for additional
information on the Tax Act’s impact to the regulatory asset and liability
accounts. The FERC and state utility commissions will determine the regulatory
treatment of the impacts of the Tax Act for the Subsidiary Registrants.
The Subsidiary Registrants’ future results of operations, financial condition
and cash flows could be adversely impacted by the Tax Act, subsequent
amendments or corrections, or the actions of the FERC, state utility
commissions or credit rating agencies related to the Tax Act. The change in each
Subsidiary Registrant’s effective tax rate for the year ended December 31, 2017,
was primarily due to the impact of the Tax Act, unless noted below.
41
PART II The following table shows the expense (benefit) recorded on the Subsidiary Registrant’s Consolidated Statement of Operations and Comprehensive Income for
the year ended December 31, 2017, and the effective tax rate for each Subsidiary Registrant.
(in millions)
Duke Energy Carolinas
Progress Energy
Duke Energy Progress
Duke Energy Florida
Duke Energy Ohio
Duke Energy Indiana
Piedmont
Effective Tax Rate
Years Ended December 31,
2017
34.9%
17.2%
29.0%(h)
6.1%
23.4%
46.0%
30.8%
2016
35.2%
33.7%
33.4%
36.9%
28.9%
37.1%
38.3%
Impacts of
the Tax Act(a)(b)
$
15
(246)(c)
(40)(d)
(226)(c)
(23)(e)
55(f)
(2)(d)(g)
(a) Except where noted below, amounts are included within Income Tax Expense From Continuing Operations or Income Tax Expense on the Consolidated Statement of Operations and Comprehensive Income.
(b) See Notes 4 and 22 to the Consolidated Financial Statements, “Regulatory Matters” and “Income Taxes,” for information about the Tax Act’s impact on Duke Energy’s Consolidated Balance Sheets.
(c) Amount primarily relates to the remeasurement of deferred tax liabilities that are excluded for ratemaking purposes related to abandoned assets and certain wholesale fixed rate contracts.
(d) Amount primarily relates to the remeasurement of deferred tax liabilities of certain wholesale fixed rate contracts.
(e) Amount primarily relates to the remeasurement of deferred tax assets that are excluded for ratemaking purposes related to a prior transfer of certain electric generating assets.
(f) Amount primarily relates to the remeasurement of deferred tax liabilities that are excluded for ratemaking purposes related to impaired assets.
(g)
(h) The decrease in the effective tax rate was primarily due to the impact of the Tax Act and lower North Carolina corporate tax rates.
Includes a $16 million expense recorded within Equity in earnings (losses) of unconsolidated affiliates on the Consolidated Statement of Operations and Comprehensive Income.
DUKE ENERGY CAROLINAS
Introduction
Basis of Presentation
Management’s Discussion and Analysis should be read in conjunction
with the accompanying Consolidated Financial Statements and Notes for the
years ended December 31, 2017, 2016 and 2015.
The results of operations and variance discussion for Duke Energy
Carolinas is presented in a reduced disclosure format in accordance with
General Instruction (I)(2)(a) of Form 10-K.
Results of Operations
(in millions)
Operating Revenues
Operating Expenses
Fuel used in electric generation and purchased power
Operation, maintenance and other
Depreciation and amortization
Property and other taxes
Impairment charges
Total operating expenses
Gain (Loss) on Sales of Other Assets and Other, net
Operating Income
Other Income and Expenses, net
Interest Expense
Income Before Income Taxes
Income Tax Expense
Net Income
Years Ended December 31,
2017
$ 7,302
2016
$ 7,322
Variance
$
(20)
1,822
1,961
1,090
281
—
5,154
1
2,149
139
422
1,866
652
1,797
2,106
1,075
276
1
5,255
(5)
2,062
162
424
1,800
634
$ 1,214
$ 1,166
$
25
(145)
15
5
(1)
(101)
6
87
(23)
(2)
66
18
48
42
PART II The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Carolinas. The below percentages for retail
customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities and to public and
private utilities and power marketers. Amounts are not weather-normalized.
Increase (Decrease) over prior year
Residential sales
General service sales
Industrial sales
Wholesale power sales
Joint dispatch sales
Total sales
Average number of customers
2017
(4.8)%
(1.8)%
(0.8)%
6.3%
18.2%
(1.4)%
1.5%
2016
0.1%
0.7%
(0.9)%
9.8%
(2.3)%
1.8%
1.4%
Year Ended December 31, 2017, as Compared to 2016
Matters Impacting Future Results
An order from regulatory authorities disallowing recovery of costs related
to closure of ash impoundments could have an adverse impact on Duke Energy
Carolinas’ financial position, results of operations and cash flows. See Notes
4 and 9 to the Consolidated Financial Statements, “Regulatory Matters” and
“Asset Retirement Obligations,” respectively, for additional information.
On May 18, 2016, the NCDEQ issued proposed risk classifications for
all coal ash surface impoundments in North Carolina. All ash impoundments
not previously designated as high priority by the Coal Ash Act were designated
as intermediate risk. Certain impoundments classified as intermediate risk,
however, may be reassessed in the future as low risk pursuant to legislation
enacted on July 14, 2016. Duke Energy Carolinas’ estimated AROs related to
the closure of North Carolina ash impoundments are based upon the mandated
closure method or a probability weighting of potential closure methods for
the impoundments that may be reassessed to low risk. As the final risk
ranking classifications in North Carolina are delineated, final closure plans
and corrective action measures are developed and approved for each site,
the closure work progresses, and the closure method scope and remedial
action methods are determined, the complexity of work and the amount of coal
combustion material could be different than originally estimated and, therefore,
could materially impact Duke Energy Carolinas’ financial position. See Note 9
to the Consolidated Financial Statements, “Asset Retirement Obligations,” for
additional information.
Duke Energy Carolinas is a party to multiple lawsuits and subject to
fines and other penalties related to operations at certain North Carolina
facilities with ash basins. The outcome of these lawsuits, fines and penalties
could have an adverse impact on Duke Energy Carolinas’ financial position,
results of operations and cash flows. See Note 5 to the Consolidated Financial
Statements, “Commitments and Contingencies,” for additional information.
Duke Energy Carolinas filed a general rate case on August 25, 2017, to
recover costs of complying with CCR regulations and the Coal Ash Act, as well
as costs of capital investments in generation, transmission and distribution
systems and any increase in expenditures subsequent to previous rate cases.
Duke Energy Carolinas’ earnings could be adversely impacted if the rate
increase is delayed or denied by the NCUC.
Within this Item 7, see the Tax Cuts and Jobs Act above as well as
Liquidity and Capital Resources below for risks associated with the Tax Act.
Operating Revenues. The variance was driven primarily by:
• a $179 million decrease in retail sales, net of fuel revenues, due to less
favorable weather in the current year.
Partially offset by:
• a $74 million increase in rider revenues and retail pricing primarily
related to energy efficiency programs;
• a $41 million increase in weather-normal sales volumes to retail
customers, net of fuel revenues;
• a $30 million increase in fuel revenues primarily due to changes in
generation mix partially offset by lower retail sales; and
• a $7 million increase in wholesale power revenues, net of sharing and
fuel, primarily due to additional volumes for customers served under
long-term contracts.
Operating Expenses. The variance was driven primarily by:
• a $145 million decrease in operations, maintenance and other
expense primarily due to lower expenses at generating plants, lower
costs associated with merger commitments related to the Piedmont
acquisition in 2016, lower severance expenses, and lower employee
benefit costs, partially offset by higher energy efficiency program costs.
Partially offset by:
• a $25 million increase in fuel expense (including purchased power)
primarily due to changes in generation mix, partially offset by lower
retail sales; and
• a $15 million increase in depreciation and amortization expense
primarily due to additional plant in service, partially offset by lower
amortization of certain regulatory assets.
Other Income and Expenses. The variance was primarily due to a
decrease in recognition of post in-service equity returns for projects that had
been completed prior to being reflected in customer rates.
Income Tax Expense. The variance was primarily due to an increase in
pretax income and the impact of the Tax Act, offset by the impact of research
credits and the manufacturing deduction. See the Subsidiary Registrants section
above for additional information on the Tax Act and the impact on the effective
tax rate.
43
PART II PROGRESS ENERGY
Introduction
Basis of Presentation
Management’s Discussion and Analysis should be read in conjunction
with the accompanying Consolidated Financial Statements and Notes for the
years ended December 31, 2017, 2016 and 2015.
The results of operations and variance discussion for Progress Energy is
presented in a reduced disclosure format in accordance with General Instruction
(I)(2)(a) of Form 10-K.
Results of Operations
(in millions)
Operating Revenues
Operating Expenses
Fuel used in electric generation and purchased power
Operation, maintenance and other
Depreciation and amortization
Property and other taxes
Impairment charges
Total operating expenses
Gains on Sales of Other Assets and Other, net
Operating Income
Other Income and Expenses, net
Interest Expense
Income From Continuing Operations Before Income Taxes
Income Tax Expense From Continuing Operations
Income from Continuing Operations
Income from Discontinued Operations, net of tax
Net Income
Less: Net Income Attributable to Noncontrolling Interests
Net Income Attributable to Parent
Year Ended December 31, 2017, as Compared to 2016
Operating Revenues. The variance was driven primarily by:
• a $231 million decrease in fuel revenues primarily due to lower retail
sales and changes in generation mix at Duke Energy Progress; and
• an $87 million decrease in retail sales, net of fuel revenues, due to less
favorable weather in the current year.
Partially offset by:
• a $108 million increase in retail pricing primarily due to Duke Energy
Florida’s base rate adjustment for the Osprey Acquisition and the
completion of the Hines Energy Complex Chiller Uprate Project, as well
as the Duke Energy Progress South Carolina rate case;
• a $76 million increase in rider revenues related to energy efficiency
programs at Duke Energy Progress, as well as nuclear asset
securitization beginning in July 2016 and extended uprate project
revenues beginning in 2017 at Duke Energy Florida; and
• a $51 million increase in weather-normal sales volumes to retail
customers.
Operating Expenses. The variance was driven primarily by:
• a $227 million decrease in fuel expense and purchased power primarily
due to lower retail sales and changes in generation mix at Duke Energy
Progress; and
Years Ended December 31,
2017
$ 9,783
2016
$ 9,853
Variance
$
(70)
3,417
2,220
1,285
503
156
7,581
26
2,228
128
824
1,532
264
1,268
—
1,268
10
3,644
2,386
1,213
487
7
7,737
25
2,141
114
689
1,566
527
1,039
2
1,041
10
(227)
(166)
72
16
149
(156)
1
87
14
135
(34)
(263)
229
(2)
227
—
$ 1,258
$ 1,031
$
227
• a $166 million decrease in operations, maintenance and other expense
primarily due to lower plant outage, storm restoration and labor costs.
Partially offset by:
• a $149 million increase in impairment charges primarily due to the
write-off of remaining unrecovered Levy Nuclear Project costs in the
current year at Duke Energy Florida and the disallowance from rate
base of certain projects at the Mayo and Sutton plants in the current
year at Duke Energy Progress related to the partial settlement in the
North Carolina rate case; and
• a $72 million increase in depreciation and amortization expense
primarily due to additional plant in service, as well as nuclear
regulatory asset amortization at Duke Energy Florida.
Interest Expense. The variance was due to higher debt outstanding, as
well as interest charges on North Carolina fuel over collections at Duke Energy
Progress and lower debt returns driven by the CR3 regulatory asset debt return
ending in June 2016 upon securitization at Duke Energy Florida.
Income Tax Expense. The variance was primarily due to the impact
of the Tax Act. See the Subsidiary Registrants section above for additional
information on the Tax Act and the impact on the effective tax rate.
Matters Impacting Future Results
An order from regulatory authorities disallowing recovery of costs related
to closure of ash impoundments could have an adverse impact on Progress
44
PART II Energy’s financial position, results of operations and cash flows. See Notes
4 and 9 to the Consolidated Financial Statements, “Regulatory Matters” and
“Asset Retirement Obligations,” respectively, for additional information.
On May 18, 2016, the NCDEQ issued proposed risk classifications for
all coal ash surface impoundments in North Carolina. All ash impoundments
not previously designated as high priority by the Coal Ash Act were designated
as intermediate risk. Certain impoundments classified as intermediate risk,
however, may be reassessed in the future as low risk pursuant to legislation
enacted on July 14, 2016. Progress Energy’s estimated AROs related to the
closure of North Carolina ash impoundments are based upon the mandated
closure method or a probability weighting of potential closure methods for
the impoundments that may be reassessed to low risk. As the final risk
ranking classifications in North Carolina are delineated, final closure plans
and corrective action measures are developed and approved for each site,
the closure work progresses, and the closure method scope and remedial
action methods are determined, the complexity of work and the amount of coal
combustion material could be different than originally estimated and, therefore,
could materially impact Progress Energy’s financial position. See Note 9 to
the Consolidated Financial Statements, “Asset Retirement Obligations,” for
additional information.
Duke Energy Progress is a party to multiple lawsuits and subject to fines
and other penalties related to operations at certain North Carolina facilities with
ash basins. The outcome of these lawsuits, fines and penalties could have an
adverse impact on Progress Energy’s financial position, results of operations
and cash flows. See Note 5 to the Consolidated Financial Statements,
“Commitments and Contingencies,” for additional information.
Carolina Utilities Commission (NCUC) requesting an accounting order to defer
incremental operation and maintenance and capital costs incurred in response
to Hurricane Matthew and other significant 2016 storms. The NCUC will address
this request in Duke Energy Progress’ currently pending rate case. A final
order from the NCUC that disallows the deferral and future recovery of all or
a significant portion of the incremental storm restoration costs incurred could
result in an adverse impact on Electric Utilities and Infrastructure’s financial
position, results of operations and cash flows. See Note 4 to the Consolidated
Financial Statements, “Regulatory Matters,” for additional information.
Duke Energy Progress filed a general rate case with the NCUC on June 1,
2017. Duke Energy Progress will seek to recover costs of complying with CCR
regulations and the Coal Ash Act, as well as costs of capital investments
in generation, transmission and distribution systems and any increase in
expenditures subsequent to previous rate cases. Progress Energy’s earnings could
be adversely impacted if the rate increase is delayed or denied by the NCUC.
On August 29, 2017, Duke Energy Florida filed the 2017 Settlement
with the FPSC. On November 20, 2017, the FPSC issued an order to approve
the 2017 Settlement. See Note 4 to the Consolidated Financial Statements,
“Regulatory Matters,” for additional information about the 2017 Settlement. In
accordance with the 2017 Settlement, Duke Energy Florida will not seek
recovery of any costs associated with the ongoing Westinghouse contract
litigation, which is currently being appealed. See Note 5 to the Consolidated
Financial Statements, “Commitments and Contingencies” for additional
information about the litigation. An unfavorable appeals ruling on that matter
could have an adverse impact on Electric Utilities and Infrastructure’s financial
position, results of operations and cash flows.
In the fourth quarter of 2016, Hurricane Matthew caused historic flooding,
Within this Item 7, see the Tax Cuts and Jobs Act above as well as
extensive damage and widespread power outages within the Duke Energy
Progress service territory. Duke Energy Progress filed a petition with the North
Liquidity and Capital Resources below for risks associated with the Tax Act.
DUKE ENERGY PROGRESS
Introduction
Basis of Presentation
Management’s Discussion and Analysis should be read in conjunction
with the accompanying Consolidated Financial Statements and Notes for the
years ended December 31, 2017, 2016 and 2015.
The results of operations and variance discussion for Duke Energy
Progress is presented in a reduced disclosure format in accordance with General
Instruction (I)(2)(a) of Form 10-K.
Results of Operations
(in millions)
Operating Revenues
Operating Expenses
Fuel used in electric generation and purchased power
Operation, maintenance and other
Depreciation and amortization
Property and other taxes
Impairment charges
Total operating expenses
Gains on Sales of Other Asset and Other, net
Operating Income
Other Income and Expenses, net
Interest Expense
Income Before Income Taxes
Income Tax Expense
Net Income
Years Ended December 31,
2017
$ 5,129
2016
$ 5,277
Variance
$ (148)
1,609
1,389
725
156
19
3,898
4
1,235
65
293
1,007
292
715
$
1,830
1,504
703
156
1
4,194
3
1,086
71
257
900
301
599
$
(221)
(115)
22
—
18
(296)
1
149
(6)
36
107
(9)
$
116
45
PART II The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Progress. The below percentages for retail
customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities and to public and
private utilities and power marketers. Amounts are not weather-normalized.
Increase (Decrease) over prior year
Residential sales
General service sales
Industrial sales
Wholesale power sales
Joint dispatch sales
Total sales
Average number of customers
2017
(2.6)%
(1.3)%
1.1%
(2.9)%
(17.1)%
(3.2)%
1.4%
2016
(1.5)%
0.2%
(0.1)%
18.4%
17.7%
6.4%
1.3%
Year Ended December 31, 2017, as Compared to 2016
Operating Revenues. The variance was driven primarily by:
• a $238 million decrease in fuel revenues due to lower retail sales and
changes in generation mix; and
• a $37 million decrease in retail sales, net of fuel revenues, due to less
favorable weather in the current year, partially offset by lower lost
revenues related to hurricanes in the current year.
Partially offset by:
• a $40 million increase in rider revenues primarily due to energy
efficiency programs;
• a $38 million increase in retail sales due to the South Carolina rate
case; and
• a $31 million increase in wholesale power revenues, net of fuel,
primarily due to higher peak demand.
Operating Expenses. The variance was driven primarily by:
• a $221 million decrease in fuel used in electric generation and
purchased power primarily due to lower retail sales and changes in
generation mix; and
• a $115 million decrease in operation, maintenance and other expense
primarily due to lower nuclear outage costs and lower storm restoration
costs.
Partially offset by:
• a $22 million increase in depreciation and amortization expense
primarily due to additional plant in service; and
• an $18 million increase in impairment charges primarily due to the
disallowance from rate base of certain projects at the Mayo and Sutton
plants in the current year related to the partial settlement in the North
Carolina rate case.
Interest Expense. The variance was due to higher debt outstanding, as
well as interest charges on North Carolina fuel overcollections.
Income Tax Expense. The variance was primarily due to the impact of
the Tax Act and lower North Carolina corporate tax rates, partially offset by an
increase in pretax net income. See the Subsidiary Registrants section above for
additional information on the Tax Act and the impact on the effective tax rate.
Matters Impacting Future Results
An order from regulatory authorities disallowing recovery of costs related
to closure of ash impoundments could have an adverse impact on Duke Energy
46
Progress’ financial position, results of operations and cash flows. See Notes
4 and 9 to the Consolidated Financial Statements, “Regulatory Matters” and
“Asset Retirement Obligations,” respectively, for additional information.
On May 18, 2016, the NCDEQ issued proposed risk classifications for
all coal ash surface impoundments in North Carolina. All ash impoundments
not previously designated as high priority by the Coal Ash Act were designated
as intermediate risk. Certain impoundments classified as intermediate risk,
however, may be reassessed in the future as low risk pursuant to legislation
enacted on July 14, 2016. Duke Energy Progress’ estimated AROs related to the
closure of North Carolina ash impoundments are based upon the mandated
closure method or a probability weighting of potential closure methods for
the impoundments that may be reassessed to low risk. As the final risk
ranking classifications in North Carolina are delineated, final closure plans
and corrective action measures are developed and approved for each site,
the closure work progresses, and the closure method scope and remedial
action methods are determined, the complexity of work and the amount of coal
combustion material could be different than originally estimated and, therefore,
could materially impact Duke Energy Progress’ financial position. See Note 9
to the Consolidated Financial Statements, “Asset Retirement Obligations,” for
additional information.
Duke Energy Progress is a party to multiple lawsuits and subject to
fines and other penalties related to operations at certain North Carolina
facilities with ash basins. The outcome of these lawsuits, fines and penalties
could have an adverse impact on Duke Energy Progress’ financial position,
results of operations and cash flows. See Note 5 to the Consolidated Financial
Statements, “Commitments and Contingencies,” for additional information.
In the fourth quarter of 2016, Hurricane Matthew caused historic flooding,
extensive damage and widespread power outages within the Duke Energy
Progress service territory. Duke Energy Progress filed a petition with the North
Carolina Utilities Commission (NCUC) requesting an accounting order to defer
incremental operation and maintenance and capital costs incurred in response
to Hurricane Matthew and other significant 2016 storms. The NCUC will address
this request in Duke Energy Progress’ currently pending rate case. A final
order from the NCUC that disallows the deferral and future recovery of all or
a significant portion of the incremental storm restoration costs incurred could
result in an adverse impact on Electric Utilities and Infrastructure’s financial
position, results of operations and cash flows. See Note 4 to the Consolidated
Financial Statements, “Regulatory Matters,” for additional information.
Duke Energy Progress filed a general rate case with the NCUC on June 1,
2017. Duke Energy Progress will seek to recover costs of complying with CCR
regulations and the Coal Ash Act, as well as costs of capital investments
in generation, transmission and distribution systems and any increase in
expenditures subsequent to previous rate cases. Duke Energy Progress’ earnings
could be adversely impacted if the rate increase is delayed or denied by the
NCUC. See Note 4 to the Consolidated Financial Statements, “Regulatory
Matters,” for additional information.
Within this Item 7, see the Tax Cuts and Jobs Act above as well as
Liquidity and Capital Resources below for risks associated with the Tax Act.
PART II DUKE ENERGY FLORIDA
Introduction
Basis of Presentation
Management’s Discussion and Analysis should be read in conjunction
with the accompanying Consolidated Financial Statements and Notes for the
years ended December 31, 2017, 2016 and 2015.
The results of operations and variance discussion for Duke Energy
Florida is presented in a reduced disclosure format in accordance with General
Instruction (I)(2)(a) of Form 10-K.
Results of Operations
(in millions)
Operating Revenues
Operating Expenses
Fuel used in electric generation and purchased power
Operation, maintenance and other
Depreciation and amortization
Property and other taxes
Impairment charges
Total operating expenses
Gains on Sales of Other Asset and Other, net
Operating Income
Other Income and Expenses, net
Interest Expense
Income Before Income Taxes
Income Tax Expense
Net Income
Years Ended December 31,
2017
$ 4,646
2016
$ 4,568
Variance
$
78
1,808
818
560
347
138
3,671
1
976
61
279
758
46
$
712
$
1,814
865
509
333
6
3,527
—
1,041
44
212
873
322
551
(6)
(47)
51
14
132
144
1
(65)
17
67
(115)
(276)
$
161
The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Florida. The below percentages for retail
customer classes represent billed sales only. Wholesale power sales include both billed and unbilled sales. Total sales includes billed and unbilled retail sales and
wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather-normalized.
Increase (Decrease) over prior year
Residential sales
General service sales
Industrial sales
Wholesale power sales
Total sales
Average number of customers
2017
(2.3)%
(1.3)%
(2.4)%
20.1%
0.5%
1.6%
2016
1.7%
(0.1)%
(2.9)%
35.2%
0.9%
1.5%
Year Ended December 31, 2017, as Compared to 2016
Operating Revenues. The variance was driven primarily by:
• a $70 million increase in retail pricing primarily due to the base rate
adjustment for the Osprey acquisition and the completion of the Hines
Energy Complex Chiller Uprate Project;
• a $45 million increase in weather-normal sales volumes to retail
customers in the current year; and
• a $36 million increase in rider revenues primarily due to nuclear asset
securitization beginning in July 2016 and extended power uprate project
revenues beginning in 2017.
Partially offset by:
• a $50 million decrease in retail sales, net of fuel revenues, due to less
favorable weather in the current year, including lost revenues related to
Hurricane Irma; and
• a $34 million decrease in wholesale power revenues primarily due to
contracts that expired in the prior year.
47
Operating Expenses. The variance was driven primarily by:
• a $132 million increase in impairment charges primarily due to the
write-off of remaining unrecovered Levy Nuclear Project costs in the
current year; and
• a $51 million increase in depreciation and amortization expense
primarily due to nuclear regulatory asset amortization, as well as
additional plant in service.
Partially offset by:
• a $47 million decrease in operations and maintenance expense
primarily due to lower planned outage costs, lower severance expenses
and lower employee benefit costs, partially offset by higher storm
restoration costs in the current year.
Other Income and Expenses. The variance was primarily driven by
higher AFUDC equity.
PART II Interest Expense. The variance was primarily due to higher debt
outstanding and lower debt returns driven by the Crystal River Unit 3 regulatory
asset debt return ending in June 2016 upon securitization.
Income Tax Expense. The variance was primarily due to the impact of the
Tax Act and lower pretax earnings. See the Subsidiary Registrants section above
for additional information on the Tax Act and the impact on the effective tax rate.
Matters Impacting Future Results
On August 29, 2017, Duke Energy Florida filed the 2017 Settlement
with the FPSC. On November 20, 2017, the FPSC issued an order to approve
the 2017 Settlement. See Note 4 to the Consolidated Financial Statements,
“Regulatory Matters,” for additional information about the 2017 Settlement. In
accordance with the 2017 Settlement, Duke Energy Florida will not seek
recovery of any costs associated with the ongoing Westinghouse contract
litigation, which is currently being appealed. See Note 5 to the Consolidated
Financial Statements, “Commitments and Contingencies” for additional
information about the litigation. An unfavorable appeals ruling on that matter
could have an adverse impact on Electric Utilities and Infrastructure’s financial
position, results of operations and cash flows.
Within this Item 7, see the Tax Cuts and Jobs Act above as well as
Liquidity and Capital Resources below for risks associated with the Tax Act.
DUKE ENERGY OHIO
Introduction
Basis of Presentation
Management’s Discussion and Analysis should be read in conjunction
with the accompanying Consolidated Financial Statements and Notes for the
years ended December 31, 2017, 2016 and 2015.
The results of operations and variance discussion for Duke Energy Ohio is
presented in a reduced disclosure format in accordance with General Instruction
(I)(2)(a) of Form 10-K.
Results of Operations
(in millions)
Operating Revenues
Regulated electric
Nonregulated electric and other
Regulated natural gas
Total operating revenues
Operating Expenses
Fuel used in electric generation and purchased power – regulated
Fuel used in electric generation and purchased power – nonregulated
Cost of natural gas
Operation, maintenance and other
Depreciation and amortization
Property and other taxes
Impairment charges
Total operating expenses
Gains on Sales of Other Assets and Other, net
Operating Income
Other Income and Expenses, net
Interest Expense
Income from Continuing Operations Before Income Taxes
Income Tax Expense from Continuing Operations
Income from Continuing Operations
(Loss) Income from Discontinued Operations, net of tax
Net Income
2017
$ 1,373
42
508
1,923
369
58
107
524
261
278
1
1,598
1
326
17
91
252
59
193
(1)
192
$
Years Ended December 31,
2016
Variance
$ 1,410
31
503
1,944
442
51
103
512
233
258
—
1,599
2
347
9
86
270
78
192
36
228
$
$
$
(37)
11
5
(21)
(73)
7
4
12
28
20
1
(1)
(1)
(21)
8
5
(18)
(19)
1
(37)
(36)
The following table shows the percent changes in GWh sales of electricity, dekatherms of natural gas delivered and average number of electric and natural gas
customers for Duke Energy Ohio. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and
wholesale sales to incorporated municipalities and to public and private utilities and power marketers. Amounts are not weather-normalized.
Increase (Decrease) over prior year
Residential sales
General service sales
Industrial sales
Wholesale electric power sales
Other natural gas sales
Total sales
Average number of customers
Electric
Natural Gas
2016
0.7%
1.3%
(0.7)%
(53.9)%
n/a
(1.1)%
0.8%
2017
(2.6)%
0.7%
(2.8)%
n/a
(0.3)%
(1.1)%
0.7%
2016
(7.8)%
(3.6)%
(5.1)%
n/a
6.2%
(3.1)%
0.5%
2017
(4.0)%
(3.1)%
(2.7)%
65.7%
n/a
(2.1)%
0.8%
48
PART II Year Ended December 31, 2017, as Compared to 2016
Operating Revenues. The variance was driven primarily by:
• a $69 million decrease in fuel revenues primarily due to lower electric
fuel costs and a decrease in electric and natural gas sales volumes;
and
• a $16 million decrease in electric retail sales, net of fuel revenues, due
to less favorable weather in the current year.
Partially offset by:
• a $38 million increase in rider revenues primarily due to growth in
energy efficiency programs and a rate increase for the distribution
capital investment rider, partially offset by a decrease in the percentage
of income payment plan rider due to a rate decrease;
• a $10 million increase in PJM Interconnection, LLC (PJM) transmission
revenues;
• a $9 million increase in other revenues related to OVEC; and
• a $6 million increase in non-native sales for resale.
Operating Expenses. The variance was driven by:
• a $66 million decrease in fuel expense, primarily due to lower sales
volumes and lower electric fuel costs.
Partially offset by:
• a $28 million increase in depreciation and amortization expense due to
additional plant in service and a true-up related to SmartGrid assets in
the prior year;
• a $20 million increase in property and other taxes due to higher
property taxes; and
• a $12 million increase in operations, maintenance and other expense
primarily due to higher energy efficiency program costs and higher
transmission and distribution operations costs; partially offset by lower
fossil/hydro operations costs due to timing of outage schedules.
financial position, results of operations and cash flows. See Notes 4 and 9 to the
Consolidated Financial Statements, “Regulatory Matters” and “Asset Retirement
Obligations,” respectively, for additional information.
Duke Energy Ohio’s nonregulated Beckjord station, a facility retired during
2014, is not subject to the EPA rule related to the disposal of CCR from electric
utilities. However, if costs are incurred as a result of environmental regulations
or to mitigate risk associated with on-site storage of coal ash at the facility, the
costs could have an adverse impact on Duke Energy Ohio’s financial position,
results of operations and cash flows.
Duke Energy Ohio has a 9 percent ownership interest in OVEC, which owns
2,256 MW of coal-fired generation capacity. As a counterparty to an ICPA, Duke
Energy Ohio has a contractual arrangement to receive entitlements to capacity
and energy from OVEC’s power plants through June 2040 commensurate with its
power participation ratio, which is equivalent to Duke Energy Ohio’s ownership
interest. Costs, including fuel, operating expenses, fixed costs, debt amortization
and interest expense, are allocated to counterparties to the ICPA, including Duke
Energy Ohio, based on their power participation ratio. The value of the ICPA is
subject to variability due to fluctuations in power prices and changes in OVEC’s
costs of business. Deterioration in the credit quality or bankruptcy of one or
more parties to the ICPA could increase the costs of OVEC. In addition, certain
proposed environmental rulemaking costs could result in future increased cost
allocations.
On March 2, 2017, Duke Energy Ohio filed an electric distribution base
rate application with the PUCO to address recovery of electric distribution
system capital investments and any increase in expenditures subsequent to
previous rate cases. The application also includes requests to continue certain
current riders and establish new riders related to LED Outdoor Lighting Service
and regulatory mandates. Duke Energy Ohio’s earnings could be adversely
impacted if the rate case and requested riders are delayed or denied by the
PUCO. See Note 4 to the Consolidated Financial Statements, “Regulatory
Matters,” for additional information.
On September 1, 2017, Duke Energy Kentucky filed a base rate case with
the KPSC to recover costs of capital investments in generation, transmission
and distribution systems and to recover other incremental expenses since its
last rate case filed in 2006. The application also includes request to establish
new riders. Duke Energy Kentucky’s earnings could be adversely impacted if the
rate increase is delayed or denied by the KPSC.
Within this Item 7, see the Tax Cuts and Jobs Act above as well as
Liquidity and Capital Resources below for risks associated with the Tax Act.
Income Tax Expense. The variance was primarily due to the impact
of the Tax Act. See the Subsidiary Registrants section above for additional
information on the Tax Act and the impact on the effective tax rate.
DUKE ENERGY INDIANA
Introduction
Income from Discontinued Operations, Net of Tax. The variance was
primarily driven by a prior year income tax benefit resulting from immaterial out
of period deferred tax liability adjustments related to the Midwest Generation
Disposal Group. See Note 2 to the Consolidated Financial Statements,
“Acquisitions and Dispositions,” for additional information.
Matters Impacting Future Results
An order from regulatory authorities disallowing recovery of costs related
to closure of ash basins could have an adverse impact on Duke Energy Ohio’s
Management’s Discussion and Analysis should be read in conjunction
with the accompanying Consolidated Financial Statements and Notes for the
years ended December 31, 2017, 2016 and 2015.
Basis of Presentation
The results of operations and variance discussion for Duke Energy
Indiana is presented in a reduced disclosure format in accordance with General
Instruction (I)(2)(a) of Form 10-K.
49
PART II Results of Operations
(in millions)
Operating Revenues
Operating Expenses
Fuel used in electric generation and purchased power
Operation, maintenance and other
Depreciation and amortization
Property and other taxes
Impairment charges
Total operating expenses
Gains on Sales of Other Assets and Other, net
Operating Income
Other Income and Expenses, net
Interest Expense
Income Before Income Taxes
Income Tax Expense
Net Income
Years Ended December 31,
2017
$ 3,047
2016
$ 2,958
Variance
$
89
966
733
458
76
18
2,251
—
796
37
178
655
301
354
$
909
723
496
58
8
2,194
1
765
22
181
606
225
381
$
57
10
(38)
18
10
57
(1)
31
15
(3)
49
76
$
(27)
The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Indiana. The below percentages for retail
customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities and to public and
private utilities and power marketers. Amounts are not weather-normalized.
Increase (Decrease) over prior year
Residential sales
General service sales
Industrial sales
Wholesale power sales
Total sales
Average number of customers
Year Ended December 31, 2017, as Compared to 2016
Operating Revenues. The variance was driven primarily by:
• a $67 million increase in rate rider revenues primarily related to the
Edwardsport IGCC plant, the Transmission, Distribution and Storage
System Improvement Charge (TDSIC) and energy efficiency programs;
and
• a $48 million increase in fuel revenues primarily due to higher
purchased power costs passed through to customers and higher
financial transmission rights (FTR) revenues.
Partially offset by:
• a $13 million decrease in retail sales due to less favorable weather in
the current year; and
• a $13 million decrease in wholesale power revenues, net of fuel,
primarily due to a decrease in demand rates and contracts that expired
in the current year.
Operating Expenses. The variance was driven primarily by:
• a $57 million increase in fuel used in electric generation and purchased
power expenses, primarily due to higher purchased power volumes,
partially offset by favorable fuel prices;
• an $18 million increase in property and other taxes primarily due to
higher franchise taxes;
50
2017
(3.8)%
(2.4)%
0.3%
(10.5)%
(3.6)%
0.8%
2016
(0.4)%
0.7%
0.4%
10.8%
2.5%
1.1%
• a $10 million increase in operations, maintenance and other expense
primarily due to growth in energy efficiency programs and higher
transmission costs; and
• a $10 million increase in impairments and other charges primarily due
to the impairment of certain metering equipment not recoverable in
customer rates.
Partially offset by:
• a $38 million decrease in depreciation and amortization primarily due
to the recognition of certain asset retirement obligations in 2016 that
were subsequently deferred in 2017, partially offset by new IGCC rates
that result in a lower deferral amount and higher depreciation due to
additional plant in service.
Other Income and Expense. The variance was driven primarily by higher
AFUDC equity.
Income Tax Expense. The variance was primarily due to the impact of
the Tax Act and an increase in pretax income. See the Subsidiary Registrants
section above for additional information on the Tax Act and the impact on the
effective tax rate.
PART II Matters Impacting Future Results
On April 17, 2015, the EPA published in the Federal Register a rule to
regulate the disposal of CCR from electric utilities as solid waste. Duke Energy
Indiana has interpreted the rule to identify the coal ash basin sites impacted
and has assessed the amounts of coal ash subject to the rule and a method of
compliance. Duke Energy Indiana’s interpretation of the requirements of the CCR
rule is subject to potential legal challenges and further regulatory approvals,
which could result in additional ash basin closure requirements, higher costs
of compliance and greater AROs. Additionally, Duke Energy Indiana has retired
facilities that are not subject to the CCR rule. Duke Energy Indiana may incur
costs at these facilities to comply with environmental regulations or to mitigate
risks associated with on-site storage of coal ash. An order from regulatory
authorities disallowing recovery of costs related to closure of ash basins
could have an adverse impact on Duke Energy Indiana’s financial position,
results of operations and cash flows. See Note 4 to the Consolidated Financial
Statements, “Regulatory Matters,” for additional information.
In August 2016, the Indiana Utility Regulatory Commission (IURC)
approved a settlement agreement between Duke Energy Indiana and multiple
parties that resolves all disputes, claims and issues from the IURC proceedings
related to post-commercial operating performance and recovery of ongoing
operating and capital costs at the Edwardsport IGCC generating facility. The
settlement agreement imposed a cost cap for retail recoverable operations and
maintenance costs through 2017. An inability to manage future operating costs
may result in unfavorable orders that could have an adverse impact on Duke
Energy Indiana’s financial position, results of operations and cash flows.
Within this Item 7, see the Tax Cuts and Jobs Act above as well as
Liquidity and Capital Resources below for risks associated with the Tax Act.
PIEDMONT
Introduction
Management’s Discussion and Analysis should be read in conjunction
with the accompanying Consolidated Financial Statements and Notes for the
year ended December 31, 2017, Piedmont’s Annual Report on Form 10-K for the
year ended October 31, 2016, and the Form 10-QT as of December 31, 2016,
for the transition period from November 1, 2016 to December 31, 2016. The
unaudited results of operations for the year ended December 31, 2016, was
derived from data previously reported in the reports noted above.
Basis of Presentation
The results of operations and variance discussion for Piedmont is
presented in a reduced disclosure format in accordance with General Instruction
(I)(2)(a) of Form 10-K.
Results of Operations
(in millions)
Operating Revenues
Regulated natural gas
Nonregulated natural gas and other
Total operating revenues
Operating Expenses
Cost of natural gas
Operation, maintenance and other
Depreciation and amortization
Property and other taxes
Impairment charges
Total operating expenses
Operating Income
Equity in (losses) earnings of unconsolidated affiliates
Gain on sale of unconsolidated affiliates
Other income and expenses, net
Total other income and expenses
Interest Expense
Income Before Income Taxes
Income Tax Expense
Net Income
Years Ended December 31,
2017
2016
Variance
$ 1,319
9
1,328
$ 1,201
10
1,211
524
315
148
48
7
1,042
286
(6)
—
—
(6)
79
201
62
139
$
451
353
138
43
—
985
226
26
132
1
159
69
316
121
195
$
$
118
(1)
117
73
(38)
10
5
7
57
60
(32)
(132)
(1)
(165)
10
(115)
(59)
(56)
$
51
PART II The following table shows the percent changes in dekatherms delivered and average number of customers. The percentages for all throughput deliveries
represent billed and unbilled sales. Amounts are not weather-normalized.
Increase (Decrease) over prior year
Residential deliveries
Commercial deliveries
Industrial deliveries
Power generation deliveries
For resale
Total throughput deliveries
Secondary market volumes
Average number of customers
2017
(8.1)%
(4.3)%
(2.2)%
(5.8)%
(20.9)%
(5.4)%
(4.2)%
1.7%
2016
(0.8)%
1.6%
0.5%
10.7%
1.3%
6.3%
120.6%
1.6%
Piedmont’s throughput was 468,259,777 dekatherms and 495,122,794
dekatherms for the years ended December 31, 2017, and 2016, respectively.
Due to the margin decoupling mechanism in North Carolina and weather
normalization adjustment (WNA) mechanisms in South Carolina and Tennessee,
changes in throughput deliveries do not have a material impact on Piedmont’s
revenues or earnings. The margin decoupling mechanism adjusts for variations
in residential and commercial use per customer, including those due to weather
and conservation. The WNA mechanisms mostly offset the impact of weather on
bills rendered, but do not ensure full recovery of approved margin during periods
when winter weather is significantly warmer or colder than normal.
Year Ended December 31, 2017, as Compared to 2016
Operating Revenues. The variance was driven primarily by:
• a $74 million increase due to higher natural gas costs passed through
to customers primarily due to higher natural gas prices;
• a $34 million increase in revenues to residential and commercial
customers, net of natural gas costs passed through to customers,
primarily due to Integrity Management Rider (IMR) rate adjustments
and customer growth. Increase is also due to new power generation
customers, and is partially offset by wholesale marketing revenue; and
• a $10 million increase in revenues due to merger-related bill credits
applied to customer bills in 2016.
Operating Expenses. The variance was driven by:
• a $73 million increase in costs of natural gas primarily due to higher
natural gas costs passed through to customers due to the higher price
per dekatherm of natural gas;
• a $15 million increase in depreciation expense and property and
franchise taxes due to additional plant in service; and
• a $7 million increase due to an impairment of software resulting from
planned accounting system and process integration in 2018.
Partially offset by:
• a $38 million decrease in operations, maintenance and other related
to acquisition and integration expenses recorded in the prior year from
costs paid to outside parties, primarily financial and legal advisory,
severance expenses, retention costs and acceleration of incentive
plans, and an accrual for our commitment of charitable contributions
and community support.
Other Income and Expense. The variance was driven by:
• a $132 million decrease in gain on sale of unconsolidated affiliates
recorded in the prior year due to Piedmont’s sale of its 15 percent
ownership interest in SouthStar Energy Services, LLC (SouthStar) on
October 3, 2016; and
52
• a $32 million decrease in equity in (losses) earnings of unconsolidated
affiliates primarily due to equity earnings from the investment in
SouthStar in the prior year and the impacts of the Tax Act in the current
year.
Income Tax Expense. The variance was primarily due to a decrease in
pretax income and the impact of the Tax Act. See the Subsidiary Registrants
section above for additional information on the Tax Act and the impact on the
effective tax rate.
Matters Impacting Future Results
Within this Item 7, see the Tax Cuts and Jobs Act above as well as
Liquidity and Capital Resources below for risks associated with the Tax Act.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Preparation of financial statements requires the application of accounting
policies, judgments, assumptions and estimates that can significantly affect
the reported results of operations, cash flows or the amounts of assets and
liabilities recognized in the financial statements. Judgments made include
the likelihood of success of particular projects, possible legal and regulatory
challenges, earnings assumptions on pension and other benefit fund
investments and anticipated recovery of costs, especially through regulated
operations.
Management discusses these policies, estimates and assumptions with
senior members of management on a regular basis and provides periodic
updates on management decisions to the Audit Committee of the Board of
Directors. Management believes the areas described below require significant
judgment in the application of accounting policy or in making estimates and
assumptions that are inherently uncertain and that may change in subsequent
periods.
For further information, see Note 1 to the Consolidated Financial
Statements, “Summary of Significant Accounting Policies.”
Regulated Operations Accounting
Substantially all of Duke Energy’s regulated operations meet the criteria
for application of regulated operations accounting treatment. As a result, Duke
Energy is required to record assets and liabilities that would not be recorded
for nonregulated entities. Regulatory assets generally represent incurred costs
that have been deferred because such costs are probable of future recovery in
customer rates. Regulatory liabilities are recorded when it is probable that a
regulator will require Duke Energy to make refunds to customers or reduce rates
to customers for previous collections or deferred revenue for costs that have yet
to be incurred.
Management continually assesses whether recorded regulatory assets
are probable of future recovery by considering factors such as applicable
regulatory environment changes, historical regulatory treatment for similar costs
in Duke Energy’s jurisdictions, litigation of rate orders, recent rate orders to
other regulated entities, levels of actual return on equity compared to approved
PART II rates of return on equity and the status of any pending or potential deregulation
legislation. If future recovery of costs ceases to be probable, asset write-offs
would be recognized in operating income. Additionally, regulatory agencies
can provide flexibility in the manner and timing of the depreciation of property,
plant and equipment, recognition of asset retirement costs and amortization of
regulatory assets, or may disallow recovery of all or a portion of certain assets.
For further information on regulatory assets and liabilities, see Note 4 to the
Consolidated Financial Statements, “Regulatory Matters.”
As required by regulated operations accounting rules, significant judgment
can be required to determine if an otherwise recognizable incurred cost, such as
closure costs for ash impoundments, qualifies to be deferred for future recovery
as a regulatory asset. Significant judgment can also be required to determine
if revenues previously recognized are for entity specific costs that are no
longer expected to be incurred or have not yet been incurred and are therefore
a regulatory liability. See Note 4 to the Consolidated Financial Statements,
“Regulatory Matters,” for a more in-depth discussion of Regulatory Assets and
Liabilities.
Regulated operations accounting rules also require recognition of a
disallowance (also called “impairment”) loss if it becomes probable that part of
the cost of a plant under construction (or a recently completed or an abandoned
plant) will be disallowed for ratemaking purposes and a reasonable estimate of
the amount of the disallowance can be made. For example, if a cost cap is set
for a plant still under construction, the amount of the disallowance is a result of
a judgment as to the ultimate cost of the plant. Other disallowances can require
judgments on allowed future rate recovery. See Note 4 to the Consolidated
Financial Statements, “Regulatory Matters,” for a discussion of disallowances
recorded.
When it becomes probable that regulated assets will be abandoned,
the cost of the asset is removed from plant in service. The value that may be
retained as a regulatory asset on the balance sheet for the abandoned property
is dependent upon amounts that may be recovered through regulated rates,
including any return. As such, an impairment charge, if any, could be partially
or fully offset by the establishment of a regulatory asset if rate recovery is
probable. The impairment for a disallowance of costs for regulated plants under
construction, recently completed or abandoned is based on discounted cash
flows.
For further information, see Note 4 to the Consolidated Financial
Statements, “Regulatory Matters.”
Goodwill Impairment Assessments
Duke Energy allocates goodwill to reporting units, which are either the
Business Segments listed in Note 3 to the Consolidated Financial Statements or
one level below based on how the Business Segment is managed. Duke Energy
is required to test goodwill for impairment at least annually and more frequently
if it is more likely than not that the fair value is less than the carrying value.
Duke Energy performs its annual impairment test as of August 31.
Application of the goodwill impairment test requires management’s
judgment, including determining the fair value of the reporting unit, which
management estimates using a weighted combination of the income approach,
which estimates fair value based on discounted cash flows, and the market
approach, which estimates fair value based on market comparables within the
utility and energy industries. Significant assumptions used in these fair value
analyses include discount and growth rates, future rates of return expected
to result from ongoing rate regulation, utility sector market performance and
transactions, forecasted earnings base, projected operating and capital cash
flows for Duke Energy’s business and the fair value of debt.
Estimated future cash flows under the income approach are based
to a large extent on Duke Energy’s internal business plan, and adjusted as
appropriate for Duke Energy’s views of market participant assumptions. Duke
Energy’s internal business plan reflects management’s assumptions related
to customer usage and attrition based on internal data and economic data
obtained from third-party sources, projected commodity pricing data and
potential changes in environmental regulations. The business plan assumes the
occurrence of certain events in the future, such as the outcome of future rate
filings, future approved rates of returns on equity, anticipated earnings/returns
related to significant future capital investments, continued recovery of cost of
service, the renewal of certain contracts and the future of renewable tax credits.
Management also makes assumptions regarding operation, maintenance
and general and administrative costs based on the expected outcome of the
aforementioned events. In estimating cash flows, Duke Energy incorporates
expected growth rates, regulatory and economic stability, the ability to renew
contracts and other factors, into its revenue and expense forecasts.
One of the most significant assumptions that Duke Energy utilizes in
determining the fair value of its reporting units under the income approach
is the discount rate applied to the estimated future cash flows. Management
determines the appropriate discount rate for each of its reporting units based on
the weighted average cost of capital (WACC) for each individual reporting unit.
The WACC takes into account both the after-tax cost of debt and cost of equity.
A major component of the cost of equity is the current risk-free rate on 20-year
U.S. Treasury bonds. In the 2017 impairment tests, Duke Energy considered
implied WACCs for certain peer companies in determining the appropriate WACC
rates to use in its analysis. As each reporting unit has a different risk profile
based on the nature of its operations, including factors such as regulation,
the WACC for each reporting unit may differ. Accordingly, the WACCs were
adjusted, as appropriate, to account for company specific risk premiums. The
discount rates used for calculating the fair values as of August 31, 2017, for
each of Duke Energy’s reporting units ranged from 5.3 percent to 6.7 percent.
The underlying assumptions and estimates are made as of a point in time.
Subsequent changes, particularly changes in the discount rates, authorized
regulated rates of return or growth rates inherent in management’s estimates of
future cash flows, could result in future impairment charges.
One of the most significant assumptions utilized in determining the fair
value of reporting units under the market approach is implied market multiples
for certain peer companies. Management selects comparable peers based
on each peer’s primary business mix, operations, and market capitalization
compared to the applicable reporting unit and calculates implied market
multiples based on available projected earnings guidance and peer company
market values as of August 31.
In December 2016, Duke Energy disposed of its International operations
and no longer has goodwill associated with the International operations. For
further information, see Note 2 to the Consolidated Financial Statements,
“Acquisitions and Dispositions.”
Duke Energy primarily operates in environments that are rate-regulated.
In such environments, revenue requirements are adjusted periodically by
regulators based on factors including levels of costs, sales volumes and costs
of capital. Accordingly, Duke Energy’s regulated utilities operate to some degree
with a buffer from the direct effects, positive or negative, of significant swings in
market or economic conditions. However, significant changes in discount rates
over a prolonged period may have a material impact on the fair value of equity.
As of August 31, 2017, all of the reporting units’ estimated fair value
of equity substantially exceeded the carrying value of equity, except for
the Commercial Renewables reporting units. The goodwill at the Energy
Management Solutions reporting unit of Commercial Renewables was evaluated
for recoverability in 2017, and Duke Energy recorded impairment charges of
$29 million.
The Commercial Renewables reporting units are impacted by a multitude
of factors including, legislative actions related to tax credit extensions, long-term
growth rate assumptions and discount rates. As of August 31, 2017, the
Renewables reporting unit’s estimated fair value of equity exceeded the carrying
value of equity by less than 10 percent. Management continues to monitor these
assumptions for any indicators that the fair value of the reporting unit could be
below the carrying value and will assess goodwill for impairment as appropriate.
For further information, see Note 11 to the Consolidated Financial
Statements, “Goodwill and Intangible Assets.”
53
PART II Asset Retirement Obligations
AROs are recognized for legal obligations associated with the retirement
of property, plant and equipment. Substantially all AROs are related to regulated
operations. When recording an ARO, the present value of the projected liability
is recognized in the period in which it is incurred, if a reasonable estimate of
fair value can be made. The liability is accreted over time. For operating plants,
the present value of the liability is added to the cost of the associated asset and
depreciated over the remaining life of the asset. For retired plants, the present
value of the liability is recorded as a regulatory asset unless determined not to
be recoverable.
The present value of the initial obligation and subsequent updates are
based on discounted cash flows, which include estimates regarding timing of
future cash flows, selection of discount rates and cost escalation rates, among
other factors. These estimates are subject to change. Depreciation expense is
adjusted prospectively for any changes to the carrying amount of the associated
asset. The Duke Energy Registrants receive amounts to fund the cost of the
ARO for regulated operations through a combination of regulated revenues
and earnings on the nuclear decommissioning trust fund (NDTF). As a result,
accretion expense and depreciation of the associated ARO asset are netted and
deferred as a regulatory asset or liability.
Obligations for nuclear decommissioning are based on site-specific cost
studies. Duke Energy Carolinas and Duke Energy Progress assume prompt
dismantlement of the nuclear facilities after operations are ceased. Duke
Energy Florida assumes Crystal River Unit 3 will be placed into a safe storage
configuration until eventual dismantlement is completed by 2074. Duke Energy
Carolinas, Duke Energy Progress and Duke Energy Florida also assume that
spent fuel will be stored on-site until such time that it can be transferred to a
yet to be built U.S. Department of Energy (DOE) facility.
Obligations for closure of ash basins are based upon discounted cash
flows of estimated costs for site-specific plans, if known, or probability
weightings of the potential closure methods if the closure plans are under
development and multiple closure options are being considered and evaluated
on a site-by-site basis.
For further information, see Note 9 to the Consolidated Financial
Statements, “Asset Retirement Obligations.”
Long-Lived Asset Impairment Assessments, Excluding Regulated
Operations, and Equity Method Investments
Property, plant and equipment, excluding plant held for sale, is stated
at the lower of carrying value (historical cost less accumulated depreciation
and previously recorded impairments) or fair value, if impaired. Duke Energy
evaluates property, plant and equipment for impairment when events or
changes in circumstances (such as a significant change in cash flow projections
or the determination that it is more likely than not that an asset or asset group
will be sold) indicate the carrying value of such assets may not be recoverable.
The determination of whether an impairment has occurred is based on an
estimate of undiscounted future cash flows attributable to the assets, as
compared with their carrying value.
Performing an impairment evaluation involves a significant degree of
estimation and judgment in areas such as identifying circumstances that
indicate an impairment may exist, identifying and grouping affected assets and
developing the undiscounted future cash flows. If an impairment has occurred,
the amount of the impairment recognized is determined by estimating the fair
value and recording a loss if the carrying value is greater than the fair value.
Additionally, determining fair value requires probability weighting future cash
flows to reflect expectations about possible variations in their amounts or timing
and the selection of an appropriate discount rate. Although cash flow estimates
are based on relevant information available at the time the estimates are made,
estimates of future cash flows are, by nature, highly uncertain and may vary
significantly from actual results.
When determining whether an asset or asset group has been impaired,
management groups assets at the lowest level that has discrete cash flows.
Investments in affiliates that are not controlled by Duke Energy, but over
which it has significant influence, are accounted for using the equity method.
Equity method investments are assessed for impairment when conditions exist
that indicate that the fair value of the investment is less than book value. It
the decline in value is considered to be other than temporary, the investment is
written down to its estimated fair value, which establishes a new cost basis in
the investment.
For further information, see Notes 10 and 12 to the Consolidated
Financial Statements, “Property, Plant and Equipment” and “Investments in
Unconsolidated Affiliates,” respectively.
Revenue Recognition
Revenues on sales of electricity and natural gas are recognized when
service is provided or the product is delivered. As retail meters are read,
invoices are prepared and the invoice amount is generally recognized as “billed”
revenue. Operating revenues also include “unbilled” electric and natural gas
revenues for the amount of service provided or product delivered after the last
meter reading prior to the end of the accounting period. Unbilled retail revenues
are estimated by applying an average revenue per kilowatt-hour (kWh), per
thousand cubic feet (Mcf) or per dekatherm (dth) for all customer classes to the
number of estimated kWh, Mcf or dth delivered but not yet billed.
For wholesale customers, the invoice amount is generally recognized as
“billed” revenue. Although meters are read as of the end of the month, invoices
have typically not been prepared. An estimate of the wholesale invoice is
included in the reported amount of “unbilled” revenue.
The amount of unbilled revenues can vary significantly from period to
period as a result of numerous factors that impact the change in the unbilled
revenue receivable balance, including seasonality, weather, customer usage
patterns, customer mix, timing of rendering customer bills, meter readings
schedules and the average price in effect for customer classes.
Pension and Other Post-Retirement Benefits
The calculation of pension expense, other post-retirement benefit expense
and net pension and other post-retirement assets or liabilities require the use
of assumptions and election of permissible accounting alternatives. Changes
in assumptions can result in different expense and reported asset or liability
amounts and future actual experience can differ from the assumptions. Duke
Energy believes the most critical assumptions for pension and other post-
retirement benefits are the expected long-term rate of return on plan assets
and the assumed discount rate applied to future projected benefit payments.
Additionally, the health care cost trend rate assumption is critical to Duke
Energy’s estimate of other post-retirement benefits.
Duke Energy elects to amortize net actuarial gain or loss amounts that
are in excess of 10 percent of the greater of the market-related value of plan
assets or the plan’s projected benefit obligation, into net pension or other
post-retirement benefit expense over the average remaining service period of
active participants expected to benefit under the plan. If all or almost all of a
plan’s participants are inactive, the average remaining life expectancy of the
inactive participants is used instead of average remaining service period. Prior
service cost or credit, which represents an increase or decrease in a plan’s
pension benefit obligation resulting from plan amendment, is amortized on a
straight-line basis over the average expected remaining service period of active
participants expected to benefit under the plan. If all or almost all of a plan’s
participants are inactive, the average remaining life expectancy of the inactive
participants is used instead of average remaining service period.
Duke Energy maintains and the Subsidiary Registrants participate in,
qualified, non-contributory defined benefit retirement plans. Most participants
in the qualified plans earn benefits calculated using a cash balance formula.
Under a cash balance formula, a plan participant accumulates a retirement
benefit consisting of pay credits based upon a percentage, which varies with
age and years of service, of current eligible earnings and current interest
credits. Certain plan participants earn benefits that use a final average earnings
54
PART II formula. Certain executives are participants in non-qualified, non-contributory
defined benefit retirement plans. These qualified and non-qualified, non-
contributory defined benefit plans are closed to new participants.
Duke Energy provides some health care and life insurance benefits
for retired employees on a contributory and non-contributory basis. Certain
employees are eligible for these benefits if they have met age and service
requirements at retirement, as defined in the plans.
Assets for Duke Energy’s qualified pension and other post-retirement
benefits (401(h) accounts) are maintained in the Duke Energy Master
Retirement Trust (Master Trust). Duke Energy also invests other post-retirement
assets in Voluntary Employees’ Beneficiary Association trusts. The investment
objective is to achieve sufficient returns, subject to a prudent level of portfolio
risk, for the purpose of promoting the security of plan benefits for participants.
As of December 31, 2017, Duke Energy assumes pension and other post-
retirement plan assets will generate a long-term rate of return of 6.50 percent.
The expected long-term rate of return was developed using a weighted average
calculation of expected returns based primarily on future expected returns across
asset classes considering the use of active asset managers, where applicable.
The asset allocation targets were set after considering the investment objective
and the risk profile. Equity securities are held for their higher expected returns.
Debt securities are primarily held to hedge the qualified pension liability.
Hedge funds, real estate and other global securities are held for diversification.
Investments within asset classes are diversified to achieve broad market
participation and reduce the impact of individual managers on investments.
In 2013, Duke Energy adopted a de-risking investment strategy for
the Master Trust. As the funded status of the pension plans increase, the
targeted allocation to fixed-income assets may be increased to better manage
Duke Energy’s pension liability and reduce funded status volatility. The asset
allocation for the Master Trust is 63 percent fixed-income assets and 37 percent
return-seeking assets. Duke Energy regularly reviews its actual asset allocation
and periodically rebalances its investments to the targeted allocations when
considered appropriate.
Duke Energy discounted its future U.S. pension and other post-retirement
obligations using a rate of 3.6 percent as of December 31, 2017. Discount rates
used to measure benefit plan obligations for financial reporting purposes reflect
rates at which pension benefits could be effectively settled. As of December 31,
2017, Duke Energy determined its discount rate for U.S. pension and other post-
retirement obligations using a bond selection-settlement portfolio approach.
This approach develops a discount rate by selecting a portfolio of high quality
corporate bonds that generate sufficient cash flow to provide for projected
benefit payments of the plan. The selected bond portfolio is derived from a
universe of non-callable corporate bonds rated Aa quality or higher. After the
bond portfolio is selected, a single interest rate is determined that equates the
present value of the plan’s projected benefit payments discounted at this rate
with the market value of the bonds selected.
Future changes in plan asset returns, assumed discount rates and various
other factors related to the participants in Duke Energy’s pension and post-
retirement plans will impact future pension expense and liabilities. Duke Energy
cannot predict with certainty what these factors will be in the future. The following
table presents the approximate effect on Duke Energy’s 2017 pretax pension
expense, pretax other post-retirement expense, pension obligation and other post-
retirement benefit obligation if a 0.25 percent change in rates were to occur.
(in millions)
Effect on 2017 pretax pension and other post-retirement expense
Expected long-term rate of return
Discount rate
Effect on pension and other post-retirement benefit obligation at December 31, 2017
Discount rate
Qualified and Non-
Qualified Pension Plans
Other Post-Retirement Plans
0.25%
(0.25)%
0.25%
(0.25)%
$ (21)
(17)
$ 21
19
(223)
229
$ (1)
(1)
(17)
$
1
1
17
Duke Energy’s other post-retirement plan uses a health care trend rate covering both pre- and post-age 65 retired plan participants, which is comprised of a
medical care trend rate, which reflects the near- and long-term expectation of increases in medical costs, and a prescription drug trend rate, which reflects the near-
and long-term expectation of increases in prescription drug costs. As of December 31, 2017, the health care trend rate was 7 percent, trending down to 4.75 percent
by 2024. The following table presents the approximate effect on Duke Energy’s 2017 pretax other post-retirement expense and other post-retirement benefit obligation
if a 1 percentage point change in the health care trend rate were to occur. These plans are closed to new hires.
(in millions)
Effect on 2017 other post-retirement expense
Effect on other post-retirement benefit obligation at December 31, 2017
Other Post-Retirement Plans
1%
$ 5
27
(1)%
$ (4)
(24)
For further information, see Note 21 to the Consolidated Financial Statements, “Employee Benefit Plans.”
Income Taxes
Duke Energy and its subsidiaries file a consolidated federal income
tax return and other state returns. The Subsidiary Registrants entered into a
tax-sharing agreement with Duke Energy. Income taxes recorded represent
amounts the Subsidiary Registrants would incur as separate C-Corporations.
Deferred income taxes have been provided for temporary differences between
GAAP and tax bases of assets and liabilities because the differences create
taxable or tax-deductible amounts for future periods. ITCs associated with
regulated operations are deferred and amortized as a reduction of income tax
expense over the estimated useful lives of the related properties.
Accumulated deferred income taxes are valued using the enacted tax rate
expected to apply to taxable income in the periods in which the deferred tax
asset or liability is expected to be settled or realized. In the event of a change in
tax rates, deferred tax assets and liabilities are remeasured as of the enactment
date of the new rate. To the extent that the change in the value of the deferred
tax represents an obligation to customers, the impact of the remeasurement
is deferred to a regulatory liability. Remaining impacts are recorded in income
from continuing operations. Other impacts of the Tax Act have been recorded on
a provisional basis, see Note 22, “Income Taxes,” for additional information. If
Duke Energy’s estimate of the tax effect of reversing temporary differences is
not reflective of actual outcomes, is modified to reflect new developments or
interpretations of the tax law, revised to incorporate new accounting principles,
or changes in the expected timing or manner of the reversal then Duke Energy’s
results of operations could be impacted.
55
PART II LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Duke Energy relies primarily upon cash flows from operations, debt and
equity issuances and its existing cash and cash equivalents to fund its liquidity
and capital requirements. Duke Energy’s capital requirements arise primarily
from capital and investment expenditures, repaying long-term debt and paying
dividends to shareholders. Duke Energy’s projected primary sources and uses
for the next three fiscal years are included in the table below.
(in millions)
2018
2019
2020
Uses:
Capital expenditures
Debt maturities and reduction in
short-term debt(a)
Dividend payments(b)
Sources:
Net cash flows from operations
Debt issuances and increase in
$ 10,950
$ 10,975
$ 9,050
3,135
2,575
3,500
2,750
2,850
2,875
$
7,945
$ 9,150
$ 9,390
resulting from the use of short-term debt as a funding source to meet scheduled
maturities of long-term debt, as well as cash needs, which can fluctuate due to
the seasonality of its businesses.
Credit Facilities and Registration Statements
See Note 6 to the Consolidated Financial Statements, “Debt and Credit
Facilities,” for further information regarding credit facilities and shelf registration
statements available to Duke Energy and the Duke Energy Registrants.
CAPITAL EXPENDITURES
Duke Energy continues to focus on reducing risk and positioning its
business for future success and will invest principally in its strongest business
sectors. Duke Energy’s projected capital and investment expenditures for the
next three fiscal years are included in the table below.
6,000
2,000
short-term debt(c)
Equity issuances(d)
(a) Excludes capital leases. Duke Energy projects a reduction in short-term debt in 2020.
(b) Subject to approval by the Board of Directors.
(c) Duke Energy projects an increase in short-term debt in 2018 and 2019.
(d) 2018 equity issuances to be achieved through a public offering and through issuances under the Equity
Distribution Agreement and the Dividend Reinvestment Program (DRIP). See Note 18 to the Consolidated
Financial Statements, “Common Stock” for additional information.
7,100
350
3,050
350
Among other provisions, the Tax Act lowers the corporate federal income
tax rate from 35 percent to 21 percent and eliminates bonus depreciation for
regulated utilities. For Duke Energy’s regulated operations, the reduction in
federal income taxes is expected to result in lower regulated customer rates.
However, due to its existing NOL (Net operating loss) position and other tax
credits, Duke Energy does not expect to be a significant federal cash tax payer
through at least 2022. As a result, any reduction in customer rates could cause
a material reduction in consolidated cash flows from operations in the short-
term. Over time, the reduction in deferred tax liabilities resulting from the Tax
Act will increase Duke Energy’s regulated rate base investments and customer
rates. See the Credit Ratings section below for additional information on the
impact of the Tax Act on the Duke Energy Registrants’ credit ratings. Impacts
of Tax Act to Duke Energy’s cash flows and credit metrics are subject to the
regulatory actions of its state commissions and the FERC, which are currently
pending. See Note 4 to the Consolidated Financial Statements, “Regulatory
Matters,” for additional information.
In order to strengthen its balance sheet and credit metrics and bolster
cash flows, Duke Energy plans to issue $2 billion of common stock equity during
2018, including its previous plan to issue $350 million annually through its DRIP
beginning in 2018, as well as reduce its capital expenditures during 2018-2022
by approximately $1 billion.
The Subsidiary Registrants generally maintain minimal cash balances and
use short-term borrowings to meet their working capital needs and other cash
requirements. The Subsidiary Registrants, excluding Progress Energy, support
their short-term borrowing needs through participation with Duke Energy and
certain of its other subsidiaries in a money pool arrangement. The companies
with short-term funds may provide short-term loans to affiliates participating
under this arrangement. See Note 6 to the Consolidated Financial Statements,
“Debt and Credit Facilities,” for additional discussion of the money pool
arrangement.
Duke Energy and the Subsidiary Registrants, excluding Progress Energy,
may also use short-term debt, including commercial paper and the money
pool, as a bridge to long-term debt financings. The levels of borrowing may
vary significantly over the course of the year due to the timing of long-term
debt financings and the impact of fluctuations in cash flows from operations.
From time to time, Duke Energy’s current liabilities exceed current assets
56
(in millions)
New generation
Regulated renewables
Environmental
Nuclear fuel
Major nuclear
Customer additions
Grid modernization and other transmission and
distribution projects
Maintenance and other
Total Electric Utilities and Infrastructure
Gas Utilities and Infrastructure
2018
2019
2020
$
780
155
610
500
390
490
2,585
2,665
8,175
2,350
$
260
415
35
410
335
485
3,515
2,445
7,900
2,275
$
135
365
30
455
230
515
3,415
2,230
7,375
950
Commercial Renewables and Other
Total projected capital and investment expenditures
425
$ 10,950
800
$ 10,975
725
$ 9,050
DEBT MATURITIES
See Note 6 to the Consolidated Financial Statements, “Debt and Credit
Facilities,” for further information regarding significant components of Current
Maturities of Long-Term Debt on the Consolidated Balance Sheets.
DIVIDEND PAYMENTS
In 2017, Duke Energy paid quarterly cash dividends for the 91st
consecutive year and expects to continue its policy of paying regular cash
dividends in the future. There is no assurance as to the amount of future
dividends because they depend on future earnings, capital requirements,
financial condition and are subject to the discretion of the Board of Directors.
Duke Energy targets a dividend payout ratio of between 70 percent and
75 percent, based upon adjusted diluted EPS. In 2016 and 2017, Duke Energy
increased the dividend by approximately 4 percent annually. Through 2022, the
annual dividend growth rate is expected to be between approximately 4 to 6 percent.
Dividend and Other Funding Restrictions of Duke Energy Subsidiaries
As discussed in Note 4 to the Consolidated Financial Statements,
“Regulatory Matters,” Duke Energy’s wholly owned public utility operating
companies have restrictions on the amount of funds that can be transferred
to Duke Energy through dividends, advances or loans as a result of conditions
imposed by various regulators in conjunction with merger transactions. Duke
Energy Progress and Duke Energy Florida also have restrictions imposed by
their first mortgage bond indentures and Articles of Incorporation, which, in
certain circumstances, limit their ability to make cash dividends or distributions
PART II on common stock. Additionally, certain other Duke Energy subsidiaries have
other restrictions, such as minimum working capital and tangible net worth
requirements pursuant to debt and other agreements that limit the amount
of funds that can be transferred to Duke Energy. At December 31, 2017, the
amount of restricted net assets of wholly owned subsidiaries of Duke Energy
that may not be distributed to Duke Energy in the form of a loan or dividend
is less than 25 percent of Duke Energy’s net assets. Duke Energy does not
have any legal or other restrictions on paying common stock dividends to
shareholders out of its consolidated equity accounts. Although these restrictions
cap the amount of funding the various operating subsidiaries can provide
to Duke Energy, management does not believe these restrictions will have a
significant impact on Duke Energy’s ability to access cash to meet its payment
of dividends on common stock and other future funding obligations.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows from operations of Electric Utilities and Infrastructure and Gas
Utilities and Infrastructure are primarily driven by sales of electricity and natural
gas, respectively, and costs of operations. These cash flows from operations are
relatively stable and comprise a substantial portion of Duke Energy’s operating cash
flows. Weather conditions, working capital and commodity price fluctuations and
unanticipated expenses including unplanned plant outages, storms, legal costs and
related settlements can affect the timing and level of cash flows from operations.
Duke Energy believes it has sufficient liquidity resources through the
commercial paper markets, and ultimately, the Master Credit Facility, to support
these operations. Cash flows from operations are subject to a number of other
factors, including, but not limited to, regulatory constraints, economic trends
and market volatility (see Item 1A, “Risk Factors,” for additional information).
At December 31, 2017, Duke Energy had cash and cash equivalents and
short-term investments of $358 million.
DEBT ISSUANCES
Depending on availability based on the issuing entity, the credit rating of
the issuing entity, and market conditions, the Subsidiary Registrants prefer to
issue first mortgage bonds and secured debt, followed by unsecured debt. This
preference is the result of generally higher credit ratings for first mortgage bonds
and secured debt, which typically result in lower interest costs. Duke Energy
Corporation primarily issues unsecured debt.
See to Note 6 to the Consolidated Financial Statements, “Debt and Credit
Facilities,” for further information regarding significant debt issuances.
Duke Energy’s capitalization is balanced between debt and equity as
shown in the table below.
Projected 2018
Actual 2017
Actual 2016
Credit Ratings
Moody’s Investors Service, Inc. (Moody’s), Standard & Poor’s Rating
Services (S&P) and Fitch Ratings, Inc. provide credit ratings for various Duke
Energy Registrants. The following table includes Duke Energy and certain
subsidiaries’ credit ratings and ratings outlook as of February 2018.
Duke Energy Corporation
Issuer Credit Rating
Senior Unsecured Debt
Commercial Paper
Duke Energy Carolinas
Senior Secured Debt
Senior Unsecured Debt
Progress Energy
Senior Unsecured Debt
Duke Energy Progress
Senior Secured Debt
Duke Energy Florida
Senior Secured Debt
Senior Unsecured Debt
Duke Energy Ohio
Senior Secured Debt
Senior Unsecured Debt
Duke Energy Indiana
Senior Secured Debt
Senior Unsecured Debt
Duke Energy Kentucky
Senior Unsecured Debt
Piedmont Natural Gas
Senior Unsecured
Moody’s
Negative(a)
Baa1
Baa1
P-2
Stable
Aa2
A1
Stable
Baa2
Stable
Aa3
Stable
A1
A3
Positive
A2
Baa1
Stable
Aa3
A2
Stable
Baa1
Negative(a)
A2
S&P
Stable
A-
BBB+
A-2
Stable
A
A-
Stable
BBB+
Stable
A
Stable
A
A-
Stable
A
A-
Stable
A
A-
Stable
A-
Stable
A-
Fitch
Negative
BBB+
BBB+
F-2
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
(a)
In January 2018, Moody’s revised the ratings outlook for Duke Energy Corporation and Piedmont from
stable to negative, principally due to risk of deterioration in credit metrics resulting from the Tax Act. See
the Tax Cuts and Jobs Act section above for additional information on the Tax Act.
Credit ratings are intended to provide credit lenders a framework for
comparing the credit quality of securities and are not a recommendation to buy,
sell or hold. The Duke Energy Registrants’ credit ratings are dependent on the
rating agencies’ assessments of their ability to meet their debt principal and
interest obligations when they come due. If, as a result of market conditions
or other factors, the Duke Energy Registrants are unable to maintain current
balance sheet strength, or if earnings and cash flow outlook materially
deteriorates, credit ratings could be negatively impacted.
Equity
Debt
44%
56%
43%
57%
45%
55%
Cash Flow Information
The following table summarizes Duke Energy’s cash flows for the three
Duke Energy’s fixed charges coverage ratio, calculated using Securities
most recently completed fiscal years.
and Exchange Commission (SEC) guidelines, was 2.9 times for 2017, 2.7 times
for 2016 and 3.1 times for 2015.
Restrictive Debt Covenants
Duke Energy’s debt and credit agreements contain various financial and
other covenants. Duke Energy’s Master Credit Facility contains a covenant
requiring the debt-to-total capitalization ratio to not exceed 65 percent for
each borrower, excluding Piedmont, and 70 percent for Piedmont. Failure
to meet those covenants beyond applicable grace periods could result in
accelerated due dates and/or termination of the agreements or sublimits
thereto. As of December 31, 2017, each of the Duke Energy Registrants was
in compliance with all covenants related to their debt agreements. In addition,
some credit agreements may allow for acceleration of payments or termination
of the agreements due to nonpayment, or acceleration of other significant
indebtedness of the borrower or some of its subsidiaries. None of the debt or
credit agreements contain material adverse change clauses.
(in millions)
Cash flows provided by (used in):
Operating activities
Investing activities
Financing activities
Changes in cash and cash equivalents
included in assets held for sale
Net (decrease) increase in cash and cash
equivalents
Cash and cash equivalents at beginning
of period
Cash and cash equivalents at end of period
$
57
Years Ended December 31,
2017
2016
2015
$ 6,634
$
6,817
$
6,700
(8,450)
1,782
(11,533)
4,251
—
(34)
392
358
$
474
9
383
392
(5,277)
(2,602)
1,099
(80)
463
383
$
PART II OPERATING CASH FLOWS
The following table summarizes key components of Duke Energy’s
operating cash flows for the three most recently completed fiscal years.
The primary use of cash related to investing activities is capital,
investment and acquisition expenditures, detailed by reportable business
segment in the following table.
(in millions)
Net income
Non-cash adjustments to net income
Contributions to qualified pension plans
Payments for AROs
Working capital
Years Ended December 31,
$
2017
3,064
5,380
(19)
(571)
(1,220)
2016
2015
$
2,170
$ 2,831
5,305
4,800
(155)
(608)
105
(302)
(346)
(283)
Net cash provided by operating activities
$
6,634
$
6,817
$ 6,700
(in millions)
Years Ended December 31,
2017
2016
2015
Electric Utilities and Infrastructure
$ 7,024
$ 6,649
$ 6,852
Gas Utilities and Infrastructure
Commercial Renewables
Other
Total capital, investment and acquisition
907
92
175
5,519
857
190
234
1,019
258
expenditures
$ 8,198
$ 13,215
$ 8,363
For the year ended December 31, 2017, compared to 2016, the variance
For the year ended December 31, 2017, compared to 2016, the variance
was driven primarily by:
was driven primarily by:
• a $1,325 million decrease in working capital due to weather, payment of
merger transaction and integration related costs and increased property
tax payments in 2017.
Offset by:
• a $969 million increase in net income after non-cash adjustments
primarily due to the inclusion of Piedmont’s earnings for a full year,
favorable pricing and weather-normal retail volumes driven by the
residential class in the Electric Utilities and Infrastructure Segment
combined with continued strong cost control;
• a $136 million decrease in contributions to qualified pension plans; and
• a $37 million decrease in payments to AROs.
For the year ended December 31, 2016, compared to 2015, the variance
was driven primarily by:
• a $388 million increase in cash flows from working capital primarily
due to the sale of the International business; and
• a $147 million decrease in contributions to qualified pension plans.
Offset by:
• a $262 million increase in payments for AROs; and
• a $156 million decrease in net income after non-cash adjustments
due to higher storm costs offset by favorable weather, increased rider
revenues, higher wholesale margins and strong cost control.
INVESTING CASH FLOWS
The following table summarizes key components of Duke Energy’s
investing cash flows for the three most recently completed fiscal years.
(in millions)
Capital, investment and acquisition
expenditures
Years Ended December 31,
2017
2016
2015
$ (8,198)
$ (13,215)
$ (8,363)
Available for sale securities, net
27
83
3
Net proceeds from the sales of discontinued
operations and other assets, net of cash
divested
Other investing items
—
(279)
1,418
181
2,968
115
Net cash used in investing activities
$ (8,450)
$ (11,533)
$ (5,277)
• a $5,017 million decrease in capital, investment and acquisition
expenditures mainly due to the Piedmont acquisition in the prior year.
Partially offset by:
• a $1,418 million decrease in net proceeds from sales of discontinued
operations due to the prior year sale of the International business.
For the year ended December 31, 2016, compared to 2015, the variance
was driven primarily by:
• a $4,852 million increase in capital, investment and acquisition
expenditures mainly due to the Piedmont acquisition; and
• a $1,550 million decrease in net proceeds from sales of discontinued
operations mainly due to the variance in proceeds between the 2015
sale of the Midwest generation business and the 2016 sale of the
International business.
FINANCING CASH FLOWS
The following table summarizes key components of Duke Energy’s
financing cash flows for the three most recently completed fiscal years.
Years Ended December 31,
2017
2016
2015
$ — $
731
$
17
(74)
(in millions)
Issuance of common stock
Issuances (Repayments) of long-term debt, net
4,593
7,315
Notes payable and commercial paper
Dividends paid
Repurchase of common shares
Other financing items
(362)
(1,447)
1,245
(2,450)
(2,332)
(2,254)
—
1
— (1,500)
(16)
(36)
Net cash provided by (used in) financing activities
$ 1,782
$ 4,251
$(2,602)
For the year ended December 31, 2017, compared to 2016, the variance
was driven primarily by:
• a $2,722 million net decrease in proceeds from issuances of long-
term debt driven principally by the prior year $3,750 million of senior
unsecured notes used to fund a portion of the Piedmont acquisition,
offset primarily by $900 million of first mortgage bonds issued by Duke
Energy Florida in the current year to fund capital expenditures for ongoing
construction and capital maintenance and for general corporate purposes;
• a $731 million decrease in proceeds from stock issuances used to fund
a portion of the Piedmont acquisition in 2016; and
• a $118 million current year increase in dividends paid.
58
PART II Partially offset by:
• a $1,085 million decrease in net borrowings from notes payable and
commercial paper primarily due to the use of proceeds from $1,294
million nuclear asset-recovery bonds issued at Duke Energy Florida in
2016 to pay down outstanding commercial paper.
For the year ended December 31, 2016, compared to 2015, the variance
was driven primarily by:
• a $7,389 million increase in proceeds from net issuances of long-term
debt mainly due to the issuances of $3,750 million of senior unsecured
notes used to fund a portion of the Piedmont acquisition, $1,294 million
of nuclear asset-recovery bonds and other issuances primarily used to
fund capital expenditures, pay down outstanding commercial paper and
repay debt maturities;
Off-Balance Sheet Arrangements
• a $1,500 million decrease in cash outflows due to the 2015 repurchase
of 19.8 million common shares under the ASR; and
• a $714 million increase in proceeds resulting from the issuance of
common stock to fund the acquisition of Piedmont.
Partially offset by:
• a $2,692 million increase in cash outflows for the net payments of
notes payable and commercial paper primarily through the use of
proceeds from $1,294 million nuclear asset-recovery bonds issued at
Duke Energy Florida, further increased by the use of short-term debt
in 2015 to repay long-term debt maturities at Duke Energy Florida in
advance of the 2016 proceeds from the nuclear asset-recovery bonds.
Duke Energy and certain of its subsidiaries enter into guarantee
arrangements in the normal course of business to facilitate commercial
transactions with third parties. These arrangements include performance
guarantees, stand-by letters of credit, debt guarantees, surety bonds and
indemnifications.
Duke Energy performs ongoing assessments of its respective guarantee
obligations to determine whether any liabilities have been incurred as a result of
potential increased non-performance risk by third parties for which Duke Energy
has issued guarantees.
See Note 7 to the Consolidated Financial Statements, “Guarantees and
Most of the guarantee arrangements entered into by Duke Energy enhance
Indemnifications,” for further details of the guarantee arrangements.
the credit standing of certain subsidiaries, non-consolidated entities or less
than wholly owned entities, enabling them to conduct business. As such, these
guarantee arrangements involve elements of performance and credit risk, which
are not always included on the Consolidated Balance Sheets. The possibility
of Duke Energy, either on its own or on behalf of Spectra Energy Capital, LLC
(Spectra Capital) through indemnification agreements entered into as part
of the January 2, 2007, spin-off of Spectra Energy Corp, having to honor its
contingencies is largely dependent upon the future operations of the subsidiaries,
investees and other third parties, or the occurrence of certain future events.
Issuance of these guarantee arrangements is not required for the majority
of Duke Energy’s operations. Thus, if Duke Energy discontinued issuing these
guarantees, there would not be a material impact to the consolidated results of
operations, cash flows or financial position.
Other than the guarantee arrangements discussed above, normal
operating lease arrangements and off-balance sheet debt related to non-
consolidated VIEs, Duke Energy does not have any material off-balance sheet
financing entities or structures. For additional information, see Notes 5, 7 and 17
to the Consolidated Financial Statements, “Commitments and Contingencies,”
“Guarantees and Indemnifications” and “Variable Interest Entities,” respectively.
Contractual Obligations
Duke Energy enters into contracts that require payment of cash at certain specified periods, based on certain specified minimum quantities and prices. The
following table summarizes Duke Energy’s contractual cash obligations as of December 31, 2017.
(in millions)
Long-term debt(a)
Interest payments on long-term debt(b)
Capital leases(c)
Operating leases(c)
Purchase obligations:(d)
Fuel and purchased power(e)(f)
Other purchase obligations(g)
Nuclear decommissioning trust annual funding(h)
Total contractual cash obligations(i)(j)
Payments Due By Period
Less than
1 year
(2018)
3,127
2,014
168
233
4,506
6,642
14
16,704
$
$
2-3 years
(2019 &
2020)
7,062
3,590
343
386
6,085
1,406
28
18,900
$
$
4-5 years
(2021 &
2022)
6,541
3,144
345
285
4,474
121
28
14,938
$
$
More than
5 years
(2023 &
beyond)
33,232
22,195
745
882
$
15,891
557
215
73,717
$
$
Total
49,962
30,943
1,601
1,786
30,956
8,726
285
$ 124,259
(a) See Note 6 to the Consolidated Financial Statements, “Debt and Credit Facilities.”
(b)
(c) See Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies.” Amounts in the table above include the interest component of capital leases based on the interest rates stated in the lease
Interest payments on variable rate debt instruments were calculated using December 31, 2017, interest rates and holding them constant for the life of the instruments.
agreements and exclude certain related executory costs. Amounts exclude contingent lease obligations.
(d) Current liabilities, except for current maturities of long-term debt, and purchase obligations reflected on the Consolidated Balance Sheets have been excluded from the above table.
(e)
Includes firm capacity payments that provide Duke Energy with uninterrupted firm access to electricity transmission capacity and natural gas transportation contracts, as well as undesignated contracts and contracts
that qualify as normal purchase/normal sale (NPNS). For contracts where the price paid is based on an index, the amount is based on market prices at December 31, 2017, or the best projections of the index. For certain
of these amounts, Duke Energy may settle on a net cash basis since Duke Energy has entered into payment netting arrangements with counterparties that permit Duke Energy to offset receivables and payables with such
counterparties.
(f) Amounts exclude obligations under the OVEC purchase power agreement. See Note 17 to the Consolidated Financial Statements, “Variable Interest Entities,” for additional information.
59
PART II (g)
Includes contracts for software, telephone, data and consulting or advisory services. Amount also includes contractual obligations for engineering, procurement and construction costs for new generation plants, wind and solar
facilities, plant refurbishments, maintenance and day-to-day contract work and commitments to buy certain products. Amount excludes certain open purchase orders for services that are provided on demand, for which the
timing of the purchase cannot be determined.
(h) Related to future annual funding obligations to NDTF through nuclear power stations’ relicensing dates. See Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations.”
(i) Unrecognized tax benefits of $25 million are not reflected in this table as Duke Energy cannot predict when open income tax years will close with completed examinations. See Note 22 to the Consolidated Financial Statements,
(j)
“Income Taxes.”
The table above excludes reserves for litigation, environmental remediation, asbestos-related injuries and damages claims and self-insurance claims (see Note 5 to the Consolidated Financial Statements, “Commitments
and Contingencies”) because Duke Energy is uncertain as to the timing and amount of cash payments that will be required. Additionally, the table above excludes annual insurance premiums that are necessary to operate the
business, including nuclear insurance (see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies”), funding of pension and other post-retirement benefit plans (see Note 21 to the Consolidated
Financial Statements, “Employee Benefit Plans”), AROs, including ash management expenditures (see Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations”) and regulatory liabilities (see Note 4
to the Consolidated Financial Statements, “Regulatory Matters”) because the amount and timing of the cash payments are uncertain. Also excluded are Deferred Income Taxes and ITCs recorded on the Consolidated Balance
Sheets since cash payments for income taxes are determined based primarily on taxable income for each discrete fiscal year.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
underlying assumptions could result in significantly different fair values and
income recognition.
Risk Management Policies
Hedging Strategies
The Enterprise Risk Management policy framework at Duke Energy
includes strategy, operational, project execution and financial or transaction
related risks. Enterprise Risk Management includes market risk as part of the
financial and transaction related risks in its framework.
Duke Energy is exposed to market risks associated with commodity prices,
interest rates and equity prices. Duke Energy has established comprehensive
risk management policies to monitor and manage these market risks. Duke
Energy’s Chief Executive Officer and Chief Financial Officer are responsible for
the overall approval of market risk management policies and the delegation
of approval and authorization levels. The Finance and Risk Management
Committee of the Board of Directors receives periodic updates from the Chief
Risk Officer and other members of management on market risk positions,
corporate exposures and overall risk management activities. The Chief Risk
Officer is responsible for the overall governance of managing commodity price
risk, including monitoring exposure limits.
The following disclosures about market risk contain forward-looking
statements that involve estimates, projections, goals, forecasts, assumptions,
risks and uncertainties that could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements. Please
review Item 1A, “Risk Factors,” and “Cautionary Statement Regarding Forward-
Looking Information” for a discussion of the factors that may impact any such
forward-looking statements made herein.
Commodity Price Risk
Duke Energy is exposed to the impact of market fluctuations in the prices
of electricity, coal, natural gas and other energy-related products marketed
and purchased as a result of its ownership of energy-related assets. Duke
Energy’s exposure to these fluctuations is limited by the cost-based regulation
of its regulated operations as these operations are typically allowed to recover
substantially all of these costs through various cost-recovery clauses, including
fuel clauses, formula based contracts, or other cost-sharing mechanisms. While
there may be a delay in timing between when these costs are incurred and when
they are recovered through rates, changes from year to year generally do not
have a material impact on operating results of these regulated operations.
Price risk represents the potential risk of loss from adverse changes in the
market price of electricity or other energy commodities. Duke Energy’s exposure
to commodity price risk is influenced by a number of factors, including contract
size, length, market liquidity, location and unique or specific contract terms.
Duke Energy employs established policies and procedures to manage risks
associated with these market fluctuations, which may include using various
commodity derivatives, such as swaps, futures, forwards and options. For
additional information, see Note 14 to the Consolidated Financial Statements,
“Derivatives and Hedging.”
The inputs and methodologies used to determine the fair value of
contracts are validated by an internal group separate from Duke Energy’s deal
origination function. While Duke Energy uses common industry practices to
develop its valuation techniques, changes in its pricing methodologies or the
Duke Energy closely monitors risks associated with commodity price
changes on its future operations and, where appropriate, uses various commodity
instruments such as electricity, coal and natural gas forward contracts and
options to mitigate the effect of such fluctuations on operations. Duke Energy’s
primary use of energy commodity derivatives is to hedge against exposure to the
prices of power, fuel for generation and natural gas for customers.
The majority of instruments used to manage Duke Energy’s commodity
price exposure are either not designated as hedges or do not qualify for hedge
accounting. These instruments are referred to as undesignated contracts.
Mark-to-market changes for undesignated contracts entered into by regulated
businesses are reflected as regulatory assets or liabilities on the Consolidated
Balance Sheets. Undesignated contracts entered into by unregulated businesses
are marked-to-market each period, with changes in the fair value of the
derivative instruments reflected in earnings.
Duke Energy may also enter into other contracts that qualify for the NPNS
exception. When a contract meets the criteria to qualify as NPNS, Duke Energy
applies such exception. Income recognition and realization related to NPNS
contracts generally coincide with the physical delivery of the commodity. For
contracts qualifying for the NPNS exception, no recognition of the contract’s fair
value in the Consolidated Financial Statements is required until settlement of
the contract as long as the transaction remains probable of occurring.
Generation Portfolio Risks
The Duke Energy Registrants optimize the value of their generation
portfolios, which include generation assets, fuel and emission allowances.
Modeled forecasts of future generation output and fuel requirements are based
on forward power and fuel markets. The component pieces of the portfolio
are bought and sold based on models and forecasts of generation in order to
manage the economic value of the portfolio in accordance with the strategies of
the business units.
For the Electric Utilities segment, the generation portfolio not utilized
to serve retail operations or committed load is subject to commodity price
fluctuations. However, the impact on the Consolidated Statements of Operations
is partially offset by mechanisms in these regulated jurisdictions that result in
the sharing of net profits from these activities with retail customers.
Interest Rate Risk
Duke Energy is exposed to risk resulting from changes in interest rates as
a result of its issuance of variable and fixed-rate debt and commercial paper.
Duke Energy manages interest rate exposure by limiting variable-rate exposures
to a percentage of total debt and by monitoring the effects of market changes
in interest rates. Duke Energy also enters into financial derivative instruments,
which may include instruments such as, but not limited to, interest rate swaps,
swaptions and U.S. Treasury lock agreements to manage and mitigate interest
rate risk exposure. See Notes 1, 6, 14 and 16 to the Consolidated Financial
Statements, “Summary of Significant Accounting Policies,” “Debt and Credit
Facilities,” “Derivatives and Hedging,” and “Fair Value Measurements.”
60
PART II At December 31, 2017, Duke Energy had $687 million notional amount
of floating-to-fixed swaps outstanding, $500 million notional amount of
fixed-to-floating swaps outstanding and $400 million forward-starting swaps
outstanding. Duke Energy had $6.1 billion of unhedged long- and short-term
floating interest rate exposure at December 31, 2017. The impact of a 100 basis
point change in interest rates on pretax income is approximately $61 million at
December 31, 2017. This amount was estimated by considering the impact of
the hypothetical interest rates on variable-rate securities outstanding, adjusted
for interest rate hedges as of December 31, 2017.
See Note 14, “Derivatives and Hedging,” to the Consolidated Financial
Statements for additional information about the forward-starting interest rate
swaps related to the Piedmont acquisition.
Credit Risk
Credit risk represents the loss that the Duke Energy Registrants would
incur if a counterparty fails to perform under its contractual obligations. Where
exposed to credit risk, the Duke Energy Registrants analyze the counterparty’s
financial condition prior to entering into an agreement and monitor exposure
on an ongoing basis. The Duke Energy Registrants establish credit limits where
appropriate in the context of contractual arrangements and monitor such limits.
To reduce credit exposure, the Duke Energy Registrants seek to include
netting provisions with counterparties, which permit the offset of receivables and
payables with such counterparties. The Duke Energy Registrants also frequently
use master agreements with credit support annexes to further mitigate certain
credit exposures. The master agreements provide for a counterparty to post cash
or letters of credit to the exposed party for exposure in excess of an established
threshold. The threshold amount represents a negotiated unsecured credit
limit for each party to the agreement, determined in accordance with the Duke
Energy Registrants’ internal corporate credit practices and standards. Collateral
agreements generally also provide that the inability to post collateral is sufficient
cause to terminate contracts and liquidate all positions.
The Duke Energy Registrants also obtain cash or letters of credit from
certain counterparties to provide credit support outside of collateral agreements,
where appropriate, based on a financial analysis of the counterparty and the
regulatory or contractual terms and conditions applicable to each transaction.
See Note 14 to the Consolidated Financial Statements, “Derivatives and
Hedging,” for additional information regarding credit risk related to derivative
instruments.
accounts receivable and related collections through Cinergy Receivables
Company LLC (CRC), a Duke Energy consolidated variable interest entity.
Losses on collection are first absorbed by the equity of CRC and next by the
subordinated retained interests held by Duke Energy Ohio, Duke Energy Kentucky
and Duke Energy Indiana. See Note 17 to the Consolidated Financial Statements,
“Variable Interest Entities.”
Duke Energy Carolinas has third-party insurance to cover certain losses
related to asbestos-related injuries and damages above an aggregate self-
insured retention. Duke Energy Carolinas’ cumulative payments began to exceed
the self-insurance retention in 2008. Future payments up to the policy limit will
be reimbursed by the third-party insurance carrier. The insurance policy limit
for potential future insurance recoveries indemnification and medical cost claim
payments is $797 million in excess of the self-insured retention. Receivables
for insurance recoveries were $489 million and $587 million at December 31,
2017, and 2016, respectively. These amounts are classified in Other within
Other Noncurrent Assets on the Consolidated Balance Sheets. Duke Energy
Carolinas is not aware of any uncertainties regarding the legal sufficiency of
insurance claims. Duke Energy Carolinas believes the insurance recovery asset
is probable of recovery as the insurance carrier continues to have a strong
financial strength rating.
The Duke Energy Registrants also have credit risk exposure through
issuance of performance and financial guarantees, letters of credit and surety
bonds on behalf of less than wholly owned entities and third parties. Where
the Duke Energy Registrants have issued these guarantees, it is possible that
they could be required to perform under these guarantee obligations in the
event the obligor under the guarantee fails to perform. Where the Duke Energy
Registrants have issued guarantees related to assets or operations that have
been disposed of via sale, they attempt to secure indemnification from the buyer
against all future performance obligations under the guarantees. See Note 7 to
the Consolidated Financial Statements, “Guarantees and Indemnifications,” for
further information on guarantees issued by the Duke Energy Registrants.
Based on the Duke Energy Registrants’ policies for managing credit risk,
their exposures and their credit and other reserves, the Duke Energy Registrants
do not currently anticipate a materially adverse effect on their consolidated
financial position or results of operations as a result of non-performance by any
counterparty.
Marketable Securities Price Risk
The Duke Energy Registrants’ principal counterparties for its electric and
As described further in Note 15 to the Consolidated Financial Statements,
natural gas businesses are regional transmission organizations, distribution
companies, municipalities, electric cooperatives and utilities located throughout
the U.S. The Duke Energy Registrants have concentrations of receivables from
such entities throughout these regions. These concentrations of receivables may
affect the Duke Energy Registrants’ overall credit risk in that risk factors can
negatively impact the credit quality of the entire sector.
The Duke Energy Registrants are also subject to credit risk from
transactions with their suppliers that involve prepayments in conjunction with
outsourcing arrangements, major construction projects and certain commodity
purchases. The Duke Energy Registrants’ credit exposure to such suppliers
may take the form of increased costs or project delays in the event of non-
performance. The Duke Energy Registrants’ frequently require guarantees or
letters of credit from suppliers to mitigate this credit risk.
Credit risk associated with the Duke Energy Registrants’ service to
residential, commercial and industrial customers is generally limited to
outstanding accounts receivable. The Duke Energy Registrants mitigate this
credit risk by requiring customers to provide a cash deposit, letter of credit
or surety bond until a satisfactory payment history is established, subject to
the rules and regulations in effect in each retail jurisdiction, at which time the
deposit is typically refunded. Charge-offs for retail customers have historically
been insignificant to the operations of the Duke Energy Registrants and are
typically recovered through retail rates. Management continually monitors
customer charge-offs and payment patterns to ensure the adequacy of bad
debt reserves. Duke Energy Ohio and Duke Energy Indiana sell certain of their
“Investments in Debt and Equity Securities,” Duke Energy invests in debt
and equity securities as part of various investment portfolios to fund certain
obligations. The vast majority of investments in equity securities are within the
NDTF and assets of the various pension and other post-retirement benefit plans.
Pension Plan Assets
Duke Energy maintains investments to facilitate funding the costs of
providing non-contributory defined benefit retirement and other post-retirement
benefit plans. These investments are exposed to price fluctuations in equity
markets and changes in interest rates. The equity securities held in these
pension plans are diversified to achieve broad market participation and
reduce the impact of any single investment, sector or geographic region. Duke
Energy has established asset allocation targets for its pension plan holdings,
which take into consideration the investment objectives and the risk profile
with respect to the trust in which the assets are held. See Note 21 to the
Consolidated Financial Statements, “Employee Benefit Plans,” for additional
information regarding investment strategy of pension plan assets.
A significant decline in the value of plan asset holdings could require Duke
Energy to increase funding of its pension plans in future periods, which could
adversely affect cash flows in those periods. Additionally, a decline in the fair
value of plan assets, absent additional cash contributions to the plan, could
increase the amount of pension cost required to be recorded in future periods,
which could adversely affect Duke Energy’s results of operations in those periods.
61
PART II Nuclear Decommissioning Trust Funds
As required by the NRC, NCUC, PSCSC and FPSC, subsidiaries of Duke
Energy maintain trust funds to fund the costs of nuclear decommissioning. As
of December 31, 2017, these funds were invested primarily in domestic and
international equity securities, debt securities, cash and cash equivalents and
short-term investments. Per the NRC, Internal Revenue Code, NCUC, PSCSC
and FPSC requirements, these funds may be used only for activities related to
nuclear decommissioning. These investments are exposed to price fluctuations
in equity markets and changes in interest rates. Duke Energy actively monitors
its portfolios by benchmarking the performance of its investments against
certain indices and by maintaining, and periodically reviewing, target allocation
percentages for various asset classes.
Accounting for nuclear decommissioning recognizes that costs are
recovered through retail and wholesale rates; therefore, fluctuations in
investment prices do not materially affect the Consolidated Statements of
Operations, as changes in the fair value of these investments are primarily
deferred as regulatory assets or regulatory liabilities pursuant to Orders by the
NCUC, PSCSC, FPSC and FERC. Earnings or losses of the fund will ultimately
impact the amount of costs recovered through retail and wholesale rates.
See Note 9 to the Consolidated Financial Statements, “Asset Retirement
Obligations,” for additional information regarding nuclear decommissioning
costs. See Note 15 to the Consolidated Financial Statements, “Investments in
Debt and Equity Securities,” for additional information regarding NDTF assets.
OTHER MATTERS
Ratios of Earnings to Fixed Charges
The Duke Energy Registrants’ ratios of earnings to fixed charges, as calculated using SEC guidelines, are included in the tables below.
Duke Energy
Duke Energy Carolinas
Progress Energy
Duke Energy Progress
Duke Energy Florida
Duke Energy Ohio
Duke Energy Indiana
Piedmont
Environmental Regulations
The Duke Energy Registrants are subject to federal, state and local
regulations regarding air and water quality, hazardous and solid waste disposal
and other environmental matters. These regulations can be changed from time
to time and result in new obligations of the Duke Energy Registrants.
The following sections outline various proposed and recently enacted
legislation and regulations that may impact the Duke Energy Registrants. Refer
to Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” for
further information regarding potential plant retirements and regulatory filings
related to the Duke Energy Registrants.
Coal Combustion Residuals
In April 2015, EPA published a rule to regulate the disposal of CCR
from electric utilities as solid waste. The federal regulation classifies CCR
as nonhazardous waste and allows for beneficial use of CCR with some
restrictions. The regulation applies to all new and existing landfills, new
and existing surface impoundments receiving CCR and existing surface
impoundments that are no longer receiving CCR but contain liquid located at
stations currently generating electricity (regardless of fuel source). The rule
establishes requirements regarding landfill design, structural integrity design
and assessment criteria for surface impoundments, groundwater monitoring,
protection and remedial procedures and other operational and reporting
procedures to ensure the safe disposal and management of CCR. Various
industry and environmental parties have appealed EPA’s CCR rule in the U.S.
Court of Appeals for the District of Columbia (D.C. Circuit Court). On April 18,
2016, EPA filed a motion with the federal court to settle five issues raised in
litigation. On June 14, 2016, the court approved the motion with respect to
62
Years Ended December 31,
2017
2016
2015
2.9
4.8
2.7
4.1
3.3
3.4
4.4
2.7
4.7
3.0
4.0
4.3
3.8
4.1
3.1
4.7
2.9
3.7
4.3
3.6
3.6
Year Ended
Two Months Ended
Years Ended October 31,
December 31, 2017
December 31, 2016
3.3
6.6
2016
4.7
2015
3.7
all of those issues. Duke Energy does not expect a material impact from the
settlement or that it will result in additional ARO adjustments. On September 13,
2017, EPA responded to a petition by the Utility Solid Waste Activities Group that
the agency would reconsider certain provisions of the final rule, and asked the
D.C. Circuit Court to suspend the litigation. The D.C. Circuit Court denied EPA’s
petition to suspend the litigation and oral argument was held on November 20,
2017. The court has not issued an order in the matter. Duke Energy cannot
predict the outcome of the litigation.
In a November 15, 2017, status report filed with the D.C. Circuit Court,
EPA listed the provisions it intends to reconsider, including provisions that
warrant revision due to passage of the Water Infrastructure Improvements for
the Nation Act, which allows for implementation of the CCR rule through state or
federal permit programs. EPA has indicated it will issue a proposed rule in early
2018 that includes provisions from the June 2016 settlement with petitioners
and additional provisions under reconsideration. The reconsideration would not
repeal the CCR rule; rather, it would modify some requirements to align with the
implementation of the rule through permit programs. At this time, Duke Energy
does not expect a reconsideration rulemaking to have a material impact on its
coal ash basin closure plans or compliance requirements under the CCR rule.
In addition to the requirements of the federal CCR regulation, CCR landfills
and surface impoundments will continue to be independently regulated by
most states. Cost recovery for future expenditures will be pursued through the
normal ratemaking process with federal and state utility commissions and via
wholesale contracts, which permit recovery of necessary and prudently incurred
costs associated with Duke Energy’s regulated operations. For more information,
see Note 9 to the Consolidated Financial Statements, “Asset Retirement
Obligations.”
PART II Coal Ash Management Act of 2014
AROs recorded on the Duke Energy Carolinas and Duke Energy Progress
Consolidated Balance Sheets at December 31, 2017, and December 31,
2016, include the legal obligation for closure of coal ash basins and the
disposal of related ash as a result of the Coal Ash Act, the EPA CCR rule
and other agreements. The Coal Ash Act requires Duke Energy to undertake
dam improvement projects and to provide access to a permanent alternative
drinking water source to certain residents within a half-mile of coal ash basin
compliance boundaries and to certain other potentially impacted residents. The
legislation requires excavation of the Sutton, Riverbend and Dan River basins
by August 1, 2019, and Asheville basins by August 1, 2022. Excavation at
these sites may include a combination of transfer of coal ash to an engineered
landfill or conversion for beneficial use. Basins at the H.F. Lee, Cape Fear
and Weatherspoon sites are required to be closed through excavation no later
than August 1, 2028. Excavation at these sites can include conversion of the
basin to a lined industrial landfill, transfer of ash to an engineered landfill or
conversion for beneficial use. The remaining basins are required to be closed no
later than December 31, 2024, through conversion to a lined industrial landfill,
transfer to an engineered landfill or conversion for beneficial use, unless certain
dam improvement projects and alternative drinking water source projects are
completed by October 15, 2018. Upon satisfactory completion of these projects,
the closure deadline would be extended to December 31, 2029, and could
include closure through the combination of a cap system and a groundwater
monitoring system.
Additionally, the Coal Ash Act requires the installation and operation of
three large-scale coal ash beneficiation projects to produce reprocessed ash for
use in the concrete industry. Duke Energy selected the Buck, H.F. Lee and Cape
Fear plants for these projects. Closure at these sites is required to be completed
no later than December 31, 2029.
The Coal Ash Act includes a variance procedure for compliance deadlines
and other issues surrounding the management of CCR and CCR surface
impoundments and prohibits cost recovery in customer rates for unlawful
discharge of ash impoundment waters occurring after January 1, 2014. The
Coal Ash Act leaves the decision on cost recovery determinations related to
closure of ash impoundments to the normal ratemaking processes before
utility regulatory commissions. Consistent with the requirements of the Coal
Ash Act, Duke Energy has submitted comprehensive site assessments and
groundwater corrective plans to NCDEQ and will submit to NCDEQ site-specific
coal ash impoundment closure plans in advance of closure. These plans and all
associated permits must be approved by NCDEQ before closure work can begin.
For further information on AROs, see Note 9 to the Consolidated Financial
Statements, “Asset Retirement Obligations.”
Clean Water Act 316(b)
EPA published the final 316(b) cooling water intake structure rule on
August 15, 2014, with an effective date of October 14, 2014. The rule applies
to 26 of the electric generating facilities the Duke Energy Registrants own and
operate. The rule allows for several options to demonstrate compliance and
provides flexibility to the state environmental permitting agencies to make
determinations on controls, if any, that will be required for cooling water intake
structures. Any required intake structure modifications and/or retrofits are
expected to be installed in the 2019 to 2023 time frame. Petitions challenging
the rule have been filed by several groups. Oral argument was held on
September 14, 2017. It is unknown when the courts will rule on the petitions.
The Duke Energy Registrants cannot predict the outcome of these matters.
Steam Electric Effluent Limitations Guidelines
On January 4, 2016, the final Steam Electric Effluent Limitations
Guidelines (ELG) rule became effective. The rule establishes new requirements
for wastewater streams associated with steam electric power generation and
includes more stringent controls for any new coal plants that may be built in
the future. As originally written, affected facilities were required to comply
between 2018 and 2023, depending on the timing of Clean Water Act (CWA)
discharge permits. Most of the steam electric generating facilities the Duke
Energy Registrants own are affected sources. The Duke Energy Registrants
are well-positioned to meet the majority of the requirements of the rule due to
current efforts to convert to dry ash handling. Petitions challenging the rule have
been filed by several groups. On March 16, 2015, Duke Energy Indiana filed its
own legal challenge to the rule with the Seventh Circuit Court of Appeals specific
to the ELG rule focused on the limits imposed on IGCC facilities (gasification
wastewater). All challenges to the rule were consolidated in the Fifth Circuit
Court of Appeals. On August 22, 2017, the Fifth Circuit Court of Appeals granted
EPA’s Motion to Govern Further Proceedings, thereby severing and suspending
the claims related to flue gas desulfurization wastewater, bottom ash transport
water and gasification wastewater. Claims regarding gasification wastewater
were stayed, pending the issuance of the variance to Duke Energy Indiana. The
litigation will continue as to claims related to other waste streams.
On August 7, 2017, EPA issued a public notice regarding its proposed
decision to grant a variance to Duke Energy Indiana for mercury and total
dissolved solids for gasification wastewater at its Edwardsport facility. The
public comment period has ended, but EPA has not finalized its decision.
Separate from the litigation, EPA finalized a rule on September 18, 2017,
postponing the earliest applicability date for bottom ash transport water and
flue gas desulfurization wastewater from 2018 to 2020 and retaining the end
applicability date of 2023. Also, as part of the rule, EPA reiterated its intent to
review the limitation guidelines for bottom ash transport water and flue gas
desulfurization wastewater and potentially to conduct a new rulemaking to
revise those guidelines.
The Duke Energy Registrants cannot predict the outcome of these matters.
Estimated Cost and Impacts of Rulemakings
Duke Energy will incur capital expenditures to comply with the
environmental regulations and rules discussed above. The following table
provides five-year estimated costs, excluding AFUDC, of new control equipment
that may need to be installed on existing power plants primarily to comply
with the Coal Ash Act requirements for conversion to dry disposal of bottom
ash and fly ash, CWA 316(b) and ELGs through December 31, 2022. The table
excludes ash basin closure costs recorded in Asset retirement obligations on the
Consolidated Balance Sheets. For more information related to AROs, see Note 9
to the Consolidated Financial Statements.
(in millions)
Duke Energy
Duke Energy Carolinas
Progress Energy
Duke Energy Progress
Duke Energy Florida
Duke Energy Ohio
Duke Energy Indiana
$
Five-Year Estimated Costs
920
380
360
230
130
70
110
The Duke Energy Registrants also expect to incur increased fuel,
purchased power, operation and maintenance and other expenses, in
addition to costs for replacement generation for potential coal-fired power
plant retirements, as a result of these regulations. Actual compliance costs
incurred may be materially different from these estimates due to reasons
such as the timing and requirements of EPA regulations and the resolution of
legal challenges to the rules. The Duke Energy Registrants intend to seek rate
recovery of necessary and prudently incurred costs associated with regulated
operations to comply with these regulations.
Cross-State Air Pollution Rule
On December 3, 2015, EPA proposed a rule to lower the Cross-State
Air Pollution Rule (CSAPR) Phase 2 state ozone season nitrogen oxide (NOx)
emission budgets for 23 eastern states, including North Carolina, Ohio, Kentucky
63
PART II and Indiana. EPA also proposed to eliminate the CSAPR Phase 2 ozone season
state NOx budgets for Florida and South Carolina. On September 7, 2016, EPA
finalized a CSAPR Update Rule that reduces the CSAPR Phase 2 state ozone
season NOx emission budgets for 22 eastern states, including Ohio, Kentucky
and Indiana. In the final CSAPR Update Rule, EPA removed Florida, South
Carolina and North Carolina from the ozone season NOx program. Beginning
in 2017, Duke Energy Registrants in these states will not be subject to any
CSAPR ozone season NOx emission limitations. For the states that remain in
the program, the reduced state ozone season NOx emission budgets took effect
on May 1, 2017. In Kentucky and Indiana, where Duke Energy Registrants own
and operate coal-fired electric generating units (EGUs) subject to the final
rule requirements, near-term responses include changing unit dispatch to run
certain generating units less frequently and/or purchasing NOx allowances
from the trading market. Longer term, upgrading the performance of existing
NOx controls is an option. The Indiana Utility Group and the Indiana Energy
Association jointly filed a petition for reconsideration asking that EPA correct
errors it made in calculating the Indiana budget and increase the budget
accordingly. EPA has yet to act on the petition. Numerous parties have filed
petitions with the D.C. Circuit Court challenging various aspects of the CSAPR
Update Rule. Final briefs in the case are due April 9, 2018. The date for oral
argument has not been established. The Duke Energy Registrants cannot predict
the outcome of these matters.
Carbon Pollution Standards for New, Modified and
Reconstructed Power Plants
On October 23, 2015, EPA published a final rule in the Federal Register
establishing carbon dioxide (CO2) emissions limits for new, modified and
reconstructed power plants. The requirements for new plants apply to plants
that commenced construction after January 8, 2014. EPA set an emissions
standard for coal units of 1,400 pounds of CO2 per gross MWh, which would
require the application of partial carbon capture and storage (CCS) technology
for a coal unit to be able to meet the limit. Utility-scale CCS is not currently a
demonstrated and commercially available technology for coal-fired EGUs, and
therefore the final standard effectively prevents the development of new coal-
fired generation. EPA set a final standard of 1,000 pounds of CO2 per gross MWh
for new natural gas combined-cycle units.
On March 28, 2017, President Trump signed an executive order directing
EPA to review the rule and determine whether to suspend, revise or rescind it. On
the same day, the Department of Justice (DOJ) filed a motion with the D.C. Circuit
Court requesting that the court stay the litigation of the rule while it is reviewed
by EPA. Subsequent to the DOJ motion, the D.C. Circuit Court canceled oral
argument in the case. On August 10, 2017, the court ordered that the litigation
be suspended indefinitely. The rule remains in effect pending the outcome of
litigation and EPA’s review. EPA has not announced a schedule for completing
its review. The Duke Energy Registrants cannot predict the outcome of these
matters, but do not expect the impacts of the current final standards will be
material to Duke Energy’s financial position, results of operations or cash flows.
Clean Power Plan
On October 23, 2015, EPA published in the Federal Register the final Clean
Power Plan (CPP) rule that regulates CO2 emissions from existing fossil fuel-
fired EGUs. The CPP established CO2 emission rates and mass cap goals that
apply to existing fossil fuel-fired EGUs. Petitions challenging the rule were filed
by several groups and on February 9, 2016, the Supreme Court issued a stay of
the final CPP rule, halting implementation of the rule until legal challenges are
resolved. States in which the Duke Energy Registrants operate have suspended
work on the CPP in response to the stay. Oral arguments before 10 of the
11 judges on D.C. Circuit Court were heard on September 27, 2016. The court
has not issued its opinion in the case.
On March 28, 2017, President Trump signed an executive order directing
EPA to review the CPP and determine whether to suspend, revise or rescind
the rule. On the same day, the DOJ filed a motion with the D.C. Circuit Court
requesting that the court stay the litigation of the rule while it is reviewed by
EPA. On April 28, 2017, the court issued an order to suspend the litigation
for 60 days. On August 8, 2017, the court, on its own motion, extended the
suspension of the litigation for an additional 60 days. On October 16, 2017,
EPA issued a Notice of Proposed Rulemaking (NPR) to repeal the CPP based
on a change to EPA’s legal interpretation of the section of the Clean Air Act
(CAA) on which the CPP was based. In the proposal, EPA indicates that it has
not determined whether it will issue a rule to replace the CPP, and if it will do
so, when and what form that rule will take. The comment period on EPA’s NPR
ends April 26, 2018. On December 28, 2017, EPA issued an Advance Notice of
Proposed Rulemaking (ANPRM) in which it seeks public comment on various
aspects of a potential CPP replacement rule. The comment period on the
ANPRM ends February 26, 2018. If EPA decides to move forward with a CPP
replacement rule, it will need to issue a formal proposal for public comment.
Litigation of the CPP remains on hold in the D.C. Circuit Court and the February
2016 U.S. Supreme Court stay of the CPP remains in effect. The Duke Energy
Registrants cannot predict the outcome of these matters.
Global Climate Change
The Duke Energy Registrants’ greenhouse gas (GHG) emissions consist
primarily of CO2 and result primarily from operating a fleet of coal-fired and
natural gas-fired power plants. In 2017, the Duke Energy Registrants’ power
plants emitted approximately 105 million tons of CO2. Future levels of CO2
emissions will be influenced by variables that include fuel prices, compliance
with new or existing regulations, economic conditions that affect electricity
demand and the technologies deployed to generate the electricity necessary to
meet the customer demand.
The Duke Energy Registrants have taken actions that have resulted in
a reduction of CO2 emissions over time. Actions have included the retirement
of 47 coal-fired EGUs with a combined generating capacity of 5,425 MW.
Much of that capacity has been replaced with state-of-the-art highly efficient
natural gas-fired generation that produces far fewer CO2 emissions per unit of
electricity generated. Duke Energy also has made investments to expand its
portfolio of wind and solar projects, increase energy efficiency offerings and
invest in its zero-CO2 emissions hydropower and nuclear plants. These efforts
have diversified its system and significantly reduced CO2 emissions. Between
2005 and 2017, the Duke Energy Registrants have collectively lowered the CO2
emissions from their electricity generation by more than 31 percent, which lowers
the exposure to any future mandatory CO2 emission reduction requirements
or carbon tax, whether as a result of federal legislation, EPA regulation, state
regulation or other as yet unknown emission reduction requirement. Duke
Energy will continue to explore the use of currently-available and commercially-
demonstrated technology to reduce CO2 emissions, including energy efficiency,
wind, solar, storage, nuclear and carbon sequestration. Duke Energy will adjust
to evolving and innovative technologies in a way that balances the reliability
and affordability that customers expect. Under any future scenario involving
mandatory CO2 limitations, the Duke Energy Registrants would plan to seek
recovery of their compliance costs through appropriate regulatory mechanisms.
The Duke Energy Registrants recognize certain groups associate severe
weather events with increasing levels of GHGs in the atmosphere and forecast
the possibility these weather events could have a material impact on future
results of operations should they occur more frequently and with greater
severity. However, the uncertain nature of potential changes in extreme weather
events (such as increased frequency, duration and severity), the long period
of time over which any potential changes might take place and the inability
to predict potential changes with any degree of accuracy, make estimating
any potential future financial risk to the Duke Energy Registrants’ operations
impossible. The Duke Energy Registrants have historically planned and prepared
for extreme weather events, such as ice storms, tornadoes, hurricanes, severe
thunderstorms, high winds and droughts they occasionally experience.
The Duke Energy Registrants annually, biannually or triennially prepare
lengthy, forward-looking “integrated resource plans” (IRPs). These detailed,
highly technical plans are based on the company’s thorough analysis of
64
PART II numerous factors that can impact the cost of producing and delivering electricity
that influence long-term resource planning decisions. The IRP process helps to
evaluate a range of options, taking into account forecasts of future electricity
demand, fuel prices, transmission improvements, new generating capacity,
integration of renewables, energy storage, energy efficiency and demand
response initiatives. The IRP process also helps evaluate potential environmental
and regulatory scenarios to better mitigate policy and economic risks. The IRPs
we file with regulators look out 10 to 20 years depending on the jurisdiction.
For a number of years, the Duke Energy Registrants have included a price
on CO2 emissions in their IRP planning process to account for the potential
regulation of CO2 emissions. Incorporating a price on CO2 emissions in the
IRP allows for the evaluation of existing and future resource needs against
potential climate change policy risk in the absence of policy certainty. One
of the challenges with using a CO2 price, especially in the absence of a clear
and certain policy, is determining the appropriate price to use. To address this
uncertainty and ensure the company remains agile, the Duke Energy Registrants
typically use a range of potential CO2 prices to reflect a range of potential policy
outcomes.
The Duke Energy Registrants routinely take steps to reduce the potential
impact of severe weather events on their electric distribution systems.
The Duke Energy Registrants’ electric generating facilities are designed to
withstand extreme weather events without significant damage. The Duke Energy
Registrants maintain an inventory of coal and oil on-site to mitigate the effects
of any potential short-term disruption in fuel supply so they can continue to
provide customers with an uninterrupted supply of electricity.
North Carolina Legislation
In July 2017, the North Carolina General Assembly passed House Bill 589
and it was subsequently enacted into law by the governor. The law includes,
among other things, overall reform of the application of Public Utility Regulatory
Policies Act of 1978 (PURPA) for new solar projects in the state, a requirement
for the utility to procure approximately 2,600 MW of renewable energy through
a competitive bidding process and recovery of costs related to the competitive
bidding process through the fuel clause and a competitive procurement rider.
The law stipulated certain deadlines for Duke Energy to file for NCUC approval of
programs required under the law. Duke Energy has made some regulatory filings
since the passage of the law and will continue to implement the requirements of
House Bill 589.
Nuclear Matters
Following the events at the Fukushima Daiichi nuclear power station in
Japan, in March 2011, the NRC formed a task force to conduct a comprehensive
review of processes and regulations to determine whether the agency should
make additional improvements to the nuclear regulatory system. Subsequently,
the NRC targeted a set of improvements designed to enhance accident
mitigation, strengthen emergency preparedness and improve efficiency of
NRC programs. Pursuant to the findings of the task force, in March 2012, the
NRC issued three regulatory orders requiring safety enhancements related to
mitigation strategies to respond to extreme natural events resulting in the loss of
power at a plant, ensuring reliable hardened containment vents and enhancing
spent fuel pool instrumentation. Duke Energy is committed to compliance with
all safety enhancements ordered by the NRC and has completed actions on
two of the three NRC orders, as required. The remaining order is focused only
on enhancements to boiling water reactor designs which, for Duke Energy, is
unique to Brunswick Steam Electric Plant. Actions associated with this third
order will be completed by March 2019. With the NRC’s continuing review of
this matter, Duke Energy cannot predict to what extent the NRC will impose
additional licensing and safety-related requirements or the costs of complying
with such requirements. Upon receipt of additional guidance from the NRC
and a collaborative industry review, Duke Energy will be able to determine an
implementation plan and associated costs. See Item 1A, “Risk Factors,” for
further discussion of applicable risk factors.
New Accounting Standards
See Note 1 to the Consolidated Financial Statements, “Summary of
Significant Accounting Policies,” for a discussion of the impact of new accounting
standards.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See “Management’s Discussion and Analysis of Results of Operations and Financial Condition – Quantitative and Qualitative Disclosures About Market Risk.”
65
PART II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Duke Energy Corporation (Duke Energy)
Report of Independent Registered Public Accounting Firm ..........................................
Consolidated Statements of Operations .....................................................................
Consolidated Statements of Comprehensive Income ..................................................
Consolidated Balance Sheets .....................................................................................
Consolidated Statements of Cash Flows ....................................................................
Consolidated Statements of Changes in Equity...........................................................
Duke Energy Carolinas, LLC (Duke Energy Carolinas)
Report of Independent Registered Public Accounting Firm ..........................................
Consolidated Statements of Operations and Comprehensive Income ..........................
Consolidated Balance Sheets .....................................................................................
Consolidated Statements of Cash Flows ....................................................................
Consolidated Statements of Changes in Equity...........................................................
Progress Energy, Inc. (Progress Energy)
Report of Independent Registered Public Accounting Firm ..........................................
Consolidated Statements of Operations and Comprehensive Income ..........................
Consolidated Balance Sheets .....................................................................................
Consolidated Statements of Cash Flows ....................................................................
Consolidated Statements of Changes in Equity...........................................................
Duke Energy Progress, LLC (Duke Energy Progress)
Report of Independent Registered Public Accounting Firm ..........................................
Consolidated Statements of Operations and Comprehensive Income ..........................
Consolidated Balance Sheets .....................................................................................
Consolidated Statements of Cash Flows ....................................................................
Consolidated Statements of Changes in Equity...........................................................
Duke Energy Florida, LLC (Duke Energy Florida)
Report of Independent Registered Public Accounting Firm ..........................................
Consolidated Statements of Operations and Comprehensive Income ..........................
Consolidated Balance Sheets .....................................................................................
Consolidated Statements of Cash Flows ....................................................................
Consolidated Statements of Changes in Equity...........................................................
67
68
69
70
72
74
75
76
77
78
79
80
81
82
84
86
87
88
89
90
91
92
93
94
95
96
Duke Energy Ohio, Inc. (Duke Energy Ohio)
97
Report of Independent Registered Public Accounting Firm ..........................................
98
Consolidated Statements of Operations and Comprehensive Income ..........................
99
Consolidated Balance Sheets .....................................................................................
Consolidated Statements of Cash Flows .................................................................... 100
Consolidated Statements of Changes in Equity........................................................... 101
Duke Energy Indiana, LLC (Duke Energy Indiana)
Report of Independent Registered Public Accounting Firm .......................................... 102
Consolidated Statements of Operations and Comprehensive Income .......................... 103
Consolidated Balance Sheets ..................................................................................... 104
Consolidated Statements of Cash Flows .................................................................... 105
Consolidated Statements of Changes in Equity........................................................... 106
Piedmont Natural Gas Company, Inc. (Piedmont)
Report of Independent Registered Public Accounting Firm .......................................... 107
Consolidated Statements of Operations and Comprehensive Income .......................... 108
Consolidated Balance Sheets ..................................................................................... 109
Consolidated Statements of Cash Flows .................................................................... 110
Consolidated Statements of Changes in Equity........................................................... 111
Combined Notes to Consolidated Financial Statements
Note 1 – Summary of Significant Accounting Policies ................................................
Note 2 – Acquisitions and Dispositions .....................................................................
Note 3 – Business Segments ....................................................................................
Note 4 – Regulatory Matters .....................................................................................
Note 5 – Commitments and Contingencies ...............................................................
Note 6 – Debt and Credit Facilities ...........................................................................
Note 7 – Guarantees and Indemnifications ...............................................................
Note 8 – Joint Ownership of Generating and Transmission Facilities..........................
Note 9 – Asset Retirement Obligations ......................................................................
Note 10 – Property, Plant and Equipment .................................................................
Note 11 – Goodwill and Intangible Assets .................................................................
Note 12 – Investments in Unconsolidated Affiliates ..................................................
Note 13 – Related Party Transactions .......................................................................
Note 14 – Derivatives and Hedging ...........................................................................
Note 15 – Investments in Debt and Equity Securities ................................................
Note 16 – Fair Value Measurements .........................................................................
Note 17 – Variable Interest Entities ...........................................................................
Note 18 – Common Stock .........................................................................................
Note 19 – Severance ................................................................................................
Note 20 – Stock-Based Compensation......................................................................
Note 21 – Employee Benefit Plans ............................................................................
Note 22 – Income Taxes............................................................................................
Note 23 – Other Income and Expenses, Net ..............................................................
Note 24 – Subsequent Events ...................................................................................
Note 25 – Quarterly Financial Data (Unaudited)........................................................
112
121
123
127
144
152
158
159
159
162
164
165
167
168
173
179
186
190
191
191
193
214
222
222
223
66
PART II REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of
Duke Energy Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Corporation and subsidiaries (the “Company”) as of December 31, 2017 and
2016, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended
December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in
the period ended December 31, 2017, in conformity with the accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal
control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2018, expressed an unqualified opinion on the Company’s internal control
over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 2018
We have served as the Company’s auditor since 1947.
67
PART II DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
Operating Revenues
Regulated electric
Regulated natural gas
Nonregulated electric and other
Total operating revenues
Operating Expenses
Fuel used in electric generation and purchased power
Cost of natural gas
Operation, maintenance and other
Depreciation and amortization
Property and other taxes
Impairment charges
Total operating expenses
Gains on Sales of Other Assets and Other, net
Operating Income
Other Income and Expenses
Equity in earnings (losses) of unconsolidated affiliates
Other income and expenses, net
Total other income and expenses
Interest Expense
Income From Continuing Operations Before Income Taxes
Income Tax Expense From Continuing Operations
Income From Continuing Operations
(Loss) Income From Discontinued Operations, net of tax
Net Income
Less: Net Income Attributable to Noncontrolling Interests
Net Income Attributable to Duke Energy Corporation
Earnings Per Share – Basic and Diluted
Income from continuing operations attributable to Duke Energy Corporation common stockholders
Basic
Diluted
(Loss) Income from discontinued operations attributable to Duke Energy Corporation common stockholders
Basic
Diluted
Net income attributable to Duke Energy Corporation common stockholders
Basic
Diluted
Weighted average shares outstanding
Basic
Diluted
See Notes to Consolidated Financial Statements
68
Years Ended December 31,
2017
2016
2015
$21,177
1,734
654
$21,221
863
659
$ 21,379
536
456
23,565
22,743
22,371
6,350
632
5,788
3,527
1,233
282
6,625
265
6,085
3,294
1,142
18
7,355
141
5,539
3,053
1,129
106
17,812
17,429
17,323
28
5,781
119
352
471
1,986
4,266
1,196
3,070
(6)
3,064
5
27
30
5,341
5,078
(15)
324
309
1,916
3,734
1,156
2,578
(408)
2,170
18
69
290
359
1,527
3,910
1,256
2,654
177
2,831
15
$ 3,059
$ 2,152
$ 2,816
$
$
4.37
4.37
$
$
3.71
3.71
$ (0.01)
$ (0.01)
$ (0.60)
$ (0.60)
$
$
4.36
4.36
$
$
3.11
3.11
$
$
$
$
$
$
700
700
691
691
3.80
3.80
0.25
0.25
4.05
4.05
694
694
PART II DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Net Income
Other Comprehensive Income (Loss), net of tax
Foreign currency translation adjustments
Pension and OPEB adjustments
Net unrealized gains on cash flow hedges
Reclassification into earnings from cash flow hedges
Unrealized gains (losses) on available-for-sale securities
Other Comprehensive Income (Loss), net of tax
Comprehensive Income
Less: Comprehensive Income Attributable to Noncontrolling Interests
Comprehensive Income Attributable to Duke Energy Corporation
See Notes to Consolidated Financial Statements
Years Ended December 31,
2017
2016
2015
$ 3,064
$2,170
$2,831
—
3
2
8
13
26
694
(11)
17
13
2
715
(264)
(13)
—
9
(6)
(274)
3,090
5
2,885
20
2,557
4
$ 3,085
$2,865
$2,553
69
PART II DUKE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions)
ASSETS
Current Assets
Cash and cash equivalents
Receivables (net of allowance for doubtful accounts of $14 at 2017 and 2016)
Receivables of VIEs (net of allowance for doubtful accounts of $54 at 2017 and 2016)
Inventory
Regulatory assets (includes $51 at 2017 and $50 at 2016 related to VIEs)
Other
Total current assets
Property, Plant and Equipment
Cost
Accumulated depreciation and amortization
Generation facilities to be retired, net
Net property, plant and equipment
Other Noncurrent Assets
Goodwill
Regulatory assets (includes $1,091 at 2017 and $1,142 at 2016 related to VIEs)
Nuclear decommissioning trust funds
Investments in equity method unconsolidated affiliates
Other
Total other noncurrent assets
Total Assets
See Notes to Consolidated Financial Statements
December 31,
2017
2016
$
358
779
1,995
3,250
1,437
634
8,453
$
392
751
1,893
3,522
1,023
458
8,039
127,507
(41,537)
421
121,397
(39,406)
529
86,391
82,520
19,396
12,442
7,097
1,175
2,960
43,070
19,425
12,878
6,205
925
2,769
42,202
$137,914
$ 132,761
70
PART II DUKE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS – (Continued)
(in millions)
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable
Notes payable and commercial paper
Taxes accrued
Interest accrued
Current maturities of long-term debt (includes $225 at 2017 and $260 at 2016 related to VIEs)
Asset retirement obligations
Regulatory liabilities
Other
Total current liabilities
Long-Term Debt (includes $4,306 at 2017 and $3,587 at 2016 related to VIEs)
Other Noncurrent Liabilities
Deferred income taxes
Asset retirement obligations
Regulatory liabilities
Accrued pension and other post-retirement benefit costs
Investment tax credits
Other
Total other noncurrent liabilities
Commitments and Contingencies
Equity
Common stock, $0.001 par value, 2 billion shares authorized; 700 million shares outstanding at 2017 and 2016
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total Duke Energy Corporation stockholders’ equity
Noncontrolling interests
Total equity
Total Liabilities and Equity
See Notes to Consolidated Financial Statements
December 31,
2017
2016
$
3,043
2,163
551
525
3,244
689
402
1,865
12,482
49,035
6,621
9,486
15,330
1,103
539
1,581
34,660
1
38,792
3,013
(67)
41,739
(2)
41,737
$
2,994
2,487
384
503
2,319
411
409
2,044
11,551
45,576
14,155
10,200
6,881
1,111
493
1,753
34,593
1
38,741
2,384
(93)
41,033
8
41,041
$137,914
$ 132,761
71
PART II DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion (including amortization of nuclear fuel)
Equity component of AFUDC
(Gains) Losses on sales of other assets
Impairment charges
Deferred income taxes
Equity in (earnings) losses of unconsolidated affiliates
Accrued pension and other post-retirement benefit costs
Contributions to qualified pension plans
Payments for asset retirement obligations
(Increase) decrease in
Net realized and unrealized mark-to-market and hedging transactions
Receivables
Inventory
Other current assets
Increase (decrease) in
Accounts payable
Taxes accrued
Other current liabilities
Other assets
Other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
Contributions to equity method investments
Acquisitions, net of cash acquired
Return of investment capital
Purchases of available-for-sale securities
Proceeds from sales and maturities of available-for-sale securities
Proceeds from the sales of discontinued operations and other assets, net of cash divested
Change in restricted cash
Other
Net cash used in investing activities
See Notes to Consolidated Financial Statements
Years Ended December 31,
2017
2016
2015
$ 3,064
$ 2,170
$ 2,831
4,046
(237)
(33)
282
1,433
(119)
8
(19)
(571)
18
(83)
268
(388)
(204)
149
(482)
(438)
(60)
3,880
(200)
477
212
900
15
21
(155)
(608)
34
(372)
272
(220)
296
236
182
(186)
(137)
3,613
(164)
(48)
153
1,244
(69)
71
(302)
(346)
(29)
383
(237)
(65)
(6)
(38)
168
(216)
(243)
6,634
6,817
6,700
(8,052)
(414)
(13)
281
(4,071)
4,098
—
(10)
(269)
(8,450)
(7,901)
(307)
(4,778)
1
(5,153)
5,236
1,418
(4)
(45)
(11,533)
(6,766)
(263)
(1,334)
3
(4,037)
4,040
2,968
191
(79)
(5,277)
72
PART II DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)
(in millions)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the:
Issuance of long-term debt
Issuance of common stock
Payments for the redemption of long-term debt
Proceeds from the issuance of short-term debt with original maturities greater than 90 days
Payments for the redemption of short-term debt with original maturities greater than 90 days
Notes payable and commercial paper
Dividends paid
Repurchase of common shares
Other
Net cash provided by (used in) financing activities
Changes in cash and cash equivalents included in assets held for sale
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental Disclosures:
Cash paid for interest, net of amount capitalized
Cash paid for income taxes
Significant non-cash transactions:
Accrued capital expenditures
See Notes to Consolidated Financial Statements
Years Ended December 31,
2017
2016
2015
$ 6,909
—
(2,316)
319
(272)
(409)
(2,450)
—
1
$ 9,238
731
(1,923)
2,081
(2,166)
(1,362)
(2,332)
—
(16)
$ 2,955
17
(3,029)
379
(931)
1,797
(2,254)
(1,500)
(36)
1,782
4,251
(2,602)
—
(34)
392
$
358
$
474
9
383
392
$ 1,963
4
$ 1,794
229
1,032
1,000
1,099
(80)
463
383
1,607
170
771
$
$
73
PART II DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Duke Energy Corporation Stockholders’
Accumulated Other Comprehensive Loss
Common
Stock
Shares
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Foreign
Currency
Translation
Adjustments
Net
Losses on
Cash Flow
Hedges
Net Unrealized
Gains (Losses)
on Available-
for-Sale-
Securities
Total
Duke Energy
Corporation
Stockholders’
Equity
Pension and
OPEB
Adjustments
Noncontrolling
Interests
Total
Equity
707
—
—
1
(20)
—
—
—
688
—
—
12
—
—
—
700
—
—
—
—
—
—
700
$ 1
$ 39,405
$ 2,012
$ (439)
$ (59)
$
3
$ (48)
$ 40,875
$ 24 $ 40,899
—
—
— 2,816
—
—
—
(253)
—
63
— (1,500)
—
—
—
— (2,254)
—
—
—
—
—
(10)
—
—
—
—
—
—
9
—
—
—
—
—
—
(6)
—
—
—
—
—
—
(13)
2,816
(263)
15
(11)
2,831
(274)
—
—
—
—
—
63
(1,500)
(2,254)
—
(10)
—
63
— (1,500)
— (2,254)
(9)
25
(9)
15
$ 1
$ 37,968
$ 2,564
$ (692)
$ (50)
$
(3)
$ (61)
$ 39,727
$ 44 $ 39,771
—
—
—
—
—
—
— 2,152
—
—
773
—
— (2,332)
—
—
—
—
—
692
—
—
—
—
—
30
—
—
—
—
—
2
—
—
—
—
—
(11)
—
—
—
—
2,152
713
773
(2,332)
—
—
18
2
2,170
715
—
773
— (2,332)
(6)
(50)
(6)
(50)
$ 1
$ 38,741
$ 2,384
$ —
$ (20)
$
(1)
$ (72)
$ 41,033
$
8 $ 41,041
—
—
—
—
—
—
— 3,059
—
—
—
51
— (2,450)
—
—
—
20
—
—
—
—
—
—
—
10
—
—
—
—
$ 1
$ 38,792
$ 3,013
$ —
$ (10)
$
—
13
—
—
—
—
12
—
3
—
—
—
—
3,059
26
51
(2,450)
—
20
5
—
3,064
26
51
—
— (2,450)
(2)
(13)
(2)
7
$ (69)
$ 41,739
$ (2) $ 41,737
(in millions)
Balance at December 31, 2014
Net income
Other comprehensive (loss) income
Common stock issuances, including
dividend reinvestment and
employee benefits
Stock repurchase
Common stock dividends
Distributions to noncontrolling interest
in subsidiaries
Other(a)
Balance at December 31, 2015
Net income
Other comprehensive (loss) income(b)
Common stock issuances, including
dividend reinvestment and
employee benefits
Common stock dividends
Distributions to noncontrolling interest
in subsidiaries
Other(c)
Balance at December 31, 2016
Net income
Other comprehensive income (loss)
Common stock issuances, including
dividend reinvestment and
employee benefits
Common stock dividends
Distributions to noncontrolling
interests in subsidiaries
Other(d)
Balance at December 31, 2017
(a) Noncontrolling Interests amount is primarily related to the acquisitions of a majority interest in a provider of energy management systems and services for commercial customers and a solar company.
(b) Foreign Currency Translation Adjustments amount includes $620 million of cumulative adjustment realized as a result of the sale of the Latin American generation business. See Note 2 to the Consolidated Financial
Statements.
(c) Noncontrolling Interests amount is primarily related to the sale of the Latin American generation business. See Note 2 to the Consolidated Financial Statements.
(d) Retained Earnings relates to a cumulative-effect adjustment due to implementation of a new accounting standard related to stock-based compensation and the associated income taxes. See Note 1 to the Consolidated
Financial Statements for additional information. Noncontrolling Interests relates to the purchase of remaining interest in REC Solar.
See Notes to Consolidated Financial Statements
74
PART II REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of
Directors of Duke Energy Carolinas, LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Carolinas, LLC and subsidiaries (the “Company”) as of December 31, 2017 and
2016, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period
ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2017, in conformity with the accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 2018
We have served as the Company’s auditor since 1947.
75
PART II DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in millions)
Operating Revenues
Operating Expenses
Fuel used in electric generation and purchased power
Operation, maintenance and other
Depreciation and amortization
Property and other taxes
Impairment charges
Total operating expenses
Gain (Loss) on Sales of Other Assets and Other, net
Operating Income
Other Income and Expenses, net
Interest Expense
Income Before Income Taxes
Income Tax Expense
Net Income
Other Comprehensive Income, net of tax
Reclassification into earnings from cash flow hedges
Unrealized gains on available-for-sale securities
Other Comprehensive Income, net of tax
Comprehensive Income
Years Ended December 31,
2017
2016
2015
$ 7,302
$ 7,322
$ 7,229
1,822
1,961
1,090
281
—
5,154
1
2,149
139
422
1,866
652
1,797
2,106
1,075
276
1
5,255
1,881
2,066
1,051
269
1
5,268
(5)
(1)
2,062
162
424
1,800
634
1,960
160
412
1,708
627
$ 1,214
$ 1,166
$ 1,081
2
—
2
2
—
2
1
1
2
$ 1,216
$ 1,168
$ 1,083
See Notes to Consolidated Financial Statements
76
PART II DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED BALANCE SHEETS
(in millions)
ASSETS
Current Assets
Cash and cash equivalents
Receivables (net of allowance for doubtful accounts of $2 at 2017 and 2016)
Receivables of VIEs (net of allowance for doubtful accounts of $7 at 2017 and 2016)
Receivables from affiliated companies
Notes receivable from affiliated companies
Inventory
Regulatory assets
Other
Total current assets
Property, Plant and Equipment
Cost
Accumulated depreciation and amortization
Net property, plant and equipment
Other Noncurrent Assets
Regulatory assets
Nuclear decommissioning trust funds
Other
Total other noncurrent assets
Total Assets
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable
Accounts payable to affiliated companies
Notes payable to affiliated companies
Taxes accrued
Interest accrued
Current maturities of long-term debt
Asset retirement obligations
Regulatory liabilities
Other
Total current liabilities
Long-Term Debt
Long-Term Debt Payable to Affiliated Companies
Other Noncurrent Liabilities
Deferred income taxes
Asset retirement obligations
Regulatory liabilities
Accrued pension and other post-retirement benefit costs
Investment tax credits
Other
Total other noncurrent liabilities
Commitments and Contingencies
Equity
Member’s equity
Accumulated other comprehensive loss
Total equity
Total Liabilities and Equity
See Notes to Consolidated Financial Statements
77
December 31,
2017
2016
$
16
200
640
95
—
971
299
19
2,240
$
14
160
645
163
66
1,055
238
37
2,378
42,939
(15,063)
41,127
(14,365)
27,876
26,762
2,853
3,772
979
7,604
3,159
3,273
943
7,375
$ 37,720
$ 36,515
$
842
209
104
234
108
1,205
337
126
486
3,651
8,598
300
3,413
3,273
6,231
95
232
566
$
833
247
—
143
102
116
222
161
468
2,292
9,187
300
6,544
3,673
2,840
97
203
607
13,810
13,964
11,368
(7)
11,361
10,781
(9)
10,772
$ 37,720
$ 36,515
PART II DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including amortization of nuclear fuel)
Equity component of AFUDC
(Gains) Losses on sales of other assets
Impairment charges
Deferred income taxes
Accrued pension and other post-retirement benefit costs
Contributions to qualified pension plans
Payments for asset retirement obligations
(Increase) decrease in
Net realized and unrealized mark-to-market and hedging transactions
Receivables
Receivables from affiliated companies
Inventory
Other current assets
Increase (decrease) in
Accounts payable
Accounts payable to affiliated companies
Taxes accrued
Other current liabilities
Other assets
Other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
Purchases of available-for-sale securities
Proceeds from sales and maturities of available-for-sale securities
Notes receivable from affiliated companies
Other
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt
Payments for the redemption of long-term debt
Notes payable to affiliated companies
Distributions to parent
Other
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental Disclosures:
Cash paid for interest, net of amount capitalized
Cash paid for (received from) income taxes
Significant non-cash transactions:
Accrued capital expenditures
See Notes to Consolidated Financial Statements
78
Years Ended December 31,
2017
2016
2015
$ 1,214
$ 1,166
$ 1,081
1,409
(106)
(1)
—
410
(4)
—
(271)
9
(9)
68
78
7
23
(38)
86
(161)
(49)
(31)
1,382
(102)
5
1
470
4
(43)
(287)
5
(76)
(56)
215
67
(69)
18
187
63
20
6
1,361
(96)
1
1
397
15
(91)
(167)
—
42
(32)
(157)
(51)
(4)
75
(128)
127
76
(77)
2,634
2,976
2,373
(2,524)
(2,124)
2,128
66
(109)
(2,563)
569
(116)
104
(625)
(1)
(69)
2
14
16
398
193
315
$
$
(2,220)
(2,832)
2,832
97
(83)
(2,206)
1,587
(356)
—
(2,000)
—
(769)
1
13
14
393
(60)
347
$
$
(1,933)
(2,555)
2,555
(13)
(35)
(1,981)
516
(506)
—
(401)
(1)
(392)
—
13
13
389
342
239
$
$
PART II
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions)
Balance at December 31, 2014
Net income
Other comprehensive income
Distributions to parent
Balance at December 31, 2015
Net income
Other comprehensive income
Distributions to parent
Other
Balance at December 31, 2016
Net income
Other comprehensive income
Distributions to parent
Other
Balance at December 31, 2017
Accumulated Other
Comprehensive Loss
Net Losses
on Cash
Flow
Hedges
Net Losses
Available-
for-Sale
Securities
Total
Equity
$ (12)
$
(1)
$10,924
—
1
—
—
1
—
1,081
2
(401)
Member’s
Equity
$10,937
1,081
—
(401)
$11,617
$ (11)
$ — $11,606
1,166
—
(2,000)
(2)
—
2
—
—
—
—
—
—
1,166
2
(2,000)
(2)
$10,781
$ (9)
$ — $10,772
1,214
—
(625)
(2)
—
2
—
—
—
—
—
—
1,214
2
(625)
(2)
$11,368
$ (7)
$ — $11,361
See Notes to Consolidated Financial Statements
79
PART II REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of
Directors of Progress Energy, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Progress Energy, Inc. and subsidiaries (the “Company”) as of December 31, 2017 and
2016, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period
ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2017, in conformity with the accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 2018
We have served as the Company’s auditor since 1930.
80
PART II PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in millions)
Operating Revenues
Operating Expenses
Fuel used in electric generation and purchased power
Operation, maintenance and other
Depreciation and amortization
Property and other taxes
Impairment charges
Total operating expenses
Gains on Sales of Other Assets and Other, net
Operating Income
Other Income and Expenses, net
Interest Expense
Income From Continuing Operations Before Income Taxes
Income Tax Expense From Continuing Operations
Income From Continuing Operations
Income (Loss) From Discontinued Operations, net of tax
Net Income
Less: Net Income Attributable to Noncontrolling Interests
Net Income Attributable to Parent
Net Income
Other Comprehensive Income (Loss), net of tax
Pension and OPEB adjustments
Net unrealized gain on cash flow hedges
Reclassification into earnings from cash flow hedges
Unrealized gains (losses) on available-for-sale securities
Other Comprehensive Income (Loss), net of tax
Comprehensive Income
Less: Comprehensive Income Attributable to Noncontrolling Interests
Comprehensive Income Attributable to Parent
See Notes to Consolidated Financial Statements
Years Ended December 31,
2017
2016
2015
$ 9,783
$ 9,853
$10,277
3,417
2,220
1,285
503
156
7,581
26
2,228
128
824
1,532
264
1,268
—
1,268
10
3,644
2,386
1,213
487
7
7,737
25
2,141
114
689
1,566
527
1,039
2
1,041
10
4,224
2,298
1,116
492
12
8,142
25
2,160
97
670
1,587
522
1,065
(3)
1,062
11
$ 1,258
$ 1,031
$ 1,051
$ 1,268
$ 1,041
$ 1,062
4
5
—
4
13
1
—
8
1
10
(10)
—
4
(1)
(7)
1,281
10
1,051
10
1,055
11
$ 1,271
$ 1,041
$ 1,044
81
PART II PROGRESS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(in millions)
ASSETS
Current Assets
Cash and cash equivalents
Receivables (net of allowance for doubtful accounts of $4 at 2017 and $6 at 2016)
Receivables of VIEs (net of allowance for doubtful accounts of $7 at 2017 and 2016)
Receivables from affiliated companies
Notes receivable from affiliated companies
Inventory
Regulatory assets (includes $51 at 2017 and $50 at 2016 related to VIEs)
Other
Total current assets
Property, Plant and Equipment
Cost
Accumulated depreciation and amortization
Generation facilities to be retired, net
Net property, plant and equipment
Other Noncurrent Assets
Goodwill
Regulatory assets (includes $1,091 at 2017 and $1,142 at 2016 related to VIEs)
Nuclear decommissioning trust funds
Other
Total other noncurrent assets
Total Assets
See Notes to Consolidated Financial Statements
December 31,
2017
2016
$
40
123
780
31
240
1,592
741
334
3,881
$
46
114
692
106
80
1,717
401
148
3,304
47,323
(15,857)
421
44,864
(15,212)
529
31,887
30,181
3,655
6,010
3,324
931
3,655
5,722
2,932
856
13,920
13,165
$ 49,688
$ 46,650
82
PART II PROGRESS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS – (Continued)
(in millions)
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable
Accounts payable to affiliated companies
Notes payable to affiliated companies
Taxes accrued
Interest accrued
Current maturities of long-term debt (includes $53 at 2017 and $62 at 2016 related to VIEs)
Asset retirement obligations
Regulatory liabilities
Other
Total current liabilities
Long-Term Debt (includes $1,689 at 2017 and $1,741 at 2016 related to VIEs)
Long-Term Debt Payable to Affiliated Companies
Other Noncurrent Liabilities
Deferred income taxes
Asset retirement obligations
Regulatory liabilities
Accrued pension and other post-retirement benefit costs
Other
Total other noncurrent liabilities
Commitments and Contingencies
Equity
Common stock, $0.01 par value, 100 shares authorized and outstanding at 2017 and 2016
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total Progress Energy, Inc. stockholder’s equity
Noncontrolling interests
Total equity
Total Liabilities and Equity
See Notes to Consolidated Financial Statements
December 31,
2017
2016
$ 1,006
251
805
101
212
771
295
213
729
4,383
16,916
150
3,502
5,119
5,306
545
302
$ 1,003
348
729
83
201
778
189
189
745
4,265
15,590
1,173
5,246
5,286
2,395
547
341
14,774
13,815
—
9,143
4,350
(25)
—
8,094
3,764
(38)
13,468
11,820
(3)
(13)
13,465
11,807
$ 49,688
$ 46,650
83
PART II Years Ended December 31,
2017
2016
2015
$ 1,268
$ 1,041
$ 1,062
1,516
(92)
(28)
156
703
(28)
—
(248)
—
(89)
71
125
(384)
(260)
(97)
17
(166)
(301)
(98)
1,435
(76)
(34)
7
532
(24)
(43)
(270)
42
7
211
35
3
252
37
15
(42)
(248)
(36)
1,312
(54)
(31)
12
714
(5)
(83)
(156)
(6)
105
(316)
(67)
553
(193)
108
(63)
136
(167)
(112)
2,065
2,844
2,749
(3,152)
—
(1,806)
1,824
7
20
(160)
5
(86)
(3,306)
(10)
(2,143)
2,187
58
20
(80)
(6)
47
(2,698)
(1,249)
(1,174)
1,211
—
102
220
—
(34)
(3,348)
(3,233)
(3,622)
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion (including amortization of nuclear fuel)
Equity component of AFUDC
Gains on sales of other assets
Impairment charges
Deferred income taxes
Accrued pension and other post-retirement benefit costs
Contributions to qualified pension plans
Payments for asset retirement obligations
(Increase) decrease in
Net realized and unrealized mark-to-market and hedging transactions
Receivables
Receivables from affiliated companies
Inventory
Other current assets
Increase (decrease) in
Accounts payable
Accounts payable to affiliated companies
Taxes accrued
Other current liabilities
Other assets
Other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
Asset Acquisitions
Purchases of available-for-sale securities
Proceeds from sales and maturities of available-for-sale securities
Proceeds from insurance
Proceeds from the sale of nuclear fuel
Notes receivable from affiliated companies
Change in restricted cash
Other
Net cash used in investing activities
See Notes to Consolidated Financial Statements
84
PART II PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)
(in millions)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt
Payments for the redemption of long-term debt
Notes payable to affiliated companies
Capital contribution from parent
Dividends to parent
Other
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental Disclosures:
Cash paid for interest, net of amount capitalized
Cash (received from) paid for income taxes
Significant non-cash transactions:
Accrued capital expenditures
Equitization of certain notes payable to affiliates
Dividend to parent related to a legal entity restructuring
See Notes to Consolidated Financial Statements
Years Ended December 31,
2017
2016
2015
$ 2,118
(813)
100
—
(124)
(4)
1,277
$
$
(6)
46
40
773
(146)
391
1,047
547
$ 2,375
(327)
444
—
(2,098)
(3)
391
$ 1,186
(1,553)
623
625
—
(6)
875
$
$
2
44
46
673
(187)
317
—
—
$
$
2
42
44
649
(426)
329
—
—
85
PART II PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions)
Balance at December 31, 2014
Net income
Other comprehensive income (loss)
Distributions to noncontrolling interests
Capital contribution from parent
Other
Balance at December 31, 2015
Net income
Other comprehensive income
Distributions to noncontrolling interests
Dividends to parent
Other
Accumulated Other Comprehensive Loss
Additional
Paid-in
Capital
Net Losses on
Cash Flow
Hedges
Retained
Earnings
Net Unrealized
Gains on
Available-for-
Sale Securities
Pension and
OPEB
Adjustments
Total Progress
Energy, Inc.
Stockholder’s
Equity
Noncontrolling
Interests
Total
Equity
$ 7,467
$3,782
$ (35)
$
1
$ (7)
$ 11,208
$
(32) $ 11,176
—
—
—
625
—
1,051
—
—
—
(2)
—
4
—
—
—
—
(1)
—
—
—
—
(10)
—
—
—
1,051
(7)
—
625
(2)
11
—
(4)
—
3
1,062
(7)
(4)
625
1
$ 8,092
$4,831
$ (31)
$ —
$ (17)
$ 12,875
$
(22) $ 12,853
Balance at December 31, 2016
$ 8,094
$3,764
$ (23)
$
Net income
Other comprehensive income
Dividends to parent(a)
Equitization of certain notes payable to affiliates
Other
—
—
—
1,047
2
1,258
—
(672)
—
—
—
5
—
—
—
—
—
—
—
2
1,031
—
—
(2,098)
—
—
8
—
—
—
—
1
—
—
—
1
—
4
—
—
—
—
1
—
—
—
1,031
10
—
(2,098)
2
10
—
(1)
—
—
1,041
10
(1)
(2,098)
2
$ (16)
$ 11,820
$
(13) $ 11,807
—
4
—
—
—
1,258
13
(672)
1,047
2
10
—
—
—
—
1,268
13
(672)
1,047
2
Balance at December 31, 2017
$ 9,143
$4,350
$ (18)
$
5
$(12)
$ 13,468
$
(3) $ 13,465
(a)
Includes a $547 million non-cash dividend related to a legal entity restructuring.
See Notes to Consolidated Financial Statements
86
PART II REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of
Directors of Duke Energy Progress, LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Progress, LLC and subsidiaries (the “Company”) as of December 31, 2017
and 2016, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period
ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2017, in conformity with the accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 2018
We have served as the Company’s auditor since 1930.
87
PART II DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in millions)
Operating Revenues
Operating Expenses
Fuel used in electric generation and purchased power
Operation, maintenance and other
Depreciation and amortization
Property and other taxes
Impairment charges
Total operating expenses
Gains on Sales of Other Assets and Other, net
Operating Income
Other Income and Expenses, net
Interest Expense
Income Before Income Taxes
Income Tax Expense
Net Income and Comprehensive Income
See Notes to Consolidated Financial Statements
Years Ended December 31,
2017
2016
2015
$5,129
$5,277
$ 5,290
1,609
1,389
725
156
19
3,898
4
1,235
65
293
1,007
292
1,830
1,504
703
156
1
4,194
3
1,086
71
257
900
301
2,029
1,452
643
140
5
4,269
3
1,024
71
235
860
294
$ 715
$ 599
$ 566
88
PART II DUKE ENERGY PROGRESS, LLC
CONSOLIDATED BALANCE SHEETS
(in millions)
ASSETS
Current Assets
Cash and cash equivalents
Receivables (net of allowance for doubtful accounts of $1 at 2017 and $4 at 2016)
Receivables of VIEs (net of allowance for doubtful accounts of $5 at 2017 and 2016)
Receivables from affiliated companies
Notes receivable from affiliated companies
Inventory
Regulatory assets
Other
Total current assets
Property, Plant and Equipment
Cost
Accumulated depreciation and amortization
Generation facilities to be retired, net
Net property, plant and equipment
Other Noncurrent Assets
Regulatory assets
Nuclear decommissioning trust funds
Other
Total other noncurrent assets
Total Assets
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable
Accounts payable to affiliated companies
Notes payable to affiliated companies
Taxes accrued
Interest accrued
Current maturities of long-term debt
Asset retirement obligations
Regulatory liabilities
Other
Total current liabilities
Long-Term Debt
Long-Term Debt Payable to Affiliated Companies
Other Noncurrent Liabilities
Deferred income taxes
Asset retirement obligations
Regulatory liabilities
Accrued pension and other post-retirement benefit costs
Investment tax credits
Other
Total other noncurrent liabilities
Commitments and Contingencies
Equity
Member's Equity
Total Liabilities and Equity
See Notes to Consolidated Financial Statements
89
December 31,
2017
2016
$
20
56
459
3
—
1,017
352
97
2,004
$
11
51
404
5
165
1,076
188
57
1,957
29,583
(10,903)
421
28,419
(10,561)
529
19,101
18,387
3,507
2,588
599
6,694
3,243
2,217
525
5,985
$ 27,799
$ 26,329
$
402
179
240
64
102
3
295
139
376
1,800
7,204
150
1,883
4,378
3,999
248
143
45
$
589
227
—
104
102
452
189
158
365
2,186
6,409
150
3,323
4,508
1,946
252
146
51
10,696
10,226
7,949
7,358
$ 27,799
$ 26,329
PART II DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion (including amortization of nuclear fuel)
Equity component of AFUDC
Gains on sales of other assets
Impairment charges
Deferred income taxes
Accrued pension and other post-retirement benefit costs
Contributions to qualified pension plans
Payments for asset retirement obligations
(Increase) decrease in
Net realized and unrealized mark-to-market and hedging transactions
Receivables
Receivables from affiliated companies
Inventory
Other current assets
Increase (decrease) in
Accounts payable
Accounts payable to affiliated companies
Taxes accrued
Other current liabilities
Other assets
Other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
Asset acquisition
Purchases of available-for-sale securities
Proceeds from sales and maturities of available-for-sale securities
Proceeds from insurance
Notes receivable from affiliated companies
Other
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt
Payments for the redemption of long-term debt
Notes payable to affiliated companies
Capital contribution from parent
Distributions to parent
Other
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental Disclosures:
Cash paid for interest, net of amount capitalized
Cash paid for (received from) income taxes
Significant non-cash transactions:
Accrued capital expenditures
See Notes to Consolidated Financial Statements
90
Years Ended December 31,
2017
2016
2015
$
715
$
599
$
566
936
(47)
(5)
19
384
(20)
—
(192)
(4)
(58)
2
59
(75)
(230)
(48)
(39)
(131)
(53)
(18)
907
(50)
(6)
1
384
(32)
(24)
(212)
4
(17)
11
12
84
181
37
90
114
(163)
12
821
(47)
(7)
5
354
(14)
(42)
(109)
(3)
43
(6)
(50)
185
(65)
70
(34)
76
(83)
(66)
1,195
1,932
1,594
(1,715)
—
(1,249)
1,207
4
165
(55)
(1,733)
—
(1,658)
1,615
—
(165)
26
(1,669)
(1,249)
(727)
672
—
237
(30)
(1,643)
(1,915)
(2,766)
812
(470)
240
—
(124)
(1)
457
9
11
20
291
59
191
$
$
505
(15)
(209)
—
(300)
(2)
(21)
(4)
15
11
248
(287)
$
$
1,186
(991)
359
626
—
(2)
1,178
6
9
15
218
(197)
$
$
147
143
PART II DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions)
Balance at December 31, 2014
Net income
Transfer to Member’s Equity
Capital contribution from parent
Balance at December 31, 2015
Net income
Distribution to parent
Balance at December 31, 2016
Net income
Distribution to parent
Balance at December 31, 2017
See Notes to Consolidated Financial Statements
Common
Stock
Retained
Earnings
Member’s
Equity
$ 2,159
$ 3,708
$ —
—
(2,159)
—
355
(4,063)
—
211
6,222
626
Total
Equity
$5,867
566
—
626
$ —
$ —
$ 7,059
$7,059
—
—
—
—
599
(300)
599
(300)
$ —
$ —
$ 7,358
$7,358
—
—
—
—
715
(124)
715
(124)
$ —
$ —
$ 7,949
$7,949
91
PART II REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of
Directors of Duke Energy Florida, LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Florida, LLC and subsidiaries (the “Company”) as of December 31, 2017
and 2016, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period
ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2017, in conformity with the accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 2018
We have served as the Company’s auditor since 2001.
92
PART II DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in millions)
Operating Revenues
Operating Expenses
Fuel used in electric generation and purchased power
Operation, maintenance and other
Depreciation and amortization
Property and other taxes
Impairment charges
Total operating expenses
Gains on Sales of Other Assets and Other, net
Operating Income
Other Income and Expenses, net
Interest Expense
Income Before Income Taxes
Income Tax Expense
Net Income
Other Comprehensive Income, net of tax
Unrealized gains on available-for-sale securities
Other Comprehensive Income, net of tax
Comprehensive Income
Years Ended December 31,
2017
2016
2015
$ 4,646
$ 4,568
$ 4,977
1,808
818
560
347
138
3,671
1
976
61
279
758
46
1,814
865
509
333
6
3,527
—
1,041
44
212
873
322
2,195
835
473
352
7
3,862
—
1,115
24
198
941
342
$ 712
$
551
$
599
3
3
1
1
—
—
$ 715
$
552
$
599
See Notes to Consolidated Financial Statements
93
PART II DUKE ENERGY FLORIDA, LLC
CONSOLIDATED BALANCE SHEETS
(in millions)
ASSETS
Current Assets
Cash and cash equivalents
Receivables (net of allowance for doubtful accounts of $3 at 2017 and $2 at 2016)
Receivables of VIEs (net of allowance for doubtful accounts of $2 at 2017 and 2016)
Receivables from affiliated companies
Notes receivable from affiliated companies
Inventory
Regulatory assets (includes $51 at 2017 and $50 at 2016 related to VIEs)
Other (includes $40 at 2017 and $53 at 2016 related to VIEs)
Total current assets
Property, Plant and Equipment
Cost
Accumulated depreciation and amortization
Net property, plant and equipment
Other Noncurrent Assets
Regulatory assets (includes $1,091 at 2017 and $1,142 at 2016 related to VIEs)
Nuclear decommissioning trust funds
Other
Total other noncurrent assets
Total Assets
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable
Accounts payable to affiliated companies
Notes payable to affiliated companies
Taxes accrued
Interest accrued
Current maturities of long-term debt (includes $53 at 2017 and $62 at 2016 related to VIEs)
Regulatory liabilities
Other
Total current liabilities
Long-Term Debt (includes $1,389 at 2017 and $1,442 at 2016 related to VIEs)
Other Noncurrent Liabilities
Deferred income taxes
Asset retirement obligations
Regulatory liabilities
Accrued pension and other post-retirement benefit costs
Other
Total other noncurrent liabilities
Commitments and Contingencies
Equity
Member’s equity
Accumulated other comprehensive income
Total equity
Total Liabilities and Equity
See Notes to Consolidated Financial Statements
94
December 31,
2017
2016
$
13
65
321
2
313
574
389
86
$
16
61
288
5
—
641
213
125
1,763
1,349
17,730
(4,947)
16,434
(4,644)
12,783
11,790
2,503
736
284
3,523
2,480
715
278
3,473
$ 18,069
$ 16,612
$
602
74
—
34
56
768
74
334
1,942
6,327
1,761
742
1,307
264
108
4,182
5,614
4
5,618
$
413
125
297
33
49
326
31
352
1,626
5,799
2,694
778
448
262
105
4,287
4,899
1
4,900
$ 18,069
$ 16,612
PART II DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion
Equity component of AFUDC
Gains on sales of other assets
Impairment charges
Deferred income taxes
Accrued pension and other post-retirement benefit costs
Contributions to qualified pension plans
Payments for asset retirement obligations
(Increase) decrease in
Net realized and unrealized mark-to-market and hedging transactions
Receivables
Receivables from affiliated companies
Inventory
Other current assets
Increase (decrease) in
Accounts payable
Accounts payable to affiliated companies
Taxes accrued
Other current liabilities
Other assets
Other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
Purchases of available-for-sale securities
Proceeds from sales and maturities of available-for-sale securities
Proceeds from insurance
Proceeds from the sale of nuclear fuel
Notes receivable from affiliated companies
Change in restricted cash
Other
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt
Payments for the redemption of long-term debt
Notes payable to affiliated companies
Dividends to parent
Distribution to parent
Other
Net cash provided by (used in) financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental Disclosures:
Cash paid for interest, net of amount capitalized
Cash (received from) paid for income taxes
Significant non-cash transactions:
Accrued capital expenditures
See Notes to Consolidated Financial Statements
95
Years Ended December 31,
2017
2016
2015
$
712
$
551
$
599
570
(45)
(1)
138
245
(13)
—
(56)
5
(38)
—
66
(125)
(32)
(51)
1
(37)
(229)
(82)
1,028
(1,437)
(557)
617
4
20
(313)
—
(31)
(1,697)
1,306
(342)
(297)
—
—
(1)
666
(3)
16
13
274
(197)
199
$
$
516
(26)
—
6
224
2
(20)
(58)
38
23
21
23
(133)
71
9
(117)
(149)
(84)
(53)
844
(1,583)
(485)
572
58
20
—
(6)
21
(1,403)
1,870
(12)
(516)
—
(775)
—
567
8
8
16
208
216
170
$
$
480
(7)
—
7
348
5
(40)
(47)
(3)
61
(44)
(17)
116
(127)
46
67
57
(84)
(44)
1,373
(1,029)
(447)
538
—
102
—
—
(3)
(839)
—
(562)
729
(350)
(350)
(1)
(534)
—
8
8
205
(229)
186
$
$
PART II DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions)
Balance at December 31, 2014
Net income
Transfer to Member’s Equity
Dividends to parent
Distribution to parent
Balance at December 31, 2015
Net income
Other comprehensive income
Distribution to parent
Other
Balance at December 31, 2016
Net income
Other comprehensive income
Other
Balance at December 31, 2017
Accumulated Other
Comprehensive
Income
Net Unrealized
Gains on
Available-for-
Sale Securities
Total
Equity
$
— $ 5,222
—
—
—
—
599
—
(350)
(350)
Common
Stock
Retained
Earnings
Member’s
Equity
$
1,762
$ 3,460
$
—
(1,762)
—
—
351
(3,461)
(350)
—
—
248
5,223
—
(350)
$ — $ — $
5,121
$
— $ 5,121
—
—
—
—
—
—
—
—
551
—
(775)
2
$ — $ — $
4,899
—
—
—
—
—
—
712
—
3
$ — $ — $
5,614
—
1
—
—
551
1
(775)
2
1
$ 4,900
—
3
—
712
3
3
4
$ 5,618
$
$
See Notes to Consolidated Financial Statements
96
PART II REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of
Directors of Duke Energy Ohio, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Ohio, Inc. and subsidiaries (the “Company”) as of December 31, 2017 and
2016, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period
ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2017, in conformity with the accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 2018
We have served as the Company’s auditor since 2002.
97
PART II DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in millions)
Operating Revenues
Regulated electric
Nonregulated electric and other
Regulated natural gas
Total operating revenues
Operating Expenses
Fuel used in electric generation and purchased power – regulated
Fuel used in electric generation and purchased power – nonregulated
Cost of natural gas
Operation, maintenance and other
Depreciation and amortization
Property and other taxes
Impairment charges
Total operating expenses
Gains on Sales of Other Assets and Other, net
Operating Income
Other Income and Expenses, net
Interest Expense
Income From Continuing Operations Before Income Taxes
Income Tax Expense From Continuing Operations
Income From Continuing Operations
(Loss) Income From Discontinued Operations, net of tax
Net Income and Comprehensive Income
Years Ended December 31,
2017
2016
2015
$1,373
42
508
$1,410
31
503
$1,331
33
541
1,923
1,944
1,905
369
58
107
524
261
278
1
442
51
103
512
233
258
—
446
47
141
495
227
254
—
1,598
1,599
1,610
1
326
17
91
252
59
193
(1)
2
347
9
86
270
78
192
36
8
303
6
79
230
81
149
23
$ 192
$ 228
$ 172
See Notes to Consolidated Financial Statements
98
PART II DUKE ENERGY OHIO, INC.
CONSOLIDATED BALANCE SHEETS
(in millions)
ASSETS
Current Assets
Cash and cash equivalents
Receivables (net of allowance for doubtful accounts of $3 at 2017 and $2 at 2016)
Receivables from affiliated companies
Notes receivable from affiliated companies
Inventory
Regulatory assets
Other
Total current assets
Property, Plant and Equipment
Cost
Accumulated depreciation and amortization
Net property, plant and equipment
Other Noncurrent Assets
Goodwill
Regulatory assets
Other
Total other noncurrent assets
Total Assets
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable
Accounts payable to affiliated companies
Notes payable to affiliated companies
Taxes accrued
Interest accrued
Current maturities of long-term debt
Asset retirement obligations
Regulatory liabilities
Other
Total current liabilities
Long-Term Debt
Long-Term Debt Payable to Affiliated Companies
Other Noncurrent Liabilities
Deferred income taxes
Asset retirement obligations
Regulatory liabilities
Accrued pension and other post-retirement benefit costs
Other
Total other noncurrent liabilities
Commitments and Contingencies
Equity
Common stock, $8.50 par value, 120 million shares authorized; 90 million shares outstanding at 2017 and 2016
Additional paid-in capital
Accumulated deficit
Total equity
Total Liabilities and Equity
See Notes to Consolidated Financial Statements
99
December 31,
2017
2016
$
12
68
133
14
133
49
39
448
$
13
71
129
94
137
37
37
518
8,732
(2,691)
6,041
8,126
(2,579)
5,547
920
445
21
920
520
23
1,386
1,463
$ 7,875
$ 7,528
$
313
62
29
190
21
3
3
36
71
728
2,039
25
781
81
891
59
108
1,920
$
282
63
16
178
19
1
—
21
91
671
1,858
25
1,443
77
236
56
166
1,978
762
2,670
(269)
3,163
762
2,695
(461)
2,996
$ 7,875
$ 7,528
PART II DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion
Equity component of AFUDC
Gains on sales of other assets
Impairment charges
Deferred income taxes
Accrued pension and other post-retirement benefit costs
Contributions to qualified pension plans
Payments for asset retirement obligations
(Increase) decrease in
Net realized and unrealized mark-to-market and hedging transactions
Receivables
Receivables from affiliated companies
Inventory
Other current assets
Increase (decrease) in
Accounts payable
Accounts payable to affiliated companies
Taxes accrued
Other current liabilities
Other assets
Other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
Notes receivable from affiliated companies
Other
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt
Payments for the redemption of long-term debt
Notes payable to affiliated companies
Dividends to parent
Other
Net cash provided by (used in) financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental Disclosures:
Cash paid for interest, net of amount capitalized
Cash (received from) paid for income taxes
Significant non-cash transactions:
Accrued capital expenditures
Distribution of membership interest of Duke Energy SAM, LLC to parent
See Notes to Consolidated Financial Statements
100
Years Ended December 31,
2017
2016
2015
$ 192
$ 228
$ 172
265
(11)
(1)
1
90
2
(4)
(7)
—
2
(4)
6
(22)
12
(1)
11
(19)
(28)
(5)
479
(686)
80
(41)
(647)
182
(2)
13
(25)
(1)
167
(1)
13
237
(6)
(2)
—
55
6
(5)
(5)
(2)
(4)
(36)
(32)
79
19
10
3
(54)
(35)
(31)
425
(476)
(94)
(30)
(600)
341
(53)
(87)
(25)
(2)
174
(1)
14
$ 12
$ 13
$ 85
(8)
82
—
$ 81
(46)
83
—
230
(3)
(8)
40
206
9
(8)
(4)
(10)
23
23
—
—
(1)
(21)
(21)
88
25
(73)
667
(399)
145
(15)
(269)
—
(157)
(95)
(150)
(2)
(404)
(6)
20
14
76
410
20
1,912
$
$
PART II DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions)
Balance at December 31, 2014
Net income
Dividends to parent
Distribution of membership interest of Duke Energy SAM, LLC to parent
Balance at December 31, 2015
Net income
Contribution from parent
Dividends to parent
Balance at December 31, 2016
Net income
Dividends to parent
Balance at December 31, 2017
See Notes to Consolidated Financial Statements
Common
Stock
$762
Additional
Paid-in Capital
Accumulated
Deficit
Total
Equity
$ 4,782
$(870)
$ 4,674
—
—
—
$762
—
—
—
$762
—
—
$762
—
(150)
(1,912)
172
—
—
172
(150)
(1,912)
$ 2,720
$(698)
$ 2,784
—
—
(25)
228
9
—
228
9
(25)
$ 2,695
$(461)
$ 2,996
—
(25)
192
—
192
(25)
$ 2,670
$(269)
$ 3,163
101
PART II REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of
Directors of Duke Energy Indiana, LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Indiana, LLC and subsidiaries (the “Company”) as of December 31, 2017
and 2016, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the
period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2017, in conformity with the accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 2018
We have served as the Company’s auditor since 2002.
102
PART II DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in millions)
Operating Revenues
Operating Expenses
Fuel used in electric generation and purchased power
Operation, maintenance and other
Depreciation and amortization
Property and other taxes
Impairment charges
Total operating expenses
Gains on Sales of Other Assets and Other, net
Operating Income
Other Income and Expenses, net
Interest Expense
Income Before Income Taxes
Income Tax Expense
Net Income
Other Comprehensive Loss, net of tax
Reclassification into earnings from cash flow hedges
Comprehensive Income
See Notes to Consolidated Financial Statements
Years Ended December 31,
2017
2016
2015
$ 3,047
$ 2,958
$ 2,890
966
733
458
76
18
909
723
496
58
8
982
682
434
61
88
2,251
2,194
2,247
—
796
37
178
655
301
1
765
22
181
606
225
1
644
11
176
479
163
$ 354
$ 381
$ 316
—
(1)
(2)
$ 354
$ 380
$ 314
103
PART II DUKE ENERGY INDIANA, LLC
CONSOLIDATED BALANCE SHEETS
(in millions)
ASSETS
Current Assets
Cash and cash equivalents
Receivables (net of allowance for doubtful accounts of $2 at 2017 and $1 at 2016)
Receivables from affiliated companies
Notes receivable from affiliated companies
Inventory
Regulatory assets
Other
Total current assets
Property, Plant and Equipment
Cost
Accumulated depreciation and amortization
Net property, plant and equipment
Other Noncurrent Assets
Regulatory assets
Other
Total other noncurrent assets
Total Assets
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable
Accounts payable to affiliated companies
Notes payable to affiliated companies
Taxes accrued
Interest accrued
Current maturities of long-term debt
Asset retirement obligations
Regulatory liabilities
Other
Total current liabilities
Long-Term Debt
Long-Term Debt Payable to Affiliated Companies
Other Noncurrent Liabilities
Deferred income taxes
Asset retirement obligations
Regulatory liabilities
Accrued pension and other post-retirement benefit costs
Investment tax credits
Other
Total other noncurrent liabilities
Commitments and Contingencies
Equity
Member’s Equity
Total Liabilities and Equity
See Notes to Consolidated Financial Statements
104
December 31,
2017
2016
$
9
57
125
—
450
165
30
836
14,948
(4,662)
10,286
978
189
1,167
$
17
105
114
86
504
149
45
1,020
14,241
(4,317)
9,924
1,073
147
1,220
$ 12,289
$ 12,164
$
196
78
161
95
57
3
54
24
104
772
3,630
150
925
727
1,723
76
147
18
3,616
$
263
74
—
31
61
3
—
40
93
565
3,633
150
1,900
866
748
71
137
27
3,749
4,121
4,067
$ 12,289
$ 12,164
PART II DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Equity component of AFUDC
Gains on sales of other assets
Impairment charges
Deferred income taxes
Accrued pension and other post-retirement benefit costs
Contributions to qualified pension plans
Payments for asset retirement obligations
(Increase) decrease in
Receivables
Receivables from affiliated companies
Inventory
Other current assets
Increase (decrease) in
Accounts payable
Accounts payable to affiliated companies
Taxes accrued
Other current liabilities
Other assets
Other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
Purchases of available-for-sale securities
Proceeds from sales and maturities of available-for-sale securities
Proceeds from the sales of other assets
Notes receivable from affiliated companies
Other
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt
Payments for the redemption of long-term debt
Notes payable to affiliated companies
Dividends to parent
Distributions to parent
Other
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental Disclosures:
Cash paid for interest, net of amount capitalized
Cash paid for (received from) income taxes
Significant non-cash transactions:
Accrued capital expenditures
See Notes to Consolidated Financial Statements
105
Years Ended December 31,
2017
2016
2015
$
354
$
381
$
316
462
(28)
—
18
152
2
—
(45)
59
(11)
54
28
(86)
4
64
(10)
(28)
(20)
499
(16)
—
8
213
8
(9)
(46)
(2)
(43)
66
(67)
8
(9)
(4)
(81)
(27)
(8)
439
(11)
(1)
88
262
13
(19)
(19)
(7)
44
(21)
90
33
25
35
26
(82)
(35)
969
871
1,176
(840)
(20)
7
—
86
(65)
(832)
—
(5)
161
—
(300)
(1)
(145)
(8)
17
9
179
117
125
$
$
(755)
(14)
11
—
(3)
32
(729)
494
(478)
—
—
(149)
(1)
(134)
8
9
17
171
(7)
99
$
$
(690)
(9)
11
17
(83)
(17)
(771)
—
(5)
(71)
(326)
—
—
(402)
3
6
9
175
(253)
64
$
$
PART II
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions)
Balance at December 31, 2014
Net income
Other comprehensive loss
Dividends to parent
Balance at December 31, 2015
Net income
Other comprehensive loss
Distributions to parent
Transfer to Member’s Equity
Balance at December 31, 2016
Net income
Distributions to parent
Balance at December 31, 2017
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
$ 1
$ 1,384
$ 2,460
—
—
—
—
—
—
316
—
(326)
Accumulated Other
Comprehensive Income
Member’s
Equity
$ —
—
—
—
Net Gains on
Cash Flow
Hedges
Total
Equity
$ 3
$ 3,848
—
(2)
—
316
(2)
(326)
$ 1
$ 1,384
$ 2,450
$ —
$ 1
$ 3,836
—
—
—
(1)
$ —
—
—
$ —
—
—
—
(1,384)
—
—
—
(2,450)
381
—
(149)
3,835
—
(1)
—
—
381
(1)
(149)
—
$ —
$ —
$ 4,067
$ —
$ 4,067
—
—
—
—
354
(300)
—
—
354
(300)
$ —
$ —
$ 4,121
$ —
$4,121
See Notes to Consolidated Financial Statements
106
PART II REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of
Directors of Piedmont Natural Gas Company, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Piedmont Natural Gas Company, Inc. and subsidiaries (the “Company”) as of
December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the
three years in the periods ended December 31, 2017, October 31, 2016, October 31, 2015 and for the 2 months ended December 31, 2016 and the related notes
(collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the periods ended December 31,
2017, October 31, 2016, October 31, 2015 and for the 2 months ended December 31, 2016, in conformity with the accounting principles generally accepted in
the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Emphasis of Matter
As discussed in Note 1 to the financial statements, effective for fiscal year 2016, the Company changed its fiscal year end from October 31 to December 31.
This resulted in a 2-month transition period beginning November 1, 2016 through December 31, 2016.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 2018
We have served as the Company’s auditor since 1951.
107
PART II PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Year Ended
Two Months Ended
Years Ended October 31,
December 31, 2017
December 31, 2016
2016
2015
$ 1,319
9
1,328
524
315
148
48
7
1,042
286
(6)
—
—
(6)
79
201
62
139
—
—
—
$
$
$ 320
2
322
1,139
10
1,149
144
52
23
7
—
226
96
2
—
—
2
12
86
32
$ 54
$
—
—
—
391
353
137
43
—
924
225
29
133
(1)
161
69
317
124
193
(3)
4
1
$ 1,372
11
1,383
644
305
129
42
—
1,120
263
34
—
(1)
33
69
227
90
137
(2)
1
(1)
$
$
139
$ 54
$
194
$
136
(in millions)
Operating Revenues
Regulated natural gas
Nonregulated natural gas and other
Total operating revenues
Operating Expenses
Cost of natural gas
Operation, maintenance and other
Depreciation and amortization
Property and other taxes
Impairment charges
Total operating expenses
Operating Income
Equity in (losses) earnings of unconsolidated affiliates
Gain on sale of unconsolidated affiliates
Other income and expense, net
Total other income and expenses
Interest Expense
Income Before Income Taxes
Income Tax Expense
Net Income
Other Comprehensive Income (Loss), net of tax
Unrealized loss from hedging activities of equity method investments
Reclassification into earnings from hedging activities of equity method investments
Other Comprehensive Income (Loss), net of tax
Comprehensive Income
See Notes to Consolidated Financial Statements
108
PART II PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in millions)
ASSETS
Current Assets
Cash and cash equivalents
Receivables (net of allowance for doubtful accounts of $2 at 2017 and $3 at 2016)
Receivables from affiliated companies
Inventory
Regulatory assets
Other
Total current assets
Property, Plant and Equipment
Cost
Accumulated depreciation and amortization
Net property, plant and equipment
Other Noncurrent Assets
Goodwill
Regulatory assets
Investments in equity method unconsolidated affiliates
Other
Total other noncurrent assets
Total Assets
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable
Accounts payable to affiliated companies
Notes payable and commercial paper
Notes payable to affiliated companies
Taxes accrued
Interest accrued
Current maturities of long-term debt
Regulatory liabilities
Other
Total current liabilities
Long-Term Debt
Other Noncurrent Liabilities
Deferred income taxes
Asset retirement obligations
Regulatory liabilities
Accrued pension and other post-retirement benefit costs
Other
Total other noncurrent liabilities
Commitments and Contingencies
Equity
Common stock, no par value: 100 shares authorized and outstanding at 2017 and 2016
Retained earnings
Total equity
Total Liabilities and Equity
See Notes to Consolidated Financial Statements
109
December 31,
2017
2016
$
19
275
7
66
95
52
514
$
25
232
7
66
124
21
475
6,725
(1,479)
5,246
6,174
(1,360)
4,814
49
283
61
65
458
49
373
212
21
655
$ 6,218
$
5,944
$
125
13
—
364
19
31
250
3
69
874
$
155
8
330
—
67
33
35
—
102
730
1,787
1,786
564
15
1,141
5
170
1,895
931
14
608
14
189
1,756
860
802
860
812
1,662
1,672
$ 6,218
$
5,944
PART II PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
December 31, 2017
December 31, 2016
2016
2015
Year Ended
Two Months Ended
Years Ended October 31,
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
139
$ 54
$ 193
$ 137
Depreciation and amortization
Gains on sales of other assets
Impairment charges
Deferred income taxes
Equity in losses (earnings) from unconsolidated affiliates
Accrued pension and other post-retirement benefit costs
Contributions to qualified pension plans
Payments for asset retirement obligations
(Increase) decrease in
Receivables
Receivables from affiliated companies
Inventory
Other current assets
Increase (decrease) in
Accounts payable
Accounts payable to affiliated companies
Taxes accrued
Other current liabilities
Other assets
Other liabilities
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
Contributions to equity method investments
Proceeds from the sales of other assets
Other
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the:
Issuance of long-term debt
Issuance of common stock
Payments for the redemption of long-term debt
Notes payable and commercial paper
Notes payable to affiliated companies
Dividends to parent
Dividends paid
Other
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental Disclosures:
Cash paid for interest, net of amount capitalized
Cash (received from) paid for income taxes
Significant non-cash transactions:
Accrued capital expenditures
Transfer of ownership interest of certain equity method investees to parent
151
—
7
154
6
23
(11)
—
(40)
—
—
(20)
(13)
5
(48)
(9)
7
(2)
349
(585)
(12)
—
(6)
(603)
250
—
(35)
(330)
364
—
—
(1)
248
(6)
25
19
78
(12)
34
149
$
$
See Notes to Consolidated Financial Statements
110
25
—
—
26
(2)
5
(10)
(1)
(157)
—
(11)
8
35
4
(2)
2
(7)
5
(26)
(113)
(12)
—
1
(124)
—
—
—
185
—
(27)
—
—
158
8
17
$
$
$ 25
$ 11
—
48
—
148
(133)
—
74
(29)
3
(14)
(6)
12
(7)
14
(98)
6
6
38
28
(107)
180
308
(522)
(47)
175
21
(373)
295
122
(40)
(195)
—
—
(114)
—
68
3
14
17
81
(25)
63
—
140
—
—
73
(34)
8
(13)
(6)
3
—
16
46
(5)
—
4
(21)
(5)
29
372
(444)
(30)
—
(5)
(479)
148
81
—
(15)
—
—
(103)
—
111
4
10
14
72
3
59
—
$
$
PART II PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions)
Balance at October 31, 2014
Net income
Other comprehensive loss
Common stock issuances, including dividend reinvestment and employee benefits
Expenses from issuance of common stock
Common stock dividends
Accumulated Other
Comprehensive
Income (Loss)
Net Loss on
Hedging Activities
of Unconsolidated
Affiliates
Total
Equity
Common
Stock
Retained
Earnings
$ 637
$
672
$ — $ 1,309
—
—
85
(1)
—
137
—
—
—
(103)
—
(1)
—
—
—
137
(1)
85
(1)
(103)
Balance at October 31, 2015
$ 721
$
706
$ (1)
$ 1,426
Net income
Other comprehensive income
Common stock issuances, including dividend reinvestment and employee benefits
Common stock dividends
Balance at October 31, 2016
Net income
Dividends to parent
Balance at December 31, 2016
Net income
Transfer of ownership interest of certain equity method investees to parent
Balance at December 31, 2017
See Notes to Consolidated Financial Statements
—
—
139
—
193
—
—
(114)
—
1
—
—
193
1
139
(114)
$ 860
$
785
$ — $ 1,645
—
—
54
(27)
$ 860
$
812
—
—
139
(149)
$ 860
$
802
—
—
54
(27)
$ — $ 1,672
—
—
139
(149)
$ — $ 1,662
111
PART II DUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC •
DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.
Combined Notes to Consolidated Financial Statements
For the Years Ended December 31, 2017, 2016 and 2015
Index to Combined Notes to Consolidated Financial Statements
The notes to the consolidated financial statements are a combined presentation. The following table indicates the registrants to which the notes apply.
Applicable Notes
Registrant
Duke Energy Corporation
Duke Energy Carolinas, LLC
Progress Energy, Inc.
Duke Energy Progress, LLC
Duke Energy Florida, LLC
Duke Energy Ohio, Inc.
Duke Energy Indiana, LLC
Piedmont Natural Gas Company, Inc.
7
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•
•
•
•
•
•
•
•
•
Tables within the notes may not sum across due to (i) Progress Energy’s consolidation of Duke Energy Progress, Duke Energy Florida and other subsidiaries that
are not registrants and (ii) subsidiaries that are not registrants but included in the consolidated Duke Energy balances.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND BASIS OF CONSOLIDATION
Duke Energy Corporation (collectively with its subsidiaries, Duke Energy)
is an energy company headquartered in Charlotte, North Carolina, subject to
regulation by the Federal Energy Regulatory Commission (FERC). Duke Energy
operates in the United States (U.S.) primarily through its direct and indirect
subsidiaries. Certain Duke Energy subsidiaries are also subsidiary registrants,
including Duke Energy Carolinas, LLC (Duke Energy Carolinas); Progress
Energy, Inc. (Progress Energy); Duke Energy Progress, LLC (Duke Energy
Progress); Duke Energy Florida, LLC (Duke Energy Florida); Duke Energy Ohio,
Inc. (Duke Energy Ohio); Duke Energy Indiana, LLC (Duke Energy Indiana)
and Piedmont Natural Gas Company, Inc. (Piedmont). When discussing
Duke Energy’s consolidated financial information, it necessarily includes the
results of its seven separate subsidiary registrants (collectively referred to
as the Subsidiary Registrants), which along with Duke Energy, are collectively
referred to as the Duke Energy Registrants.
In October 2016, Duke Energy completed the acquisition of Piedmont.
Duke Energy’s consolidated financial statements include Piedmont’s results of
operations and cash flows activity subsequent to the acquisition date. Effective
November 1, 2016, Piedmont’s fiscal year-end was changed from October 31
to December 31, the year-end of Duke Energy. A transition report was filed on
Form 10-Q (Form 10-QT) as of December 31, 2016, for the transition period
from November 1, 2016, to December 31, 2016. See Note 2 for additional
information regarding the acquisition.
In December 2016, Duke Energy completed an exit of the Latin American
market to focus on its domestic regulated business, which was further bolstered
by the acquisition of Piedmont. The sale of the International Energy business
segment, excluding an equity method investment in National Methanol Company
(NMC), was completed through two transactions including a sale of assets
in Brazil to China Three Gorges (Luxembourg) Energy S.à.r.l. (CTG) and a sale
of Duke Energy’s remaining Latin American assets in Peru, Chile, Ecuador,
Guatemala, El Salvador and Argentina to ISQ Enerlam Aggregator, L.P. and
Enerlam (UK) Holding Ltd. (I Squared) (collectively, the International Disposal
Group). See Note 2 for additional information on the sale of International Energy.
The information in these combined notes relates to each of the Duke
Energy Registrants as noted in the Index to Combined Notes to Consolidated
Financial Statements. However, none of the Subsidiary Registrants make any
representation as to information related solely to Duke Energy or the Subsidiary
Registrants of Duke Energy other than itself.
These Consolidated Financial Statements include, after eliminating
intercompany transactions and balances, the accounts of the Duke Energy
Registrants and subsidiaries where the respective Duke Energy Registrants
have control. These Consolidated Financial Statements also reflect the Duke
Energy Registrants’ proportionate share of certain jointly owned generation and
transmission facilities. Substantially all of the Subsidiary Registrants’ operations
qualify for regulatory accounting.
112
PART II Duke Energy Carolinas is a regulated public utility primarily engaged in the
generation, transmission, distribution and sale of electricity in portions of North
Carolina and South Carolina. Duke Energy Carolinas is subject to the regulatory
provisions of the North Carolina Utilities Commission (NCUC), Public Service
Commission of South Carolina (PSCSC), U.S. Nuclear Regulatory Commission
(NRC) and FERC.
Progress Energy is a public utility holding company headquartered in
Raleigh, North Carolina, subject to regulation by FERC. Progress Energy conducts
operations through its wholly owned subsidiaries, Duke Energy Progress and
Duke Energy Florida.
Duke Energy Progress is a regulated public utility primarily engaged in the
generation, transmission, distribution and sale of electricity in portions of North
Carolina and South Carolina. Duke Energy Progress is subject to the regulatory
provisions of the NCUC, PSCSC, NRC and FERC.
Duke Energy Florida is a regulated public utility primarily engaged in
the generation, transmission, distribution and sale of electricity in portions of
Florida. Duke Energy Florida is subject to the regulatory provisions of the Florida
Public Service Commission (FPSC), NRC and FERC.
Duke Energy Ohio is a regulated public utility primarily engaged in the
transmission and distribution of electricity in portions of Ohio and Kentucky,
the generation and sale of electricity in portions of Kentucky and the
transportation and sale of natural gas in portions of Ohio and Kentucky. Duke
Energy Ohio conducts competitive auctions for retail electricity supply in Ohio
whereby the energy price is recovered from retail customers and recorded
in Operating Revenues on the Consolidated Statements of Operations and
Comprehensive Income. Operations in Kentucky are conducted through its
wholly owned subsidiary, Duke Energy Kentucky, Inc. (Duke Energy Kentucky).
References herein to Duke Energy Ohio collectively include Duke Energy Ohio
and its subsidiaries, unless otherwise noted. Duke Energy Ohio is subject to
the regulatory provisions of the Public Utilities Commission of Ohio (PUCO),
Kentucky Public Service Commission (KPSC) and FERC. On April 2, 2015,
Duke Energy completed the sale of its nonregulated Midwest generation
business, which sold power into wholesale energy markets, to a subsidiary
of Dynegy Inc. (Dynegy). For further information about the sale of the Midwest
Generation business, refer to Note 2. Substantially all of Duke Energy Ohio’s
operations that remain after the sale qualify for regulatory accounting.
Duke Energy Indiana is a regulated public utility primarily engaged in
the generation, transmission, distribution and sale of electricity in portions
of Indiana. Duke Energy Indiana is subject to the regulatory provisions of the
Indiana Utility Regulatory Commission (IURC) and FERC.
Piedmont is a regulated public utility primarily engaged in the distribution
of natural gas in portions of North Carolina, South Carolina and Tennessee.
Piedmont is subject to the regulatory provisions of the NCUC, PSCSC, Tennessee
Public Utility Commission (TPUC) and FERC.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
Other Current Assets and Liabilities
The following table provides a description of amounts included in Other
within Current Assets or Current Liabilities that exceed 5 percent of total Current
Assets or Current Liabilities on the Duke Energy Registrants’ Consolidated
Balance Sheets at either December 31, 2017, or 2016.
(in millions)
Location
2017
2016
December 31,
Duke Energy
Accrued compensation
Duke Energy Carolinas
Accrued compensation
Customer deposits
Progress Energy
Income taxes receivable
Customer deposits
Duke Energy Progress
Customer deposits
Accrued compensation
Duke Energy Florida
Customer deposits
Duke Energy Ohio
Income taxes receivable
Customer deposits
Duke Energy Indiana
Customer deposits
Piedmont
Income taxes receivable
Current Liabilities
Current Liabilities
Current Liabilities
Current Assets
Current Liabilities
Current Liabilities
Current Liabilities
Current Liabilities
Current Assets
Current Liabilities
Current Liabilities
Current Assets
Discontinued Operations
$
$
$
$
$
$
$
$
757
252
121
278
338
129
132
208
36
46
45
43
$
$
$
$
$
$
$
$
765
248
155
19
363
141
135
222
16
62
44
9
The results of operations of the International Disposal Group as well
as Duke Energy Ohio’s nonregulated Midwest Generation business and Duke
Energy Retail Sales, LLC (collectively, Midwest Generation Disposal Group) have
been classified as Discontinued Operations on Duke Energy’s Consolidated
Statements of Operations. Duke Energy has elected to present cash flows of
discontinued operations combined with cash flows of continuing operations.
Unless otherwise noted, the notes to these consolidated financial statements
exclude amounts related to discontinued operations for all periods presented.
See Note 2 for additional information.
113
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued)
Amounts Attributable to Controlling Interests
For the year ended December 31, 2017, the Loss From Discontinued Operations, net of tax on Duke Energy’s Consolidated Statement of Operations is entirely
attributable to controlling interest. The following table presents Net Income Attributable to Duke Energy Corporation for continuing operations and discontinued
operations for the years ended December 31, 2016, and 2015.
(in millions)
Income from Continuing Operations
Income from Continuing Operations Attributable to Noncontrolling Interests
Income from Continuing Operations Attributable to Duke Energy Corporation
(Loss) Income From Discontinued Operations, net of tax
Income from Discontinued Operations Attributable to Noncontrolling Interests, net of tax
(Loss) Income From Discontinued Operations Attributable to Duke Energy Corporation, net of tax
Net Income
Net Income Attributable to Noncontrolling Interests
Net Income Attributable to Duke Energy Corporation
Year ended December 31,
2016
2015
$ 2,578
7
$ 2,571
$ (408)
11
$ (419)
$ 2,170
18
$ 2,654
9
$ 2,645
177
$
6
171
$
$ 2,831
15
$ 2,152
$ 2,816
SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
In preparing financial statements that conform to generally accepted
accounting principles (GAAP) in the U.S., the Duke Energy Registrants must
make estimates and assumptions that affect the reported amounts of assets
and liabilities, the reported amounts of revenues and expenses and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
Regulatory Accounting
The majority of the Duke Energy Registrants’ operations are subject to price
regulation for the sale of electricity and natural gas by state utility commissions
or FERC. When prices are set on the basis of specific costs of the regulated
operations and an effective franchise is in place such that sufficient natural
gas or electric services can be sold to recover those costs, the Duke Energy
Registrants apply regulatory accounting. Regulatory accounting changes the timing
of the recognition of costs or revenues relative to a company that does not apply
regulatory accounting. As a result, regulatory assets and regulatory liabilities are
recognized on the Consolidated Balance Sheets. Regulatory assets and liabilities
are amortized consistent with the treatment of the related cost in the ratemaking
process. See Note 4 for further information.
Regulatory accounting rules also require recognition of a disallowance
(also called “impairment”) loss if it becomes probable that part of the cost
of a plant under construction (or a recently completed plant or an abandoned
plant) will be disallowed for ratemaking purposes and a reasonable estimate of
the amount of the disallowance can be made. These disallowances can require
judgments on allowed future rate recovery.
When it becomes probable that regulated generation, transmission or
distribution assets will be abandoned, the cost of the asset is removed from
plant in service. The value that may be retained as a regulatory asset on the
balance sheet for the abandoned property is dependent upon amounts that
may be recovered through regulated rates, including any return. As such, an
impairment charge could be partially or fully offset by the establishment of a
regulatory asset if rate recovery is probable. The impairment for a disallowance
of costs for regulated plants under construction, recently completed or
abandoned is based on discounted cash flows.
Regulated Fuel and Purchased Gas Adjustment Clauses
The Duke Energy Registrants utilize cost-tracking mechanisms, commonly
referred to as fuel adjustment clauses or purchased gas adjustment clauses
(PGA). These clauses allow for the recovery of fuel and fuel-related costs, portions
of purchased power, natural gas costs and hedging costs through surcharges on
customer rates. The difference between the costs incurred and the surcharge
revenues is recorded either as an adjustment to Operating Revenues, Operating
Expenses – Fuel used in electric generation or Operating Expenses – Cost of
natural gas on the Consolidated Statements of Operations, with an off-setting
impact on regulatory assets or liabilities.
Cash and Cash Equivalents
All highly liquid investments with maturities of three months or less at the
date of acquisition are considered cash equivalents.
Restricted Cash
The Duke Energy Registrants have restricted cash related primarily to
collateral assets, escrow deposits and variable interest entities (VIEs). Restricted
cash balances are reflected in Other within Current Assets and in Other within
Other Noncurrent Assets on the Consolidated Balance Sheets. At December 31,
2017, and 2016, Duke Energy had restricted cash totaling $147 million and
$137 million, respectively.
114
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Inventory
Inventory is used for operations and is recorded primarily using the average cost method. Inventory related to regulated operations is valued at historical
cost. Inventory related to nonregulated operations is valued at the lower of cost or market. Materials and supplies are recorded as inventory when purchased and
subsequently charged to expense or capitalized to property, plant and equipment when installed. Inventory, including excess or obsolete inventory, is written-down to
the lower of cost or market value. Once inventory has been written-down, it creates a new cost basis for the inventory that is not subsequently written-up. Provisions
for inventory write-offs were not material at December 31, 2017, and 2016. The components of inventory are presented in the tables below.
(in millions)
Materials and supplies
Coal
Natural gas, oil and other
Total inventory
(in millions)
Materials and supplies
Coal
Natural gas, oil and other
Total inventory
December 31, 2017
Duke
Energy
$ 2,293
603
354
Duke
Energy
Carolinas
$
744
192
35
Progress
Energy
$ 1,118
255
219
Duke
Energy
Progress
$
774
139
104
Duke
Energy
Florida
$ 343
116
115
Duke
Energy
Ohio
$
82
17
34
Duke
Energy
Indiana
$
$ 309
139
2
$ 3,250
$
971
$ 1,592
$ 1,017
$ 574
$ 133
$ 450
$
Piedmont
2
—
64
66
December 31, 2016
Duke
Energy
$ 2,374
774
374
$ 3,522
Duke
Energy
Carolinas
$
767
251
37
$ 1,055
Progress
Energy
$ 1,167
314
236
$ 1,717
Duke
Energy
Progress
$
813
148
115
$ 1,076
Duke
Energy
Florida
$ 354
166
121
$ 641
Duke
Energy
Ohio
$ 84
19
34
$ 137
Duke
Energy
Indiana
Piedmont
$
$ 312
190
2
$ 504
$
1
—
65
66
Investments in Debt and Equity Securities
The Duke Energy Registrants classify investments into two categories –
trading and available-for-sale. Both categories are recorded at fair value on
the Consolidated Balance Sheets. Realized and unrealized gains and losses on
trading securities are included in earnings. For certain investments of regulated
operations, such as substantially all of the Nuclear Decommissioning Trust Funds
(NDTF), realized and unrealized gains and losses (including any other-than-
temporary impairments (OTTIs)) on available-for-sale securities are recorded as
a regulatory asset or liability. Otherwise, unrealized gains and losses are included
in Accumulated Other Comprehensive Income (AOCI), unless other-than-
temporarily impaired. OTTIs for equity securities and the credit loss portion of
debt securities of nonregulated operations are included in earnings. Investments
in debt and equity securities are classified as either current or noncurrent
based on management’s intent and ability to sell these securities, taking into
consideration current market liquidity. See Note 15 for further information.
Goodwill and Intangible Assets
Goodwill
Effective with Piedmont’s change in fiscal year end to December 31, as
discussed above, Piedmont changed the date of its annual impairment testing of
goodwill from October 31 to August 31 to align with the other Duke Energy Registrants.
Duke Energy, Progress Energy, Duke Energy Ohio and Piedmont perform
annual goodwill impairment tests as of August 31 each year at the reporting unit
level, which is determined to be an operating segment or one level below. Duke
Energy, Progress Energy, Duke Energy Ohio and Piedmont update these tests
between annual tests if events or circumstances occur that would more likely
than not reduce the fair value of a reporting unit below its carrying value.
Intangible Assets
Intangible assets are included in Other in Other Noncurrent Assets on the
Consolidated Balance Sheets. Generally, intangible assets are amortized using
an amortization method that reflects the pattern in which the economic benefits
of the intangible asset are consumed or on a straight-line basis if that pattern is
not readily determinable. Amortization of intangibles is reflected in Depreciation
and amortization on the Consolidated Statements of Operations. Intangible
assets are subject to impairment testing and if impaired, the carrying value is
accordingly reduced.
Emission allowances permit the holder of the allowance to emit certain
gaseous byproducts of fossil fuel combustion, including sulfur dioxide (SO2) and
nitrogen oxide (NOX). Allowances are issued by the U.S. Environmental Protection
Agency (EPA) at zero cost and may also be bought and sold via third-party
transactions. Allowances allocated to or acquired by the Duke Energy Registrants are
held primarily for consumption. Carrying amounts for emission allowances are based
on the cost to acquire the allowances or, in the case of a business combination,
on the fair value assigned in the allocation of the purchase price of the acquired
business. Emission allowances are expensed to Fuel used in electric generation and
purchased power on the Consolidated Statements of Operations.
Renewable energy certificates are used to measure compliance with
renewable energy standards and are held primarily for consumption. See Note 11
for further information.
115
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Long-Lived Asset Impairments
The Duke Energy Registrants evaluate long-lived assets, excluding
goodwill, for impairment when circumstances indicate the carrying value of
those assets may not be recoverable. An impairment exists when a long-lived
asset’s carrying value exceeds the estimated undiscounted cash flows expected
to result from the use and eventual disposition of the asset. The estimated
cash flows may be based on alternative expected outcomes that are probability
weighted. If the carrying value of the long-lived asset is not recoverable
based on these estimated future undiscounted cash flows, the carrying value
of the asset is written-down to its then-current estimated fair value and an
impairment charge is recognized.
The Duke Energy Registrants assess fair value of long-lived assets using
various methods, including recent comparable third-party sales, internally
developed discounted cash flow analysis and analysis from outside advisors.
Triggering events to reassess cash flows may include, but are not limited
to, significant changes in commodity prices, the condition of an asset or
management’s interest in selling the asset.
Property, Plant and Equipment
Property, plant and equipment are stated at the lower of depreciated
historical cost net of any disallowances or fair value, if impaired. The Duke Energy
Registrants capitalize all construction-related direct labor and material costs,
as well as indirect construction costs such as general engineering, taxes and
financing costs. See “Allowance for Funds Used During Construction (AFUDC)
and Interest Capitalized” for information on capitalized financing costs. Costs
of renewals and betterments that extend the useful life of property, plant and
equipment are also capitalized. The cost of repairs, replacements and major
maintenance projects, which do not extend the useful life or increase the expected
output of the asset, are expensed as incurred. Depreciation is generally computed
over the estimated useful life of the asset using the composite straight-line
method. Depreciation studies are conducted periodically to update composite
rates and are approved by state utility commissions and/or the FERC when
required. The composite weighted average depreciation rates, excluding nuclear
fuel, are included in the table that follows.
probable the asset will be retired substantially in advance of its original
expected useful life or is abandoned, the cost of the asset and the corresponding
accumulated depreciation is recognized as a separate asset. If the asset is still
in operation, the net amount is classified as Generation facilities to be retired,
net on the Consolidated Balance Sheets. If the asset is no longer operating,
the net amount is classified in Regulatory assets on the Consolidated Balance
Sheets if deemed recoverable (see discussion of long-lived asset impairments
above). When it becomes probable an asset will be abandoned, the cost of the
asset and accumulated depreciation is reclassified to Regulatory assets on the
Consolidated Balance Sheets for amounts recoverable in rates. The carrying
value of the asset is based on historical cost if the Duke Energy Registrants are
allowed to recover the remaining net book value and a return equal to at least
the incremental borrowing rate. If not, an impairment is recognized to the extent
the net book value of the asset exceeds the present value of future revenues
discounted at the incremental borrowing rate.
When the Duke Energy Registrants sell entire regulated operating units,
or retire or sell nonregulated properties, the original cost and accumulated
depreciation and amortization balances are removed from Property, Plant and
Equipment on the Consolidated Balance Sheets. Any gain or loss is recorded in
earnings, unless otherwise required by the applicable regulatory body.
See Note 10 for further information.
Nuclear Fuel
Nuclear fuel is classified as Property, Plant and Equipment on the
Consolidated Balance Sheets, except for Duke Energy Florida. Nuclear fuel
amounts at Duke Energy Florida were reclassified to Regulatory assets pursuant
to the Revised and Restated Stipulation and Settlement Agreement approved in
November 2013 among Duke Energy Florida, the Florida Office of Public Counsel
(Florida OPC) and other customer advocates (the 2013 Settlement).
Nuclear fuel in the front-end fuel processing phase is considered work
in progress and not amortized until placed in service. Amortization of nuclear
fuel is included within Fuel used in electric generation and purchased power on
the Consolidated Statements of Operations. Amortization is recorded using the
units-of-production method.
Years Ended December 31,
Allowance for Funds Used During Construction and Interest Capitalized
Duke Energy
Duke Energy Carolinas
Progress Energy
Duke Energy Progress
Duke Energy Florida
Duke Energy Ohio
Duke Energy Indiana
Piedmont(a)
2016
2.8%
2.8%
2.7%
2.6%
2.8%
2.6%
3.1%
2015
2.9%
2.8%
2.6%
2.6%
2.7%
2.7%
3.0%
2017
2.8 %
2.8 %
2.6 %
2.6 %
2.8 %
2.8 %
3.0 %
2.3 %
(a) Piedmont’s weighted average depreciation rate was 2.4 percent, 2.4 percent, and 2.5 percent for the
annualized two months ended December 31, 2016 and for the years ended October 31, 2016 and 2015,
respectively.
In general, when the Duke Energy Registrants retire regulated property,
plant and equipment, the original cost plus the cost of retirement, less salvage
value, is charged to accumulated depreciation. However, when it becomes
For regulated operations, the debt and equity costs of financing the
construction of property, plant and equipment are reflected as AFUDC and
capitalized as a component of the cost of property, plant and equipment. AFUDC
equity is reported on the Consolidated Statements of Operations as non-cash
income in Other income and expenses, net. AFUDC debt is reported as a non-
cash offset to Interest Expense. After construction is completed, the Duke Energy
Registrants are permitted to recover these costs through their inclusion in rate
base and the corresponding subsequent depreciation or amortization of those
regulated assets.
AFUDC equity, a permanent difference for income taxes, reduces
the effective tax rate (ETR) when capitalized and increases the ETR when
depreciated or amortized. See Note 22 for additional information.
For nonregulated operations, interest is capitalized during the
construction phase with an offsetting non-cash credit to Interest Expense on the
Consolidated Statements of Operations.
116
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Asset Retirement Obligations
Asset retirement obligations (AROs) are recognized for legal obligations
associated with the retirement of property, plant and equipment. Substantially
all AROs are related to regulated operations. When recording an ARO, the
present value of the projected liability is recognized in the period in which it
is incurred, if a reasonable estimate of fair value can be made. The liability is
accreted over time. For operating plants, the present value of the liability is
added to the cost of the associated asset and depreciated over the remaining
life of the asset. For retired plants, the present value of the liability is recorded
as a regulatory asset unless determined not to be recoverable.
The present value of the initial obligation and subsequent updates are
based on discounted cash flows, which include estimates regarding timing of
future cash flows, selection of discount rates and cost escalation rates, among
other factors. These estimates are subject to change. Depreciation expense is
adjusted prospectively for any changes to the carrying amount of the associated
asset. The Duke Energy Registrants receive amounts to fund the cost of the
ARO for regulated operations through a combination of regulated revenues and
earnings on the NDTF. As a result, amounts recovered in regulated revenues,
earnings on the NDTF, accretion expense and depreciation of the associated
asset are netted and deferred as a regulatory asset or liability.
Obligations for nuclear decommissioning are based on site-specific cost
studies. Duke Energy Carolinas and Duke Energy Progress assume prompt
dismantlement of the nuclear facilities after operations are ceased. Duke Energy
Florida assumes Crystal River Unit 3 Nuclear Plant (Crystal River Unit 3) will be
placed into a safe storage configuration until eventual dismantlement is completed
by 2074. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida
also assume that spent fuel will be stored on-site until such time that it can be
transferred to a yet to be built U.S. Department of Energy (DOE) facility.
Obligations for closure of ash basins are based upon discounted cash
flows of estimated costs for site-specific plans, if known, or probability
weightings of the potential closure methods if the closure plans are under
development and multiple closure options are being considered and evaluated
on a site-by-site basis. See Note 9 for additional information.
Revenue Recognition and Unbilled Revenue
Revenues on sales of electricity and natural gas are recognized when
service is provided or the product is delivered. Unbilled revenues are recognized
by applying customer billing rates to the estimated volumes of energy or natural
gas delivered but not yet billed. Unbilled revenues can vary significantly from
period to period as a result of seasonality, weather, customer usage patterns,
customer mix, average price in effect for customer classes, timing of rendering
customer bills and meter reading schedules, and the impact of weather
normalization or margin decoupling mechanisms.
Unbilled revenues are included within Receivables and Receivables of
VIEs on the Consolidated Balance Sheets as shown in the following table.
(in millions)
Duke Energy
Duke Energy Carolinas
Progress Energy
Duke Energy Progress
Duke Energy Florida
Duke Energy Ohio
Duke Energy Indiana
Piedmont
December 31,
2017
2016
$
944
342
228
143
85
4
21
86
$
831
313
161
102
59
2
32
77
117
Additionally, Duke Energy Ohio and Duke Energy Indiana sell, on a
revolving basis, nearly all of their retail accounts receivable, including
receivables for unbilled revenues, to an affiliate, Cinergy Receivables Company
LLC (CRC) and account for the transfers of receivables as sales. Accordingly,
the receivables sold are not reflected on the Consolidated Balance Sheets of
Duke Energy Ohio and Duke Energy Indiana. See Note 17 for further information.
These receivables for unbilled revenues are shown in the table below.
(in millions)
Duke Energy Ohio
Duke Energy Indiana
December 31,
2017
2016
$ 104
132
$
97
123
Allowance for Doubtful Accounts
Allowances for doubtful accounts are presented in the following table.
(in millions)
Allowance for Doubtful Accounts
Duke Energy
Duke Energy Carolinas
Progress Energy
Duke Energy Progress
Duke Energy Florida
Duke Energy Ohio
Duke Energy Indiana
Piedmont(a)
Allowance for Doubtful Accounts – VIEs
Duke Energy
Duke Energy Carolinas
Progress Energy
Duke Energy Progress
Duke Energy Florida
December 31,
2017
2016
2015
$ 14
2
4
1
3
3
2
2
$ 54
7
7
5
2
$ 14
2
6
4
2
2
1
3
$ 54
7
7
5
2
$ 12
3
6
4
2
2
1
$ 53
7
8
5
3
(a) Piedmont’s allowance for doubtful accounts was $2 million as of October 31, 2016, and 2015.
Derivatives and Hedging
Derivative and non-derivative instruments may be used in connection
with commodity price and interest rate activities, including swaps, futures,
forwards and options. All derivative instruments, except those that qualify
for the normal purchase/normal sale (NPNS) exception, are recorded on the
Consolidated Balance Sheets at fair value. Qualifying derivative instruments may
be designated as either cash flow hedges or fair value hedges. Other derivative
instruments (undesignated contracts) either have not been designated or do not
qualify as hedges. The effective portion of the change in the fair value of cash
flow hedges is recorded in AOCI. The effective portion of the change in the fair
value of a fair value hedge is offset in net income by changes in the hedged
item. For activity subject to regulatory accounting, gains and losses on derivative
contracts are reflected as regulatory assets or liabilities and not as other
comprehensive income or current period income. As a result, changes in fair
value of these derivatives have no immediate earnings impact.
Formal documentation, including transaction type and risk management
strategy, is maintained for all contracts accounted for as a hedge. At inception and
at least every three months thereafter, the hedge contract is assessed to see if it is
highly effective in offsetting changes in cash flows or fair values of hedged items.
See Note 14 for further information.
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued)
Captive Insurance Reserves
Duke Energy has captive insurance subsidiaries that provide coverage, on
an indemnity basis, to the Subsidiary Registrants as well as certain third parties,
on a limited basis, for financial losses, primarily related to property, workers’
compensation and general liability. Liabilities include provisions for estimated
losses incurred but not yet reported (IBNR), as well as estimated provisions for
known claims. IBNR reserve estimates are primarily based upon historical loss
experience, industry data and other actuarial assumptions. Reserve estimates
are adjusted in future periods as actual losses differ from experience.
Duke Energy, through its captive insurance entities, also has reinsurance
coverage with third parties for certain losses above a per occurrence and/or
aggregate retention. Receivables for reinsurance coverage are recognized when
realization is deemed probable.
Unamortized Debt Premium, Discount and Expense
Premiums, discounts and expenses incurred with the issuance of
outstanding long-term debt are amortized over the term of the debt issue. The
gain or loss on extinguishment associated with refinancing higher-cost debt
obligations in the regulated operations is amortized. Amortization expense is
recorded as Interest Expense in the Consolidated Statements of Operations
and is reflected as Depreciation, amortization and accretion within Net cash
provided by operating activities on the Consolidated Statements of Cash Flows.
Premiums, discounts and expenses are presented as an adjustment to
the carrying value of the debt amount and included in Long-Term Debt on the
Consolidated Balance Sheets presented.
Loss Contingencies and Environmental Liabilities
Contingent losses are recorded when it is probable a loss has occurred
and can be reasonably estimated. When a range of the probable loss exists and
no amount within the range is a better estimate than any other amount, the
minimum amount in the range is recorded. Unless otherwise required by GAAP,
legal fees are expensed as incurred.
Environmental liabilities are recorded on an undiscounted basis when
environmental remediation or other liabilities become probable and can be
reasonably estimated. Environmental expenditures related to past operations
that do not generate current or future revenues are expensed. Environmental
expenditures related to operations that generate current or future revenues are
expensed or capitalized, as appropriate. Certain environmental expenditures
receive regulatory accounting treatment and are recorded as regulatory assets.
See Notes 4 and 5 for further information.
Pension and Other Post-Retirement Benefit Plans
Duke Energy maintains qualified, non-qualified and other post-retirement
benefit plans. Eligible employees of the Subsidiary Registrants participate in
the respective qualified, non-qualified and other post-retirement benefit plans
and the Subsidiary Registrants are allocated their proportionate share of benefit
costs. See Note 21 for further information, including significant accounting
policies associated with these plans.
Severance and Special Termination Benefits
Duke Energy has severance plans under which, in general, the longer
a terminated employee worked prior to termination the greater the amount
of severance benefits. A liability for involuntary severance is recorded once
an involuntary severance plan is committed to by management if involuntary
severances are probable and can be reasonably estimated. For involuntary
severance benefits incremental to its ongoing severance plan benefits, the fair
value of the obligation is expensed at the communication date if there are no
future service requirements or over the required future service period. From
time to time, Duke Energy offers special termination benefits under voluntary
severance programs. Special termination benefits are recorded immediately upon
employee acceptance absent a significant retention period. Otherwise, the cost
is recorded over the remaining service period. Employee acceptance of voluntary
severance benefits is determined by management based on the facts and
circumstances of the benefits being offered. See Note 19 for further information.
Guarantees
If necessary, liabilities are recognized at the time of issuance or material
modification of a guarantee for the estimated fair value of the obligation it
assumes. Fair value is estimated using a probability-weighted approach. The
obligation is reduced over the term of the guarantee or related contract in a
systematic and rational method as risk is reduced. Any additional contingent
loss for guarantee contracts subsequent to the initial recognition of a liability
is accounted for and recognized at the time a loss is probable and can be
reasonably estimated. See Note 7 for further information.
Stock-Based Compensation
Stock-based compensation represents costs related to stock-based
awards granted to employees and Duke Energy Board of Directors (Board
of Directors) members. Duke Energy recognizes stock-based compensation
based upon the estimated fair value of awards, net of estimated forfeitures at
the date of issuance. The recognition period for these costs begins at either
the applicable service inception date or grant date and continues throughout
the requisite service period. Compensation cost is recognized as expense or
capitalized as a component of property, plant and equipment. See Note 20 for
further information.
Income Taxes
Duke Energy and its subsidiaries file a consolidated federal income
tax return and other state and foreign jurisdictional returns. The Subsidiary
Registrants are parties to a tax-sharing agreement with Duke Energy. Income
taxes recorded represent amounts the Subsidiary Registrants would incur
as separate C-Corporations. Deferred income taxes have been provided for
temporary differences between GAAP and tax bases of assets and liabilities
because the differences create taxable or tax-deductible amounts for future
periods. Investment tax credits (ITCs) associated with regulated operations are
deferred and amortized as a reduction of income tax expense over the estimated
useful lives of the related properties.
Accumulated deferred income taxes are valued using the enacted tax rate
expected to apply to taxable income in the periods in which the deferred tax
asset or liability is expected to be settled or realized. In the event of a change in
tax rates, deferred tax assets and liabilities are remeasured as of the enactment
date of the new rate. To the extent that the change in the value of the deferred
tax represents an obligation to customers, the impact of the remeasurement
is deferred to a regulatory liability. Remaining impacts are recorded in income
from continuing operations. Other impacts of the Tax Act have been recorded on
118
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) a provisional basis, see Note 22, “Income Taxes,” for additional information. If
Duke Energy’s estimate of the tax effect of reversing temporary differences is
not reflective of actual outcomes, is modified to reflect new developments or
interpretations of the tax law, revised to incorporate new accounting principles,
or changes in the expected timing or manner of the reversal then Duke Energy’s
results of operations could be impacted.
Tax-related interest and penalties are recorded in Interest Expense and
Other Income and Expenses, net in the Consolidated Statements of Operations.
See Note 22 for further information.
Accounting for Renewable Energy Tax Credits
When Duke Energy receives ITCs on wind or solar facilities, it reduces
the basis of the property recorded on the Consolidated Balance Sheets by the
amount of the ITC and, therefore, the ITC benefit is ultimately recognized in the
statement of operations through reduced depreciation expense. Additionally,
certain tax credits and government grants result in an initial tax depreciable
base in excess of the book carrying value by an amount equal to one half of the
ITC. Deferred tax benefits are recorded as a reduction to income tax expense in
the period that the basis difference is created.
Excise Taxes
Certain excise taxes levied by state or local governments are required to
be paid even if not collected from the customer. These taxes are recognized on a
gross basis. Otherwise, the taxes are accounted for net. Excise taxes accounted
for on a gross basis within both Operating Revenues and Property and other
taxes in the Consolidated Statements of Operations were as follows.
(in millions)
Duke Energy
Duke Energy Carolinas
Progress Energy
Duke Energy Progress
Duke Energy Florida
Duke Energy Ohio
Duke Energy Indiana
Piedmont(a)
Years Ended December 31,
2017
2016
2015
$ 362
31
213
18
195
100
17
$ 396
31
229
16
213
102
34
$ 376
36
220
19
201
98
20
2
(a) Piedmont’s excise taxes were immaterial for the two months ended December 31, 2016, and $2 million
for the years ended October 31, 2016, and 2015.
Dividend Restrictions and Unappropriated Retained Earnings
Duke Energy does not have any legal, regulatory or other restrictions on
paying common stock dividends to shareholders. However, as further described
in Note 4, due to conditions established by regulators in conjunction with merger
transaction approvals, Duke Energy Carolinas, Duke Energy Progress, Duke
Energy Ohio, Duke Energy Indiana and Piedmont have restrictions on paying
dividends or otherwise advancing funds to Duke Energy. At December 31,
2017, and 2016, an insignificant amount of Duke Energy’s consolidated
Retained earnings balance represents undistributed earnings of equity method
investments.
NEW ACCOUNTING STANDARDS
The new accounting standards adopted for 2017 and 2016 had no
material impact on the presentation or results of operations, cash flows or
financial position of the Duke Energy Registrants. The following accounting
standards were adopted by the Duke Energy Registrants during 2017.
Stock-Based Compensation and Income Taxes. In first quarter 2017,
Duke Energy adopted Financial Accounting Standards Board (FASB) guidance,
which revised the accounting for stock-based compensation and the associated
income taxes. The adopted guidance changed certain aspects of accounting for
stock-based payment awards to employees including the accounting for income
taxes and classification on the Consolidated Statements of Cash Flows. The
primary impact to Duke Energy as a result of implementing this guidance was a
cumulative-effect adjustment to retained earnings for tax benefits not previously
recognized and additional income tax expense for the 12 months ended
December 31, 2017. See the Duke Energy Consolidated Statements of Changes
in Equity for further information.
Goodwill Impairment. In January 2017, the FASB issued revised
guidance for the subsequent measurement of goodwill. Under the guidance,
a company will recognize an impairment to goodwill for the amount by which
a reporting unit’s carrying value exceeds the reporting unit’s fair value, not to
exceed the amount of goodwill allocated to that reporting unit. Duke Energy early
adopted this guidance for the 2017 annual goodwill impairment test.
The following new accounting standards have been issued, but have not
yet been adopted by the Duke Energy Registrants, as of December 31, 2017.
Revenue from Contracts with Customers. In May 2014, the FASB
issued revised accounting guidance for revenue recognition from contracts with
customers. The core principle of this guidance is that an entity should recognize
revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. The amendments in this update also
require disclosure of sufficient information to allow users to understand the
nature, amount, timing and uncertainty of revenue and cash flows arising from
contracts with customers.
Duke Energy has identified material revenue streams, which served as
the basis for accounting analysis and documentation of the impact of this
guidance on revenue recognition. The accounting analysis included reviewing
representative contracts and tariffs for each material revenue stream. Most of
Duke Energy’s revenue will be in scope of the new guidance. The majority of
our sales, including energy provided to residential customers, are from tariff
offerings that provide natural gas or electricity without a defined contractual
term (“at-will”). For such arrangements, revenue from contracts with customers
will be equivalent to the electricity or natural gas supplied and billed in that
period (including estimated billings). As such, there will not be a significant shift
in the timing or pattern of revenue recognition for such sales.
Also included in the accounting analysis was the evaluation of certain
long-term revenue streams including electric wholesale contracts and
renewables power purchase agreements (PPAs). For such arrangements, Duke
Energy does not expect material changes to the pattern of revenue recognition
on the registrants. In addition, Duke Energy has monitored the activities
of the power and utilities industry revenue recognition task force including
draft accounting positions released in October 2017 and the impact, if any,
on Duke Energy’s specific contracts and conclusions. Potential revisions to
processes, policies and controls, primarily related to evaluating supplemental
disclosures required as a result of adopting this guidance, will be evaluated and
implemented as necessary. Some revenue arrangements, such as alternative
revenue programs and certain PPAs accounted for as leases, are excluded
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PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) from the scope of the new revenue recognition guidance and, therefore, will be
accounted for and evaluated for separate presentation and disclosure under
other relevant accounting guidance.
Duke Energy intends to use the modified retrospective method of adoption
effective January 1, 2018. Under the modified retrospective method of adoption,
prior year reported results are not restated and a cumulative-effect adjustment,
if applicable, is recorded to retained earnings at January 1, 2018, as if the
standard had always been in effect. In addition, disclosures, if applicable, include
a comparison to what would have been reported for 2018 under the previous
revenue recognition rules to assist financial statement users in understanding
how revenue recognition has changed as a result of this standard and to facilitate
comparability with prior year reported results, which are not restated under the
modified retrospective approach as described above. Duke Energy will utilize
certain practical expedients including applying this guidance to open contracts
at the date of adoption and recognizing revenues for certain contracts under the
invoice practical expedient, which allows revenue recognition to be consistent with
invoiced amounts (including estimated billings) provided certain criteria are met,
including consideration of whether the invoiced amounts reasonably represent the
value provided to customers. While the adoption of this guidance is not expected
to have a material impact on either the timing or amount of revenues recognized
in Duke Energy’s financial statements, Duke Energy anticipates additional
disclosures around the nature, amount, timing and uncertainty of our revenues
and cash flows arising from contracts with customers. Duke Energy continues
to evaluate what information will be most useful for users of the financial
statements, including information already provided in disclosures outside of the
financial statement footnotes. These additional disclosures are expected to include
the disaggregation of revenues by customer class.
Financial Instruments Classification and Measurement. In January
2016, the FASB issued revised accounting guidance for the classification and
measurement of financial instruments. Changes in the fair value of all equity
securities will be required to be recorded in net income. Current GAAP allows
some changes in fair value for available-for-sale equity securities to be recorded
in AOCI. Additional disclosures will be required to present separately the financial
assets and financial liabilities by measurement category and form of financial
asset. An entity’s equity investments that are accounted for under the equity
method of accounting are not included within the scope of the new guidance.
For Duke Energy, the revised accounting guidance is effective for interim
and annual periods beginning January 1, 2018, by recording a cumulative
effect adjustment to retained earnings as of January 1, 2018. This guidance is
expected to have minimal impact on the Duke Energy Registrant’s Consolidated
Statements of Operations and Comprehensive Income as changes in the
fair value of most of the Duke Energy Registrants’ available-for-sale equity
securities are deferred as regulatory assets or liabilities pursuant to accounting
guidance for regulated operations.
Leases. In February 2016, the FASB issued revised accounting guidance
for leases. The core principle of this guidance is that a lessee should recognize
the assets and liabilities that arise from leases on the balance sheet.
For Duke Energy, this guidance is effective for interim and annual
periods beginning January 1, 2019. The guidance is applied using a modified
retrospective approach. Upon adoption, Duke Energy expects to elect the
practical expedients, which would require no reassessment of whether
existing contracts are or contain leases as well as no reassessment of lease
classification for existing leases. Additionally, we expect to adopt the optional
transition practical expedient allowing the entity not to reassess the accounting
for land easements that currently exist at the adoption of the lease standard on
January 1, 2019. Duke Energy is currently evaluating the financial statement
impact of adopting this standard and is continuing to monitor industry
implementation issues, including easements, pole attachments and renewable
PPAs. Other than an expected increase in assets and liabilities, the ultimate
impact of the new standard has not yet been determined. Significant system
enhancements, including additional processes and controls, will be required
to facilitate the identification, tracking and reporting of potential leases based
upon requirements of the new lease standard. Duke Energy has begun the
implementation of a third-party software tool to help with the adoption and
ongoing accounting under the new standard.
Statement of Cash Flows. In November 2016, the FASB issued revised
accounting guidance to reduce diversity in practice for the presentation
and classification of restricted cash on the statement of cash flows. Under
the updated guidance, restricted cash and restricted cash equivalents will
be included within beginning-of-period and end-of-period cash and cash
equivalents on the statement of cash flows.
For Duke Energy, this guidance is effective for the interim and annual
periods beginning January 1, 2018. The guidance will be applied using a
retrospective transition method to each period presented. Upon adoption by
Duke Energy, the revised guidance will result in a change to the amount of
cash and cash equivalents and restricted cash explained when reconciling
the beginning-of-period and end-of-period total amounts shown on the
Consolidated Statement of Cash Flows. Prior to adoption, the Duke Energy
Registrants reflect changes in restricted cash within Cash Flows from
Investing Activities and within Cash Flows from Operating Activities on the
Consolidated Statement of Cash Flows. As a result of this change, our Cash
and cash equivalents balance on the Consolidated Statement of Cash Flows
as of December 31, 2017 will change by $147 million.
Retirement Benefits. In March 2017, the FASB issued revised accounting
guidance for the presentation of net periodic costs related to benefit plans. Current
GAAP permits the aggregation of all the components of net periodic costs on the
Consolidated Statement of Operations and does not require the disclosure of the
location of net periodic costs on the Consolidated Statement of Operations. Under
the amended guidance, the service cost component of net periodic costs must
be included within Operating Income within the same line as other compensation
expenses. All other components of net periodic costs must be outside of
Operating Income. In addition, the updated guidance permits only the service cost
component of net periodic costs to be capitalized to Inventory or Property, Plant
and Equipment. This represents a change from current GAAP, which permits all
components of net periodic costs to be capitalized. These amendments should
be applied retrospectively for the presentation of the various components of net
periodic costs and prospectively for the change in eligible costs to be capitalized.
The guidance allows for a practical expedient that permits a company to use
amounts disclosed in prior-period financial statements as the estimation basis for
applying the retrospective presentation requirements.
For Duke Energy, this guidance is effective for interim and annual periods
beginning January 1, 2018. Duke Energy currently presents the total non-
capitalized net periodic costs within Operation, maintenance and other on the
Consolidated Statement of Operations. The adoption of this guidance will result
in a retrospective change to reclassify the presentation of the non-service cost
(benefit) components of net periodic costs to Other income and expenses. Duke
Energy intends to utilize the practical expedient for retrospective presentation.
The change in net periodic costs eligible for capitalization is applicable
prospectively. Since Duke Energy’s service cost component is expected to be
greater than the total net periodic costs, the change will result in increased
capitalization of net periodic costs, higher Operation, maintenance and other
and higher Other income and expenses. The resulting impact to Duke Energy
is expected to be an immaterial increase in Net Income resulting from the
limitation of eligible capitalization of net periodic costs to the service cost
component, which is larger than the total net periodic costs.
120
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) 2.
ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
The Duke Energy Registrants consolidate assets and liabilities from
acquisitions as of the purchase date and include earnings from acquisitions in
consolidated earnings after the purchase date.
2016 Acquisition of Piedmont Natural Gas
On October 3, 2016, Duke Energy acquired all outstanding common
stock of Piedmont for a total cash purchase price of $5.0 billion and assumed
Piedmont’s existing long-term debt, which had a fair value of approximately
$2.0 billion at the time of the acquisition. The acquisition provides a
foundation for Duke Energy to establish a broader, long-term strategic natural
gas infrastructure platform to complement its existing natural gas pipeline
investments and regulated natural gas business in the Midwest. In connection
with the closing of the acquisition, Piedmont became a wholly owned subsidiary
of Duke Energy.
Purchase Price Allocation
The purchase price allocation of the Piedmont acquisition is as follows:
(in millions)
Current assets
Property, plant and equipment, net
Goodwill
Other long-term assets
Total assets
Current liabilities, including current maturities of long-term debt
Long-term liabilities
Long-term debt
Total liabilities
Total purchase price
$
497
4,714
3,353
804
9,368
576
1,790
2,002
4,368
$
5,000
The fair value of Piedmont’s assets and liabilities was determined based
on significant estimates and assumptions that are judgmental in nature, including
the amount and timing of projected future cash flows, discount rates reflecting risk
inherent in the future cash flows and market prices of long-term debt.
The majority of Piedmont’s operations are subject to the rate-setting
authority of the NCUC, the PSCSC and the TPUC and are accounted for pursuant to
accounting guidance for regulated operations. The rate-setting and cost recovery
provisions currently in place for Piedmont’s regulated operations provide revenues
derived from costs, including a return on investment of assets and liabilities
included in rate base. Thus, the fair value of Piedmont’s assets and liabilities
subject to these rate-setting provisions approximates the pre-acquisition carrying
values and does not reflect any net valuation adjustments.
The significant assets and liabilities for which valuation adjustments
were reflected within the purchase price allocation include the acquired equity
method investments and long-term debt. The difference between the fair value
and the pre-merger carrying values of long-term debt for regulated operations
was recorded as a regulatory asset.
The excess of the purchase price over the fair value of Piedmont’s assets
and liabilities on the acquisition date was recorded as goodwill. The goodwill
121
reflects the value paid by Duke Energy primarily for establishing a broader,
long-term strategic natural gas infrastructure growth platform, an improved risk
profile and expected synergies resulting from the combined entities.
Under Securities and Exchange Commission (SEC) regulations, Duke
Energy elected not to apply push down accounting to the stand-alone Piedmont
financial statements.
Accounting Charges Related to the Acquisition
Duke Energy incurred pretax non-recurring transaction and integration costs
associated with the acquisition of $103 million, $439 million and $9 million for the
years ended December 31, 2017, 2016 and 2015, respectively. Amounts recorded
on the Consolidated Statements of Operations in 2017 were primarily system
integration costs of $71 million related to combining the various operational and
financial systems of Duke Energy and Piedmont, including a one-time software
impairment resulting from planned accounting system and process integration.
A $7 million charge was recorded within Impairment Charges, with the remaining
$64 million recorded within Operation, maintenance and other.
Amounts recorded in 2016 include:
• Interest expense of $234 million related to the acquisition financing,
including realized losses on forward-starting interest rate swaps of
$190 million. See Note 14 for additional information on the swaps.
• Charges of $104 million related to commitments made in conjunction
with the transaction, including charitable contributions and a one-
time bill credit to Piedmont customers. $10 million was recorded as
a reduction in Operating Revenues, with the remaining $94 million
recorded within Operation, maintenance and other.
• Other transaction and integration costs of $101 million recorded to
Operation, maintenance and other, including professional fees and
severance.
The majority of transition and integration activities are expected to be
completed by the end of 2018.
Pro Forma Financial Information
The following unaudited pro forma financial information reflects the
combined results of operations of Duke Energy and Piedmont as if the merger
had occurred as of January 1, 2015. The pro forma financial information does
not include potential cost savings, intercompany revenues, Piedmont’s earnings
from a certain equity method investment sold immediately prior to the merger
or non-recurring transaction and integration costs incurred by Duke Energy and
Piedmont. The after-tax non-recurring transaction and integration costs incurred
by Duke Energy and Piedmont were $279 million and $19 million for the years
ended December 31, 2016, and 2015, respectively.
This information has been presented for illustrative purposes only and is not
necessarily indicative of the consolidated results of operations that would have
been achieved or the future consolidated results of operations of Duke Energy.
(in millions)
Operating Revenues
Net Income Attributable to Duke Energy Corporation
Years Ended December 31,
2016
2015
$ 23,504 $23,570
2,877
2,442
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Piedmont’s Earnings
Piedmont’s revenues and net income included in Duke Energy’s
Consolidated Statements of Operations for the year ended December 31, 2016,
were $367 million and $20 million, respectively. Piedmont’s revenues and net
income for the year ended December 31, 2016, include the impact of non-
recurring transaction costs of $10 million and $46 million, respectively.
Acquisition Related Financings and Other Matters
Duke Energy financed the Piedmont acquisition with a combination of debt
and equity issuances and other cash sources, including:
• $3.75 billion of long-term debt issued in August 2016.
• $750 million borrowed under the $1.5 billion short-term loan facility in
September 2016, which was repaid in December 2016.
• 10.6 million shares of common stock issued in October 2016 for net
cash proceeds of approximately $723 million.
The $4.9 billion senior unsecured bridge financing facility (Bridge Facility)
with Barclays Capital, Inc. (Barclays) was terminated following the issuance
of the long-term debt. For additional information related to the debt and
equity issuances, see Notes 6 and 18, respectively. For additional information
regarding Duke Energy’s and Piedmont’s joint investment in Atlantic Coast
Pipeline, LLC (ACP), see Note 4.
DISPOSITIONS
For the year ended December 31, 2017, the Loss from Discontinued
Operations, net of tax, was immaterial. The following table summarizes
the (Loss) Income from Discontinued Operations, net of tax recorded on
Duke Energy’s Consolidated Statements of Operations for the years ended
December 31, 2016, and 2015:
(in millions)
International Energy Disposal Group
Midwest Generation Disposal Group
Other(a)
(Loss) Income from Discontinued Operations, net of tax
Years Ended December 31,
2016
2015
$ (534)
36
90
$ (408)
$ 157
33
(13)
$ 177
(a) Relates to previously sold businesses not related to the Disposal Groups. The amount for 2016 represents
an income tax benefit resulting from immaterial out of period deferred tax liability adjustments. The
amount for 2015 includes indemnifications provided for certain legal, tax and environmental matters and
foreign currency translation adjustments.
2016 Sale of International Energy
In February 2016, Duke Energy announced it had initiated a process
to divest its International Energy businesses, excluding the equity method
investment in NMC (the International Disposal Group), and in October 2016,
announced it had entered into two separate purchase and sale agreements to
execute the divestiture. Both sales closed in December of 2016, resulting in
available cash proceeds of $1.9 billion, excluding transaction costs. Proceeds
were primarily used to reduce Duke Energy holding company (the parent) debt.
Existing favorable tax attributes result in no immediate U.S. federal-level cash
tax impacts. Details of each transaction are as follows:
• On December 20, 2016, Duke Energy closed on the sale of its ownership
interests in businesses in Argentina, Chile, Ecuador, El Salvador,
Guatemala and Peru to I Squared Capital. The assets sold included
approximately 2,230 MW of hydroelectric and natural gas generation
capacity, transmission infrastructure and natural gas processing
facilities. I Squared Capital purchased the businesses for an enterprise
value of $1.2 billion.
• On December 29, 2016, Duke Energy closed on the sale of its Brazilian
business, which included approximately 2,090 MW of hydroelectric
generation capacity, to CTG for an enterprise value of $1.2 billion. With
the closing of the CTG deal, Duke Energy finalized its exit from the Latin
American market.
Assets Held For Sale and Discontinued Operations
As a result of the transactions, the International Disposal Group was
classified as held for sale and as discontinued operations in the fourth quarter
of 2016. Interest expense directly associated with the International Disposal
Group was allocated to discontinued operations. No interest from corporate level
debt was allocated to discontinued operations.
The following table presents the results of the International Disposal
Group for the years ended December 31, 2016, and 2015, which are included
in (Loss) Income from Discontinued Operations, net of tax in Duke Energy’s
Consolidated Statements of Operations.
(in millions)
Operating Revenues
Fuel used in electric generation and purchased power
Cost of natural gas
Operation, maintenance and other
Depreciation and amortization(a)
Property and other taxes
Impairment charges(b)
(Loss) Gains on Sales of Other Assets and Other, net
Other Income and Expenses, net
Interest Expense
Pretax loss on disposal(c)
(Loss) Income before income taxes(d)
Income tax expense(e)(f)
(Loss) Income from discontinued operations of the
Years Ended December 31,
$
2016
988 $
227
43
341
62
15
194
(3)
58
82
(514)
(435)
99
2015
1,088
306
53
334
92
7
13
6
23
85
—
227
70
International Disposal Group
$
(534) $
157
(a) Upon meeting the criteria for assets held for sale, beginning in the fourth quarter of 2016 depreciation
(b)
expense was ceased.
In conjunction with the advancements of marketing efforts during 2016, Duke Energy performed recoverability
tests of the long-lived asset groups of International Energy. As a result, Duke Energy determined the carrying
value of certain assets in Central America was not fully recoverable and recorded a pretax impairment
charge of $194 million. The charge represents the excess of carrying value over the estimated fair value of
the assets, which was based on a Level 3 Fair Value measurement that was primarily determined from the
income approach using discounted cash flows but also considered market information obtained in 2016.
(c) The pretax loss on disposal includes the recognition of cumulative foreign currency translation losses of
$620 million as of the disposal date. See the Consolidated Statements of Changes in Equity for additional
information.
(d) Pretax (Loss) Income attributable to Duke Energy Corporation was $(445) million and $221 million for the
years ended December 31, 2016 and 2015, respectively.
(e) 2016 amount includes $126 million of income tax expense on the disposal, which primarily reflects in-
country taxes incurred as a result of the sale. The after-tax loss on disposal was $640 million.
(f) 2016 amount includes an income tax benefit of $95 million. See Note 22, “Income Taxes,” for additional
information.
122
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Duke Energy has elected not to separately disclose discontinued
operations on the Consolidated Statements of Cash Flows. The following table
summarizes Duke Energy’s cash flows from discontinued operations related to
the International Disposal Group.
(in millions)
Cash flows provided by (used in):
Operating activities
Investing activities
2015 Midwest Generation Exit
Years Ended December 31,
2016
2015
$
204 $
(434)
248
177
Other Sale Related Matters
During 2017, Duke Energy provided certain transition services to CTG
and I Squared Capital. Cash flows related to providing the transition services
were not material as of December 31, 2017. All transition services related to
the International Disposal Group ended in 2017. Additionally, Duke Energy will
reimburse CTG and I Squared Capital for all tax obligations arising from the
period preceding consummation on the transactions, totaling approximately
$78 million. Duke Energy has not recorded any other liabilities, contingent
liabilities or indemnifications related to the International Disposal Group.
Duke Energy, through indirect subsidiaries, completed the sale of the Midwest Generation Disposal Group to a subsidiary of Dynegy on April 2, 2015, for
approximately $2.8 billion in cash. The nonregulated Midwest generation business included generation facilities with approximately 5,900 MW of owned capacity
located in Ohio, Pennsylvania and Illinois. On April 1, 2015, prior to the sale, Duke Energy Ohio distributed its indirect ownership interest in the nonregulated Midwest
generation business to a subsidiary of Duke Energy Corporation.
Duke Energy utilized a revolving credit agreement (RCA) to support the operations of the nonregulated Midwest generation business. Duke Energy Ohio had a
power purchase agreement with the Midwest Generation Disposal Group for a portion of its standard service offer (SSO) supply requirement. The agreement and the
SSO expired in May 2015.
The results of operations of the Midwest Generation Disposal Group prior to the date of sale are classified as discontinued operations in the accompanying
Consolidated Statements of Operations. Interest expense associated with the RCA was allocated to discontinued operations. No other interest expense related to
corporate level debt was allocated to discontinued operations. Certain immaterial costs that were eliminated as a result of the sale remained in continuing operations.
The following table summarizes the Midwest Generation Disposal Group activity recorded within discontinued operations.
(in millions)
Operating Revenues
Pretax Loss on disposal(a)
Income (loss) before income taxes(b)
Income tax (benefit) expense(c)
Income (loss) from discontinued operations
Duke Energy
Duke Energy Ohio
Years Ended December 31, Years Ended December 31,
2016
$ —
—
$ —
(36)
$
36
2015
543
(45)
59
26
33
$
$
$
2016
$ —
—
$ —
(36)
36
$
2015
412
(52)
44
21
23
$
$
$
(a) The Loss on disposal includes impairments recorded to adjust the carrying amount of the assets to the estimated fair value of the business, based on the selling price to Dynegy less cost to sell.
(b) 2015 amounts include the impact of an $81 million charge for the settlement agreement reached in a lawsuit related to the Midwest Generation Disposal Group. Refer to Note 5 for further information about the lawsuit.
(c) 2016 amounts result from immaterial out of period deferred tax liability adjustments.
3. BUSINESS SEGMENTS
Operating segments are determined based on information used by the
The Electric Utilities and Infrastructure segment includes Duke Energy’s
chief operating decision-maker in deciding how to allocate resources and
evaluate the performance of the business. Duke Energy evaluates segment
performance based on segment income. Segment income is defined as income
from continuing operations net of income attributable to noncontrolling interests.
Segment income, as discussed below, includes intercompany revenues and
expenses that are eliminated on the Consolidated Financial Statements. Certain
governance costs are allocated to each segment. In addition, direct interest
expense and income taxes are included in segment income.
Products and services are sold between affiliate companies and
reportable segments of Duke Energy at cost. Segment assets as presented in the
tables that follow exclude all intercompany assets.
DUKE ENERGY
Duke Energy’s segment structure includes the following segments: Electric
Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial
Renewables.
123
regulated electric utilities in the Carolinas, Florida and the Midwest. The
regulated electric utilities conduct operations through the Subsidiary Registrants
that are substantially all regulated and, accordingly, qualify for regulatory
accounting treatment. Electric Utilities and Infrastructure also includes
Duke Energy’s commercial electric transmission infrastructure investments.
The Gas Utilities and Infrastructure segment includes Piedmont, Duke
Energy’s natural gas local distribution companies in Ohio and Kentucky, and
Duke Energy’s natural gas storage and midstream pipeline investments. Gas
Utilities and Infrastructure’s operations are substantially all regulated and,
accordingly, qualify for regulatory accounting treatment.
The Commercial Renewables segment is primarily comprised of
nonregulated utility scale wind and solar generation assets located throughout
the U.S.
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) The remainder of Duke Energy’s operations is presented as Other, which is primarily comprised of corporate interest expense, unallocated corporate costs,
contributions to the Duke Energy Foundation and the operations of Duke Energy’s wholly owned captive insurance subsidiary, Bison Insurance Company Limited
(Bison). Other also includes Duke Energy’s interest in NMC. See Note 12 for additional information on the investment in NMC.
Business segment information is presented in the following tables. Segment assets presented exclude intercompany assets.
Year Ended December 31, 2017
(in millions)
Unaffiliated Revenues
Intersegment Revenues
Total Revenues
Interest Expense
Depreciation and amortization
Equity in earnings (losses) of unconsolidated affiliates
Income tax expense (benefit)(a)
Segment income (loss)(b)(c)(d)
Add back noncontrolling interest component
Loss from discontinued operations, net of tax
Net income
Capital investments expenditures and acquisitions
Segment assets
Electric
Utilities and
Infrastructure
$ 21,300
31
$ 21,331
$
1,240
3,010
5
1,355
3,210
Gas
Utilities and
Infrastructure
$ 1,743
93
$ 1,836
$
105
231
62
116
319
Commercial
Renewables
$
$
$
460
—
460
87
155
(5)
(628)
441
Total
Reportable
Segments
$ 23,503
124
Other
Eliminations
Total
$
62
76
$ — $ 23,565
—
(200)
$ 23,627
$ 138
$ (200) $ 23,565
$
1,432
3,396
62
843
3,970
$ 574
131
57
353
(905)
$
(20) $
—
—
—
—
$
$ — $
188
1,986
3,527
119
1,196
3,065
5
(6)
3,064
8,198
137,914
$ — $ 22,743
—
(125)
$ (125) $ 22,743
$
(12) $
—
—
—
1
1,916
3,294
(15)
1,156
2,571
7
(408)
2,170
$
$ — $ 13,215
132,761
188
$
7,024
119,423
$
907
11,462
$
92
4,156
$
8,023
135,041
$ 175
2,685
(a) All segments include impacts of the Tax Cuts and Jobs Act (the Tax Act). Electric Utilities and Infrastructure includes a $231 million benefit, Gas Utilities and Infrastructure includes a $26 million benefit, Commercial
Renewables includes a $442 million benefit and Other includes charges of $597 million.
(b) Electric Utilities and Infrastructure includes after-tax regulatory settlement charges of $98 million. See Note 4 for additional information.
(c) Commercial Renewables includes after-tax impairment charges of $74 million related to certain wind projects and the Energy Management Solutions reporting unit. See Notes 10 and 11 for additional information.
(d) Other includes $64 million of after-tax costs to achieve the Piedmont merger. See Note 2 for additional information.
(in millions)
Unaffiliated Revenues
Intersegment Revenues
Total Revenues
Interest Expense
Depreciation and amortization
Equity in earnings (losses) of unconsolidated affiliates(a)
Income tax expense (benefit)
Segment income (loss)(b)(c)
Add back noncontrolling interest component
Loss from discontinued operations, net of tax(d)
Net income
Capital investments expenditures and acquisitions(e)
Segment assets
Year Ended December 31, 2016
Electric
Utilities and
Infrastructure
Gas
Utilities and
Infrastructure
Commercial
Renewables
$ 21,336
30
$ 21,366
$
1,136
2,897
5
1,672
3,040
$
$
$
875
26
901
46
115
19
90
152
$
$
$
484
—
484
53
130
(82)
(160)
23
Total
Reportable
Segments
$ 22,695
56
$ 22,751
$
1,235
3,142
(58)
1,602
3,215
$
$
$
48
69
117
693
152
43
(446)
(645)
$
6,649
114,993
$ 5,519
10,760
$
857
4,377
$ 13,025
130,130
$
190
2,443
Other
Eliminations
Total
Commercial Renewables includes a pretax impairment charge of $71 million. See Note 12 for additional information.
(a)
(b) Other includes $329 million of after-tax costs to achieve mergers. Refer to Note 2 for additional information on costs related to the Piedmont merger.
(c) Other includes after-tax charges of $57 million related to cost savings initiatives. Refer to Note 19 for further information.
(d)
(e) Other includes $26 million of capital investments expenditures related to the International Disposal Group. Gas Utilities and Infrastructure includes the Piedmont acquisition of $5 billion. Refer to Note 2 for more information on
Includes a loss on sale of the International Disposal Group. Refer to Note 2 for further information.
the Piedmont acquisition.
124
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) (in millions)
Unaffiliated Revenues
Intersegment Revenues
Total Revenues
Interest Expense
Depreciation and amortization
Equity in (losses) earnings of unconsolidated affiliates
Income tax expense (benefit)
Segment income (loss)(a)(b)(c)
Add back noncontrolling interest component
Income from discontinued operations, net of tax(d)
Net income
Capital investments expenditures and acquisitions(e)
Segment assets(f)
Year Ended December 31, 2015
Electric
Utilities and
Infrastructure
Gas
Utilities and
Infrastructure
Commercial
Renewables
$ 21,489
32
$ 21,521
$ 1,074
2,735
(2)
1,602
2,819
$
$
$
536
5
541
25
79
1
44
73
$
$
$
286
—
286
44
104
(6)
(128)
52
Total
Reportable
Segments
$ 22,311
37
$ 22,348
$
1,143
2,918
(7)
1,518
2,944
$
$
$
60
75
135
393
135
76
(262)
(299)
$ 6,852
109,097
$
234
2,637
$ 1,019
3,861
$
8,105
115,595
$
258
5,373
Other
Eliminations
Total
$ — $ 22,371
(112)
—
$ (112)
$ 22,371
$
$
(9)
—
—
—
—
$
$ — $
188
1,527
3,053
69
1,256
2,645
9
177
2,831
8,363
121,156
(a) Electric Utilities and Infrastructure includes an after-tax charge of $58 million related to the Edwardsport settlement. Refer to Note 4 for further information.
(b) Other includes $60 million of after-tax costs to achieve mergers.
(c) Other includes after-tax charges of $77 million related to cost savings initiatives. Refer to Note 19 for further information.
(d)
Includes the impact of a settlement agreement reached in a lawsuit related to the Midwest Generation Disposal Group. Refer to Note 5 for further information related to the lawsuit and Note 2 for further information on
discontinued operations.
(e) Other includes capital investment expenditures of $45 million related to the International Disposal Group.
(f) Other includes Assets Held for Sale balances related to the International Disposal Group. Refer to Note 2 for further information.
Geographical Information
For the years ended December 31, 2017, 2016 and 2015, all assets and revenues from continuing operations are within the U.S.
Major Customers
For the year ended December 31, 2017, revenues from one customer of Duke Energy Progress are $521 million. Duke Energy Progress has one reportable
segment, Electric Utilities and Infrastructure. No other subsidiary registrant has an individual customer representing more than 10 percent of its revenues.
Products and Services
The following table summarizes revenues of the reportable segments by type.
(in millions)
2017
Electric Utilities and Infrastructure
Gas Utilities and Infrastructure
Commercial Renewables
Total Reportable Segments
2016
Electric Utilities and Infrastructure
Gas Utilities and Infrastructure
Commercial Renewables
Total Reportable Segments
2015
Electric Utilities and Infrastructure
Gas Utilities and Infrastructure
Commercial Renewables
Total Reportable Segments
Retail
Electric
Wholesale
Electric
Retail
Natural Gas
Other
Total
Revenues
$ 18,177
—
—
$ 18,177
$ 18,338
—
—
$ 18,338
$ 18,695
—
—
$ 18,695
$
$
$
$
$
$
2,104
—
375
2,479
2,095
—
303
2,398
2,014
—
245
2,259
$
$
$
$
$
$
—
1,732
—
1,732
—
871
—
871
—
546
—
546
$ 1,050
104
85
$ 1,239
$
933
30
181
$ 1,144
$
$
812
(5)
41
848
$ 21,331
1,836
460
$ 23,627
$ 21,366
901
484
$ 22,751
$ 21,521
541
286
$ 22,348
125
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Duke Energy Ohio
Duke Energy Ohio has two reportable operating segments, Electric Utilities and Infrastructure and Gas Utilities and Infrastructure.
Electric Utilities and Infrastructure transmits and distributes electricity in portions of Ohio and generates, distributes and sells electricity in portions of Northern
Kentucky. Gas Utilities and Infrastructure transports and sells natural gas in portions of Ohio and Northern Kentucky. It conducts operations primarily through Duke
Energy Ohio and its wholly owned subsidiary, Duke Energy Kentucky.
The remainder of Duke Energy Ohio’s operations is presented as Other, which is primarily comprised of governance costs allocated by its parent, Duke Energy,
and revenues and expenses related to Duke Energy Ohio’s contractual arrangement to buy power from OVEC’s (Ohio Valley Electric Corporation) power plants. See
Note 13 for additional information on related party transactions. For the years ended December 31, 2017, 2016 and 2015, all Duke Energy Ohio assets and revenues
are within the U.S.
(in millions)
Total revenues
Interest expense
Depreciation and amortization
Income tax expense (benefit)
Segment income (loss)
Loss from discontinued operations, net of tax
Net income
Capital expenditures
Segment assets
(in millions)
Total revenues
Interest expense
Depreciation and amortization
Income tax expense (benefit)
Segment income (loss)
Income from discontinued operations, net of tax
Net income
Capital expenditures
Segment assets
(in millions)
Total revenues
Interest expense
Depreciation and amortization
Income tax expense (benefit)
Segment income (loss)
Income from discontinued operations, net of tax
Net income
Capital expenditures
Segment assets
Electric
Utilities and
Infrastructure
$ 1,373
$
62
178
40
138
$
491
5,066
Electric
Utilities and
Infrastructure
$ 1,410
$
58
151
55
154
Year Ended December 31, 2017
Gas
Utilities and
Infrastructure
Total
Reportable
Segments
Other
Eliminations
Total
$
$
508
28
83
39
85
$
195
2,758
$
$
$
1,881
90
261
79
223
$
$
42
1
—
(20)
(30)
686
7,824
$ —
66
Year Ended December 31, 2016
$ — $
1,923
$ — $
—
—
—
$
$ — $
(15)
91
261
59
193
(1)
192
686
7,875
Gas
Utilities and
Infrastructure
Total
Reportable
Segments
$
$
503
27
80
44
77
1,913
85
231
99
231
$
$
$
Other
$ 31
$
1
2
(21)
(39)
$
322
4,782
$
154
2,696
476
7,478
$ —
62
Year Ended December 31, 2015
Gas
Utilities and
Infrastructure
Total
Reportable
Segments
$
$
541
25
79
45
73
$
135
2,516
$
$
$
Other
$ 33
$
1
1
(23)
(41)
1,872
78
226
104
191
399
7,050
$ —
56
Electric
Utilities and
Infrastructure
$ 1,331
$
53
147
59
118
$
264
4,534
126
Eliminations
Total
$ — $ 1,944
$ — $
—
—
—
$
$ — $
(12)
86
233
78
192
36
228
476
7,528
Eliminations
Total
$ — $ 1,905
$ — $
—
—
(1)
$
$ — $
(9)
79
227
81
149
23
172
399
7,097
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued)
4. REGULATORY MATTERS
REGULATORY ASSETS AND LIABILITIES
The Duke Energy Registrants record regulatory assets and liabilities that result from the ratemaking process. See Note 1 for further information.
The following tables present the regulatory assets and liabilities recorded on the Consolidated Balance Sheets of Duke Energy and Progress Energy. See separate
tables below for balances by individual registrant.
(in millions)
Regulatory Assets
AROs – coal ash
AROs – nuclear and other
Accrued pension and OPEB
Retired generation facilities
Debt fair value adjustment
Net regulatory asset related to income taxes
Storm cost deferrals
Nuclear asset securitized balance, net
Hedge costs deferrals
Derivatives – natural gas supply contracts
Demand side management (DSM)/Energy efficiency (EE)
Grid modernization
Vacation accrual
Deferred fuel and purchased power
Nuclear deferral
Post-in-service carrying costs (PISCC) and deferred operating expenses
Transmission expansion obligation
Manufactured gas plant (MGP)
Advanced metering infrastructure (AMI)
NCEMPA deferrals
East Bend deferrals
Deferred pipeline integrity costs
Amounts due from customers
Other
Total regulatory assets
Less: current portion
Total noncurrent regulatory assets
Regulatory Liabilities
Costs of removal
ARO – nuclear and other
Net regulatory liability related to income taxes
Amounts to be refunded to customers
Storm reserve
Accrued pension and OPEB
Deferred fuel and purchased power
Other
Total regulatory liabilities
Less: current portion
Total noncurrent regulatory liabilities
127
Duke Energy
Progress Energy
December 31,
December 31,
2017
2016
2017
2016
$ 4,025
852
2,249
480
1,197
—
531
1,142
234
142
530
39
213
507
119
366
46
91
362
53
45
54
64
538
13,879
1,437
$ 3,761
684
2,387
534
1,313
894
153
1,193
217
187
407
65
196
156
226
413
71
99
218
51
32
36
66
542
13,901
1,023
$1,984
655
906
386
—
—
526
1,142
94
—
281
—
42
349
35
38
—
—
150
53
—
—
—
110
6,751
$ 1,830
569
882
422
—
231
148
1,193
91
—
278
—
38
111
134
42
—
—
—
51
—
—
—
103
6,123
741
401
$12,442
$12,878
$6,010
$ 5,722
$ 5,968
806
8,113
10
20
146
47
622
15,732
$ 5,613
461
—
45
83
174
192
722
7,290
$2,537
—
2,802
—
—
—
1
179
5,519
$ 2,198
—
—
—
60
—
81
245
2,584
402
409
213
189
$15,330
$ 6,881
$5,306
$ 2,395
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Descriptions of regulatory assets and liabilities summarized in the tables
above and below follow. See tables below for recovery and amortization periods
at the separate registrants.
AROs – coal ash. Represents deferred depreciation and accretion related
to the legal obligation to close ash basins. The costs are deferred until recovery
treatment has been determined. See Notes 1 and 9 for additional information.
AROs – nuclear and other. Represents regulatory assets or liabilities,
including deferred depreciation and accretion, related to legal obligations
associated with the future retirement of property, plant and equipment, excluding
amounts related to coal ash. The AROs relate primarily to decommissioning
nuclear power facilities. The amounts also include certain deferred gains and
losses on NDTF investments. See Notes 1 and 9 for additional information.
Accrued pension and OPEB. Accrued pension and other post-retirement
benefit obligations (OPEB) represent regulatory assets and liabilities related
to each of the Duke Energy Registrants’ respective shares of unrecognized
actuarial gains and losses and unrecognized prior service cost and credit
attributable to Duke Energy’s pension plans and OPEB plans. The regulatory
asset or liability is amortized with the recognition of actuarial gains and losses
and prior service cost and credit to net periodic benefit costs for pension and
OPEB plans. The accrued pension and OPEB regulatory asset is expected
to be recovered primarily over the average remaining service periods or life
expectancies of employees covered by the benefit plans. See Note 21 for
additional detail.
Retired generation facilities. Represents amounts to be recovered for
facilities that have been retired and are probable of recovery.
Nuclear deferral. Includes amounts related to levelizing nuclear plant
outage costs, which allows for the recognition of nuclear outage expenses over
the refueling cycle rather than when the outage occurs, resulting in the deferral
of operations and maintenance costs associated with refueling.
Post-in-service carrying costs and deferred operating expenses.
Represents deferred depreciation and operating expenses as well as carrying
costs on the portion of capital expenditures placed in service but not yet
reflected in retail rates as plant in service.
Gasification services agreement buyout. The IURC authorized Duke
Energy Indiana to recover costs incurred to buy out a gasification services
agreement, including carrying costs through 2017.
Transmission expansion obligation. Represents transmission
expansion obligations related to Duke Energy Ohio’s withdrawal from
Midcontinent Independent System Operator, Inc. (MISO).
MGP. Represents remediation costs incurred at former MGP sites and the
deferral of costs to be incurred at the East End and West End sites through 2019.
AMI. Represents deferred costs related to the installation of AMI meters
and remaining net book value of non-AMI meters to be replaced at Duke Energy
Carolinas, net book value of existing meters at Duke Energy Florida, Duke Energy
Progress and Duke Energy Ohio and expected future recovery of net book value
of electromechanical meters that have been replaced with AMI meters at Duke
Energy Indiana.
NCEMPA deferrals. Represents retail allocated cost deferrals and returns
associated with the additional ownership interest in assets acquired from
NCEMPA in 2015.
Debt fair value adjustment. Purchase accounting adjustments recorded
East Bend deferrals. Represents both deferred operating expenses and
to state the carrying value of Progress Energy and Piedmont at fair value in
connection with the 2012 and 2016 mergers, respectively. Amount is amortized
over the life of the related debt.
Net regulatory asset or liability related to income taxes. Amounts
for all registrants include regulatory liabilities related primarily to impacts from
the Tax Act. See Note 22 for additional information. Amounts have no immediate
impact on rate base as regulatory assets are offset by deferred tax liabilities.
Storm cost deferrals. Represents deferred incremental costs incurred
related to extraordinary weather-related events.
Nuclear asset securitized balance, net. Represents the balance
associated with Crystal River Unit 3 retirement approved for recovery by the
FPSC on September 15, 2015, and the upfront financing costs securitized in
2016 with issuance of the associated bonds. The regulatory asset balance is net
of the AFUDC equity portion.
deferred depreciation as well as carrying costs on the portion of East Bend
Generating Station (East Bend) that was acquired from Dayton Power and Light
and that had been previously operated as a jointly owned facility.
Deferred pipeline integrity costs. Represents pipeline integrity
management costs in compliance with federal regulations recovered through a
rider mechanism.
Amounts due from customers. Relates primarily to margin decoupling
and IMR recovery mechanisms.
Costs of removal. Represents funds received from customers to cover
the future removal of property, plant and equipment from retired or abandoned
sites as property is retired. Also includes certain deferred gains on NDTF
investments.
Amounts to be refunded to customers. Represents required rate
reductions to retail customers by the applicable regulatory body.
Hedge costs and other deferrals. Amounts relate to unrealized gains
Storm reserve. Amounts are used to offset future incurred costs for
and losses on derivatives recorded as a regulatory asset or liability, respectively,
until the contracts are settled.
Derivatives – natural gas supply contracts. Represents costs for
certain long-dated, fixed quantity forward gas supply contracts, which are
recoverable through PGA clauses.
DSM/EE. Deferred costs related to various DSM and EE programs
recoverable through various mechanisms.
Grid modernization. Amounts represent deferred depreciation and
operating expenses as well as carrying costs on the portion of capital expenditures
placed in service but not yet reflected in retail rates as plant in service.
Vacation accrual. Generally recovered within one year.
Deferred fuel and purchased power. Represents certain energy-
related costs that are recoverable or refundable as approved by the applicable
regulatory body.
named storms as approved by regulatory commissions.
RESTRICTIONS ON THE ABILITY OF CERTAIN SUBSIDIARIES TO MAKE
DIVIDENDS, ADVANCES AND LOANS TO DUKE ENERGY
As a condition to the approval of merger transactions, the NCUC, PSCSC,
PUCO, KPSC and IURC imposed conditions on the ability of Duke Energy
Carolinas, Duke Energy Progress, Duke Energy Ohio, Duke Energy Kentucky,
Duke Energy Indiana and Piedmont to transfer funds to Duke Energy through
loans or advances, as well as restricted amounts available to pay dividends to
Duke Energy. Certain subsidiaries may transfer funds to the parent by obtaining
approval of the respective state regulatory commissions. These conditions
imposed restrictions on the ability of the public utility subsidiaries to pay cash
dividends as discussed below.
128
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Duke Energy Progress and Duke Energy Florida also have restrictions
RATE RELATED INFORMATION
imposed by their first mortgage bond indentures, which, in certain
circumstances, limit their ability to make cash dividends or distributions on
common stock. Amounts restricted as a result of these provisions were not
material at December 31, 2017.
Additionally, certain other subsidiaries of Duke Energy have restrictions
on their ability to dividend, loan or advance funds to Duke Energy due to specific
legal or regulatory restrictions, including, but not limited to, minimum working
capital and tangible net worth requirements.
The restrictions discussed below were less than 25 percent of Duke
The NCUC, PSCSC, FPSC, IURC, PUCO, TPUC and KPSC approve rates for
retail electric and natural gas services within their states. The FERC approves
rates for electric sales to wholesale customers served under cost-based
rates (excluding Ohio and Indiana), as well as sales of transmission service.
The FERC also regulates certification and siting of new interstate natural gas
pipeline projects.
All Registrants
Energy’s and Progress Energy’s net assets at December 31, 2017.
Tax Act Impacts
Duke Energy Carolinas
Duke Energy Carolinas must limit cumulative distributions subsequent to
mergers to (i) the amount of retained earnings on the day prior to the closing of
the mergers, plus (ii) any future earnings recorded.
Duke Energy Progress
Duke Energy Progress must limit cumulative distributions subsequent to
the mergers between Duke Energy and Progress Energy and Duke Energy and
Piedmont to (i) the amount of retained earnings on the day prior to the closing of
the respective mergers, plus (ii) any future earnings recorded.
Duke Energy Ohio
Duke Energy Ohio will not declare and pay dividends out of capital or
unearned surplus without the prior authorization of the PUCO. Duke Energy Ohio
received FERC and PUCO approval to pay dividends from its equity accounts
that are reflective of the amount that it would have in its retained earnings
account had push-down accounting for the Cinergy Corp. (Cinergy) merger not
been applied to Duke Energy Ohio’s balance sheet. The conditions include a
commitment from Duke Energy Ohio that equity, adjusted to remove the impacts
of push-down accounting, will not fall below 30 percent of total capital.
Duke Energy Kentucky is required to pay dividends solely out of retained
earnings and to maintain a minimum of 35 percent equity in its capital
structure.
Duke Energy Indiana
Duke Energy Indiana must limit cumulative distributions subsequent
to the merger between Duke Energy and Cinergy to (i) the amount of retained
earnings on the day prior to the closing of the merger, plus (ii) any future
earnings recorded. In addition, Duke Energy Indiana will not declare and pay
dividends out of capital or unearned surplus without prior authorization of the
IURC.
Piedmont
Piedmont must limit cumulative distributions subsequent to the
acquisition of Piedmont by Duke Energy to (i) the amount of retained earnings on
the day prior to the closing of the merger, plus (ii) any future earnings recorded.
On December 22, 2017, President Trump signed the Tax Act into law,
which, among other provisions, reduces the maximum federal corporate income
tax rate from 35 percent to 21 percent, effective January 1, 2018. As a result
of the Tax Act, the Subsidiary Registrants revalued their deferred tax assets
and deferred tax liabilities, as of December 31, 2017, to account for the future
impact of lower corporate tax rates on these deferred tax amounts. For the
Subsidiary Registrants regulated operations, where the reduction is expected
to be accounted for and applied to customers’ rates in future commission
proceedings, including rate proceedings, the net remeasurement has been
deferred as a regulatory liability. Each of the Subsidiary Registrant’s regulatory
commissions is reviewing the Tax Act to determine the potential impacts on
customer rates. Beginning in January 2018, the Subsidiary Registrants will defer
the estimated ongoing impacts of the Tax Act that are expected to be returned to
customers. See Note 22 for additional information.
Duke Energy Carolinas and Duke Energy Progress
Ash Basin Closure Costs Deferral
On December 30, 2016, Duke Energy Carolinas and Duke Energy
Progress filed a joint petition with the NCUC seeking an accounting order
authorizing deferral of certain costs incurred in connection with federal and
state environmental remediation requirements related to the permanent closure
of ash basins and other ash storage units at coal-fired generating facilities
that have provided or are providing generation to customers located in North
Carolina. Initial comments were received in March 2017, and reply comments
were filed on April 19, 2017. The NCUC has consolidated Duke Energy Carolinas’
and Duke Energy Progress’ coal ash deferral requests into their respective
general rate case dockets for decision. See “2017 North Carolina Rate Case”
sections below for additional discussion. Duke Energy Carolinas and Duke
Energy Progress cannot predict the outcome of this matter.
129
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Duke Energy Carolinas
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Duke Energy Carolinas’ Consolidated Balance Sheets.
(in millions)
Regulatory Assets(a)
AROs - coal ash
AROs - nuclear and other
Accrued pension and OPEB
Retired generation facilities(c)
Net regulatory asset related to income taxes(d)
Hedge costs deferrals(c)
DSM/EE
Vacation accrual
Deferred fuel and purchased power
Nuclear deferral
PISCC(c)
AMI
Other
Total regulatory assets
Less: current portion
Total noncurrent regulatory assets
Regulatory Liabilities(a)
Costs of removal(c)
ARO - nuclear and other
Net regulatory liability related to income taxes(d)
Storm reserve(c)
Accrued pension and OPEB
Deferred fuel and purchased power
Other
Total regulatory liabilities
Less: current portion
Total noncurrent regulatory liabilities
December 31,
Earns/Pays
a Return
Recovery/Refund
Period Ends
2016
2017
$ 1,645
—
410
29
—
109
210
83
140
84
35
185
222
3,152
$ 1,536
9
481
39
484
93
122
76
—
92
70
172
223
3,397
299
238
$ 2,853
$ 3,159
$ 2,054
806
3,028
20
44
46
359
6,357
$ 2,015
461
—
22
46
105
352
3,001
126
161
$ 6,231
$ 2,840
(i)
X
X
(h)
(e)
(f)
X
X
X
(f)
(b)
(j)
2023
2041
(h)
2018
2018
2019
(b)
(b)
(b)
(g)
(b)
(b)
(b)
(j)
2018
(b)
Included in rate base.
Includes regulatory liabilities related to the change in the North Carolina tax rate discussed in Note 22.
(a) Regulatory assets and liabilities are excluded from rate base unless otherwise noted.
(b) The expected recovery or refund period varies or has not been determined.
(c)
(d)
(e) Earns a return on outstanding balance in North Carolina.
(f) Pays interest on over-recovered costs in North Carolina. Includes certain purchased power costs in North Carolina and South Carolina and costs of distributed energy in South Carolina.
(g) Recovered over the life of the associated assets.
(h)
(i)
(j) Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 21 for additional detail.
Includes incentives on DSM/EE investments and is recovered through an annual rider mechanism.
Earns a debt return on coal ash expenditures for North Carolina and South Carolina retail customers.
130
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) 2017 North Carolina Rate Case
William States Lee Combined Cycle Facility
On August 25, 2017, Duke Energy Carolinas filed an application with the
On April 9, 2014, the PSCSC granted Duke Energy Carolinas and
NCUC for a rate increase for retail customers of approximately $647 million,
which represents an approximate 13.6 percent increase in annual base
revenues. The rate increase is driven by capital investments subsequent to the
previous base rate case, including grid improvement projects, AMI, investments
in customer service technologies, costs of complying with coal combustion
residuals (CCR) regulations and the North Carolina Coal Ash Management Act of
2014 (Coal Ash Act) and recovery of costs related to licensing and development
of the William States Lee III Nuclear Station (Lee Nuclear Station) discussed
below. On January 23, 2018, the North Carolina Public Staff filed testimony
recommending an overall rate decrease of approximately $290 million. An
evidentiary hearing is scheduled to begin on February 27, 2018, and a decision
and revised customer rates are expected by mid-2018. Duke Energy Carolinas
cannot predict the outcome of this matter.
FERC Formula Rate Matter
On July 31, 2017, Piedmont Municipal Power Agency (PMPA) filed a
complaint with FERC against Duke Energy Carolinas alleging that Duke Energy
Carolinas misapplied the formula rate under the purchase power agreement
(PPA) between the parties by including regulatory amortization in its rates
without FERC approval. Duke Energy Carolinas disagreed with PMPA as it
believed it was properly applying its FERC filed rate. On February 15, 2018,
FERC issued an order ruling in favor of PMPA and ordered Duke Energy Carolinas
to refund to PMPA all amounts improperly collected under the PPA. Resolution of
this matter is not expected to be material.
Lincoln County Combustion Turbine
On December 7, 2017, the NCUC issued an order approving a Certificate
of Public Convenience and Necessity (CPCN) for Duke Energy Carolinas’
proposed 402-megawatt (MW) simple cycle, advanced combustion turbine
natural gas-fueled electric generating unit at its existing Lincoln County site.
The CPCN also includes construction of related transmission and natural gas
pipeline interconnection facilities. Construction is scheduled to begin in 2018
with an extended commissioning and validation period from 2020-2024 and an
estimated commercial operation date in 2024. As a condition of the approval,
Duke Energy Carolinas will not seek recovery of costs associated with the
project until it is placed into commercial operation.
Advanced Metering Infrastructure Deferral
On July 12, 2016, the PSCSC issued an accounting order for Duke Energy
Carolinas to defer the financial effects of depreciation expense incurred for
the installation of AMI meters, the carrying costs on the investment at its
weighted average cost of capital (WACC) and the carrying costs on the deferred
costs at its WACC not to exceed $45 million. The decision also allows Duke
Energy Carolinas to continue to depreciate the non-AMI meters to be replaced.
Current retail rates will not change as a result of the decision and the ability
of interested parties to challenge the reasonableness of expenditures in
subsequent proceedings is not limited.
North Carolina Electric Membership Corporation (NCEMC) a Certificate of
Environmental Compatibility and Public Convenience and Necessity (CECPCN)
for the construction and operation of a 750-MW combined-cycle natural gas-
fired generating plant at Duke Energy Carolinas’ existing William States Lee
Generating Station in Anderson, South Carolina. Duke Energy Carolinas began
construction in July 2015 and estimates a cost to build of $600 million for its
share of the facility, including allowance for funds used during construction
(AFUDC). The project is expected to be commercially available in the first
quarter of 2018. NCEMC will own approximately 13 percent of the project.
On July 3, 2014, the South Carolina Coastal Conservation League (SCCL) and
Southern Alliance for Clean Energy (SACE) jointly filed a Notice of Appeal with
the Court of Appeals of South Carolina (S.C. Court of Appeals) seeking the
court’s review of the PSCSC’s decision, claiming the PSCSC did not properly
consider a request related to a proposed solar facility prior to granting approval
of the CECPCN. The S.C. Court of Appeals affirmed the PSCSC’s decision on
February 10, 2016, and on March 24, 2016, denied a request for rehearing
filed by SCCL and SACE. On April 21, 2016, SCCL and SACE petitioned the
South Carolina Supreme Court for review of the S.C. Court of Appeals decision.
On March 24, 2017, the South Carolina Supreme Court denied the request for
review, thus concluding the matter.
Lee Nuclear Station
In December 2007, Duke Energy Carolinas applied to the NRC for
combined operating licenses (COLs) for two Westinghouse AP1000 reactors
for the proposed William States Lee III Nuclear Station to be located at a site
in Cherokee County, South Carolina. The NCUC and PSCSC concurred with the
prudency of Duke Energy Carolinas incurring certain project development and
preconstruction costs through several separately issued orders, although full
cost recovery is not guaranteed. In December 2016, the NRC issued a COL for
each reactor. Duke Energy Carolinas is not required to build the nuclear reactors
as result of the COLs being issued.
On March 29, 2017, Westinghouse filed for voluntary Chapter 11
bankruptcy in the U.S. Bankruptcy Court for the Southern District of New
York. As part of its 2017 North Carolina Rate Case discussed above, Duke
Energy Carolinas is seeking NCUC approval to cancel the development of the
Lee Nuclear Station project due to the Westinghouse bankruptcy filing and
other market activity and is requesting recovery of incurred licensing and
development costs. Duke Energy Carolinas will maintain the license issued
by the NRC in December 2016 as an option for potential future development.
As of December 31, 2017, Duke Energy Carolinas has incurred approximately
$558 million of costs, including AFUDC, related to the project. These project
costs are included in Net property, plant and equipment on Duke Energy
Carolinas’ Consolidated Balance Sheets. Duke Energy Carolinas cannot predict
the outcome of this matter.
131
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Duke Energy Progress
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Duke Energy Progress’ Consolidated Balance Sheets.
(in millions)
Regulatory Assets(a)
AROs – coal ash
AROs – nuclear and other
Accrued pension and OPEB
Retired generation facilities
Net regulatory asset related to income taxes
Storm cost deferrals(e)
Hedge costs deferrals
DSM/EE(f)
Vacation accrual
Deferred fuel and purchased power
Nuclear deferral
PISCC and deferred operating expenses
AMI
NCEMPA deferrals
Other
Total regulatory assets
Less: current portion
Total noncurrent regulatory assets
Regulatory Liabilities(a)
Costs of removal
Net regulatory liability related to income taxes
Deferred fuel and purchased power
Other
Total regulatory liabilities
Less: current portion
Total noncurrent regulatory liabilities
December 31,
Earns/Pays
a Return
Recovery/Refund
Period Ends
2016
2017
$ 1,975
359
430
170
—
150
64
264
42
130
35
38
75
53
74
3,859
$ 1,822
275
423
165
7
148
66
263
38
24
38
42
—
51
69
3,431
352
188
$ 3,507
$ 3,243
$ 2,122
1,854
1
161
4,138
$ 1,840
—
64
200
2,104
139
158
$ 3,999
$ 1,946
(i)
X
X
(j)
(g)
X
(h)
X
(g)
(b)
(c)
(l)
2023
(d)
(b)
(b)
2018
2018
2018
2019
2054
(b)
2042
(b)
(k)
(b)
2018
(b)
Included in rate base.
(a) Regulatory assets and liabilities are excluded from rate base unless otherwise noted.
(b) The expected recovery or refund period varies or has not been determined.
(c) Recovery period for costs related to nuclear facilities runs through the decommissioning period of each unit.
(d) Recovery over the life of the associated assets. Includes regulatory liabilities related to the change in the North Carolina tax rate discussed in Note 22.
(e) South Carolina storm costs are included in rate base.
(f)
(g) Pays interest on over-recovered costs in North Carolina. Includes certain purchased power costs in North Carolina and South Carolina and costs of distributed energy in South Carolina.
(h) South Carolina retail allocated costs are earning a return.
Earns a debt return on coal ash expenditures for North Carolina and South Carolina retail customers.
(i)
(j)
Includes incentives on DSM/EE investments.
(k) Recovered over the life of the associated assets.
(l) Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 21 for additional detail.
132
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) 2017 North Carolina Rate Case
On June 1, 2017, Duke Energy Progress filed an application with the NCUC
for a rate increase for retail customers of approximately $477 million, which
represented an approximate 14.9 percent increase in annual base revenues.
Subsequent to the filing, Duke Energy Progress adjusted the requested amount
to $420 million, representing an approximate 13 percent increase. The rate
increase is driven by capital investments subsequent to the previous base
rate case, costs of complying with CCR regulations and the Coal Ash Act, costs
relating to storm recovery, investments in customer service technologies and
recovery of costs associated with renewable purchased power. On November 22,
2017, Duke Energy Progress and the North Carolina Public Staff filed an
Agreement and Stipulation of Partial Settlement resolving certain portions of the
proceeding, pending NCUC approval. Terms of the settlement include a return on
equity of 9.9 percent and a capital structure of 52 percent equity and 48 percent
debt. As a result of the settlement, in 2017 Duke Energy Progress recorded
pretax charges totaling approximately $25 million to Impairment charges and
Operation, maintenance and other on the Consolidated Income Statements,
principally related to disallowances from rate base of certain projects at the
Mayo and Sutton plants. The settlement does not include agreement on portions
of the rate case relating to recovery of deferred storm recovery costs and coal
ash basin deferred costs, which will be decided by the NCUC separately. Taking
into consideration the settled portions and Duke Energy Progress’ requested
recovery of the non-settled portions, the requested rate increase is reduced to
approximately $300 million. An evidentiary hearing ended December 7, 2017,
and a decision and revised customer rates are expected in the first quarter of
2018. Duke Energy Progress cannot predict the outcome of this matter.
Storm Cost Deferral Filings
On December 16, 2016, Duke Energy Progress filed a petition with
the NCUC requesting an accounting order to defer certain costs incurred in
connection with response to Hurricane Matthew and other significant storms
in 2016. The final estimate of incremental operation and maintenance and
capital costs of $116 million was filed with the NCUC in September 2017. On
March 15, 2017, the NCUC Public Staff filed comments supporting deferral of a
portion of Duke Energy Progress’ requested amount. Duke Energy Progress filed
reply comments on April 12, 2017. On July 10, 2017, the NCUC consolidated
Duke Energy Progress’ storm deferral request into the Duke Energy Progress rate
case docket for decision. See “2017 North Carolina Rate Case” for additional
discussion. As of December 31, 2017, Duke Energy Progress has approximately
$77 million included in Regulatory assets on its Consolidated Balance Sheets.
Duke Energy Progress cannot predict the outcome of this matter.
On December 16, 2016, Duke Energy Progress filed a petition with the
PSCSC requesting an accounting order to defer certain costs incurred related
to repairs and restoration of service following Hurricane Matthew. The final
estimate of incremental operation and maintenance and capital costs was
approximately $74 million. In January 2017, the PSCSC approved the deferral
request and issued an accounting order. As of December 31, 2017, Duke Energy
Progress has approximately $73 million included in Regulatory assets on its
Consolidated Balance Sheets.
South Carolina Rate Case
In December 2016, the PSCSC approved a rate case settlement agreement
among the ORS (Office of Regulatory Staff), intervenors and Duke Energy
Progress. Terms of the settlement agreement included an approximate $56
million increase in revenues over a two-year period. An increase of approximately
$38 million in revenues was effective January 1, 2017, and an additional
increase of approximately $18.5 million in revenues was effective January 1,
2018. Duke Energy Progress amortized approximately $18.5 million from the cost
of removal reserve in 2017. Other settlement terms included a rate of return on
equity of 10.1 percent, recovery of coal ash costs incurred from January 1, 2015,
through June 30, 2016, over a 15-year period and ongoing deferral of allocated
ash basin closure costs from July 1, 2016, until the next base rate case. The
settlement also provides that Duke Energy Progress will not seek an increase in
rates in South Carolina to occur prior to 2019, with limited exceptions.
Western Carolinas Modernization Plan
On November 4, 2015, Duke Energy Progress announced a Western
Carolinas Modernization Plan, which included retirement of the existing
Asheville coal-fired plant, the construction of two 280-MW combined-cycle
natural gas plants having dual fuel capability, with the option to build a third
natural gas simple cycle unit in 2023 based upon the outcome of initiatives to
reduce the region’s power demand. The plan also included upgrades to existing
transmission lines and substations, installation of solar generation and a
pilot battery storage project. These investments will be made within the next
seven years. Duke Energy Progress is also working with the local natural gas
distribution company to upgrade an existing natural gas pipeline to serve the
natural gas plant.
On March 28, 2016, the NCUC issued an order approving a CPCN for
the new combined-cycle natural gas plants, but denying the CPCN for the
contingent simple cycle unit without prejudice to Duke Energy Progress to refile
for approval in the future. On March 28, 2017, Duke Energy Progress filed an
annual progress report for the construction of the combined-cycle plants with
the NCUC, with an estimated cost of $893 million. Site preparation activities for
the combined-cycle plants are underway and construction of these plants began
in 2017, with an expected in-service date in late 2019. Duke Energy Progress
plans to file for future approvals related to the proposed solar generation and
pilot battery storage project.
The carrying value of the 376-MW Asheville coal-fired plant, including
associated ash basin closure costs, of $385 million and $492 million are
included in Generation facilities to be retired, net on Duke Energy Progress’
Consolidated Balance Sheets as of December 31, 2017, and 2016, respectively.
Shearon Harris Nuclear Plant Expansion
In 2006, Duke Energy Progress selected a site at Harris to evaluate for
possible future nuclear expansion. On February 19, 2008, Duke Energy Progress
filed its COL application with the NRC for two Westinghouse AP1000 reactors
at Harris, which the NRC docketed for review. On May 2, 2013, Duke Energy
Progress filed a letter with the NRC requesting the NRC to suspend its review
activities associated with the COL at the Harris site. The NCUC and PSCSC
approved deferral of retail costs. Total deferred costs were approximately
$47 million as of December 31, 2017, and are recorded in Regulatory assets on
Duke Energy Progress’ Consolidated Balance Sheets. On November 17, 2016,
the FERC approved Duke Energy Progress’ rate recovery request filing for the
wholesale ratepayers’ share of the abandonment costs, including a debt only
return to be recovered through revised formula rates and amortized over a
15-year period beginning May 1, 2014. As part of the settlement agreement
for the 2017 North Carolina Rate Case discussed above, Duke Energy Progress
will amortize the regulatory asset over an eight-year period. The settlement is
subject to NCUC approval. Duke Energy Progress cannot predict the outcome of
this matter.
133
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Duke Energy Florida
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Duke Energy Florida’s Consolidated Balance Sheets.
(in millions)
Regulatory Assets(a)
AROs – coal ash(c)
AROs – nuclear and other(c)
Accrued pension and OPEB(c)
Retired generation facilities(c)
Net regulatory asset related to income taxes(c)
Storm cost deferrals(c)
Nuclear asset securitized balance, net
Hedge costs deferrals
DSM/EE(c)
Deferred fuel and purchased power(c)
Nuclear deferral
AMI(c)
Other
Total regulatory assets
Less: current portion
Total noncurrent regulatory assets
Regulatory Liabilities(a)
Costs of removal(c)
Net regulatory liability related to income taxes(c)
Storm reserve(c)
Deferred fuel and purchased power(c)
Other
Total regulatory liabilities
Less: current portion
Total noncurrent regulatory liabilities
December 31,
2017
2016
Earns/Pays
a Return
Recovery/Refund
Period Ends
(b)
(b)
(h)
(b)
(d)
2021
2036
2018
2018
2019
2032
(b)
(b)
(b)
(b)
X
X
X
X
X
(f)
X
(g)
X
(e)
(g)
$
9
296
476
216
—
376
1,142
30
17
219
—
75
36
2,892
389
$
8
294
458
257
224
—
1,193
25
15
87
96
—
36
2,693
213
$ 2,503
$ 2,480
$
415
948
—
—
18
1,381
74
$
358
—
60
17
44
479
31
$ 1,307
$
448
Included in rate base.
(a) Regulatory assets and liabilities are excluded from rate base unless otherwise noted.
(b) The expected recovery or refund period varies or has not been determined.
(c)
(d) Recovery over the life of the associated assets.
(e) Certain costs earn a return.
(f)
(g) Earns commercial paper rate.
(h) Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 21 for additional detail.
Earns a debt return/interest once collections begin.
Storm Restoration Cost Recovery
In September 2017, Duke Energy Florida’s service territory suffered
significant damage from Hurricane Irma, resulting in approximately 1.3
million customers experiencing outages. In the fourth quarter of 2017, Duke
Energy Florida also incurred preparation costs related to Hurricane Nate. On
December 28, 2017, Duke Energy Florida filed a petition with the FPSC to
recover incremental storm restoration costs for Hurricanes Irma and Nate and
to replenish the storm reserve. The estimated recovery amount is approximately
$513 million to be recovered over a three-year period beginning in March 2018,
subject to true up, which includes reestablishment of a $132 million storm
reserve. At December 31, 2017, Duke Energy Florida’s Consolidated Balance
Sheets included approximately $376 million of recoverable costs under the
FPSC’s storm rule in Regulatory assets within Other Noncurrent Assets related
to storm recovery. On February 6, 2018, the FPSC approved Duke Energy
Florida’s motion to approve a stipulation that would apply tax savings resulting
from the Tax Act toward storm costs in lieu of implementing a storm surcharge.
2017 Second Revised and Restated Settlement Agreement
On November 20, 2017, the FPSC issued an order to approve the 2017
Second Revised and Restated Settlement Agreement (2017 Settlement) filed
by Duke Energy Florida. The 2017 Settlement replaces and supplants the 2013
Settlement. The 2017 Settlement extends the base rate case stay-out provision
from the 2013 Settlement through the end of 2021 unless actual or projected
return on equity falls below 9.5 percent; however, Duke Energy Florida is allowed
a multiyear increase to its base rates of $67 million per year in 2019, 2020
and 2021, as well as base rate increases for solar generation. In addition to
134
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) carrying forward the provisions contained in the 2013 Settlement related to
the Crystal River 1 and 2 coal units discussed below and future generation
needs in Florida, the 2017 Settlement contains provisions related to future
investments in solar and renewable energy technology, future investments in
AMI technology as well as recovery of existing meters, impacts of the Tax Act,
an electric vehicle charging station pilot program and the termination of the
proposed Levy Nuclear Project discussed below. As part of the 2017 Settlement,
Duke Energy Florida will not move forward with building the Levy nuclear plant
and recorded a pretax impairment charge of approximately $135 million in 2017
to write off all unrecovered Levy Nuclear Project costs, including the COL. As a
result of the 2017 Settlement, Duke Energy Florida transferred $75 million to a
regulatory asset for the net book value of existing meter technology, which will
be recovered over a 15-year period.
The 2017 Settlement includes provisions to recover 2017 under-recovered
fuel costs of approximately $196 million over a 24-month period beginning in
January 2018. On September 1, 2017, Duke Energy Florida submitted Alternate
2018 Fuel and Capacity clause projection filings consistent with the terms of
the 2017 Settlement. The updated capacity filing reflects the removal of all
Levy costs. The FPSC approved Duke Energy Florida’s 2018 Alternate projection
filings on October 25, 2017.
Hines Chiller Uprate Project
On February 2, 2017, Duke Energy Florida filed a petition seeking approval
to include in base rates the revenue requirement for a Chiller Uprate Project
(Uprate Project) at the Hines Energy Complex. The Uprate Project was placed
into service in March 2017 at a cost of approximately $150 million. The annual
retail revenue requirement is approximately $19 million. On March 28, 2017, the
FPSC issued an order approving the revenue requirement, which was included
in base rates for the first billing cycle of April 2017.
Citrus County Combined Cycle Facility
On October 2, 2014, the FPSC granted Duke Energy Florida a
Determination of Need for the construction of a 1,640-MW combined-cycle
natural gas plant in Citrus County, Florida. On May 5, 2015, the Florida
Department of Environmental Protection approved Duke Energy Florida’s Site
Certification Application. The project has received all required permits and
approvals and construction began in October 2015. The facility is expected to be
commercially available in 2018 at an estimated cost of $1.5 billion, including
AFUDC. The plant will receive natural gas from the Sabal Trail Transmission, LLC
(Sabal Trail) pipeline discussed below.
Purchase of Osprey Energy Center
Duke Energy Florida received a Civil Investigative Demand from the
Department of Justice (DOJ) related to alleged violation of the waiting period
for the Hart-Scott-Rodino Antitrust Improvements Act of 1976 related to the
purchase of the Osprey Energy Center, LLC, which was completed in January
2017. The DOJ alleged Duke Energy Florida assumed operational control of the
Osprey Plant before the waiting period expiration on February 27, 2015. On
January 17, 2017, Duke Energy Florida entered into a stipulation agreement to
settle with the DOJ for $600,000 without admission of liability. On January 18,
2017, the DOJ filed a complaint and the stipulation in the U.S. District Court
for the District of Columbia, which was approved by the court. A final order
dismissing the case was entered in April 2017.
Crystal River Unit 3
In December 2014, the FPSC approved Duke Energy Florida’s decision to
construct an independent spent fuel storage installation (ISFSI) for the retired
Crystal River Unit 3 nuclear plant and approved Duke Energy Florida’s request
to defer amortization of the ISFSI pending resolution of litigation against the
federal government as a result of the Department of Energy’s breach of its
obligation to accept spent nuclear fuel. The return rate is based on the currently
approved AFUDC rate with a return on equity of 7.35 percent, or 70 percent of
the currently approved 10.5 percent. The return rate is subject to change if the
return on equity changes in the future. In September 2016, the FPSC approved
an amendment to the 2013 Settlement authorizing recovery of the ISFSI through
the Capacity Cost Recovery Clause. Through December 31, 2017, Duke Energy
Florida has deferred approximately $113 million for recovery associated with
building the ISFSI. See Note 5 for additional information on spent nuclear fuel
litigation.
The regulatory asset associated with the original Crystal River Unit 3
power uprate project will continue to be recovered through the NCRC over an
estimated seven-year period that began in 2013 with a remaining uncollected
balance of $87 million at December 31, 2017.
Crystal River Unit 3 Regulatory Asset
On September 15, 2015, the FPSC approved Duke Energy Florida’s
motion for approval of a settlement agreement with intervenors to reduce the
value of the projected Crystal River Unit 3 regulatory asset to be recovered to
$1.283 billion as of December 31, 2015. An impairment charge of $15 million
was recognized in 2015 to adjust the regulatory asset balance. In November
2015, the FPSC issued a financing order approving Duke Energy Florida’s
request to issue nuclear asset-recovery bonds to finance its unrecovered
regulatory asset related to Crystal River Unit 3 through a wholly owned special
purpose entity. Nuclear asset-recovery bonds replace the base rate recovery
methodology authorized by the 2013 Settlement and result in a lower rate
impact to customers with a recovery period of approximately 20 years.
Pursuant to provisions in Florida Statutes and the FPSC financing order,
in 2016, Duke Energy Florida formed Duke Energy Florida Project Finance, LLC
(DEFPF), a wholly owned, bankruptcy remote special purpose subsidiary for the
purpose of issuing nuclear asset-recovery bonds. In June 2016, DEFPF issued
$1,294 million aggregate principal amount of senior secured bonds (nuclear
asset-recovery bonds) to finance the recovery of Duke Energy Florida’s Crystal
River 3 regulatory asset.
In connection with this financing, net proceeds to DEFPF of approximately
$1,287 million, after underwriting costs, were used to acquire nuclear asset-recovery
property from Duke Energy Florida and to pay transaction related expenses. The
nuclear asset-recovery property includes the right to impose, bill, collect and adjust
a non-bypassable nuclear asset-recovery charge, to be collected on a per kilowatt-
hour basis, from all Duke Energy Florida retail customers until the bonds are paid
in full. Duke Energy Florida began collecting the nuclear asset-recovery charge on
behalf of DEFPF in customer rates in July 2016.
See Note 17 for additional information.
Levy Nuclear Project
On July 28, 2008, Duke Energy Florida applied to the NRC for COLs for
two Westinghouse AP1000 reactors at Levy (Levy Nuclear Project). In 2008, the
FPSC granted Duke Energy Florida’s petition for an affirmative Determination
of Need and related orders requesting cost recovery under Florida’s
nuclear cost-recovery rule, together with the associated facilities, including
transmission lines and substation facilities. In October 2016, the NRC issued
135
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) COLs for the proposed Levy Nuclear Plant Units 1 and 2. Duke Energy Florida is
not required to build the nuclear reactors as a result of the COLs being issued.
On January 28, 2014, Duke Energy Florida terminated the Levy
engineering, procurement and construction agreement (EPC). Duke Energy
Florida may be required to pay for work performed under the EPC. Duke Energy
Florida recorded an exit obligation in 2014 for the termination of the EPC. This
liability was recorded within Other in Other Noncurrent Liabilities with an offset
primarily to Regulatory assets on the Consolidated Balance Sheets. Duke Energy
Florida is allowed to recover reasonable and prudent EPC cancellation costs
from its retail customers. On May 1, 2017, Duke Energy Florida filed a request
with the FPSC to recover approximately $82 million of Levy Nuclear Project costs
from retail customers in 2018. As part of the 2017 Settlement discussed above,
Duke Energy Florida is no longer seeking recovery of costs related to the Levy
Nuclear Project and the ongoing Westinghouse litigation discussed in Note 5. All
remaining Levy Nuclear Project issues have been resolved.
Crystal River 1 and 2 Coal Units
Duke Energy Florida has evaluated Crystal River 1 and 2 coal units for
retirement in order to comply with certain environmental regulations. Based on
this evaluation, those units are expected to be retired by the end of 2018. Once
those units are retired Duke Energy Florida will continue recovery of existing
annual depreciation expense through the end of 2020. Beginning in 2021, Duke
Energy Florida will be allowed to recover any remaining net book value of the
assets from retail customers through the Capacity Cost Recovery Clause.
Duke Energy Ohio
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Duke Energy Ohio’s Consolidated Balance Sheets.
(in millions)
Regulatory Assets(a)
AROs – coal ash
Accrued pension and OPEB
Net regulatory asset related to income taxes(c)
Storm cost deferrals
Hedge costs deferrals
DSM/EE
Grid modernization
Vacation accrual
Deferred fuel and purchased power
PISCC and deferred operating expenses(c)
Transmission expansion obligation
MGP
AMI
East Bend deferrals
Deferred pipeline integrity costs
Other
Total regulatory assets
Less: current portion
Total noncurrent regulatory assets
Regulatory Liabilities(a)
Costs of removal
Net regulatory liability related to income taxes
Accrued pension and OPEB
Deferred fuel and purchased power
Other
Total regulatory liabilities
Less: current portion
Total noncurrent regulatory liabilities
December 31,
2017
Earns/Pays
a Return
Recovery/Refund
Period Ends
2016
(b)
(g)
(d)
(b)
(b)
(e)
(e)
2018
2083
(e)
(b)
(b)
(b)
(b)
(b)
(d)
(b)
(g)
(b)
X
(f)
X
X
X
X
$
$
$
17
139
—
5
6
18
39
5
—
19
50
91
6
45
12
42
494
49
445
189
688
16
—
34
927
36
$
$
$
12
135
63
5
7
6
65
4
5
20
71
99
—
32
7
26
557
37
520
212
—
19
6
20
257
21
$
891
$
236
Included in rate base.
(a) Regulatory assets and liabilities are excluded from rate base unless otherwise noted.
(b) The expected recovery or refund period varies or has not been determined.
(c)
(d) Recovery over the life of the associated assets.
(e) Recovered via a rider mechanism.
(f)
(g) Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 21 for additional detail.
Includes incentives on DSM/EE investments.
136
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Duke Energy Kentucky Rate Case
On September 1, 2017, Duke Energy Kentucky filed a rate case with the
KPSC requesting an increase in electric base rates of approximately $49 million,
which represents an approximate 15 percent increase on the average customer
bill. The rate increase is driven by increased investment in utility plant, increased
operations and maintenance expenses and recovery of regulatory assets. The
application also includes implementation of the Environmental Surcharge
Mechanism to recover environmental costs not included in base rates, requests
to establish a Distribution Capital Investment Rider to recover incremental
costs of specific programs, requests to establish a FERC Transmission Cost
Reconciliation Rider to recover escalating transmission costs and modification to
the Profit Sharing Mechanism to increase customers’ share of proceeds from the
benefits of owning generation and to mitigate shareholder risks associated with
that generation. An evidentiary hearing is scheduled to begin on March 6, 2018.
Duke Energy Kentucky anticipates that rates will go into effect in mid-April 2018.
Duke Energy Kentucky cannot predict the outcome of this matter.
2017 Electric Security Plan
On June 1, 2017, Duke Energy Ohio filed with the PUCO a request for a
standard service offer in the form of an electric security plan (ESP). If approved
by the PUCO, the term of the ESP would be from June 1, 2018, to May 31, 2024.
Terms of the ESP include continuation of market-based customer rates through
competitive procurement processes for generation, continuation and expansion
of existing rider mechanisms and proposed new rider mechanisms relating to
regulatory mandates, costs incurred to enhance the customer experience and
transform the grid and a service reliability rider for vegetation management. On
February 15, 2018, the procedural schedule was suspended to facilitate ongoing
settlement discussions. Duke Energy Ohio cannot predict the outcome of this
matter.
Woodsdale Station Fuel System Filing
On June 9, 2015, the FERC ruled in favor of PJM Interconnection, LLC
(PJM) on a revised Tariff and Reliability Assurance Agreement including
implementation of a Capacity Performance (CP) proposal and to amend
sections of the Operating Agreement related to generation non-performance.
The CP proposal includes performance-based penalties for non-compliance.
Duke Energy Kentucky is a Fixed Resource Requirement (FRR) entity, and
therefore is subject to the compliance standards through its FRR plans. A
partial CP obligation will apply to Duke Energy Kentucky in the delivery year
beginning June 1, 2019, with full compliance beginning June 1, 2020. Duke
Energy Kentucky has developed strategies for CP compliance investments.
On December 21, 2017, the KPSC issued an order approving Duke Energy
Kentucky’s request for a CPCN to construct an ultra-low sulfur diesel backup
fuel system for the Woodsdale Station. The backup fuel system is projected to
cost approximately $55 million and is anticipated to be in service prior to the
CP compliance deadline of April 2019.
Ohio Valley Electric Corporation
On March 31, 2017, Duke Energy Ohio filed for approval to adjust its
existing price stabilization rider (Rider PSR), which is currently set at zero
dollars, to pass through net costs related to its contractual entitlement to
capacity and energy from the generating assets owned by OVEC. The filing seeks
to adjust Rider PSR for OVEC costs subsequent to April 1, 2017. Duke Energy
Ohio is seeking deferral authority for net costs incurred from April 1, 2017, until
the new rates under Rider PSR are put into effect. Various intervenors have filed
motions to dismiss or stay the proceeding and Duke Energy Ohio has opposed
these filings. See Note 13 for additional discussion of Duke Energy Ohio’s
ownership interest in OVEC. Duke Energy Ohio cannot predict the outcome of
this matter.
East Bend Coal Ash Basin Filing
On December 2, 2016, Duke Energy Kentucky filed with the KPSC a
request for a CPCN for construction projects necessary to close and repurpose
an ash basin at the East Bend facility as a result of current and proposed EPA
regulations. Duke Energy Kentucky estimated a total cost of approximately
$93 million in the filing and expects in-service date by the first quarter of 2021.
On June 6, 2017, the KPSC approved the CPCN request.
Electric Base Rate Case
Duke Energy Ohio filed with the PUCO an electric distribution base rate case
application and supporting testimony in March 2017. Duke Energy Ohio requested
an estimated annual increase of approximately $15 million and a return on equity
of 10.4 percent. The application also includes requests to continue certain current
riders and establish new riders. On September 26, 2017, the PUCO staff filed a
report recommending a revenue decrease between approximately $18 million
and $29 million and a return on equity between 9.22 percent and 10.24 percent.
On February 15, 2018, the procedural schedule was suspended to facilitate
ongoing settlement discussions. Duke Energy Ohio expects rates will go into effect
the second quarter of 2018. Duke Energy Ohio cannot predict the outcome of
this matter.
Natural Gas Pipeline Extension
Duke Energy Ohio is proposing to install a new natural gas pipeline in its
Ohio service territory to increase system reliability and enable the retirement of
older infrastructure. On January 20, 2017, Duke Energy Ohio filed an amended
application with the Ohio Power Siting Board for approval of one of two proposed
routes. A public hearing was held on June 15, 2017, and an adjudicatory
hearing was scheduled to begin September 11, 2017. On August 24, 2017, an
administrative law judge (ALJ) granted a request made by Duke Energy Ohio
to delay the procedural schedule while it works through various issues related
to the pipeline route. If approved, construction of the pipeline extension is
expected to be completed before the 2020/2021 winter season. The proposed
project involves the installation of a natural gas line and is estimated to cost
approximately $110 million, excluding AFUDC.
Advanced Metering Infrastructure
On April 25, 2016, Duke Energy Kentucky filed with the KPSC an
application for approval of a CPCN for the construction of advanced metering
infrastructure. Duke Energy Kentucky estimates the $49 million project will
take two years to complete. Duke Energy Kentucky also requested approval
to establish a regulatory asset for the remaining book value of existing meter
equipment and inventory to be replaced. Duke Energy Kentucky and the
Kentucky attorney general entered into a stipulation to settle matters related
to the application. On May 25, 2017, the KPSC issued an order to approve the
stipulation with certain modifications. On June 1, 2017, Duke Energy Kentucky
filed its acceptance of the modifications. The deployment of AMI meters began
in third quarter 2017 and is expected to be completed in early 2019. Duke
Energy Ohio has approximately $6 million included in Regulatory assets on
its Consolidated Balance Sheets at December 31, 2017, for the book value of
existing meter equipment.
137
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Accelerated Natural Gas Service Line Replacement Rider
2014 Electric Security Plan
On January 20, 2015, Duke Energy Ohio filed an application for approval
of an accelerated natural gas service line replacement program (ASRP). Under
the ASRP, Duke Energy Ohio proposed to replace certain natural gas service lines
on an accelerated basis over a 10-year period. Duke Energy Ohio also proposed
to complete preliminary survey and investigation work related to natural gas
service lines that are customer owned and for which it does not have valid
records and, further, to relocate interior natural gas meters to suitable exterior
locations where such relocation can be accomplished. Duke Energy Ohio’s
projected total capital and operations and maintenance expenditures under
the ASRP were approximately $240 million. The filing also sought approval of
a rider mechanism (Rider ASRP) to recover related expenditures. Duke Energy
Ohio proposed to update Rider ASRP on an annual basis. Intervenors opposed
the ASRP, primarily because they believe the program is neither required nor
necessary under federal pipeline regulation. On October 26, 2016, the PUCO
issued an order denying the proposed ASRP. Duke Energy Ohio’s application for
rehearing of the PUCO decision was denied on May 17, 2017.
Energy Efficiency Cost Recovery
On March 28, 2014, Duke Energy Ohio filed an application for recovery of
program costs, lost distribution revenue and performance incentives related to
its energy efficiency and peak demand reduction programs. These programs are
undertaken to comply with environmental mandates set forth in Ohio law. The
PUCO approved Duke Energy Ohio’s application but found that Duke Energy Ohio
was not permitted to use banked energy savings from previous years in order to
calculate the amount of allowed incentive. This conclusion represented a change
to the cost recovery mechanism that had been agreed upon by intervenors and
approved by the PUCO in previous cases. The PUCO granted the applications for
rehearing filed by Duke Energy Ohio and an intervenor. On January 6, 2016, Duke
Energy Ohio and the PUCO Staff entered into a stipulation, pending the PUCO’s
approval, to resolve issues related to performance incentives and the PUCO
Staff audit of 2013 costs, among other issues. In December 2015, based upon
the stipulation, Duke Energy Ohio re-established approximately $20 million of
the revenues that had been previously reversed. On October 26, 2016, the PUCO
issued an order approving the stipulation without modification. In December
2016, the PUCO granted the intervenors request for rehearing for the purpose
of further review. Duke Energy Ohio cannot predict the outcome of this matter.
On June 15, 2016, Duke Energy Ohio filed an application for approval of a
three-year energy efficiency and peak demand reduction portfolio of programs.
A stipulation and modified stipulation were filed on December 22, 2016, and
January 27, 2017, respectively. Under the terms of the stipulations, which
included support for deferral authority of all costs and a cap on shared savings
incentives, Duke Energy Ohio offered its energy efficiency and peak demand
reduction programs throughout 2017. On February 3, 2017, Duke Energy Ohio
filed for deferral authority of its costs incurred in 2017 in respect of its proposed
energy efficiency and peak demand reduction portfolio. On September 27, 2017,
the PUCO issued an order approving a modified stipulation. The modifications
impose an annual cap of approximately $38 million on program costs and
shared savings incentives combined, but allowed for Duke Energy Ohio to file for
a waiver of costs in excess of the cap in 2017. The PUCO approved the waiver
request up to a total cost of $56 million. On November 21, 2017, the PUCO
granted Duke Energy Ohio’s and intervenor’s applications for rehearing of the
September 27, 2017, order. On January 10, 2018, the PUCO denied the Ohio
Consumers’ Counsel’s application for rehearing of the PUCO order granting Duke
Energy Ohio’s waiver request. Duke Energy Ohio cannot predict the outcome of
this matter.
In April 2015, the PUCO modified and approved Duke Energy Ohio’s
proposed electric security plan (ESP), with a three-year term and an effective
date of June 1, 2015. The PUCO approved a competitive procurement process
for SSO load, a distribution capital investment rider and a tracking mechanism
for incremental distribution expenses caused by major storms. The PUCO also
approved a placeholder tariff for a price stabilization rider, but denied Duke Energy
Ohio’s specific request to include Duke Energy Ohio’s entitlement to generation
from OVEC in the rider at this time; however, the order allows Duke Energy Ohio to
submit additional information to request recovery in the future. On May 4, 2015,
Duke Energy Ohio filed an application for rehearing requesting the PUCO to modify
or amend certain aspects of the order. On May 28, 2015, the PUCO granted all
applications for rehearing filed in the case for future consideration. Duke Energy
Ohio cannot predict the outcome of the appeals in this matter.
2012 Natural Gas Rate Case/MGP Cost Recovery
On November 13, 2013, the PUCO issued an order approving a settlement
of Duke Energy Ohio’s natural gas base rate case and authorizing the recovery
of costs incurred between 2008 and 2012 for environmental investigation
and remediation of two former MGP sites. The PUCO order also authorized
Duke Energy Ohio to continue deferring MGP environmental investigation and
remediation costs incurred subsequent to 2012 and to submit annual filings to
adjust the MGP rider for future costs. Intervening parties appealed this decision to
the Ohio Supreme Court and on June 29, 2017, the Ohio Supreme Court issued its
decision affirming the PUCO order. Appellants filed a request for reconsideration,
which was denied on September 27, 2017. This matter is now final.
The PUCO order also contained deadlines for completing the MGP
environmental investigation and remediation costs at the MGP sites. For the
property known as the East End site, the PUCO order established a deadline
of December 31, 2016, which was subsequently extended to December 31,
2019. In January 2017, intervening parties filed for rehearing of the PUCO’s
decision. On February 8, 2017, the PUCO denied the rehearing request. As of
December 31, 2017, Duke Energy Ohio had approximately, $35 million included
in Regulatory assets on the Consolidated Balance Sheets for future remediation
costs expected to be incurred at the East End site.
Regional Transmission Organization Realignment
Duke Energy Ohio, including Duke Energy Kentucky, transferred control of
its transmission assets from MISO to PJM Interconnection, LLC (PJM), effective
December 31, 2011. The PUCO approved a settlement related to Duke Energy
Ohio’s recovery of certain costs of the Regional Transmission Organization
(RTO) realignment via a non-bypassable rider. Duke Energy Ohio is allowed to
recover all MISO Transmission Expansion Planning (MTEP) costs, including but
not limited to Multi Value Project (MVP) costs, directly or indirectly charged to
Ohio customers. Duke Energy Ohio also agreed to vigorously defend against any
charges for MVP projects from MISO. The KPSC also approved a request to effect
the RTO realignment, subject to a commitment not to seek double recovery in
a future rate case of the transmission expansion fees that may be charged by
MISO and PJM in the same period or overlapping periods.
The following table provides a reconciliation of the beginning and ending
balance of Duke Energy Ohio’s recorded liability for its exit obligation and share
of MTEP costs, excluding MVP, recorded within Other in Current liabilities and
Other in Other Noncurrent Liabilities on the Consolidated Balance Sheets. The
retail portions of MTEP costs billed by MISO are recovered by Duke Energy
Ohio through a non-bypassable rider. As of December 31, 2017, and 2016,
$50 million and $71 million are recorded in Regulatory assets on Duke Energy
Ohio’s Consolidated Balance Sheets, respectively.
138
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) (in millions)
Duke Energy Ohio
MVP. MISO approved 17 MVP proposals prior to Duke Energy Ohio’s exit
from MISO on December 31, 2011. Construction of these projects is expected
to continue through 2020. Costs of these projects, including operating and
maintenance costs, property and income taxes, depreciation and an allowed
return, are allocated and billed to MISO transmission owners.
On December 29, 2011, MISO filed a tariff with the FERC providing for
the allocation of MVP costs to a withdrawing owner based on monthly energy
usage. The FERC set for hearing (i) whether MISO’s proposed cost allocation
methodology to transmission owners who withdrew from MISO prior to January
1, 2012, is consistent with the tariff at the time of their withdrawal from MISO
and, (ii) if not, what the amount of and methodology for calculating any MVP
cost responsibility should be. In 2012, MISO estimated Duke Energy Ohio’s MVP
obligation over the period from 2012 to 2071 at $2.7 billion, on an undiscounted
basis. On July 16, 2013, a FERC Administrative Law Judge (ALJ) issued an initial
Duke Energy Indiana
Regulatory Assets and Liabilities
December 31, 2016
Provisions/
Adjustments
Cash
Reductions
December 31, 2017
$ 90
$ (20)
$ (4)
$ 66
decision. Under this initial decision, Duke Energy Ohio would be liable for MVP
costs. Duke Energy Ohio filed exceptions to the initial decision, requesting FERC
to overturn the ALJ’s decision.
On October 29, 2015, the FERC issued an order reversing the ALJ’s
decision. The FERC ruled the cost allocation methodology is not consistent with
the MISO tariff and that Duke Energy Ohio has no liability for MVP costs after
its withdrawal from MISO. On May 19, 2016, the FERC denied the request for
rehearing filed by MISO and the MISO Transmission Owners. On July 15, 2016,
the MISO Transmission Owners filed a petition for review with the U.S. Court of
Appeals for the Sixth Circuit. On June 21, 2017, a three-judge panel affirmed
FERC’s 2015 decision holding that Duke Energy Ohio has no liability for the cost
of the MVP projects constructed after Duke Energy Ohio’s withdrawal from MISO.
MISO did not file further petitions for review and this matter is now final.
The following tables present the regulatory assets and liabilities recorded on Duke Energy Indiana’s Consolidated Balance Sheets.
(in millions)
Regulatory Assets(a)
AROs – coal ash
Accrued pension and OPEB
Retired generation facilities(c)
Net regulatory asset related to income taxes
Hedge costs deferrals
DSM/EE
Vacation accrual
Deferred fuel and purchased power
PISCC and deferred operating expenses(c)
Gasification services agreement buyout(f)
AMI(c)
Other
Total regulatory assets
Less: current portion
Total noncurrent regulatory assets
Regulatory Liabilities(a)
Costs of removal
Net regulatory liability related to income taxes
Amounts to be refunded to customers
Accrued pension and OPEB
Other
Total regulatory liabilities
Less: current portion
Total noncurrent regulatory liabilities
December 31,
Earns/Pays
a Return
Recovery/Refund
Period Ends
2016
$
$
$
2017
380
197
65
—
25
21
11
18
274
—
21
131
1,143
165
978
644
998
10
64
31
1,747
24
(b)
(g)
2025
(d)
(b)
(e)
2018
2018
(b)
(b)
(b)
(d)
(b)
2018
(g)
(b)
X
(e)
X
X
$
276
222
73
119
26
—
10
40
281
8
46
121
1,222
149
$ 1,073
$
660
—
45
72
11
788
40
$ 1,723
$
748
Included in rate base.
(a) Regulatory assets and liabilities are excluded from rate base unless otherwise noted.
(b) The expected recovery or refund period varies or has not been determined.
(c)
(d) Recovery over the life of the associated assets.
(e)
(f)
(g) Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 21 for additional detail.
Includes incentives on DSM/EE investments and is recovered through a tracker mechanism over a two-year period.
The IURC authorized Duke Energy Indiana to recover costs incurred to buy out a gasification services agreement, including carrying costs through 2017.
139
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Coal Combustion Residual Plan
FERC Transmission Return on Equity Complaint
On March 17, 2016, Duke Energy Indiana filed with the IURC a request
Customer groups have filed with the FERC complaints against MISO and
for approval of its first group of federally mandated CCR rule compliance
projects (Phase I CCR Compliance Projects) to comply with the EPA’s CCR
rule. The projects in this Phase I filing are CCR compliance projects, including
the conversion of Cayuga and Gibson stations to dry bottom ash handling
and related water treatment. Duke Energy Indiana requested timely recovery
of approximately $380 million in retail capital costs, including AFUDC, and
recovery of incremental operating and maintenance costs under a federal
mandate tracker that provides for timely recovery of 80 percent of such costs
and deferral with carrying costs of 20 percent of such costs for recovery in a
subsequent retail base rate case. On January 24, 2017, Duke Energy Indiana
and various intervenors filed a settlement agreement with the IURC. Terms of
the settlement include recovery of 60 percent of the estimated CCR compliance
construction project capital costs through existing rider mechanisms and
deferral of 40 percent of these costs until Duke Energy Indiana’s next general
retail rate case. The deferred costs will earn a return based on Duke Energy
Indiana’s long-term debt rate of 4.73 percent until costs are included in retail
rates, at which time the deferred costs will earn a full return. Costs are to be
capped at $365 million, plus actual AFUDC. Costs above the cap would be
considered for recovery in the next rate case. Terms of the settlement agreement
also require Duke Energy Indiana to perform certain reporting and groundwater
monitoring. On May 24, 2017, the IURC approved the settlement agreement.
its transmission-owning members, including Duke Energy Indiana, alleging,
among other things, that the current base rate of return on equity earned by
MISO transmission owners of 12.38 percent is unjust and unreasonable. The
complaints claim, among other things, that the current base rate of return on
equity earned by MISO transmission owners should be reduced to 8.67 percent.
On January 5, 2015, the FERC issued an order accepting the MISO transmission
owners’ adder of 0.50 percent to the base rate of return on equity based on
participation in an RTO subject to it being applied to a return on equity that is
shown to be just and reasonable in the pending return on equity complaints. On
December 22, 2015, the presiding FERC ALJ in the first complaint issued an Initial
Decision in which the base rate of return on equity was set at 10.32 percent. On
September 28, 2016, the Initial Decision in the first complaint was affirmed by
FERC, but is subject to rehearing requests. On June 30, 2016, the presiding FERC
ALJ in the second complaint issued an Initial Decision setting the base rate of
return on equity at 9.70 percent. The Initial Decision in the second complaint is
pending FERC review. On April 14, 2017, the U.S. Court of Appeals for the District
of Columbia Circuit, in Emera Maine v. FERC, reversed and remanded certain
aspects of the methodology employed by FERC to establish rates of return on
equity. This decision may affect the outcome of the complaints against Duke
Energy Indiana. Duke Energy Indiana currently believes these matters will not have
a material impact on its results of operations, cash flows and financial position.
Edwardsport Integrated Gasification Combined Cycle Plant
Grid Infrastructure Improvement Plan
Costs for the Edwardsport Integrated Gasification Combined Cycle (IGCC)
Plant are recovered from retail electric customers via a tracking mechanism
(IGCC rider) with updates filed by Duke Energy Indiana. The IGCC Plant was
placed into commercial operation in June 2013.
On August 24, 2016, the IURC approved a settlement (IGCC Settlement)
among Duke Energy Indiana and several intervenors to resolve disputes
related to five IGCC riders (the 11th through 15th) and a subdocket to Duke
Energy Indiana’s fuel adjustment clause. The IGCC settlement resulted in
customers not being billed for previously incurred plant operating costs of
$87.5 million and payments and commitments from Duke Energy Indiana of
$5.5 million for attorneys’ fees and consumer programs funding. Duke Energy
Indiana recognized pretax impairment and related charges of $93 million
in 2015. Additionally, under the IGCC settlement, the recovery of operating
and maintenance expenses and ongoing maintenance capital at the plant
were subject to certain caps during the years of 2016 and 2017. The IGCC
settlement also included a commitment to either retire or stop burning coal by
December 31, 2022, at the Gallagher Station. Pursuant to the IGCC settlement,
the in-service date used for accounting and ratemaking will remain as June
2013. Remaining deferred costs will be recovered over eight years beginning
in 2016 and not earn a carrying cost. As of December 31, 2017, deferred
costs related to the project are approximately $152 million and are included
in Regulatory assets in Current Assets and Other Noncurrent Assets on Duke
Energy Indiana’s Consolidated Balance Sheets. Under the IGCC settlement,
future IGCC riders will be filed annually with the next filing scheduled for first
quarter 2018.
The ninth semi-annual IGCC rider order was appealed by various
intervenors and the matter was remanded to the IURC for further proceedings
and additional findings on a tax in-service issue. On February 2, 2017, the
IURC issued an order upholding the original decision, finding that an estimate of
impact on customer rates due to the federal income tax in-service determination
was reasonable.
On December 7, 2015, Duke Energy Indiana filed a grid infrastructure
improvement plan with an estimated cost of $1.8 billion in response to guidance
from IURC orders and the Indiana Court of Appeals decisions related to a new
statute. The plan uses a combination of advanced technology and infrastructure
upgrades to improve service to customers and provide them with better
information about their energy use. It also provides for cost recovery through a
transmission and distribution rider (T&D Rider). In March 2016, Duke Energy
Indiana entered into a settlement with all parties to the proceeding except the
Citizens Action Coalition of Indiana, Inc. The settlement agreement decreased
the capital expenditures eligible for timely recovery of costs in the seven-year
plan to approximately $1.4 billion, including the removal of an AMI project.
Under the settlement, the return on equity to be used in the T&D Rider is 10
percent. The IURC approved the settlement and issued a final order on June 29,
2016. The order was not appealed and the proceeding is concluded.
The settlement agreement provided for deferral accounting for depreciation
and post-in-service carrying costs for AMI projects outside the plan. Duke
Energy Indiana withdrew its request for a regulatory asset for current meters
and will retain any savings associated with future AMI installation until the next
retail base rate case, which is required to be filed prior to the end of the plan.
During the third quarter of 2016, Duke Energy Indiana decided to implement
the AMI project. This decision resulted in a pretax impairment charge related to
existing or non-AMI meters of approximately $8 million in 2016, based in part
on the requirement to file a base rate case in 2022 under the approved plan.
Duke Energy Indiana evaluates the need for rate cases as part of its business
planning, based on the outlook of emerging costs, ongoing investment and
impact related to the Tax Act enacted in late 2017 and expects to file a rate
case prior to the 2022 requirement. As a result, in 2017, Duke Energy Indiana
recorded an additional impairment charge of approximately $22 million. As of
December 31, 2017, Duke Energy Indiana’s remaining net book value of non-AMI
meters is approximately $21 million and will be depreciated through July 2020.
140
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Benton County Wind Farm Dispute
On December 16, 2013, Benton County Wind Farm LLC (BCWF) filed
a lawsuit against Duke Energy Indiana seeking damages for past generation
losses alleging Duke Energy Indiana violated its obligations under a 2006 PPA
by refusing to offer electricity to the market at negative prices. Damage claims
continue to increase during times that BCWF is not dispatched. Under 2013
revised MISO market rules, Duke Energy Indiana is required to make a price
offer to MISO for the power it proposes to sell into MISO markets and MISO
determines whether BCWF is dispatched. Because market prices would have
been negative due to increased market participation, Duke Energy Indiana
determined it would not bid at negative prices in order to balance customer
needs against BCWF’s need to run. BCWF contends Duke Energy Indiana
must bid at the lowest negative price to ensure dispatch, while Duke Energy
Indiana contends it is not obligated to bid at any particular price, that it cannot
ensure dispatch with any bid and that it has reasonably balanced the parties’
interests. On July 6, 2015, the U.S. District Court for the Southern District of
Indiana entered judgment against BCWF on all claims. BCWF appealed the
decision and on December 9, 2016, the appeals court ruled in favor of BCWF.
Duke Energy Indiana recorded an obligation and a regulatory asset related to
the settlement amount in fourth quarter 2016. On June 30, 2017, the parties
finalized a settlement agreement. Terms of the settlement included Duke Energy
Indiana paying $29 million for back damages. Additionally, the parties agreed
on the method by which the contract will be bid into the market in the future.
The settlement amount was paid in June 2017. The IURC issued an order on
September 27, 2017, approving recovery of the settlement amount through Duke
Energy Indiana’s fuel clause. The IURC order has been appealed to the Indiana
Court of Appeals. Duke Energy Indiana cannot predict the outcome of this matter.
Piedmont
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Piedmont’s Consolidated Balance Sheets.
(in millions)
Regulatory Assets(a)
AROs – other
Accrued pension and OPEB(c)
Derivatives - gas supply contracts
Vacation accrual(c)
Deferred pipeline integrity costs(c)
Amount due from customers
Other
Total regulatory assets
Less: current portion
Total noncurrent regulatory assets
Regulatory Liabilities(a)
Costs of removal
Net regulatory liability related to income taxes
Other
Total regulatory liabilities
Less: current portion
Total noncurrent regulatory liabilities
December 31,
2017
Earns/Pays
a Return
Recovery/Refund
Period Ends
2016
(d)
(f)
(e)
2018
2018
(b)
(b)
(d)
(b)
(b)
$
$
$
15
91
142
10
42
64
14
378
95
283
544
597
3
1,144
3
X
$
14
166
187
13
36
66
15
497
124
$ 373
$ 528
80
—
608
—
$ 1,141
$ 608
Included in rate base.
(a) Regulatory assets and liabilities are excluded from rate base unless otherwise noted.
(b) The expected recovery or refund period varies or has not been determined.
(c)
(d) Recovery over the life of the associated assets.
(e) Balance will fluctuate with changes in the market. Current contracts extend into 2031.
(f) Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 21 for additional detail.
South Carolina Rate Stabilization Adjustment Filing
North Carolina Integrity Management Rider Filings
In June 2017, Piedmont filed with the PSCSC under the South Carolina Rate
In October 2017, Piedmont filed a petition with the NCUC under the
Stabilization Act its quarterly monitoring report for the 12-month period ending
March 31, 2017. The filing included a revenue deficiency calculation and tariff
rates in order to permit Piedmont the opportunity to earn the rate of return on
equity of 12.6 percent established in its last general rate case. On October 4,
2017, the PSCSC approved a settlement agreement between Piedmont and the
SC Office of Regulatory Staff. Terms of the settlement included implementation
of rates for the 12-month period beginning November 2017 with a return on
equity of 10.2 percent.
141
Integrity Management Rider (IMR) mechanism to collect an additional
$8.9 million in annual revenues, effective December 2017, based on the eligible
capital investments closed to integrity and safety projects over the six-month
period ending September 30, 2017. On November 28, 2017, the NCUC approved
the requested rate adjustment.
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) In May 2017, Piedmont filed, and the NCUC approved, a petition under
the IMR mechanism to collect an additional $11.6 million in annual revenues,
effective June 2017, based on the eligible capital investments closed to integrity
and safety projects over the six-month period ending March 31, 2017.
Tennessee Integrity Management Rider Filing
In November 2017, Piedmont filed a petition with the TPUC under the IMR
mechanism to collect an additional $3.3 million in annual revenues, effective
January 2018, based on the eligible capital investments closed to integrity and
safety projects over the 12-month period ending October 31, 2017. In January
2018, Piedmont filed an amended computation under the IMR mechanism,
revising the proposed increase in annual revenues to approximately $0.4 million
based on the decrease in the corporate federal income tax rate effective
January 1, 2018. A hearing on this matter is scheduled for March 2018.
OTHER REGULATORY MATTERS
Atlantic Coast Pipeline
On September 2, 2014, Duke Energy, Dominion Resources (Dominion),
Piedmont and Southern Company Gas announced the formation of Atlantic
Coast Pipeline, LLC (ACP) to build and own the proposed Atlantic Coast Pipeline
(ACP pipeline), an approximately 600-mile interstate natural gas pipeline
running from West Virginia to North Carolina. The ACP pipeline is designed
to meet, in part, the needs identified by Duke Energy Carolinas, Duke Energy
Progress and Piedmont. Dominion will build and operate the ACP pipeline and
holds a leading ownership percentage in ACP of 48 percent. Duke Energy owns
a 47 percent interest through its Gas Utilities and Infrastructure segment.
Southern Company Gas maintains a 5 percent interest. See Notes 12 and 17 for
additional information related to Duke Energy’s ownership interest.
Duke Energy Carolinas, Duke Energy Progress and Piedmont, among
others, will be customers of the pipeline. Purchases will be made under several
20-year supply contracts, subject to state regulatory approval. On September 18,
2015, ACP filed an application with the FERC requesting a CPCN authorizing
ACP to construct the pipeline. ACP executed a construction agreement in
September 2016. ACP also requested approval of an open access tariff and
the precedent agreements it entered into with future pipeline customers. In
December 2016, FERC issued a draft Environmental Impact Statement (EIS)
indicating that the proposed pipeline would not cause significant harm to the
environment or protected populations. The FERC issued the final EIS in July
2017. On October 13, 2017, FERC issued an order approving the CPCN, subject
to conditions. On October 16, 2017, ACP accepted the FERC order subject to
reserving its right to file a request for rehearing or clarification on a timely basis.
On November 9, 2017, ACP filed a request for rehearing on several limited
issues. On December 12, 2017, ACP filed an answer to intervenors’ request for
rehearing of the certificate order and for stay of the certificate order.
In December 2017, West Virginia issued a waiver of the state water
quality permit in reliance on the U.S. Army Corps of Engineers national water
quality permit and Virginia issued a conditional water quality permit subject
to completion of additional studies and stormwater plans. In early 2018, the
FERC issued a series of Partial Notices to Proceed which authorized the project
to begin limited construction-related activities along the pipeline route. North
Carolina issued the state water quality permit in January 2018. The project
remains subject to other pending federal and state approvals, which will allow
full construction activities to begin. The ACP pipeline project has a targeted
in-service date of late 2019.
Due to delays in obtaining the required permits to commence construction
and the conditions imposed upon the project by the permits, ACP’s project
manager estimates the project’s pipeline development costs have increased
from a range of $5.0 billion to $5.5 billion to a range of $6.0 billion and
$6.5 billion, excluding financing costs. Project construction activities, schedule
and final costs are still subject to uncertainty due to potential additional
permitting delays, construction productivity and other conditions and risks
which could result in potential higher project costs and a potential delay in the
targeted in-service date.
Sabal Trail Transmission Pipeline
On May 4, 2015, Duke Energy acquired a 7.5 percent ownership interest
in Sabal Trail Transmission, LLC (Sabal Trail) from Spectra Energy Partners, LP,
a master limited partnership, formed by Enbridge Inc. (formerly Spectra Energy
Corp.). Spectra Energy Partners, LP holds a 50 percent ownership interest in Sabal
Trail and NextEra Energy has a 42.5 percent ownership interest. Sabal Trail is a
joint venture to construct a 515-mile natural gas pipeline (Sabal Trail pipeline) to
transport natural gas to Florida. Total estimated project costs are approximately
$3.2 billion. The Sabal Trail pipeline traverses Alabama, Georgia and Florida. The
primary customers of the Sabal Trail pipeline, Duke Energy Florida and Florida
Power & Light Company (FP&L), have each contracted to buy pipeline capacity for
25-year initial terms. See Notes 12 and 17 for additional information.
On February 3, 2016, the FERC issued an order granting the request for
a CPCN to construct and operate the pipeline. The Sabal Trail pipeline received
other required regulatory approvals and the phase one mainline was placed
in service in July 2017. On October 12, 2017, Sabal Trail filed a request with
FERC to place in-service a lateral line to Duke Energy Florida’s Citrus County
Combined Cycle facility, which remains pending. This request is required to
support commissioning and testing activities at the facility.
On September 21, 2016, intervenors filed an appeal of FERC’s CPCN
orders to the U.S. Court of Appeals for the District of Columbia Circuit (D.C.
Circuit Court of Appeals). On August 22, 2017, the appeals court ruled against
FERC in the case for failing to include enough information on the impact of
greenhouse-gas emissions carried by the pipeline, vacated the CPCN order and
remanded the case to FERC. In response to the August 2017 court decision,
the FERC issued a draft Supplemental Environmental Impact Statement (SEIS)
on September 27, 2017. On October 6, 2017, FERC and a group of industry
intervenors, including Sabal Trail and Duke Energy Florida, filed separate
petitions with the D.C. Circuit Court of Appeals requesting rehearing regarding
the court’s decision to vacate the CPCN order. On January 31, 2018, the D.C.
Circuit Court of Appeals denied the requests for rehearing. On February 2, 2018,
Sabal Trail filed a request with FERC for expedited issuance of its order on
remand and reissuance of the CPCN. In the alternative, the pipeline requested
that FERC issue a temporary emergency CPCN to allow for continued operations.
On February 5, 2018, FERC issued the final SEIS but did not issue the order
on remand. On February 6, 2018, FERC and the intervenors in this case each
filed motions for stay with the D.C. Circuit Court to stay the court’s mandate.
The February 6, 2018 motions automatically stay the issuance of the court’s
mandate until the later of seven days after the court denies the motions or the
expiration of any stay granted by the court. Both motions are pending. Sabal Trail
will continue to monitor the progress and the impact to the project going forward.
Constitution Pipeline
Duke Energy owns a 24 percent ownership interest in Constitution Pipeline
Company, LLC (Constitution). Constitution is a natural gas pipeline project slated
to transport natural gas supplies from the Marcellus supply region in northern
Pennsylvania to major northeastern markets. The pipeline will be constructed
142
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) and operated by Williams Partners L.P., which has a 41 percent ownership
share. The remaining interest is held by Cabot Oil and Gas Corporation and WGL
Holdings, Inc. Before the permitting delays discussed below, Duke Energy’s
total anticipated contributions were approximately $229 million. As a result of
the permitting delays and project uncertainty, total anticipated contributions by
Duke Energy can no longer be reasonably estimated.
In December 2014, Constitution received approval from the FERC to
construct and operate the proposed pipeline. However, on April 22, 2016, the
New York State Department of Environmental Conservation (NYSDEC) denied
Constitution’s application for a necessary water quality certification for the New
York portion of the Constitution pipeline. Constitution filed legal actions in the
U.S. Court of Appeals for the Second Circuit (U.S. Court of Appeals) challenging
the legality and appropriateness of the NYSDEC’s decision and on August 18,
2017, the petition was denied in part and dismissed in part. In September 2017,
Constitution filed a petition for a rehearing of portions of the decision unrelated
to the water quality certification, which was denied by the U.S. Court of Appeals.
In January 2018, Constitution petitioned the Supreme Court of the United States
to review the U.S. Court of Appeals decision. In October 2017, Constitution
filed a petition for declaratory order requesting FERC to find that the NYSDEC
waived its rights to issue a Section 401 water quality certification by not acting
on Constitution’s application within a reasonable period of time as required by
statute. This petition was based on precedent established by another pipeline’s
successful petition with FERC following a District of Columbia Circuit Court
ruling. On January 11, 2018, FERC denied Constitution’s petition. In February
2018, Constitution filed a rehearing request with FERC of its finding that the
NYSDEC did not waive the Section 401 certification requirement. Constitution
is currently unable to approximate an in-service date for the project due to the
NYDSEC’s denial of the water quality certification. The Constitution partners
remain committed to the project and are evaluating next steps to move the
project forward. Duke Energy cannot predict the outcome of this matter.
Since April 2016, with the actions of the NYSDEC, Constitution stopped
construction and discontinued capitalization of future development costs until
the project’s uncertainty is resolved.
See Notes 12 and 17 for additional information related to ownership
interest and carrying value of the investment.
Progress Energy Merger FERC Mitigation
Following the closing of the Progress Energy merger, outside counsel
reviewed Duke Energy’s long-term FERC mitigation plan and discovered
a technical error in the calculations. On December 6, 2013, Duke Energy
submitted a filing to the FERC disclosing the error and arguing that no additional
mitigation is necessary. The city of New Bern filed a protest and requested that
FERC order additional mitigation. On October 29, 2014, the FERC ordered that
the amount of the stub mitigation be increased from 25 MW to 129 MW. The
stub mitigation is Duke Energy’s commitment to set aside for third parties a
certain quantity of firm transmission capacity from Duke Energy Carolinas to
Duke Energy Progress during summer off-peak hours. The FERC also ordered
that Duke Energy operate certain phase shifters to create additional import
capability and that such operation be monitored by an independent monitor.
The costs to comply with this order are not material. The FERC also referred
Duke Energy’s failure to expressly designate the phase shifter reactivation as
a mitigation project in the original mitigation plan filing in March 2012 to the
FERC Office of Enforcement for further inquiry. In response, and since December
2014, the FERC Office of Enforcement has been conducting a nonpublic
investigation of Duke Energy’s market power analyses included in the Progress
merger filings submitted to FERC. Duke Energy cannot predict the outcome of
this investigation.
Potential Coal Plant Retirements
The Subsidiary Registrants periodically file Integrated Resource Plans
(IRP) with their state regulatory commissions. The IRPs provide a view of
forecasted energy needs over a long term (10 to 20 years) and options being
considered to meet those needs. Recent IRPs filed by the Subsidiary Registrants
included planning assumptions to potentially retire certain coal-fired generating
facilities in Florida and Indiana earlier than their current estimated useful
lives primarily because facilities do not have the requisite emission control
equipment to meet EPA regulations recently approved or proposed.
The table below contains the net carrying value of generating facilities planned for retirement or included in recent IRPs as evaluated for potential retirement
due to a lack of requisite environmental control equipment. Dollar amounts in the table below are included in Net property, plant and equipment on the Consolidated
Balance Sheets as of December 31, 2017, and exclude capitalized asset retirement costs.
Capacity
(in MW)
Remaining Net
Book Value
(in millions)
585
873
280
1,738
$
163
107
127
397
$
Duke Energy Carolinas
Allen Steam Station Units 1-3(a)
Progress Energy and Duke Energy Florida
Crystal River Units 1 and 2(b)
Duke Energy Indiana
Gallagher Units 2 and 4(c)
Total Duke Energy
(a) Duke Energy Carolinas will retire Allen Steam Station Units 1 through 3 by December 31, 2024, as part of the resolution of a lawsuit involving alleged New Source Review violations.
(b) Duke Energy Florida expects to retire these coal units by the end of 2018 to comply with environmental regulations.
(c) Duke Energy Indiana committed to either retire or stop burning coal at Gallagher Units 2 and 4 by December 31, 2022, as part of the settlement of Edwardsport IGCC matters.
Refer to the “Western Carolinas Modernization Plan” discussion above for details of Duke Energy Progress’ planned retirements.
143
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) 5. COMMITMENTS AND CONTINGENCIES
INSURANCE
General Insurance
The Duke Energy Registrants have insurance and reinsurance coverage
either directly or through indemnification from Duke Energy’s captive insurance
company, Bison, and its affiliates, consistent with companies engaged in
similar commercial operations with similar type properties. The Duke Energy
Registrants’ coverage includes (i) commercial general liability coverage for
liabilities arising to third parties for bodily injury and property damage; (ii)
workers’ compensation; (iii) automobile liability coverage; and (iv) property
coverage for all real and personal property damage. Real and personal property
damage coverage excludes electric transmission and distribution lines, but
includes damages arising from boiler and machinery breakdowns, earthquakes,
flood damage and extra expense, but not outage or replacement power
coverage. All coverage is subject to certain deductibles or retentions, sublimits,
exclusions, terms and conditions common for companies with similar types of
operations. The Duke Energy Registrants self-insure their electric transmission
and distribution lines against loss due to storm damage and other natural
disasters. As discussed further in Note 4, Duke Energy Florida maintains a
storm damage reserve and has a regulatory mechanism to recover the cost of
named storms on an expedited basis.
The cost of the Duke Energy Registrants’ coverage can fluctuate from year
to year reflecting claims history and conditions of the insurance and reinsurance
markets.
In the event of a loss, terms and amounts of insurance and reinsurance
available might not be adequate to cover claims and other expenses incurred.
Uninsured losses and other expenses, to the extent not recovered by other
sources, could have a material effect on the Duke Energy Registrants’ results of
operations, cash flows or financial position. Each company is responsible to the
extent losses may be excluded or exceed limits of the coverage available.
Nuclear Insurance
Duke Energy Carolinas owns and operates the McGuire Nuclear Station
(McGuire) and the Oconee Nuclear Station (Oconee) and operates and has a
partial ownership interest in the Catawba Nuclear Station (Catawba). McGuire
and Catawba each have two reactors. Oconee has three reactors. The other
joint owners of Catawba reimburse Duke Energy Carolinas for certain expenses
associated with nuclear insurance per the Catawba joint owner agreements.
Duke Energy Progress owns and operates the Robinson Nuclear Plant
(Robinson), Brunswick and Harris. Robinson and Harris each have one reactor.
Brunswick has two reactors.
Duke Energy Florida owns Crystal River Unit 3, which permanently ceased
operation in 2013 and reached a SAFSTOR condition in January 2018 after the
successful transfer of all used nuclear fuel assemblies to an onsite dry cask
storage facility.
In the event of a loss, terms and amounts of insurance available might not
be adequate to cover property damage and other expenses incurred. Uninsured
losses and other expenses, to the extent not recovered by other sources, could
have a material effect on Duke Energy Carolinas’, Duke Energy Progress’ and
Duke Energy Florida’s results of operations, cash flows or financial position.
Each company is responsible to the extent losses may be excluded or exceed
limits of the coverage available.
144
Nuclear Liability Coverage
The Price-Anderson Act requires owners of nuclear reactors to provide for
public nuclear liability protection per nuclear incident up to a maximum total
financial protection liability. The maximum total financial protection liability,
which is approximately $13.4 billion, is subject to change every five years for
inflation and for the number of licensed reactors. Total nuclear liability coverage
consists of a combination of private primary nuclear liability insurance coverage
and a mandatory industry risk-sharing program to provide for excess nuclear
liability coverage above the maximum reasonably available private primary
coverage. The U.S. Congress could impose revenue-raising measures on the
nuclear industry to pay claims.
Primary Liability Insurance
Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida
have purchased the maximum reasonably available private primary nuclear
liability insurance as required by law, which is $450 million per station.
Excess Liability Program
This program provides $13 billion of coverage per incident through the
Price-Anderson Act’s mandatory industrywide excess secondary financial
protection program of risk pooling. This amount is the product of potential
cumulative retrospective premium assessments of $127 million times the
current 102 licensed commercial nuclear reactors in the U.S. Under this
program, licensees could be assessed retrospective premiums to compensate
for public nuclear liability damages in the event of a nuclear incident at any
licensed facility in the U.S. Retrospective premiums may be assessed at a rate
not to exceed $19 million per year per licensed reactor for each incident. The
assessment may be subject to state premium taxes.
Nuclear Property and Accidental Outage Coverage
Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida
are members of Nuclear Electric Insurance Limited (NEIL), an industry mutual
insurance company, which provides property damage, nuclear accident
decontamination and premature decommissioning insurance for each station
for losses resulting from damage to its nuclear plants, either due to accidents
or acts of terrorism. Additionally, NEIL provides accidental outage coverage for
each station for losses in the event of a major accidental outage at an insured
nuclear station.
Pursuant to regulations of the NRC, each company’s property damage
insurance policies provide that all proceeds from such insurance be applied,
first, to place the plant in a safe and stable condition after a qualifying accident
and second, to decontaminate the plant before any proceeds can be used for
decommissioning, plant repair or restoration.
Losses resulting from acts of terrorism are covered as common
occurrences, such that if terrorist acts occur against one or more commercial
nuclear power plants insured by NEIL within a 12-month period, they would be
treated as one event and the owners of the plants where the act occurred would
share one full limit of liability. The full limit of liability is currently $3.2 billion.
NEIL sublimits the total aggregate for all of their policies for non-nuclear
terrorist events to approximately $1.83 billion.
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Each nuclear facility has accident property damage, decontamination
and premature decommissioning liability insurance from NEIL with limits
of $1.5 billion, except for Crystal River Unit 3. Crystal River Unit 3’s limit is
$50 million and is on an actual cash value basis. All nuclear facilities except for
Catawba and Crystal River Unit 3 also share an additional $1.25 billion nuclear
accident insurance limit above their dedicated underlying limit. This shared
additional excess limit is not subject to reinstatement in the event of a loss.
Catawba has a dedicated $1.25 billion of additional nuclear accident insurance
limit above its dedicated underlying limit. Catawba and Oconee also have an
additional $750 million of non-nuclear accident property damage limit. All
coverages are subject to sublimits and significant deductibles.
NEIL’s Accidental Outage policy provides some coverage, such as
business interruption, for losses in the event of a major accident property
damage outage of a nuclear unit. Coverage is provided on a weekly limit basis
after a significant waiting period deductible and at 100 percent of the available
weekly limits for 52 weeks and 80 percent of the available weekly limits for the
next 110 weeks. Coverage is provided until these available weekly periods are
met where the accidental outage policy limit will not exceed $490 million for
McGuire and Catawba, $462 million for Brunswick, $448 million for Harris, $434
million for Oconee and $378 million for Robinson. NEIL sublimits the accidental
outage recovery to the first 104 weeks of coverage not to exceed $328 million
from non-nuclear accidental property damage. Coverage amounts decrease
in the event more than one unit at a station is out of service due to a common
accident. All coverages are subject to sublimits and significant deductibles.
Potential Retroactive Premium Assessments
In the event of NEIL losses, NEIL’s board of directors may assess
member companies’ retroactive premiums of amounts up to 10 times their
annual premiums for up to six years after a loss. NEIL has never exercised
this assessment. The maximum aggregate annual retrospective premium
obligations for Duke Energy Carolinas, Duke Energy Progress and Duke Energy
Florida are $146 million, $96 million and $1 million, respectively. Duke
Energy Carolinas’ maximum assessment amount includes 100 percent of
potential obligations to NEIL for jointly owned reactors. Duke Energy Carolinas
would seek reimbursement from the joint owners for their portion of these
assessment amounts.
ENVIRONMENTAL
The Duke Energy Registrants are subject to federal, state and local
regulations regarding air and water quality, hazardous and solid waste disposal
and other environmental matters. These regulations can be changed from time
to time, imposing new obligations on the Duke Energy Registrants. The following
environmental matters impact all of the Duke Energy Registrants.
Remediation Activities
In addition to the ARO recorded as a result of various environmental
regulations, discussed in Note 9, the Duke Energy Registrants are responsible
for environmental remediation at various sites. These include certain properties
that are part of ongoing operations and sites formerly owned or used by Duke
Energy entities. These sites are in various stages of investigation, remediation
and monitoring. Managed in conjunction with relevant federal, state and
local agencies, remediation activities vary based upon site conditions and
location, remediation requirements, complexity and sharing of responsibility.
If remediation activities involve joint and several liability provisions, strict
liability, or cost recovery or contribution actions, the Duke Energy Registrants
could potentially be held responsible for environmental impacts caused by
other potentially responsible parties and may also benefit from insurance
policies or contractual indemnities that cover some or all cleanup costs.
Liabilities are recorded when losses become probable and are reasonably
estimable. The total costs that may be incurred cannot be estimated because
the extent of environmental impact, allocation among potentially responsible
parties, remediation alternatives and/or regulatory decisions have not yet been
determined at all sites. Additional costs associated with remediation activities
are likely to be incurred in the future and could be significant. Costs are typically
expensed as Operation, maintenance and other in the Consolidated Statements
of Operations unless regulatory recovery of the costs is deemed probable.
The following tables contain information regarding reserves for probable and estimable costs related to the various environmental sites. These reserves are
recorded in Accounts payable within Current Liabilities and Other within Other Noncurrent Liabilities on the Consolidated Balance Sheets.
(in millions)
Balance at December 31, 2014
Provisions/adjustments
Cash reductions
Balance at December 31, 2015
Provisions/adjustments
Cash reductions
Balance at December 31, 2016
Provisions/adjustments
Cash reductions
Balance at December 31, 2017
Duke
Energy
Carolinas
$ 10
1
(1)
Progress
Energy
$ 17
4
(4)
Duke
Energy
Progress
$
5
—
(2)
Duke
Energy
$ 92
11
(9)
Duke
Energy
Florida
$ 12
4
(2)
94
19
(15)
98
8
(25)
10
4
(4)
10
3
(3)
17
7
(6)
18
3
(6)
3
2
(2)
3
2
(2)
14
4
(4)
14
2
(4)
Duke
Energy
Ohio
Duke
Energy
Indiana
$ 54
1
(1)
54
7
(2)
59
3
(15)
$ 10
5
(3)
12
1
(3)
10
(4)
(1)
$ 81
$ 10
$ 15
$ 3
$ 12
$ 47
$ 5
145
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) As of December 31, 2016, October 31, 2016, 2015 and 2014, Piedmont’s
environmental reserve was $1 million. In 2017, a $1 million provision was
recorded, resulting in a reserve balance of $2 million at December 31, 2017.
Additional losses in excess of recorded reserves that could be incurred for
the stages of investigation, remediation and monitoring for environmental sites
that have been evaluated at this time are not material except as presented in
the table below.
(in millions)
Duke Energy
Duke Energy Carolinas
Duke Energy Ohio
Piedmont
$
56
19
30
2
North Carolina and South Carolina Ash Basins
In February 2014, a break in a stormwater pipe beneath an ash basin
at Duke Energy Carolinas’ retired Dan River Steam Station caused a release
of ash basin water and ash into the Dan River. Duke Energy Carolinas
estimates 30,000 to 39,000 tons of ash and 24 million to 27 million gallons of
basin water were released into the river. In July 2014, Duke Energy completed
remediation work identified by the EPA and continues to cooperate with the
EPA’s civil enforcement process. Future costs related to the Dan River release,
including future state or federal civil enforcement proceedings, future regulatory
directives, natural resources damages, future claims or litigation and long-term
environmental impact costs, cannot be reasonably estimated at this time.
The North Carolina Department of Environmental Quality (NCDEQ) has
historically assessed Duke Energy Carolinas and Duke Energy Progress with
Notice of Violations (NOV) for violations that were most often resolved through
satisfactory corrective actions and minor, if any, fines or penalties. Subsequent
to the Dan River ash release, Duke Energy Carolinas and Duke Energy Progress
have been served with a higher level of NOVs, including assessed penalties for
violations at L.V. Sutton Combined Cycle Plant (Sutton) and Dan River Steam
Station. Duke Energy Carolinas and Duke Energy Progress cannot predict
whether the NCDEQ will assess future penalties related to existing unresolved
NOVs and if such penalties would be material. See “NCDEQ Notices of Violation”
section below for additional discussion.
LITIGATION
Duke Energy
Duke Energy no longer has exposure to litigation matters related to the
International Disposal Group as a result of the divestiture of the business in
December 2016. See Note 2 for additional information related to the sale of
International Energy.
Ash Basin Shareholder Derivative Litigation
Five shareholder derivative lawsuits were filed in Delaware Chancery
Court relating to the release at Dan River and to the management of Duke
Energy’s ash basins. On October 31, 2014, the five lawsuits were consolidated
in a single proceeding titled In Re Duke Energy Corporation Coal Ash
Derivative Litigation. On December 2, 2014, plaintiffs filed a Corrected Verified
Consolidated Shareholder Derivative Complaint (Consolidated Complaint).
The Consolidated Complaint names as defendants several current and former
Duke Energy officers and directors (collectively, the “Duke Energy Defendants”).
Duke Energy is named as a nominal defendant.
146
The Consolidated Complaint alleges the Duke Energy Defendants
breached their fiduciary duties by failing to adequately oversee Duke Energy’s
ash basins and that these breaches of fiduciary duty may have contributed to
the incident at Dan River and continued thereafter. The lawsuit also asserts
claims against the Duke Energy Defendants for corporate waste (relating to the
money Duke Energy has spent and will spend as a result of the fines, penalties
and coal ash removal) and unjust enrichment (relating to the compensation
and director remuneration that was received despite these alleged breaches
of fiduciary duty). The lawsuit seeks both injunctive relief against Duke Energy
and restitution from the Duke Energy Defendants. On January 21, 2015, the
Duke Energy Defendants filed a Motion to Stay, which the court granted. The
stay was lifted on March 24, 2016, after which plaintiffs filed an Amended
Verified Consolidated Shareholder Derivative Complaint (Amended Complaint)
making the same allegations as in the Consolidated Complaint. The Duke Energy
Defendants filed a motion to dismiss the Amended Complaint on June 21, 2016,
which was granted by the Court on December 14, 2016. Plaintiffs filed an
appeal to the Delaware Supreme Court on January 9, 2017. Oral argument was
held on September 27, 2017. On December 15, 2017, the Delaware Supreme
Court affirmed the Chancery Court’s order of dismissal.
In addition to the above derivative complaints, in 2014, Duke Energy
received two shareholder litigation demand letters. The letters alleged that
the members of the Board of Directors and certain officers breached their
fiduciary duties by allowing the company to illegally dispose of and store coal
ash pollutants. One of the letters also alleged a breach of fiduciary duty in
the decision-making relating to the leadership changes following the close of
the Progress Energy merger in July 2012. By letter dated September 4, 2015,
attorneys for the shareholders were informed that, on the recommendation of
the Demand Review Committee formed to consider such matters, the Board of
Directors concluded not to pursue potential claims against individuals. One of
the shareholders, Mitchell Pinsly, sent a formal demand for records and Duke
Energy has responded to this request. There was no follow-up after the records
were provided; therefore, this matter has been resolved.
On October 30, 2015, shareholder Saul Bresalier filed a shareholder
derivative complaint (Bresalier Complaint) in the U.S. District Court for the
District of Delaware. The lawsuit alleges that several current and former Duke
Energy officers and directors (Bresalier Defendants) breached their fiduciary
duties in connection with coal ash environmental issues, the post-merger
change in Chief Executive Officer (CEO) and oversight of political contributions.
Duke Energy is named as a nominal defendant. The Bresalier Complaint
contends that the Demand Review Committee failed to appropriately consider
the shareholder’s earlier demand for litigation and improperly decided not
to pursue claims against the Bresalier Defendants. On March 30, 2017, the
court granted Defendants’ Motion to Dismiss on the claims relating to coal
ash environmental issues and political contributions. As discussed below,
a settlement agreement was approved for the merger-related claims in the
Bresalier Complaint, and those claims were dismissed. On September 8,
2017, Bresalier filed a notice of appeal to the U.S. Court of Appeals for the
Third Circuit (Third Circuit Court) challenging the dismissal of his coal ash and
political contribution claims. On January 19 2018, Bresalier filed a stipulation of
dismissal, closing this case.
Progress Energy Merger Shareholder Litigation
Duke Energy, the 11 members of the Board of Directors who were also
members of the pre-merger Board of Directors (Legacy Duke Energy Directors)
and certain Duke Energy officers were defendants in a purported securities
class-action lawsuit (Nieman v. Duke Energy Corporation, et al). This lawsuit
consolidated three lawsuits originally filed in July 2012. The plaintiffs alleged
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) federal Securities Act of 1933 and Securities Exchange Act of 1934 (Exchange Act)
claims based on allegations of materially false and misleading representations
and omissions in the Registration Statement filed on July 7, 2011, and purportedly
incorporated into other documents, all in connection with the post-merger change
in CEO. On August 15, 2014, the parties reached an agreement in principle
to settle the litigation. On March 10, 2015, the parties filed a Stipulation of
Settlement and a Motion for Preliminary Approval of the Settlement. Under the
terms of the agreement, Duke Energy agreed to pay $146 million to settle the
claim. On April 22, 2015, Duke Energy made a payment of $25 million into the
settlement escrow account. The remainder of $121 million was paid by insurers
into the settlement escrow account. The final order approving the settlement was
issued on November 2, 2015, thus closing the matter.
On May 31, 2013, the Delaware Chancery Court consolidated four
shareholder derivative lawsuits filed in 2012. The Court also appointed a lead
plaintiff and counsel for plaintiffs and designated the case as In Re Duke Energy
Corporation Derivative Litigation (Merger Chancery Litigation). The lawsuit
names as defendants the Legacy Duke Energy Directors. Duke Energy is named
as a nominal defendant. The case alleges claims for breach of fiduciary duties
of loyalty and care in connection with the post-merger change in CEO.
Two shareholder Derivative Complaints, filed in 2012 in federal district
court in Delaware, were consolidated as Tansey v. Rogers, et al. The case
alleges claims against the Legacy Duke Energy Directors for breach of fiduciary
duty and waste of corporate assets, as well as claims under Section 14(a) and
20(a) of the Exchange Act. Duke Energy is named as a nominal defendant. On
December 21, 2015, Plaintiff filed a Consolidated Amended Complaint asserting
the same claims contained in the original complaints.
The Legacy Duke Energy Directors have reached an agreement-in-
principle to settle the Merger Chancery Litigation, conditioned on dismissal as
well, of the Tansey v. Rogers, et al case and the merger related claims in the
Bresalier Complaint discussed above, which was approved by the Delaware
Chancery Court on July 13, 2017. The entire settlement amount was funded by
insurance. The settlement amount, less court-approved attorney fees, totaled
$20 million and was paid to Duke Energy in 2017.
Duke Energy Carolinas and Duke Energy Progress
Coal Ash Insurance Coverage Litigation
In March 2017, Duke Energy Carolinas and Duke Energy Progress filed a
civil action in North Carolina Superior Court against various insurance providers.
The lawsuit seeks payment for coal ash-related liabilities covered by third-party
liability insurance policies. The insurance policies were issued between 1971
and 1986 and provide third-party liability insurance for property damage. The
civil action seeks damages for breach of contract and indemnification for costs
arising from the Coal Ash Act and the EPA CCR rule at 15 coal-fired plants in
North Carolina and South Carolina. Duke Energy Carolinas and Duke Energy
Progress cannot predict the outcome of this matter.
NCDEQ Notice of Violation
On February 8, 2016, the NCDEQ assessed a penalty of approximately
$6.8 million, including enforcement costs, against Duke Energy Carolinas
related to stormwater pipes and associated discharges at the Dan River Steam
Station. Duke Energy Carolinas recorded a charge in December 2015 for this
penalty. In March 2016, Duke Energy Carolinas filed an appeal of this penalty.
On September 23, 2016, Duke Energy Carolinas entered into a settlement
agreement with the NCDEQ, without admission of liability, under which Duke
Energy Carolinas agreed to a payment of $6 million to resolve allegations
underlying the asserted civil penalty related to the Dan River coal ash release
and a March 4, 2016, NOV alleging unpermitted discharges at the facility.
147
NCDEQ State Enforcement Actions
In the first quarter of 2013, Southern Environmental Law Center (SELC)
sent notices of intent to sue Duke Energy Carolinas and Duke Energy Progress
related to alleged Clean Water Act (CWA) violations from coal ash basins
at two of their coal-fired power plants in North Carolina. The NCDEQ filed
enforcement actions against Duke Energy Carolinas and Duke Energy Progress
alleging violations of water discharge permits and North Carolina groundwater
standards. The cases have been consolidated and are being heard before a
single judge in the North Carolina Superior Court.
On August 16, 2013, the NCDEQ filed an enforcement action against Duke
Energy Carolinas and Duke Energy Progress related to their remaining plants in
North Carolina alleging violations of the CWA and violations of the North Carolina
groundwater standards. Both of these cases have been assigned to the judge
handling the enforcement actions discussed above. SELC is representing several
environmental groups who have been permitted to intervene in these cases.
The court issued orders in 2016 granting Motions for Partial Summary
Judgment for seven of the 14 North Carolina plants with coal ash basins
named in the enforcement actions. On February 13, 2017, the court issued
an order denying motions for partial summary judgment brought by both the
environmental groups and Duke Energy Carolinas and Duke Energy Progress for
the remaining seven plants. On March 15, 2017, Duke Energy Carolinas and
Duke Energy Progress filed a Notice of Appeal to challenge the trial court’s order.
The parties were unable to reach an agreement at mediation in April 2017.
The parties submitted briefs to the court on remaining issues to be tried and a
ruling is pending. On August 22, 2017, Duke Energy Carolinas and Duke Energy
Progress filed a Petition for Discretionary Review, requesting the North Carolina
Supreme Court to accept the appeal. On August 24, 2017, SELC filed a motion to
dismiss the appeal. Duke Energy Carolinas’ and Duke Energy Progress’ opening
appellate briefs were filed on October 12, 2017, and briefing is now complete.
Argument was held on February 8, 2018.
It is not possible to predict any liability or estimate any damages Duke
Energy Carolinas or Duke Energy Progress might incur in connection with
these matters.
Federal Citizens Suits
On June 13, 2016, the Roanoke River Basin Association (RRBA) filed a
federal citizen suit in the Middle District of North Carolina alleging unpermitted
discharges to surface water and groundwater violations at the Mayo Plant. On
August 19, 2016, Duke Energy Progress filed a Motion to Dismiss. On April 26,
2017, the court entered an order dismissing four of the claims in the federal
citizen suit. Two claims relating to alleged violations of National Pollutant
Discharge Elimination System (NPDES) permit provisions survived the motion
to dismiss, and Duke Energy Progress filed its response on May 10, 2017. The
parties are engaged in pre-trial discovery. Trial has been scheduled for July 9,
2018.
On March 16, 2017, RRBA served Duke Energy Progress with a Notice
of Intent to Sue under the CWA for alleged violations of effluent standards
and limitations at the Roxboro Plant. In anticipation of litigation, Duke Energy
Progress filed a Complaint for Declaratory Relief in the U.S. District Court for
the Western District of Virginia on May 11, 2017, which was subsequently
dismissed. On May 16, 2017, RRBA filed a federal citizen suit in the U.S. District
Court for the Middle District of North Carolina which asserts two claims relating
to alleged violations of NPDES permit provisions and one claim relating to the
use of nearby water bodies. The parties are engaged in pre-trial discovery. Trial
has been scheduled for October 1, 2018.
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) On June 20, 2017, RRBA filed a federal citizen suit in the U.S. District
Court for the Middle District of North Carolina challenging the closure plans at
the Mayo Plant under the EPA CCR Rule. Duke Energy Progress filed a motion to
dismiss, which was argued on January 30, 2018.
On August 2, 2017, RRBA filed a federal citizen suit in the U.S. District
Court for the Middle District of North Carolina challenging the closure plans at
the Roxboro Plant under the EPA CCR Rule. Duke Energy Progress filed a motion
to dismiss on October 2, 2017.
On December 6, 2017, various parties filed a federal citizen suit in the
U.S. District Court for the Middle District of North Carolina for alleged violations
at Duke Energy Carolinas’ Belews Creek Steam Station (Belews Creek) under the
CWA. Duke Energy Carolinas filed a motion to dismiss on February 5, 2018.
It is not possible to predict whether Duke Energy Carolinas or Duke Energy
Progress will incur any liability or to estimate the damages, if any, they might
incur in connection with these matters.
Five previously filed cases involving the Riverbend, Cape Fear, H.F. Lee,
Sutton and Buck plants have been dismissed or settled during 2016.
Groundwater Contamination Claims
Beginning in May 2015, a number of residents living in the vicinity of
the North Carolina facilities with ash basins received letters from the NCDEQ
advising them not to drink water from the private wells on their land tested by
the NCDEQ as the samples were found to have certain substances at levels
higher than the criteria set by the North Carolina Department of Health and
Human Services (DHHS). Results of Comprehensive Site Assessments (CSAs)
testing performed by Duke Energy under the Coal Ash Act have been consistent
with historical data provided to state regulators over many years. The DHHS and
NCDEQ sent follow-up letters on October 15, 2015, to residents near coal ash
basins who have had their wells tested, stating that private well samplings at a
considerable distance from coal ash basins, as well as some municipal water
supplies, contain similar levels of vanadium and hexavalent chromium, which
led investigators to believe these constituents are naturally occurring. In March
2016, DHHS rescinded the advisories.
Duke Energy Carolinas and Duke Energy Progress have received formal
demand letters from residents near Duke Energy Carolinas’ and Duke Energy
Progress’ coal ash basins. The residents claim damages for nuisance and
diminution in property value, among other things. The parties held three days
of mediation discussions which ended at impasse. On January 6, 2017, Duke
Energy Carolinas and Duke Energy Progress received the plaintiffs’ notice of
their intent to file suits should the matter not settle. The NCDEQ preliminarily
approved Duke Energy’s permanent water solution plans on January 13, 2017,
and as a result shortly thereafter, Duke Energy issued a press release, providing
additional details regarding the homeowner compensation package. This
package consists of three components: (i) a $5,000 goodwill payment to each
eligible well owner to support the transition to a new water supply, (ii) where
a public water supply is available and selected by the eligible well owner, a
stipend to cover 25 years of water bills and (iii) the Property Value Protection
Plan. The Property Value Protection Plan is a program offered by Duke Energy
designed to guarantee eligible plant neighbors the fair market value of their
residential property should they decide to sell their property during the time that
the plan is offered. Duke Energy Carolinas and Duke Energy Progress recognized
reserves of $19 million and $4 million, respectively.
On August 23, 2017, a class-action suit was filed in Wake County Superior
Court, North Carolina, against Duke Energy Carolinas and Duke Energy Progress
on behalf of certain property owners living near coal ash impoundments at Allen,
Asheville, Belews Creek, Buck, Cliffside, Lee, Marshall, Mayo and Roxboro.
The class is defined as those who are well-eligible under the Coal Ash Act or
those to whom Duke Energy has promised a permanent replacement water
supply and seeks declaratory and injunctive relief, along with compensatory
damages. Plaintiffs allege that Duke Energy’s improper maintenance of coal ash
impoundments caused harm, particularly through groundwater contamination.
Despite NCDEQ’s preliminary approval, Plaintiffs contend that Duke Energy’s
proposed permanent water solutions plan fails to comply with the Coal Ash
Act. On September 28, 2017, Duke Energy Carolinas and Duke Energy Progress
filed a Motion to Dismiss and Motion to Strike the class designation. The parties
entered into a Settlement Agreement on January 24, 2018, which resulted in the
dismissal of the underlying class action on January 25, 2018.
On September 14, 2017, a complaint was filed against Duke Energy
Progress in New Hanover County Superior Court by a group of homeowners
residing approximately 1 mile from Duke Energy Progress’ Sutton Steam Plant.
The homeowners allege that coal ash constituents have been migrating from ash
impoundments at Sutton into their groundwater for decades and that in 2015,
Duke Energy Progress discovered these releases of coal ash, but failed to notify
any officials or neighbors and failed to take remedial action. The homeowners
claim unspecified physical and mental injuries as a result of consuming their
well water and seek actual damages for personal injury, medical monitoring and
punitive damages. Duke Energy filed its Motion to Dismiss on October 27, 2017,
and the hearing is scheduled for March 7, 2018.
It is not possible to estimate the maximum exposure of loss, if any, that
may occur in connection with claims which might be made by these residents.
Duke Energy Carolinas
Asbestos-related Injuries and Damages Claims
Duke Energy Carolinas has experienced numerous claims for
indemnification and medical cost reimbursement related to asbestos exposure.
These claims relate to damages for bodily injuries alleged to have arisen from
exposure to or use of asbestos in connection with construction and maintenance
activities conducted on its electric generation plants prior to 1985. As of
December 31, 2017, there were 161 asserted claims for non-malignant cases
with the cumulative relief sought of up to $42 million and 54 asserted claims for
malignant cases with the cumulative relief sought of up to $16 million. Based on
Duke Energy Carolinas’ experience, it is expected that the ultimate resolution of
most of these claims likely will be less than the amount claimed.
Duke Energy Carolinas has recognized asbestos-related reserves of
$489 million and $512 million at December 31, 2017, and 2016, respectively.
These reserves are classified in Other within Other Noncurrent Liabilities and
Other within Current Liabilities on the Consolidated Balance Sheets. These
reserves are based upon the minimum amount of the range of loss for current
and future asbestos claims through 2037, are recorded on an undiscounted
basis and incorporate anticipated inflation. In light of the uncertainties inherent
in a longer-term forecast, management does not believe they can reasonably
estimate the indemnity and medical costs that might be incurred after 2037
related to such potential claims. It is possible Duke Energy Carolinas may incur
asbestos liabilities in excess of the recorded reserves.
Duke Energy Carolinas has third-party insurance to cover certain losses
related to asbestos-related injuries and damages above an aggregate self-
insured retention. Duke Energy Carolinas’ cumulative payments began to exceed
the self-insurance retention in 2008. Future payments up to the policy limit will
be reimbursed by the third-party insurance carrier. The insurance policy limit
for potential future insurance recoveries indemnification and medical cost claim
payments is $797 million in excess of the self-insured retention. Receivables for
insurance recoveries were $585 million and $587 million at December 31, 2017,
and 2016, respectively. These amounts are classified in Other within Other
148
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Noncurrent Assets and Receivables within Current Assets on the Consolidated
Balance Sheets. Duke Energy Carolinas is not aware of any uncertainties
regarding the legal sufficiency of insurance claims. Duke Energy Carolinas
believes the insurance recovery asset is probable of recovery as the insurance
carrier continues to have a strong financial strength rating.
Duke Energy Progress and Duke Energy Florida
Spent Nuclear Fuel Matters
On October 16, 2014, Duke Energy Progress and Duke Energy Florida sued
the U.S. in the U.S. Court of Federal Claims. The lawsuit claimed the Department
of Energy breached a contract in failing to accept spent nuclear fuel under the
Nuclear Waste Policy Act of 1982 and asserted damages for the cost of on-site
storage. Duke Energy Progress and Duke Energy Florida asserted damages for
the period January 1, 2011, through December 31, 2013, of $48 million and
$25 million, respectively. On November 17, 2017, the Court awarded Duke Energy
Progress and Duke Energy Florida $48 million and $21 million, respectively,
subject to appeal. No appeals were filed and Duke Energy Progress and Duke
Energy Florida will recognize the recoveries in the first quarter of 2018. Claims
for all periods through 2013 have been resolved. Additional claims will be filed
in 2018.
Duke Energy Progress
Gypsum Supply Agreements Matter
On June 30, 2017, CertainTeed Gypsum NC, Inc. (CertainTeed) filed a
declaratory judgment action against Duke Energy Progress in the North Carolina
Business Court relating to a gypsum supply agreement. In its complaint,
CertainTeed seeks an order from the court declaring that the minimum amount
of gypsum Duke Energy Progress must provide to CertainTeed under the supply
agreement is 50,000 tons per month through 2029. On September 28, 2017,
the Court denied CertainTeed’s motion for summary judgment. Discovery in the
case is underway and a trial date has not been set. In light of the volatility in
future production of gypsum, Duke Energy Progress cannot predict the outcome
of this matter.
Duke Energy Florida
Class-Action Lawsuit
On February 22, 2016, a lawsuit was filed in the U.S. District Court for the
Southern District of Florida on behalf of a putative class of Duke Energy Florida
and FP&L’s customers in Florida. The suit alleges the State of Florida’s nuclear
power plant cost recovery statutes (NCRS) are unconstitutional and pre-empted
by federal law. Plaintiffs claim they are entitled to repayment of all money
paid by customers of Duke Energy Florida and FP&L as a result of the NCRS,
as well as an injunction against any future charges under those statutes. The
constitutionality of the NCRS has been challenged unsuccessfully in a number of
prior cases on alternative grounds. Duke Energy Florida and FP&L filed motions
to dismiss the complaint on May 5, 2016. On September 21, 2016, the Court
granted the motions to dismiss with prejudice. Plaintiffs filed a motion for
reconsideration, which was denied. On January 4, 2017, plaintiffs filed a notice
of appeal to the U.S. Court of Appeals. The appeal, which has been fully briefed,
was heard on August 22, 2017, and a decision is pending. Duke Energy Florida
cannot predict the outcome of this appeal.
Westinghouse Contract Litigation
On March 28, 2014, Duke Energy Florida filed a lawsuit against
Westinghouse in the U.S. District Court for the Western District of North Carolina.
The lawsuit seeks recovery of $54 million in milestone payments in excess of
work performed under the terminated EPC for Levy as well as a determination
by the court of the amounts due to Westinghouse as a result of the termination
of the EPC. Duke Energy Florida recognized an exit obligation as a result of the
termination of the EPC contract.
On March 31, 2014, Westinghouse filed a lawsuit against Duke Energy
Florida in U.S. District Court for the Western District of Pennsylvania. The
Pennsylvania lawsuit alleged damages under the EPC in excess of $510 million
for engineering and design work, costs to end supplier contracts and an alleged
termination fee.
On June 9, 2014, the judge in the North Carolina case ruled that the
litigation will proceed in the Western District of North Carolina. On July 11, 2016,
Duke Energy Florida and Westinghouse filed separate Motions for Summary
Judgment. On September 29, 2016, the court issued its ruling on the parties’
respective Motions for Summary Judgment, ruling in favor of Westinghouse
on a $30 million termination fee claim and dismissing Duke Energy Florida’s
$54 million refund claim, but stating that Duke Energy Florida could use the
refund claim to offset any damages for termination costs. Westinghouse’s
claim for termination costs was unaffected by this ruling and continued to
trial. At trial, Westinghouse reduced its claim for termination costs from $482
million to $424 million. Following a trial on the matter, the court issued its final
order in December 2016 denying Westinghouse’s claim for termination costs
and re-affirming its earlier ruling in favor of Westinghouse on the $30 million
termination fee and Duke Energy Florida’s refund claim. Judgment was entered
against Duke Energy Florida in the amount of approximately $34 million, which
includes pre-judgment interest. Westinghouse has appealed the trial court’s
order and Duke Energy Florida has cross-appealed. Duke Energy Florida cannot
predict the ultimate outcome of the appeal of the trial court’s order.
On March 29, 2017, Westinghouse filed Chapter 11 bankruptcy in
the Southern District of New York, which automatically stayed the appeal.
On May 23, 2017, the bankruptcy court entered an order lifting the stay
with respect to the appeal. Briefing of the appeal concluded on October 20,
2017. Oral argument in the appeal was originally set for March 2018 but has
tentatively been rescheduled to May 2018, due to scheduling conflicts.
Ultimate resolution of these matters could have a material effect on the
results of operations, financial position or cash flows of Duke Energy Florida.
See discussion of the 2017 Settlement and the Levy Nuclear Project in Note 4
for additional information regarding recovery of costs related to Westinghouse.
The 2017 Settlement does not permit recovery of any amounts paid to resolve
this contract litigation.
MGP Cost Recovery Action
On December 30, 2011, Duke Energy Florida filed a lawsuit against
FirstEnergy Corp. (FirstEnergy) to recover investigation and remediation costs
incurred by Duke Energy Florida in connection with the restoration of two former
MGP sites in Florida. Duke Energy Florida alleged that FirstEnergy, as the
successor to Associated Gas & Electric Co., owes past and future contribution
and response costs of up to $43 million for the investigation and remediation
of MGP sites. On December 6, 2016, the trial court entered judgment against
Duke Energy Florida in the case. In January 2017, Duke Energy Florida appealed
the decision to the U.S. Court of Appeals for the Sixth Circuit, which has been
fully briefed and argued. Duke Energy Florida cannot predict the outcome of this
appeal.
149
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Duke Energy Ohio
Antitrust Lawsuit
In January 2008, four plaintiffs, including individual, industrial and
nonprofit customers, filed a lawsuit against Duke Energy Ohio in federal court
in the Southern District of Ohio. Plaintiffs alleged Duke Energy Ohio conspired
to provide inequitable and unfair price advantages for certain large business
consumers by entering into nonpublic option agreements in exchange for
their withdrawal of challenges to Duke Energy Ohio’s Rate Stabilization Plan
implemented in early 2005. In March 2014, a federal judge certified this matter
as a class action. Plaintiffs alleged claims of antitrust violations under the
federal Robinson Patman Act as well as fraud and conspiracy allegations under
the federal Racketeer Influenced and Corrupt Organizations statute and the Ohio
Corrupt Practices Act.
During 2015, the parties received preliminary court approval of a
settlement agreement. Duke Energy Ohio recorded a litigation settlement reserve
of $81 million classified in Other within Current Liabilities on the Consolidated
Balance Sheet at December 31, 2015. Duke Energy Ohio also recognized a pretax
charge of $81 million in (Loss) Income From Discontinued Operations, net of tax
in the Consolidated Statements of Operations and Comprehensive Income for
the year ended December 31, 2015. The settlement agreement was approved at
a federal court hearing on April 19, 2016. Distribution of the settlement checks
was approved by the court in January 2017 and all settlement amounts have
been paid. See Note 2 for further discussion on the Midwest Generation Exit.
Other Litigation and Legal Proceedings
Current Liabilities. The reasonably possible range of loss in excess of recorded
reserves is not material, other than as described above.
(in millions)
Reserves for Legal Matters
Duke Energy
Duke Energy Carolinas
Progress Energy
Duke Energy Progress
Duke Energy Florida
Duke Energy Ohio
Piedmont
December 31,
2017
2016
$ 88
30
55
13
24
—
2
$ 98
23
59
14
28
4
2
OTHER COMMITMENTS AND CONTINGENCIES
General
As part of their normal business, the Duke Energy Registrants are party
to various financial guarantees, performance guarantees and other contractual
commitments to extend guarantees of credit and other assistance to various
subsidiaries, investees and other third parties. These guarantees involve
elements of performance and credit risk, which are not fully recognized on the
Consolidated Balance Sheets and have unlimited maximum potential payments.
However, the Duke Energy Registrants do not believe these guarantees will have
a material effect on their results of operations, cash flows or financial position.
The Duke Energy Registrants are involved in other legal, tax and regulatory
Purchase Obligations
proceedings arising in the ordinary course of business, some of which involve
significant amounts. The Duke Energy Registrants believe the final disposition of
these proceedings will not have a material effect on their results of operations,
cash flows or financial position.
The table below presents recorded reserves based on management’s
best estimate of probable loss for legal matters, excluding asbestos-related
reserves and the exit obligation discussed above related to the termination of
an EPC contract. Reserves are classified on the Consolidated Balance Sheets in
Other within Other Noncurrent Liabilities and Accounts payable and Other within
Purchased Power
Duke Energy Progress, Duke Energy Florida and Duke Energy Ohio have
ongoing purchased power contracts, including renewable energy contracts, with
other utilities, wholesale marketers, co-generators and qualified facilities. These
purchased power contracts generally provide for capacity and energy payments.
In addition, Duke Energy Progress and Duke Energy Florida have various
contracts to secure transmission rights.
The following table presents executory purchased power contracts with terms exceeding one year, excluding contracts classified as leases. Amounts at Duke
Energy Ohio were immaterial.
(in millions)
Duke Energy Progress(a)
Duke Energy Florida(b)
Minimum Purchase Amount at December 31, 2017
Contract
Expiration
2019-2031
2021-2043
2018
68
357
$
2019
68
374
$
2020
51
394
$
2021
52
378
$
2022
30
376
$
Thereafter
$
239
770
Total
$
508
2,649
(a) Contracts represent between 15 percent and 100 percent of net plant output.
(b) Contracts represent between 81 percent and 100 percent of net plant output.
Gas Supply and Capacity Contracts
Duke Energy Ohio and Piedmont routinely enter into long-term natural
gas supply commodity and capacity commitments and other agreements that
commit future cash flows to acquire services needed in their businesses. These
commitments include pipeline and storage capacity contracts and natural gas
supply contracts to provide service to customers. Costs arising from the natural
gas supply commodity and capacity commitments, while significant, are pass-
through costs to customers and are generally fully recoverable through the fuel
adjustment or PGA procedures and prudence reviews in North Carolina and South
Carolina and under the Tennessee Incentive Plan in Tennessee. In the Midwest,
these costs are recovered via the Gas Cost Recovery Rate in Ohio or the Gas
Cost Adjustment Clause in Kentucky. The time periods for fixed payments under
pipeline and storage capacity contracts are up to 19 years. The time periods for
fixed payments under natural gas supply contracts are up to three years. The
time period for the natural gas supply purchase commitments is up to 15 years.
150
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Certain storage and pipeline capacity contracts require the payment of
demand charges that are based on rates approved by the FERC in order to maintain
rights to access the natural gas storage or pipeline capacity on a firm basis
during the contract term. The demand charges that are incurred in each period
are recognized in the Consolidated Statements of Operations and Comprehensive
Income as part of natural gas purchases and are included in Cost of natural gas.
The following table presents future unconditional purchase obligations
under natural gas supply and capacity contracts as of December 31, 2017.
(in millions)
Duke Energy
Duke Energy Ohio
Piedmont
power agreements, which are classified as leases. Consolidated capitalized
lease obligations are classified as Long-Term Debt or Other within Current
Liabilities on the Consolidated Balance Sheets. Amortization of assets
recorded under capital leases is included in Depreciation and amortization
and Fuel used in electric generation on the Consolidated Statements of
Operations.
The following tables present rental expense for operating leases. These
amounts are included in Operation, maintenance and other on the Consolidated
Statements of Operations.
2018
2019
2020
2021
2022
Thereafter
Total
$
314
280
252
249
226
1,121
$ 2,442
$ 37
28
25
26
11
3
$ 130
$
277
252
227
223
215
1,118
$ 2,312
Operating and Capital Lease Commitments
The Duke Energy Registrants lease office buildings, railcars, vehicles,
computer equipment and other property and equipment with various terms
and expiration dates. Additionally, Duke Energy Progress has a capital lease
related to firm natural gas pipeline transportation capacity. Duke Energy
Progress and Duke Energy Florida have entered into certain purchased
(in millions)
Duke Energy
Duke Energy Carolinas
Progress Energy
Duke Energy Progress
Duke Energy Florida
Duke Energy Ohio
Duke Energy Indiana
Years Ended December 31,
2017
$241
44
130
75
55
15
23
2016
$242
45
140
68
72
16
23
2015
$ 313
41
230
149
81
13
20
Year Ended
Two Months Ended Years Ended October 31,
(in millions) December 31, 2017
December 31, 2016
Piedmont
$ 7
$ 1
2016
$ 5
2015
$ 5
The following table presents future minimum lease payments under operating leases, which at inception had a non-cancelable term of more than one year.
(in millions)
2018
2019
2020
2021
2022
Thereafter
Total
December 31, 2017
Duke
Energy
$ 233
203
183
150
135
882
$1,786
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
$ 36
29
25
19
16
52
$177
$
133
126
117
97
90
525
$ 1,088
$ 77
72
62
48
42
344
$645
$ 56
54
55
49
48
181
$443
$ 20
12
10
7
4
5
$ 58
$22
14
10
8
5
7
$66
$ 6
5
5
6
6
16
$ 44
The following table presents future minimum lease payments under capital leases.
(in millions)
2018
2019
2020
2021
2022
Thereafter
Minimum annual payments
Less: amount representing interest
Total
December 31, 2017
Duke
Energy
$
168
169
174
176
169
745
1,601
(601)
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
$ 13
13
13
8
8
109
164
(103)
$
46
45
47
45
45
323
551
(283)
$ 21
20
21
22
21
227
332
(192)
$ 25
25
26
25
24
95
220
(91)
$ 3
1
—
—
—
—
4
—
$ 2
1
1
1
1
38
44
(33)
$ 1,000
$ 61
$ 268
$ 140
$ 129
$ 4
$ 11
151
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued)
6. DEBT AND CREDIT FACILITIES
SUMMARY OF DEBT AND RELATED TERMS
The following tables summarize outstanding debt.
(in millions)
Unsecured debt, maturing 2018-2073
Secured debt, maturing 2018-2037
First mortgage bonds, maturing 2018-2047(a)
Capital leases, maturing 2018-2051(b)
Tax-exempt bonds, maturing 2019-2041(c)
Notes payable and commercial paper(d)
Money pool/intercompany borrowings
Fair value hedge carrying value adjustment
Unamortized debt discount and premium, net(e)
Unamortized debt issuance costs(f)
Weighted
Average
Interest Rate
4.17%
3.15%
4.51%
4.55%
3.23%
1.57%
Duke
Energy
$ 20,409
4,458
23,529
1,000
941
2,788
—
6
1,582
(271)
Total debt
4.09%
$ 54,442
Short-term notes payable and commercial paper
Short-term money pool/intercompany borrowings
Current maturities of long-term debt(g)
Total long-term debt(g)
(2,163)
—
(3,244)
$ 49,035
Duke
Energy
Carolinas
$ 1,150
450
7,959
61
243
—
404
6
(19)
(47)
$10,207
—
(104)
(1,205)
$ 8,898
December 31, 2017
Progress
Energy
$ 3,950
1,757
11,801
269
48
—
955
—
(30)
(108)
$ 18,642
—
(805)
(771)
$ 17,066
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
$ —
300
6,776
139
48
—
390
—
(16)
(40)
$ 7,597
—
(240)
(3)
$ 7,354
$
550
1,457
5,025
129
—
—
—
—
(10)
(56)
$
900
—
1,100
5
77
—
54
—
(33)
(7)
$
411
—
2,669
11
572
—
311
—
(9)
(21)
$ 2,050
—
—
—
—
—
364
—
(1)
(12)
$ 7,095
$ 2,096
$ 3,944
$ 2,401
—
—
(768)
$ 6,327
—
(29)
(3)
$ 2,064
—
(161)
(3)
$ 3,780
—
(364)
(250)
$ 1,787
(a) Substantially all electric utility property is mortgaged under mortgage bond indentures.
(b) Duke Energy includes $81 million and $603 million of capital lease purchase accounting adjustments related to Duke Energy Progress and Duke Energy Florida, respectively, related to power purchase agreements that are not
accounted for as capital leases in their respective financial statements because of grandfathering provisions in GAAP.
(c) Substantially all tax-exempt bonds are secured by first mortgage bonds or letters of credit.
(d)
Includes $625 million that was classified as Long-Term Debt on the Consolidated Balance Sheets due to the existence of long-term credit facilities that backstop these commercial paper balances, along with Duke Energy’s
ability and intent to refinance these balances on a long-term basis. The weighted average days to maturity for Duke Energy’s commercial paper program was 14 days.
(e) Duke Energy includes $1,509 million and $176 million in purchase accounting adjustments related to Progress Energy and Piedmont, respectively.
(f) Duke Energy includes $47 million in purchase accounting adjustments primarily related to the merger with Progress Energy.
(g) Refer to Note 17 for additional information on amounts from consolidated VIEs.
152
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued)
(in millions)
Unsecured debt, maturing 2017-2073
Secured debt, maturing 2017-2037
First mortgage bonds, maturing 2017-2046(a)
Capital leases, maturing 2018-2051(b)
Tax-exempt bonds, maturing 2017-2041(c)
Notes payable and commercial paper(d)
Money pool/intercompany borrowings(e)
Fair value hedge carrying value adjustment
Unamortized debt discount and premium, net(f)
Unamortized debt issuance costs(g)
Weighted
Average
Interest Rate
4.30%
2.60%
4.61%
4.48%
2.84%
1.01%
Duke
Energy
$ 17,812
3,909
21,879
1,100
1,053
3,112
—
6
1,753
(242)
Total debt
4.07%
$ 50,382
Short-term notes payable and commercial paper
Short-term money pool/intercompany borrowings
Current maturities of long-term debt(h)
Total long-term debt(h)
(2,487)
—
(2,319)
$ 45,576
Duke
Energy
Carolinas
$ 1,150
425
7,410
22
355
—
300
6
(20)
(45)
$ 9,603
—
—
(116)
$ 9,487
December 31, 2016
Progress
Energy
$ 3,551
1,819
10,800
285
48
—
1,902
—
(31)
(104)
$ 18,270
—
(729)
(778)
$ 16,763
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana Piedmont
$ —
300
6,425
142
48
—
150
—
(16)
(38)
$ 7,011
—
—
(452)
$ 6,559
$
150
1,519
4,375
143
—
—
297
—
(10)
(52)
$
810
—
1,000
7
77
—
41
—
(28)
(7)
$
415
—
2,669
11
572
—
150
—
(9)
(22)
$ 1,835
—
—
—
—
—
—
—
(1 )
(13 )
$ 6,422
$ 1,900
$ 3,786
$ 1,821
—
(297)
(326)
$ 5,799
—
(16)
(1)
$ 1,883
—
—
(3)
$ 3,783
—
—
(35 )
$ 1,786
(a) Substantially all electric utility property is mortgaged under mortgage bond indentures.
(b) Duke Energy includes $98 million and $670 million of capital lease purchase accounting adjustments related to Duke Energy Progress and Duke Energy Florida, respectively, related to power purchase agreements that are not
accounted for as capital leases in their respective financial statements because of grandfathering provisions in GAAP.
(c) Substantially all tax-exempt bonds are secured by first mortgage bonds or letters of credit.
(d)
Includes $625 million that was classified as Long-Term Debt on the Consolidated Balance Sheets due to the existence of long-term credit facilities that backstop these commercial paper balances, along with Duke Energy’s
ability and intent to refinance these balances on a long-term basis. The weighted average days to maturity for Duke Energy and Piedmont’s commercial paper programs were 14 days and eight days, respectively.
(e) Progress Energy amount includes a $1 billion intercompany loan related to the sale of the International Disposal Group. See Note 2 for further discussion of the sale.
(f) Duke Energy includes $1,653 million and $197 million purchase accounting adjustments related to the mergers with Progress Energy and Piedmont, respectively.
(g) Duke Energy includes $53 million in purchase accounting adjustments primarily related to the merger with Progress Energy.
(h) Refer to Note 17 for additional information on amounts from consolidated VIEs.
CURRENT MATURITIES OF LONG-TERM DEBT
The following table shows the significant components of Current maturities of Long-Term Debt on the Consolidated Balance Sheets. The Duke Energy Registrants
currently anticipate satisfying these obligations with cash on hand and proceeds from additional borrowings.
(in millions)
Unsecured Debt
Duke Energy (Parent)
Duke Energy (Parent)
Piedmont
First Mortgage Bonds
Duke Energy Carolinas
Duke Energy Carolinas
Duke Energy Florida
Duke Energy Carolinas
Other(a)
Current maturities of long-term debt
Includes capital lease obligations, amortizing debt and small bullet maturities.
(a)
(b) Debt has a floating interest rate.
Maturity Date
Interest Rate
December 31, 2017
June 2018
June 2018
December 2018
January 2018
April 2018
June 2018
November 2018
6.250%
2.100%
2.286%(b)
5.250%
5.100%
5.650%
7.000%
$ 250
500
250
400
300
500
500
544
$ 3,244
153
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued)
Maturities and Call Options
The following table shows the annual maturities of long-term debt for the next five years and thereafter. Amounts presented exclude short-term notes payable
and commercial paper and money pool borrowings for the Subsidiary Registrants.
(in millions)
2018
2019
2020
2021
2022
Thereafter
Total long-term debt, including current maturities
December 31, 2017
Duke
Energy(a)
$ 3,244
3,563
3,699
3,760
3,010
33,271
$ 50,547
Duke
Energy
Carolinas
$ 1,205
6
906
502
302
7,182
$10,103
Progress
Energy
$
771
2,191
871
1,472
1,176
11,356
Duke
Energy
Progress
$
3
903
304
602
653
4,892
Duke
Energy
Florida
$
768
490
568
371
74
4,824
Duke
Energy
Ohio
$
3
548
—
48
23
1,445
Duke
Energy
Indiana
$
3
61
502
69
243
2,905
Piedmont
$
250
—
—
159
—
1,628
$ 17,837
$ 7,357
$ 7,095
$ 2,067
$ 3,783
$ 2,037
(a) Excludes $1,732 million in purchase accounting adjustments related to the Progress Energy merger and the Piedmont acquisition.
The Duke Energy Registrants have the ability under certain debt facilities to call and repay the obligation prior to its scheduled maturity. Therefore, the actual
timing of future cash repayments could be materially different than as presented above.
Short-Term Obligations Classified as Long-Term Debt
Tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder and certain commercial paper issuances and money pool
borrowings are classified as Long-Term Debt on the Consolidated Balance Sheets. These tax-exempt bonds, commercial paper issuances and money pool borrowings,
which are short-term obligations by nature, are classified as long term due to Duke Energy’s intent and ability to utilize such borrowings as long-term financing.
As Duke Energy’s Master Credit Facility and other bilateral letter of credit agreements have non-cancelable terms in excess of one year as of the balance sheet
date, Duke Energy has the ability to refinance these short-term obligations on a long-term basis. The following tables show short-term obligations classified as
long-term debt.
(in millions)
Tax-exempt bonds
Commercial paper(a)
Total
(in millions)
Tax-exempt bonds
Commercial paper(a)
Total
(a) Progress Energy amounts are equal to Duke Energy Progress amounts.
Duke
Energy
$ 312
625
$ 937
Duke
Energy
$ 347
625
$ 972
Duke
Energy
Carolinas
$ —
300
$ 300
Duke
Energy
Carolinas
$ 35
300
$ 335
December 31, 2017
Duke
Energy
Progress
$ —
150
$ 150
December 31, 2016
Duke
Energy
Progress
$ —
150
$ 150
Duke
Energy
Ohio
$ 27
25
$ 52
Duke
Energy
Ohio
$ 27
25
$ 52
Duke
Energy
Indiana
$ 285
150
$ 435
Duke
Energy
Indiana
$ 285
150
$ 435
154
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Summary of Significant Debt Issuances
The following tables summarize significant debt issuances (in millions).
Issuance Date
Unsecured Debt
April 2017(a)
June 2017(b)
August 2017(c)
August 2017(c)
August 2017(c)
December 2017(d)
Secured Debt
February 2017(e)
August 2017(f)
First Mortgage Bonds
January 2017(g)
January 2017(g)
March 2017(h)
September 2017(i)
September 2017(i)
November 2017(j)
Total issuances
Maturity Date
Interest Rate
April 2025
June 2020
August 2022
August 2027
August 2047
December 2019(k)
June 2034
December 2036
January 2020
January 2027
June 2046
September 2020
September 2047
December 2047
3.364%
2.100%
2.400%
3.150%
3.950%
2.100%
4.120%
4.110%
1.850%
3.200%
3.700%
1.500%(l)
3.600%
3.700%
Year Ended December 31, 2017
Duke
Energy
Duke
Energy
(Parent)
Duke
Energy
Carolinas
Duke
Energy
Progress
$
420
330
500
750
500
400
587
233
250
650
100
300
500
550
$
420
330
500
750
500
—
—
—
—
—
—
—
—
—
$ —
—
—
—
—
—
—
—
—
—
—
—
—
550
$ —
—
—
—
—
—
—
—
—
—
—
300
500
—
Duke
Energy
Florida
$ —
—
—
—
—
400
—
—
250
650
—
—
—
—
Duke
Energy
Ohio
$ —
—
—
—
—
—
—
—
—
—
100
—
—
—
$ 6,070
$ 2,500
$ 550
$ 800
$ 1,300
$ 100
(a) Proceeds were used to refinance $400 million of unsecured debt at maturity and to repay a portion of outstanding commercial paper.
(b) Debt issued to repay a portion of outstanding commercial paper.
(c) Debt issued to repay at maturity $700 million of unsecured debt, to repay outstanding commercial paper and for general corporate purposes.
(d) Debt issued to fund storm restoration costs related to Hurricane Irma and for general corporate purposes.
(e) Portfolio financing of four Texas and Oklahoma wind facilities. Duke Energy pledged substantially all of the assets of these wind facilities and is nonrecourse to Duke Energy. Proceeds were used to reimburse Duke Energy for a
portion of previously funded construction expenditures.
(f) Portfolio financing of eight solar facilities located in California, Colorado and New Mexico. Duke Energy pledged substantially all of the assets of these solar facilities and is nonrecourse to Duke Energy. Proceeds were used to
reimburse Duke Energy for a portion of previously funded construction expenditures.
(g) Debt issued to fund capital expenditures for ongoing construction and capital maintenance, to repay a $250 million aggregate principal amount of bonds at maturity and for general corporate purposes.
(h) Proceeds were used to fund capital expenditures for ongoing construction, capital maintenance and for general corporate purposes.
(i) Debt issued to repay at maturity a $200 million aggregate principal amount of bonds at maturity, pay down intercompany short-term debt and for general corporate purposes, including capital expenditures.
(j) Debt issued to refinance $400 million aggregate principal amount of bonds due January 2018, pay down intercompany short-term debt and for general corporate purposes.
(k) Principal balance will be repaid in equal quarterly installments beginning in March 2018.
(l) Debt issuance has a floating interest rate.
155
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Issuance Date
Unsecured Debt
April 2016(a)
August 2016(b)
August 2016(b)
August 2016(b)
Secured Debt
June 2016(c)
June 2016(c)
June 2016(c)
June 2016(c)
June 2016(c)
August 2016(d)
August 2016(d)
First Mortgage Bonds
March 2016(e)
March 2016(e)
May 2016(f)
June 2016(e)
September 2016(g)
September 2016(e)
November 2016(h)
Total issuances
Maturity Date
Interest Rate
April 2023
September 2021
September 2026
September 2046
March 2020
September 2022
September 2029
March 2033
September 2036
June 2034
June 2020
March 2023
March 2046
May 2046
June 2046
October 2046
October 2046
December 2046
2.875%
1.800%
2.650%
3.750%
1.196%
1.731%
2.538%
2.858%
3.112%
2.747%(i)
2.747%(i)
2.500%
3.875%
3.750%
3.700%
3.400%
3.700%
2.950%
Duke
Energy
$
350
750
1,500
1,500
Duke
Energy
(Parent)
$
350
750
1,500
1,500
Year Ended December 31, 2016
Duke
Energy
Carolinas
Duke
Energy
Progress
Duke
Energy
Florida
$ —
—
—
—
$ — $ —
—
—
—
—
—
—
Duke
Energy
Ohio
$ —
—
—
—
Duke
Energy
Indiana
$ —
—
—
—
183
150
436
250
275
228
105
500
500
500
250
600
450
600
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
500
500
—
—
—
—
600
—
—
—
—
—
—
—
—
—
—
—
—
450
—
183
150
436
250
275
—
—
—
—
—
—
600
—
—
—
—
—
—
—
—
—
—
—
—
250
—
—
—
—
—
—
—
—
—
—
—
—
500
—
—
—
—
$ 9,127
$ 4,100
$ 1,600
$ 450
$ 1,894
$ 250
$ 500
(a) Proceeds were used to pay down outstanding commercial paper and for general corporate purposes.
(b) Proceeds were used to finance a portion of the Piedmont acquisition. The $4.9 billion Bridge Facility was terminated following the issuance of this debt. See Note 2 for additional information on the Piedmont acquisition.
(c) DEFPF issued nuclear-asset recovery bonds and used the proceeds to acquire nuclear-asset recovery property from its parent, Duke Energy Florida. The nuclear-asset recovery bonds are payable only from and secured by
the nuclear asset-recovery property. DEFPF is consolidated for financial reporting purposes; however, the nuclear asset-recovery bonds do not constitute a debt, liability or other legal obligation of, or interest in, Duke Energy
Florida or any of its affiliates other than DEFPF. The assets of DEFPF, including the nuclear-asset recovery property, are not available to pay creditors of Duke Energy Florida or any of its affiliates. Duke Energy Florida used
the proceeds from the sale to repay short-term borrowings under the intercompany money pool borrowing arrangement and make an equity distribution of $649 million to the ultimate parent, Duke Energy (Parent), which
repaid short-term borrowings. The nuclear-asset recovery bonds are sequential pay amortizing bonds. The maturity date above represents the scheduled final maturity date for the bonds. See Notes 4 and 17 for additional
information.
(d) Emerald State Solar, LLC, an indirect wholly owned subsidiary of Duke Energy entered into portfolio financing of approximately 22 North Carolina solar facilities. Tranche A of $228 million is secured by substantially all of
the assets of the solar facilities and is nonrecourse to Duke Energy. Tranche B of $105 million is secured by an Equity Contribution Agreement with Duke Energy. Proceeds were used to reimburse Duke Energy for a portion
of previously funded construction expenditures related to the Emerald State Solar, LLC portfolio. The initial interest rate on the loans was six months London Interbank Offered Rate (LIBOR) plus an applicable margin of
1.75 percent plus a 0.125 percent increase every three years thereafter. In connection with this debt issuance, Emerald State Solar, LLC entered into two interest rate swaps to convert the substantial majority of the loan
interest payments from variable rates to fixed rates of approximately 1.81 percent for Tranche A and 1.38 percent for Tranche B, plus the applicable margin. See Note 14 for further information on the notional amounts of the
interest rate swaps.
(e) Proceeds were used to fund capital expenditures for ongoing construction, capital maintenance and for general corporate purposes.
(f) Proceeds were used to repay $325 million of unsecured debt due June 2016, $150 million of first mortgage bonds due July 2016 and for general corporate purposes.
(g) Proceeds were used to fund capital expenditures for ongoing construction, capital maintenance, to repay short-term borrowings under the intercompany money pool borrowing arrangement and for general corporate purposes.
(h) Proceeds were used to repay at maturity $350 million aggregate principal amount of certain bonds due December 2016, as well as to fund capital expenditures for ongoing construction and capital maintenance and for general
corporate purposes.
(i) Debt issuance has a floating interest rate.
In July 2016, Piedmont issued $300 million unsecured notes maturing
in November 2046 with an interest rate of 3.64%. Piedmont has the option to
redeem all or part of the notes before May 1, 2046, at a redemption price equal
to the greater of a) 100% of the principal amount of the notes to be redeemed,
and b) the sum of the present values of the remaining scheduled payments
of principal and interest on the notes to be redeemed, discounted to the date
of redemption on a semi-annual basis at the Treasury Rate as defined in the
indenture, as supplemented, plus 25 basis points and any accrued and unpaid
interest to the date of redemption. Piedmont has the option to redeem all or part
of the notes on or after May 1, 2046, at 100% of the principal amounts plus
any accrued and unpaid interest to the date of redemption. Piedmont used the
proceeds to fund capital expenditures, to repay short-term borrowings under
Piedmont’s commercial paper program and for general corporate purposes.
Available Credit Facilities
In March 2017, Duke Energy amended its Master Credit Facility
to increase its capacity from $7.5 billion to $8 billion, and to extend the
termination date of the facility from January 30, 2020, to March 16, 2022.
The amendment also added Piedmont as a borrower within the Master Credit
Facility. Piedmont’s separate $850 million credit facility was terminated
in connection with the amendment. With the amendment, the Duke Energy
Registrants, excluding Progress Energy (Parent), have borrowing capacity
under the Master Credit Facility up to specified sublimits for each borrower.
Duke Energy has the unilateral ability at any time to increase or decrease the
borrowing sublimits of each borrower, subject to a maximum sublimit for each
borrower. The amount available under the Master Credit Facility has been
156
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) reduced to backstop issuances of commercial paper, certain letters of credit
and variable-rate demand tax-exempt bonds that may be put to the Duke
Energy Registrants at the option of the holder. Duke Energy Carolinas and Duke
Energy Progress are also required to each maintain $250 million of available
capacity under the Master Credit Facility as security to meet obligations under
plea agreements reached with the U.S. Department of Justice in 2015 related to
violations at North Carolina facilities with ash basins.
In January 2018, Duke Energy further amended its Master Credit Facility
with consenting lenders to extend $7.65 billion of our existing $8 billion Master
Credit Facility by one year to March 16, 2023.
The table below includes the current borrowing sublimits and available capacity under these credit facilities.
(in millions)
Facility size(a)
Reduction to backstop issuances
Commercial paper(b)
Outstanding letters of credit
Tax-exempt bonds
Coal ash set-aside
Available capacity
Duke
Energy
$ 8,000
(1,799)
(63)
(81)
(500)
$ 5,557
Duke
Energy
(Parent)
$ 2,850
(561)
(54)
—
—
$ 2,235
December 31, 2017
Duke
Energy
Carolinas
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
$ 1,350
$ 1,250
$ 800
$ 450
(371)
(4)
—
(250)
725
$
(314)
(2)
—
(250)
684
$
—
(1)
—
—
$ 799
(45)
—
—
—
$ 405
Duke
Energy
Indiana
$ 600
(260)
—
(81)
—
$ 259
Piedmont
$ 700
(248)
(2)
—
—
$ 450
(a) Represents the sublimit of each borrower.
(b) Duke Energy issued $625 million of commercial paper and loaned the proceeds through the money pool to Duke Energy Carolinas, Duke Energy Progress, Duke Energy Ohio and Duke Energy Indiana. The balances are classified
as Long-Term Debt Payable to Affiliated Companies in the Consolidated Balance Sheets.
Three-Year Revolving Credit Facility
In June 2017, Duke Energy (Parent) entered into a three-year $1.0 billion
revolving credit facility (the Three Year Revolver). Borrowings under this facility
will be used for general corporate purposes.
As of December 31, 2017, $500 million has been drawn under the Three
Year Revolver. This balance is classified as Long-Term Debt on Duke Energy’s
Consolidated Balance Sheets. Any undrawn commitments can be drawn, and
borrowings can be prepaid, at any time throughout the term of the facility. The
terms and conditions of the Three Year Revolver are generally consistent with
those governing Duke Energy’s Master Credit Facility.
Piedmont Term Loan Facility
In June 2017, Piedmont entered into an 18-month term loan facility with
commitments totaling $250 million (the Piedmont Term Loan). Borrowings under
the facility will be used for general corporate purposes.
As of December 31, 2017, the entire $250 million has been drawn
under the Piedmont Term Loan. This balance is classified as Long-Term Debt
on Piedmont’s Consolidated Balance Sheets. The terms and conditions of
the Piedmont Term Loan are generally consistent with those governing Duke
Energy’s Master Credit Facility.
Other Debt Matters
In September 2016, Duke Energy filed a Registration statement (Form
S-3) with the SEC. Under this Form S-3, which is uncapped, the Duke Energy
Registrants, excluding Progress Energy, may issue debt and other securities in
the future at amounts, prices and with terms to be determined at the time of
future offerings. The registration statement was filed to replace a similar prior
filing upon expiration of its three-year term and also allows for the issuance of
common stock by Duke Energy.
Duke Energy has an effective Form S-3 with the SEC to sell up to $3 billion
of variable denomination floating-rate demand notes, called PremierNotes.
The Form S-3 states that no more than $1.5 billion of the notes will be
outstanding at any particular time. The notes are offered on a continuous basis
and bear interest at a floating rate per annum determined by the Duke Energy
PremierNotes Committee, or its designee, on a weekly basis. The interest rate
payable on notes held by an investor may vary based on the principal amount
of the investment. The notes have no stated maturity date, are non-transferable
and may be redeemed in whole or in part by Duke Energy or at the investor’s
option at any time. The balance as of December 31, 2017, and 2016 was
$986 million and $1,090 million, respectively. The notes are short-term debt
obligations of Duke Energy and are reflected as Notes payable and commercial
paper on Duke Energy’s Consolidated Balance Sheets.
In January 2017, Duke Energy amended its Form S-3 to add Piedmont as
a registrant and included in the amendment a prospectus for Piedmont under
which it may issue debt securities in the same manner as other Duke Energy
Registrants.
Duke Energy guaranteed debt issued by Duke Energy Carolinas of $650
million and $762 million, respectively, as of December 31, 2017, and 2016.
Money Pool
The Subsidiary Registrants, excluding Progress Energy, are eligible to
receive support for their short-term borrowing needs through participation
with Duke Energy and certain of its subsidiaries in a money pool arrangement.
Under this arrangement, those companies with short-term funds may provide
short-term loans to affiliates participating in this arrangement. The money
pool is structured such that the Subsidiary Registrants, excluding Progress
Energy, separately manage their cash needs and working capital requirements.
Accordingly, there is no net settlement of receivables and payables between
money pool participants. Duke Energy (Parent), may loan funds to its
participating subsidiaries, but may not borrow funds through the money pool.
Accordingly, as the money pool activity is between Duke Energy and its wholly
owned subsidiaries, all money pool balances are eliminated within Duke
Energy’s Consolidated Balance Sheets.
Money pool receivable balances are reflected within Notes receivable
from affiliated companies on the Subsidiary Registrants’ Consolidated Balance
Sheets. Money pool payable balances are reflected within either Notes payable
to affiliated companies or Long-Term Debt Payable to Affiliated Companies on
the Subsidiary Registrants’ Consolidated Balance Sheets.
157
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued)
Restrictive Debt Covenants
The Duke Energy Registrants’ debt and credit agreements contain various
financial and other covenants. Duke Energy’s Master Credit Facility contains
a covenant requiring the debt-to-total capitalization ratio not to exceed 65
percent for each borrower, excluding Piedmont, and 70 percent for Piedmont.
Failure to meet those covenants beyond applicable grace periods could result in
accelerated due dates and/or termination of the agreements. As of December 31,
2017, each of the Duke Energy Registrants was in compliance with all covenants
related to their debt agreements. In addition, some credit agreements may
allow for acceleration of payments or termination of the agreements due to
nonpayment, or acceleration of other significant indebtedness of the borrower or
some of its subsidiaries. None of the debt or credit agreements contain material
adverse change clauses.
Other Loans
As of December 31, 2017, and 2016, Duke Energy had loans outstanding
of $701 million, including $38 million at Duke Energy Progress and $661 million,
including $39 million at Duke Energy Progress, respectively, against the cash
surrender value of life insurance policies it owns on the lives of its executives.
The amounts outstanding were carried as a reduction of the related cash
surrender value that is included in Other within Investments and Other Assets
on the Consolidated Balance Sheets.
7. GUARANTEES AND INDEMNIFICATIONS
Duke Energy and Progress Energy have various financial and performance
guarantees and indemnifications, which are issued in the normal course of
business. As discussed below, these contracts include performance guarantees,
stand-by letters of credit, debt guarantees, surety bonds and indemnifications.
Duke Energy and Progress Energy enter into these arrangements to facilitate
commercial transactions with third parties by enhancing the value of the
transaction to the third party. At December 31, 2017, Duke Energy and
Progress Energy do not believe conditions are likely for significant performance
under these guarantees. To the extent liabilities are incurred as a result of
the activities covered by the guarantees, such liabilities are included on the
accompanying Consolidated Balance Sheets.
On January 2, 2007, Duke Energy completed the spin-off of its natural gas
businesses to shareholders. Guarantees issued by Duke Energy or its affiliates,
or assigned to Duke Energy prior to the spin-off, remained with Duke Energy
subsequent to the spin-off. Guarantees issued by Spectra Energy Capital, LLC
(Spectra Capital) or its affiliates prior to the spin-off remained with Spectra
Capital subsequent to the spin-off, except for guarantees that were later
assigned to Duke Energy. Duke Energy has indemnified Spectra Capital against
any losses incurred under certain of the guarantee obligations that remain
with Spectra Capital. At December 31, 2017, the maximum potential amount
of future payments associated with these guarantees was $205 million, the
majority of which expires by 2028.
Duke Energy has issued performance guarantees to customers and other
third parties that guarantee the payment and performance of other parties,
including certain non-wholly owned entities, as well as guarantees of debt of
certain non-consolidated entities and less than wholly owned consolidated
entities. If such entities were to default on payments or performance, Duke
Energy would be required under the guarantees to make payments on the
obligations of the less than wholly owned entity. The maximum potential amount
of future payments required under these guarantees as of December 31, 2017,
was $326 million. Of this amount, $11 million relates to guarantees issued
on behalf of less than wholly owned consolidated entities, with the remainder
related to guarantees issued on behalf of third parties and unconsolidated
affiliates of Duke Energy. Of the guarantees noted above, $281 million of the
guarantees expire between 2019 and 2030, with the remaining performance
guarantees having no contractual expiration.
In October 2017, ACP executed a $3.4 billion revolving credit facility with
a stated maturity date of October 2021. Duke Energy entered into a guarantee
agreement to support its share of the ACP revolving credit facility. Duke Energy’s
maximum exposure to loss under the terms of the guarantee is limited to
47 percent of the outstanding borrowings under the credit facility, which was
$312 million as of December 31, 2017.
Duke Energy has guaranteed certain issuers of surety bonds, obligating
itself to make payment upon the failure of a wholly owned and former non-
wholly owned entity to honor its obligations to a third party. Under these
arrangements, Duke Energy has payment obligations that are triggered by a
draw by the third party or customer due to the failure of the wholly owned
or former non-wholly owned entity to perform according to the terms of its
underlying contract. At December 31, 2017, Duke Energy had guaranteed
$81 million of outstanding surety bonds, most of which have no set expiration.
Duke Energy uses bank-issued stand-by letters of credit to secure the
performance of wholly owned and non-wholly owned entities to a third party
or customer. Under these arrangements, Duke Energy has payment obligations
to the issuing bank that are triggered by a draw by the third party or customer
due to the failure of the wholly owned or non-wholly owned entity to perform
according to the terms of its underlying contract. At December 31, 2017,
Duke Energy had issued a total of $449 million in letters of credit, which expire
between 2018 and 2022. The unused amount under these letters of credit was
$66 million.
Duke Energy and Progress Energy have issued indemnifications
for certain asset performance, legal, tax and environmental matters to
third parties, including indemnifications made in connection with sales of
businesses. At December 31, 2017, the estimated maximum exposure for these
indemnifications was $89 million, most of which have no set expiration. For
certain matters for which Progress Energy receives timely notice, indemnity
obligations may extend beyond the notice period. Certain indemnifications
related to discontinued operations have no limitations as to time or maximum
potential future payments.
Duke Energy recognized $21 million and $13 million, as of December 31,
2017, and 2016, respectively, primarily in Other within Other Noncurrent
Liabilities on the Consolidated Balance Sheets, for the guarantees discussed
above. As current estimates change, additional losses related to guarantees and
indemnifications to third parties, which could be material, may be recorded by
the Duke Energy Registrants in the future.
158
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) 8. JOINT OWNERSHIP OF GENERATING AND TRANSMISSION FACILITIES
The Duke Energy Registrants maintain ownership interests in certain
jointly owned generating and transmission facilities. The Duke Energy
Registrants are entitled to a share of the generating capacity and output of each
unit equal to their respective ownership interests. The Duke Energy Registrants
pay their ownership share of additional construction costs, fuel inventory
purchases and operating expenses. The Duke Energy Registrants share of
revenues and operating costs of the jointly owned facilities is included within
the corresponding line in the Consolidated Statements of Operations. Each
participant in the jointly owned facilities must provide its own financing.
The following table presents the Duke Energy Registrants’ interest of jointly owned plant or facilities and amounts included on the Consolidated Balance Sheets.
All facilities are operated by the Duke Energy Registrants and are included in the Electric Utilities and Infrastructure segment.
(in millions except for ownership interest)
Duke Energy Carolinas
Catawba Nuclear Station (units 1 and 2)(a)
Lee Combined Combustion Station(b)
Duke Energy Ohio
Transmission facilities(c)
Duke Energy Indiana
Gibson Station (unit 5)(d)
Vermillion Generating Station(e)
Transmission and local facilities(d)
December 31, 2017
Ownership
Interest
Property, Plant
and Equipment
Accumulated
Depreciation
Construction Work in
Progress
19.25%
86.67%
Various
50.05%
62.5%
Various
$ 927
—
89
348
155
4,672
$ 651
—
63
162
120
1,739
$ 19
552
1
9
—
—
(a)
(b)
(c)
(d)
(e)
Jointly owned with North Carolina Municipal Power Agency Number 1, NCEMC and Piedmont Municipal Power Agency.
Jointly owned with NCEMC.
Jointly owned with America Electric Power Generation Resources and The Dayton Power and Light Company.
Jointly owned with Wabash Valley Power Association, Inc. (WVPA) and Indiana Municipal Power Agency.
Jointly owned with WVPA.
9. ASSET RETIREMENT OBLIGATIONS
Duke Energy records an ARO when it has a legal obligation to incur
retirement costs associated with the retirement of a long-lived asset and the
obligation can be reasonably estimated. Certain assets of the Duke Energy
Registrants’ have an indeterminate life, such as transmission and distribution
facilities, and thus the fair value of the retirement obligation is not reasonably
estimable. A liability for these AROs will be recorded when a fair value is
determinable.
The Duke Energy Registrants’ regulated operations accrue costs of
removal for property that does not have an associated legal retirement
obligation based on regulatory orders from state commissions. These costs
of removal are recorded as a regulatory liability in accordance with regulatory
accounting treatment. The Duke Energy Registrants do not accrue the estimated
cost of removal for any nonregulated assets. See Note 4 for the estimated cost
of removal for assets without an associated legal retirement obligation, which
are included in Regulatory liabilities on the Consolidated Balance Sheets.
The following table presents the AROs recorded on the Consolidated Balance Sheets.
(in millions)
Decommissioning of nuclear power facilities(a)
Closure of ash impoundments
Other(b)
Total asset retirement obligation
Less: current portion
Total noncurrent asset retirement obligation
Duke
Energy
$ 5,371
4,525
279
$ 10,175
689
$ 9,486
Duke
Energy
Carolinas
$ 1,944
1,629
37
$ 3,610
337
$ 3,273
Progress
Energy
$ 3,246
2,094
74
$ 5,414
295
$ 5,119
December 31, 2017
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
$ 2,564
2,075
34
$ 4,673
295
$ 4,378
$ 681
19
42
$ 742
—
$ 742
$ —
39
45
$ 84
3
$ 81
$ —
763
18
$ 781
54
$ 727
Piedmont
$ —
—
15
$ 15
—
$ 15
(a) Duke Energy amount includes purchase accounting adjustments related to the merger with Progress Energy.
(b) Primarily includes obligations related to asbestos removal. Duke Energy Ohio and Piedmont also include AROs related to the retirement of natural gas mains and services. Duke Energy includes AROs related to the removal of
renewable energy generation assets.
159
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Nuclear Decommissioning Liability
AROs related to nuclear decommissioning are based on site-specific
cost studies. The NCUC, PSCSC and FPSC require updated cost estimates for
decommissioning nuclear plants every five years.
The following table summarizes information about the most recent site-
specific nuclear decommissioning cost studies. Decommissioning costs in the
table below are stated in 2013 or 2014 dollars, depending on the year of the
cost study, and include costs to decommission plant components not subject to
radioactive contamination.
(in millions)
Duke Energy
Duke Energy Carolinas
Duke Energy Progress
Duke Energy Florida
Annual Funding
Requirement(a)
Decommissioning
Costs(a)(b)
Year of Cost
Study
$ 14
—
14
—
$
8,150
3,420
3,550
1,180
2013 and 2014
2013
2014
2013
(a) Amounts for Progress Energy equal the sum of Duke Energy Progress and Duke Energy Florida.
(b) Amounts include the Subsidiary Registrant’s ownership interest in jointly owned reactors. Other joint
owners are responsible for decommissioning costs related to their interest in the reactors.
Nuclear Decommissioning Trust Funds
Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida each
maintain NDTFs that are intended to pay for the decommissioning costs of their
respective nuclear power plants. The NDTF investments are managed and invested
in accordance with applicable requirements of various regulatory bodies including
the NRC, FERC, NCUC, PSCSC, FPSC and the Internal Revenue Service (IRS).
Use of the NDTF investments is restricted to nuclear decommissioning
activities including license termination, spent fuel and site restoration. The license
termination and spent fuel obligations relate to contaminated decommissioning
and are recorded as AROs. The site restoration obligation relates to non-
contaminated decommissioning and is recorded to cost of removal within
Regulatory liabilities on the Consolidated Balance Sheets.
The following table presents the fair value of NDTF assets legally restricted
for purposes of settling AROs associated with nuclear decommissioning. Duke
Energy Florida is actively decommissioning Crystal River Unit 3 and was granted
an exemption from the NRC which allows for use of the NDTF for all aspects of
nuclear decommissioning. The entire balance of Duke Energy Florida’s NDTF
may be applied toward license termination, spent fuel and site restoration
costs incurred to decommission Crystal River Unit 3. See Note 16 for additional
information related to the fair value of the Duke Energy Registrants’ NDTFs.
(in millions)
Duke Energy
Duke Energy Carolinas
Duke Energy Progress
Nuclear Operating Licenses
December 31,
2017
$ 5,864
3,321
2,543
2016
$ 5,099
2,882
2,217
Operating licenses for nuclear units are potentially subject to extension.
The following table includes the current expiration of nuclear operating licenses.
Unit
Duke Energy Carolinas
Catawba Units 1 and 2
McGuire Unit 1
McGuire Unit 2
Oconee Units 1 and 2
Year of Expiration
2043
2041
2043
2033
160
Unit
Oconee Unit 3
Duke Energy Progress
Brunswick Unit 1
Brunswick Unit 2
Harris
Robinson
Year of Expiration
2034
2036
2034
2046
2030
Duke Energy Florida has requested the NRC terminate the operating license
for Crystal River Unit 3 as it permanently ceased operation in February 2013. In
January 2018, Crystal River Unit 3 reached a SAFSTOR status.
Closure of Ash Impoundments
The Duke Energy Registrants are subject to state and federal regulations
covering the closure of coal ash impoundments, including the EPA CCR rule
and the Coal Ash Act, and other agreements. AROs recorded on the Duke
Energy Registrants’ Consolidated Balance Sheets include the legal obligation for
closure of coal ash basins and the disposal of related ash as a result of these
regulations and agreements.
The Coal Ash Act, as amended, requires excavation of the Sutton,
Riverbend and Dan River basins by August 1, 2019, and Asheville basins
by August 1, 2022. Excavation at these sites may include a combination of
transfer of coal ash to an engineered landfill or conversion for beneficial use.
Basins at the H.F. Lee, Cape Fear and Weatherspoon sites are required to be
closed through excavation no later than August 1, 2028. Excavation at these
sites can include conversion of the basin to a lined industrial landfill, transfer
of ash to an engineered landfill or conversion for beneficial use. The remaining
basins are required to be closed no later than December 31, 2024, through
conversion to a lined industrial landfill, transfer to an engineered landfill or
conversion for beneficial use, unless certain dam improvement projects and
alternative drinking water source projects are completed by October 15, 2018.
Upon satisfactory completion of these projects, the closure deadline would
be extended to December 31, 2029, and could include closure through the
combination of a cap system and a groundwater monitoring system.
The Coal Ash Act also required the installation and operation of three
large-scale coal ash beneficiation projects to produce reprocessed ash for use
in the concrete industry. Duke Energy selected the Buck, H.F. Lee and Cape Fear
plants for these projects. Closure at these sites is required to be completed no
later than December 31, 2029.
The Coal Ash Act includes a variance procedure for compliance deadlines
and other issues surrounding the management of CCR and CCR surface
impoundments and prohibits cost recovery in customer rates for unlawful
discharge of ash impoundment waters occurring after January 1, 2014. The Coal
Ash Act leaves the decision on cost recovery determinations related to closure of
ash impoundments to the normal ratemaking processes before utility regulatory
commissions. Closure plans and all associated permits must be approved by
NCDEQ before any closure work can begin.
The EPA CCR rule establishes requirements regarding landfill design,
structural integrity design and assessment criteria for surface impoundments,
groundwater monitoring and protection procedures and other operational and
reporting procedures to ensure the safe disposal and management of CCR.
The EPA CCR rule has certain requirements which if not met could initiate
impoundment closure and require closure completion within five years. The
EPA CCR rule includes extension requirements, which if met could allow the
extension of closure completion by up to 10 years.
The ARO amount recorded on the Consolidated Balance Sheets is based
upon estimated closure costs for impacted ash impoundments. The amount
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) recorded represents the discounted cash flows for estimated closure costs
based upon either specific closure plans or the probability weightings of the
potential closure methods as evaluated on a site-by-site basis. Actual costs
to be incurred will be dependent upon factors that vary from site to site. The
most significant factors are the method and time frame of closure at the
individual sites. Closure methods considered include removing the water from
ash basins, consolidating material as necessary and capping the ash with a
synthetic barrier, excavating and relocating the ash to a lined structural fill or
lined landfill or recycling the ash for concrete or some other beneficial use.
The ultimate method and timetable for closure will be in compliance with
standards set by federal and state regulations and other agreements. The ARO
amount will be adjusted as additional information is gained through the closure
and post-closure process, including acceptance and approval of compliance
approaches which may change management assumptions, and may result in
a material change to the balance. See ARO Liability Rollforward section below
for information on revisions made to the coal ash liability during 2017 and 2016.
The following tables present changes in the liability associated with AROs.
Asset retirement costs associated with the AROs for operating plants and
retired plants are included in Net property, plant and equipment and Regulatory
assets, respectively, on the Consolidated Balance Sheets. See Note 4 for
additional information on Regulatory assets related to AROs.
Cost recovery for future expenditures will be pursued through the normal
ratemaking process with federal and state utility commissions, which permit
recovery of necessary and prudently incurred costs associated with Duke
Energy’s regulated operations. See Note 4 for additional information on recovery
of coal ash costs.
ARO Liability Rollforward
During 2017 and 2016, the Duke Energy Registrants updated coal ash
ARO liability estimates based on additional site-specific information for the
related costs, methods and timing of work to be performed. Actual closure costs
incurred could be materially different from current estimates that form the basis
of the recorded AROs.
(in millions)
Balance at December 31, 2015
Acquisitions(a)
Accretion expense(b)
Liabilities settled(c)
Liabilities incurred in the current year
Revisions in estimates of cash flows
Balance at December 31, 2016
Accretion expense(b)
Liabilities settled(c)
Liabilities incurred in the current year(d)
Revisions in estimates of cash flows
Balance at December 31, 2017
Duke
Energy
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
$ 10,249
$ 3,918
$ 5,369
$ 4,567
$
802
$
125
$ 525
22
400
(613)
51
502
—
187
(287)
—
77
2
230
(272)
3
143
—
194
(212)
3
145
10,611
3,895
5,475
4,697
435
(619)
51
(303)
184
(282)
5
(192)
228
(270)
—
(19)
195
(204)
—
(15)
2
35
(60)
—
(1)
778
33
(65)
—
(4)
—
5
(5)
—
(48)
77
3
(7)
7
4
—
24
(49)
29
337
866
32
(49)
29
(97)
$ 10,175
$ 3,610
$ 5,414
$ 4,673
$
742
$
84
$ 781
(a) Duke Energy amount relates to the Piedmont acquisition. See Note 2 for additional information.
(b) Substantially all accretion expense for the years ended December 31, 2017, and 2016 relates to Duke Energy’s regulated electric operations and has been deferred in accordance with regulatory accounting treatment.
(c) Amounts primarily relate to ash impoundment closures and nuclear decommissioning of Crystal River Unit 3.
(d) Amounts primarily relate to AROs recorded as a result of state agency closure requirements at Duke Energy Indiana.
(in millions)
Balance at October 31, 2015
Accretion expense
Liabilities settled
Liabilities incurred in the current year
Revisions in estimates of cash flows
Balance at October 31, 2016
Liabilities settled
Liabilities incurred in the current year
Balance at December 31, 2016
Accretion expense
Liabilities settled
Liabilities incurred in the current year
Balance at December 31, 2017
161
Piedmont
$ 20
1
(7)
6
(6)
14
(1)
1
14
1
(8)
8
$ 15
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) 10. PROPERTY, PLANT AND EQUIPMENT
The following tables summarize the property, plant and equipment for Duke Energy and its subsidiary registrants.
(in millions)
Land
Plant – Regulated
Electric generation, distribution and transmission
Natural gas transmission and distribution
Other buildings and improvements
Plant – Nonregulated
Electric generation, distribution and transmission(a)
Other buildings and improvements
Nuclear fuel
Equipment
Construction in process
Other
Total property, plant and equipment(b)(e)
Total accumulated depreciation – regulated(c)(d)(e)
Total accumulated depreciation – nonregulated(d)(e)
Generation facilities to be retired, net
December 31, 2017
Estimated
Useful Life
(Years)
Duke
Energy
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
$
1,559
$
467
$
767
$
424
$
343
$
134
$
111
$
41
8-100
12-80
15-100
5-30
25-35
3-55
3-40
93,687
8,292
1,936
4,273
465
3,680
2,122
6,995
4,498
127,507
(39,742)
(1,795)
421
35,657
—
647
39,419
—
652
—
—
2,120
402
2,614
1,032
42,939
(15,063)
—
—
—
—
1,560
555
3,059
1,311
47,323
(15,857)
—
421
24,502
—
316
—
—
1,560
416
1,434
931
29,583
(10,903)
—
421
14,917
—
336
—
—
—
139
1,625
370
17,730
(4,947)
—
—
4,870
2,559
243
—
—
—
348
350
228
8,732
(2,691)
—
—
13,741
—
240
—
—
—
169
416
271
14,948
(4,662)
—
—
—
5,733
154
—
—
—
266
231
300
6,725
(1,479)
—
—
Total net property, plant and equipment
$ 86,391
$ 27,876
$ 31,887
$
19,101
$12,783
$ 6,041
$10,286
$ 5,246
(a)
(b)
(c)
(d)
(e)
Includes a pretax impairment charge of $58 million on a wholly owned non-contracted wind project. See discussion below.
Includes capitalized leases of $1,294 million, $81 million, $272 million, $139 million, $133 million, $80 million and $35 million at Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy
Florida, Duke Energy Ohio and Duke Energy Indiana, respectively, primarily within Plant – Regulated. The Progress Energy, Duke Energy Progress and Duke Energy Florida amounts are net of $114 million, $11 million and
$103 million, respectively, of accumulated amortization of capitalized leases.
Includes $2,113 million, $1,283 million, $831 million and $831 million of accumulated amortization of nuclear fuel at Duke Energy, Duke Energy Carolinas, Progress Energy and Duke Energy Progress, respectively.
Includes accumulated amortization of capitalized leases of $57 million, $11 million, $21 million and $9 million at Duke Energy, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana, respectively.
Includes gross property, plant and equipment cost of consolidated VIEs of $3,941 million and accumulated depreciation of consolidated VIEs of $598 million at Duke Energy.
(in millions)
Land
Plant – Regulated
Electric generation, distribution and transmission
Natural gas transmission and distribution
Other buildings and improvements
Plant – Nonregulated
Electric generation, distribution and transmission
Other buildings and improvements
Nuclear fuel
Equipment
Construction in process
Other
Total property, plant and equipment(a)(d)
Total accumulated depreciation – regulated(b)(c)(d)
Total accumulated depreciation – nonregulated(c)(d)
Generation facilities to be retired, net
December 31, 2016
Estimated
Useful Life
(Years)
Duke
Energy
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
$
1,501
$
432
$
735
$
393
$
342
$
150
8-100
12-67
15-100
5-30
25-35
3-38
5-40
89,864
7,738
1,692
4,298
421
3,572
1,941
6,186
4,184
121,397
(37,831)
(1,575)
529
34,515
—
502
—
—
2,092
358
2,324
904
41,127
(14,365)
—
—
37,596
—
634
—
—
1,480
505
2,708
1,206
44,864
(15,212)
—
529
23,683
—
293
—
—
1,480
378
1,329
863
28,419
(10,561)
—
529
13,913
—
341
—
—
—
127
1,379
332
16,434
(4,644)
—
—
4,593
2,456
211
—
—
—
338
206
172
8,126
(2,579)
—
—
Duke
Energy
Indiana
$
106
13,160
—
197
—
—
—
156
396
226
14,241
(4,317)
—
—
Piedmont
$
39
—
5,282
148
—
—
—
260
210
235
6,174
(1,360)
—
—
Total net property, plant and equipment
$ 82,520
$ 26,762
$ 30,181
$
18,387
$11,790
$ 5,547
$ 9,924
$ 4,814
(a)
(b)
(c)
(d)
Includes capitalized leases of $1,355 million, $40 million, $288 million, $142 million, $146 million, $81 million and $35 million at Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy
Florida, Duke Energy Ohio and Duke Energy Indiana, respectively, primarily within Plant – Regulated. The Progress Energy, Duke Energy Progress and Duke Energy Florida amounts are net of $99 million, $9 million and
$90 million, respectively, of accumulated amortization of capitalized leases.
Includes $1,922 million, $1,192 million, $730 million and $730 million of accumulated amortization of nuclear fuel at Duke Energy, Duke Energy Carolinas, Progress Energy and Duke Energy Progress, respectively.
Includes accumulated amortization of capitalized leases of $50 million, $9 million, $19 million and $8 million at Duke Energy, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana, respectively.
Includes gross property, plant and equipment cost of consolidated VIEs of $2,591 million and accumulated depreciation of consolidated VIEs of $411 million at Duke Energy.
162
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) During the year ended December 31, 2017, Duke Energy recorded a
pretax impairment charge of $69 million on a wholly owned non-contracted
wind project. The impairment was recorded within Impairment charges on Duke
Energy’s Consolidated Statements of Operations. $58 million of the impairment
related to property, plant and equipment and $11 million of the impairment
related to a net intangible asset; see Note 11 for additional information. The
charge represents the excess carrying value over the estimated fair value
of the project, which was based on a Level 3 Fair Value measurement that
was determined from the income approach using discounted cash flows. The
impairment was primarily due to the non-contracted wind project being located
in a market that has experienced continued declining market pricing during 2017
and declining long-term forecasted energy and capacity prices, driven by low
natural gas prices, additional renewable generation placed in service and lack of
significant load growth.
The following tables present capitalized interest, which includes the debt component of AFUDC.
(in millions)
Duke Energy
Duke Energy Carolinas
Progress Energy
Duke Energy Progress
Duke Energy Florida
Duke Energy Ohio
Duke Energy Indiana
(in millions)
Piedmont
Operating Leases
Duke Energy’s Commercial Renewables segment operates various
renewable energy projects and sells the generated output to utilities, electric
cooperatives, municipalities and commercial and industrial customers
through long-term contracts. In certain situations, these long-term contracts
and the associated renewable energy projects qualify as operating leases.
Rental income from these leases is accounted for as Operating Revenues
in the Consolidated Statements of Operations. There are no minimum lease
Years Ended December 31,
2017
$128
45
45
21
24
10
9
2016
$100
38
31
17
14
8
7
2015
$ 98
38
24
20
4
10
6
Year Ended
Two Months Ended
Years Ended October 31,
December 31, 2017 December 31, 2016
$
12
$
2
$
2016
12
2015
11
$
payments as all payments are contingent based on actual electricity generated
by the renewable energy projects. Contingent lease payments were $262
million, $216 million, and $172 million for the years ended December 31,
2017, 2016 and 2015. As of December 31, 2017, renewable energy projects
owned by Duke Energy and accounted for as operating leases had a cost basis
of $3,153 million and accumulated depreciation of $459 million. These assets
are principally classified as nonregulated electric generation and transmission
assets.
163
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) 11. GOODWILL AND INTANGIBLE ASSETS
GOODWILL
Duke Energy
The following table presents goodwill by reportable operating segment
for Duke Energy included on Duke Energy’s Consolidated Balance Sheets at
December 31, 2017, and 2016.
Electric
Utilities and
Infrastructure
Gas
Utilities and
Infrastructure
Commercial
Renewables
Total
(in millions)
Goodwill Balance at December
31, 2016
$
17,379 $
1,924 $
122 $ 19,425
Progress Energy
Progress Energy’s Goodwill is included in the Electric Utilities and
Infrastructure operating segment and there are no accumulated impairment
charges.
Piedmont
Piedmont’s Goodwill is included in the Gas Utilities and Infrastructure
operating segment and there are no accumulated impairment charges. Effective
with Piedmont’s fiscal year being changed to December 31, as discussed in
Note 1, Piedmont changed the date of its annual impairment testing of goodwill
from October 31 to August 31 to align with the other Duke Energy Registrants.
Accumulated impairment
charges(a)
—
—
(29)
(29)
Impairment Testing
Goodwill at December 31, 2017 $
17,379 $
1,924 $
93 $ 19,396
(a) Duke Energy evaluated the recoverability of goodwill during 2017 and recorded impairment charges of
$29 million related to the Energy Management Solutions reporting unit within the Commercial Renewables
segment. The fair value of the reporting unit was determined based on the market approach.
Duke Energy Ohio
Duke Energy Ohio’s Goodwill balance of $920 million, allocated $596
million to Electric Utilities and Infrastructure and $324 million to Gas Utilities
and Infrastructure, is presented net of accumulated impairment charges of $216
million on the Consolidated Balance Sheets at December 31, 2017, and 2016.
Duke Energy, Progress Energy, Duke Energy Ohio and Piedmont are
required to perform an annual goodwill impairment test as of the same date
each year and, accordingly, perform their annual impairment testing of goodwill
as of August 31. Duke Energy, Progress Energy, Duke Energy Ohio and Piedmont
update their test between annual tests if events or circumstances occur that
would more likely than not reduce the fair value of a reporting unit below its
carrying value. Except for the Energy Management Solutions reporting unit, the
fair value of all other reporting units for Duke Energy, Progress Energy, Duke
Energy Ohio and Piedmont exceeded their respective carrying values at the date
of the annual impairment analysis.
Intangible Assets
The following tables show the carrying amount and accumulated amortization of intangible assets included in Other within Other Noncurrent Assets on the
Consolidated Balance Sheets of the Duke Energy Registrants at December 31, 2017 and 2016.
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
December 31, 2017
Duke
Energy
Progress
Duke
Energy
Florida
$
$
19
148
24
79
6
276
(19)
(22)
(5)
(46)
1
38
—
—
—
39
—
—
—
—
39
$
5
107
—
—
—
112
—
—
—
—
$
2
107
—
—
—
109
—
—
—
—
$ 3
—
—
—
—
3
—
—
—
—
$112
$ 109
$ 3
$
Duke
Energy
Ohio
$ —
3
—
—
—
3
—
—
—
—
3
Duke
Energy
Indiana
Piedmont
$ 13
—
24
—
—
37
(19)
—
—
(19)
$ —
—
—
—
3
3
—
—
(3)
(3)
$ 18
$ —
(in millions)
Emission allowances
Renewable energy certificates
Natural gas, coal and power contracts
Renewable operating and development projects
Other
Total gross carrying amounts
Accumulated amortization – natural gas, coal and power contracts
Accumulated amortization – renewable operating and development projects
Accumulated amortization – other
Total accumulated amortization
Total intangible assets, net
$
230
$
164
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) (in millions)
Emission allowances
Renewable energy certificates
Natural gas, coal and power contracts
Renewable operating and development projects
Other
Total gross carrying amounts
Accumulated amortization – natural gas, coal and power contracts
Accumulated amortization – renewable operating and development projects
Accumulated amortization – other
Total accumulated amortization
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
December 31, 2016
Duke
Energy
Progress
Duke
Energy
Florida
$
$
19
125
24
97
6
271
(17)
(23)
(5)
(45)
1
36
—
—
—
37
—
—
—
—
37
$
6
84
—
—
—
90
—
—
—
—
$
2
84
—
—
—
86
—
—
—
—
$ 4
—
—
—
—
4
—
—
—
—
Duke
Energy
Ohio
$ —
4
—
—
—
4
—
—
—
—
4
Duke
Energy
Indiana
Piedmont
$ 13
—
24
—
—
37
(17)
—
—
(17)
$ —
—
—
—
3
3
—
—
(3)
(3)
$ 20
$ —
Total intangible assets, net
$
226
$
$ 90
$ 86
$ 4
$
During the year ended December 31, 2017, Duke Energy recorded a pretax impairment charge of $69 million on a wholly owned non-contracted wind project.
The impairment was recorded within Impairment charges on Duke Energy’s Consolidated Statements of Operations. $58 million of the impairment related to property,
plant and equipment and $11 million of the impairment related to a net intangible asset that was recorded in 2007 when the project was acquired. Prior to the
impairment, the gross amount of the intangible asset was $18 million and the accumulated amortization was $7 million. The intangible asset was fully impaired. See
Note 10 for additional information.
Amortization Expense
The following table presents amortization expense for natural gas, coal and power contracts, renewable operating projects and other intangible assets.
(in millions)
Duke Energy
Duke Energy Indiana
December 31,
2017
2016
2015
$ 7
1
$ 6
1
$ 5
1
The table below shows the expected amortization expense for the next five years for intangible assets as of December 31, 2017. The expected amortization
expense includes estimates of emission allowances consumption and estimates of consumption of commodities such as natural gas and coal under existing
contracts, as well as estimated amortization related to renewable operating projects. The amortization amounts discussed below are estimates and actual amounts
may differ from these estimates due to such factors as changes in consumption patterns, sales or impairments of emission allowances or other intangible assets,
delays in the in-service dates of renewable assets, additional intangible acquisitions and other events.
(in millions)
Duke Energy
Duke Energy Indiana
2018
2019
2020
2021
$ 3
1
$ 2
—
$ 2
—
$ 2
—
2022
$ 2
—
12.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES
EQUITY METHOD INVESTMENTS
Investments in domestic and international affiliates that are not controlled by Duke Energy, but over which it has significant influence, are accounted for using
the equity method.
165
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) The following table presents Duke Energy’s investments in unconsolidated affiliates accounted for under the equity method, as well as the respective equity in
earnings, by segment.
(in millions)
Electric Utilities and Infrastructure
Gas Utilities and Infrastructure
Commercial Renewables
Other
Total
Years Ended December 31,
2017
2016
2015
Investments
Equity in earnings
Investments
Equity in earnings
Equity in earnings
$
89
763
190
133
$ 1,175
$
5
62
(5)
57
$119
$ 93
566
185
81
$ 925
$
5
19
(82)
43
$
(2)
1
(6)
76
$
(15)
$
69
During the years ended December 31, 2017, 2016 and 2015, Duke Energy
In October 2017, Duke Energy entered into a guarantee agreement to
received distributions from equity investments of $13 million, $31 million and
$104 million, respectively, which are included in Other assets within Cash Flows
from Operating Activities on the Consolidated Statements of Cash Flows. During
the year ended December 31, 2017, Duke Energy received distributions from
equity investments of $281 million, which are included within Cash Flows from
Investing Activities on the Consolidated Statements of Cash Flows.
During the year ended December 31, 2017, the two months ended
December 31, 2016, and the years ended October 31, 2016, and 2015,
Piedmont received distributions from equity investments of $4 million,
$1 million, $26 million and $25 million, respectively, which are included in Other
assets within Cash Flows from Operating Activities and $2 million, $1 million,
$18 million and $2 million, respectively, which are included within Cash Flows
from Investing Activities on the Consolidated Statements of Cash Flows.
Significant investments in affiliates accounted for under the equity
method are discussed below.
Electric Utilities and Infrastructure
Duke Energy owns a 50 percent interest in Duke-American Transmission
Co. (DATC) and in Pioneer Transmission, LLC (Pioneer), which build, own and
operate electric transmission facilities in North America.
Gas Utilities and Infrastructure
The table below outlines Duke Energy’s ownership interests in natural gas
pipeline companies and natural gas storage facilities.
Entity Name
Pipeline Investments
Atlantic Coast Pipeline, LLC(a)
Sabal Trail Transmission, LLC
Constitution Pipeline, LLC(a)
Cardinal Pipeline Company, LLC(b)
Storage Facilities
Pine Needle LNG Company, LLC(b)
Hardy Storage Company, LLC(b)
Total Investments(c)
Investment Amount (in millions)
Ownership
Interest
December 31,
2017
December 31,
2016
47% $
7.5%
24%
21.49%
45%
50%
$
397
219
81
11
13
42
763
$
$
265
140
82
16
16
47
566
(a) During the year ended December 31, 2017, Piedmont transferred its share of ownership interest in ACP
and Constitution to a wholly owned subsidiary of Duke Energy at book value.
(b) Piedmont owns the Cardinal, Pine Needle and Hardy Storage investments.
(c) Duke Energy includes purchase accounting adjustments related to Piedmont.
support its share of the ACP revolving credit facility. See Note 7 for additional
information. As a result of the financing, ACP returned capital of $265 million to
Duke Energy.
Piedmont sold its 15 percent membership interest in SouthStar on October
3, 2016, for $160 million resulting in an after tax gain of $81 million during the
year ended October 31, 2016. Piedmont’s Equity in Earnings in SouthStar was
$19 million for the years ended October 31, 2016, and 2015.
For regulatory matters and other information on the ACP, Sabal Trail and
Constitution investments, see Notes 4 and 17.
Commercial Renewables
In 2016, Duke Energy sold its interest in three of the Catamount
Sweetwater, LLC wind farm projects. Duke Energy has a 47 percent ownership
interest in each of the two other Catamount Sweetwater, LLC wind farm projects
and 50 percent interest in DS Cornerstone, LLC, which owns wind farm projects
in the U.S.
Impairment of Equity Method Investments
Duke Energy evaluated its investment in Constitution for OTTI as of
December 31, 2017. Our impairment assessment uses a discounted cash flow
income approach, including consideration of the severity and duration of any
decline in fair value of our investment in the project. Our key inputs involve
significant management judgments and estimates, including projections of
the project’s cash flows, selection of a discount rate and probability weighting
of potential outcomes of legal and regulatory proceedings. Based upon these
estimates using information known as of December 31, 2017, the fair value of
Duke Energy’s investment in Constitution approximated its carrying value. As a
result, Duke Energy did not recognize any impairment charge in the year ended
December 31, 2017. However, due to the FERC’s January 2018 ruling and the
resulting increase in uncertainty, Duke Energy is evaluating the potential to
recognize a pretax impairment charge on its investment in Constitution during
the first quarter of 2018 of up to the current carrying amount of the investment,
net of salvage value and any cash and working capital returned. For additional
information on the Constitution investment, see Note 4.
During the year ended December 31, 2016, Duke Energy recorded an OTTI
of certain wind project investments. The $71 million pretax impairment was
recorded within Equity in earnings (losses) of unconsolidated affiliates on Duke
Energy’s Consolidated Statements of Operations. The other-than-temporary
decline in value of these investments was primarily attributable to a sustained
decline in market pricing where the wind investments are located, projected net
losses for the projects and a reduction in the projected cash distribution to the
class of investment owned by Duke Energy.
166
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) percent with the successful startup of NMC’s polyacetal production facility in
2017. Duke Energy retains 25 percent of the board representation and voting
rights of NMC. The investment in NMC is accounted for under the equity method
of accounting.
(c) Duke Energy Carolinas and Duke Energy Progress participate in a JDA, which allows the collective
dispatch of power plants between the service territories to reduce customer rates. Revenues from the
sale of power and expenses from the purchase of power pursuant to the JDA are recorded in Operating
Revenues and Fuel used in electric generation and purchased power, respectively, on the Consolidated
Statements of Operations and Comprehensive Income.
(d) Piedmont provides long-term natural gas delivery service to certain Duke Energy Carolinas and Duke
Energy Progress natural gas-fired generation facilities. Piedmont records the sales in Regulated natural
gas revenues, and Duke Energy Carolinas and Duke Energy Progress record the related purchases in
Fuel used in electric generation and purchased power on their respective Consolidated Statements of
Operations and Comprehensive Income. The amounts are not eliminated in accordance with rate-based
accounting regulations. For the two months ended December 31, 2016, and for sales made subsequent
to the acquisition for the year ended October 31, 2016, Piedmont recorded $14 million and $7 million,
respectively, of natural gas sales with Duke Energy. For sales made prior to the acquisition for the year
ended October 31, 2016, and for the year ended October 31, 2015, Piedmont recorded $74 million and
$83 million, respectively of natural gas sales with Duke Energy.
In addition to the amounts presented above, the Subsidiary Registrants
have other affiliate transactions, including rental of office space, participation
in a money pool arrangement, other operational transactions and their
proportionate share of certain charged expenses. See Note 6 for more
information regarding money pool. These transactions of the Subsidiary
Registrants were not material for the years ended December 31, 2017, 2016
and 2015.
As discussed in Note 17, certain trade receivables have been sold by
Duke Energy Ohio and Duke Energy Indiana to CRC, an affiliate formed by a
subsidiary of Duke Energy. The proceeds obtained from the sales of receivables
are largely cash but do include a subordinated note from CRC for a portion of the
purchase price.
Refer to Note 2 for further information on the sale of the Midwest
Generation Disposal Group.
Other
Duke Energy owns a 17.5 percent indirect interest in NMC, which owns
and operates a methanol and MTBE business in Jubail, Saudi Arabia. Duke
Energy’s economic ownership interest decreased from 25 percent to 17.5
13. RELATED PARTY TRANSACTIONS
The Subsidiary Registrants engage in related party transactions in
accordance with the applicable state and federal commission regulations. Refer
to the Consolidated Balance Sheets of the Subsidiary Registrants for balances
due to or due from related parties. Material amounts related to transactions
with related parties included in the Consolidated Statements of Operations and
Comprehensive Income are presented in the following table.
(in millions)
Duke Energy Carolinas
Corporate governance and shared service expenses(a)
Indemnification coverages(b)
JDA revenue(c)
JDA expense(c)
Intercompany natural gas purchases(d)
Progress Energy
Corporate governance and shared service expenses(a)
Indemnification coverages(b)
JDA revenue(c)
JDA expense(c)
Intercompany natural gas purchases(d)
Duke Energy Progress
Corporate governance and shared service expenses(a)
Indemnification coverages(b)
JDA revenue(c)
JDA expense(c)
Intercompany natural gas purchases(d)
Duke Energy Florida
Corporate governance and shared service expenses(a)
Indemnification coverages(b)
Duke Energy Ohio
Corporate governance and shared service expenses(a)
Indemnification coverages(b)
Duke Energy Indiana
Corporate governance and shared service expenses(a)
Indemnification coverages(b)
Piedmont
Corporate governance and shared service expenses(a)
Indemnification coverages(b)
Intercompany natural gas sales(d)
Years Ended December 31,
2017
2016
2015
$ 858 $ 831 $ 914
24
51
183
2 —
23
49
145
9
22
38
156
$ 736 $ 710 $ 712
38
35
183
156
51
38
19 —
38
145
49
77
$ 438 $ 397 $ 403
16
14
183
156
38
51
19 —
15
145
49
77
$ 298 $ 313 $ 309
22
23
21
$ 363 $ 356 $ 342
6
5
5
$ 370 $ 366 $ 349
9
8
8
$
50
2
86
(a) The Subsidiary Registrants are charged their proportionate share of corporate governance and other shared
services costs, primarily related to human resources, employee benefits, information technology, legal and
accounting fees, as well as other third-party costs. These amounts are primarily recorded in Operation,
maintenance and other on the Consolidated Statements of Operations and Comprehensive Income.
(b) The Subsidiary Registrants incur expenses related to certain indemnification coverages through Bison,
Duke Energy’s wholly owned captive insurance subsidiary. These expenses are recorded in Operation,
maintenance and other on the Consolidated Statements of Operations and Comprehensive Income.
167
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Equity Method Investments
Piedmont has related party transactions as a customer of its equity method investments in natural gas storage and transportation facilities. The following table
presents expenses that are included in Cost of natural gas on Piedmont’s Consolidated Statements of Operations and Comprehensive Income.
(in millions)
Cardinal
Pine Needle
Hardy Storage
Total
Type of expense
Transportation Costs
Natural Gas Storage Costs
Natural Gas Storage Costs
Year Ended
December 31,
Two Months Ended
December 31,
Years Ended October 31,
2017
2016
2016
2015
$
$
8
8
9
25
$
$
2
2
2
6
$
$
9
11
9
29
$
$
9
11
9
29
Piedmont had accounts payable to its equity method investments of $2 million at December 31, 2017, and 2016 related to these transactions. These amounts
are included in Accounts payable on the Consolidated Balance Sheets.
Intercompany Income Taxes
Duke Energy and the Subsidiary Registrants file a consolidated federal income tax return and other state and jurisdictional returns. The Subsidiary Registrants
have a tax sharing agreement with Duke Energy for the allocation of consolidated tax liabilities and benefits. Income taxes recorded represent amounts the Subsidiary
Registrants would incur as separate C-Corporations. The following table includes the balance of intercompany income tax receivables and payables for the Subsidiary
Registrants.
(in millions)
December 31, 2017
Intercompany income tax receivable
Intercompany income tax payable
December 31, 2016
Intercompany income tax receivable
Intercompany income tax payable
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
$ —
44
$
1
—
$168
—
$ —
37
$ —
21
$ —
90
$ 44
—
$ 37
—
$ 22
—
$ —
1
$ —
35
$ —
3
$
7
—
$ —
38
14. DERIVATIVES AND HEDGING
The Duke Energy Registrants use commodity and interest rate contracts
to manage commodity price risk and interest rate risk. The primary use of
commodity derivatives is to hedge the generation portfolio against changes in
the prices of electricity and natural gas. Piedmont enters into natural gas supply
contracts to provide diversification, reliability and natural gas cost benefits to its
customers. Interest rate swaps are used to manage interest rate risk associated
with borrowings.
All derivative instruments not identified as NPNS are recorded at fair
value as assets or liabilities on the Consolidated Balance Sheets. Cash
collateral related to derivative instruments executed under master netting
arrangements is offset against the collateralized derivatives on the Consolidated
Balance Sheets. The cash impacts of settled derivatives are recorded as
operating activities on the Consolidated Statements of Cash Flows.
INTEREST RATE RISK
The Duke Energy Registrants are exposed to changes in interest rates
as a result of their issuance or anticipated issuance of variable-rate and
fixed-rate debt and commercial paper. Interest rate risk is managed by limiting
variable-rate exposures to a percentage of total debt and by monitoring
changes in interest rates. To manage risk associated with changes in interest
rates, the Duke Energy Registrants may enter into interest rate swaps, U.S.
Treasury lock agreements and other financial contracts. In anticipation of
168
certain fixed-rate debt issuances, a series of forward-starting interest rate
swaps may be executed to lock in components of current market interest rates.
These instruments are later terminated prior to or upon the issuance of the
corresponding debt.
Cash Flow Hedges
For a derivative designated as hedging the exposure to variable cash
flows of a future transaction, referred to as a cash flow hedge, the effective
portion of the derivative’s gain or loss is initially reported as a component of
other comprehensive income and subsequently reclassified into earnings once
the future transaction impacts earnings. Amounts for interest rate contracts
are reclassified to earnings as interest expense over the term of the related
debt. See the Consolidated Statements of Changes in Equity for gains and
losses reclassified out of AOCI for the years ended December 31, 2017, and
2016. Duke Energy’s interest rate derivatives designated as hedges include
interest rate swaps used to hedge existing debt within the Commercial
Renewables business.
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Undesignated Contracts
Undesignated contracts include contracts not designated as a hedge
because they are accounted for under regulatory accounting and contracts that
do not qualify for hedge accounting.
Duke Energy’s interest rate swaps for its regulated operations employ
regulatory accounting. With regulatory accounting, the mark-to-market gains or
losses on the swaps are deferred as regulatory liabilities or regulatory assets,
respectively. Regulatory assets and liabilities are amortized consistent with the
treatment of the related costs in the ratemaking process. The accrual of interest
on the swaps is recorded as Interest Expense.
In August 2016, Duke Energy unwound $1.4 billion of forward-starting
interest rate swaps associated with the Piedmont acquisition financing
described in Note 6. The swaps were considered undesignated as they did not
qualify for hedge accounting. Losses on the swaps of $190 million are included
within Interest Expense on the Consolidated Statements of Operations for the
year ended December 31, 2016. See Note 2 for additional information related to
the Piedmont acquisition.
The following tables show notional amounts of outstanding derivatives related to interest rate risk.
(in millions)
Cash flow hedges(a)
Undesignated contracts
Total notional amount
(in millions)
Cash flow hedges(a)
Undesignated contracts
Total notional amount
Duke
Energy
660
927
1,587
Duke
Energy
750
927
1,677
$
$
$
$
Duke Energy
Carolinas
$
$
—
400
400
Duke Energy
Carolinas
$
$
—
400
400
December 31, 2017
Progress
Energy
Duke Energy
Progress
Duke Energy
Florida
Duke Energy
Ohio
—
500
500
$
$
—
250
250
$
$
—
250
250
$ —
27
$
27
December 31, 2016
Progress
Energy
Duke Energy
Progress
Duke Energy
Florida
Duke Energy
Ohio
—
500
500
$
$
—
250
250
$
$
—
250
250
$ —
27
$
27
$
$
$
$
(a) Duke Energy includes amounts related to consolidated VIEs of $660 million and $750 million at December 31, 2017, and 2016, respectively. During 2016, Duke Energy entered into interest rate swaps related to solar financing
with an outstanding notional amount of $300 million, including $81 million of four-year swaps and $219 million of 18-year swaps, at December 31, 2016. See note 6 for additional information related to the solar facilities
financing.
COMMODITY PRICE RISK
The Duke Energy Registrants are exposed to the impact of changes in
the prices of electricity purchased and sold in bulk power markets and coal
and natural gas purchases, including Piedmont’s natural gas supply contracts.
Exposure to commodity price risk is influenced by a number of factors including
the term of contracts, the liquidity of markets and delivery locations. For
the Subsidiary Registrants, bulk power electricity and coal and natural gas
purchases flow through fuel adjustment clauses, formula based contracts or
other cost sharing mechanisms. Differences between the costs included in rates
and the incurred costs, including undesignated derivative contracts, are largely
deferred as regulatory assets or regulatory liabilities. Piedmont policies allow for
the use of financial instruments to hedge commodity price risks. The strategy
and objective of these hedging programs are to use the financial instruments to
reduce gas cost volatility for customers.
Volumes
The tables below include volumes of outstanding commodity derivatives. Amounts disclosed represent the absolute value of notional volumes of commodity
contracts excluding NPNS. The Duke Energy Registrants have netted contractual amounts where offsetting purchase and sale contracts exist with identical delivery
locations and times of delivery. Where all commodity positions are perfectly offset, no quantities are shown.
Electricity (gigawatt-hours)
Natural gas (millions of dekatherms)
Duke
Energy
34
770
Duke Energy
Carolinas
Progress
Energy
Duke Energy
Progress
Duke Energy
Florida
Duke Energy
Indiana
—
105
—
183
—
133
—
50
34
2
Piedmont
—
480
December 31, 2017
169
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued)
Electricity (gigawatt-hours)
Natural gas (millions of dekatherms)
Duke
Energy
147
890
Duke Energy
Carolinas
Progress
Energy
Duke Energy
Progress
Duke Energy
Florida
Duke Energy
Indiana
—
91
—
269
—
118
—
151
147
1
Piedmont
—
529
December 31, 2016
LOCATION AND FAIR VALUE OF DERIVATIVE ASSETS AND LIABILITIES RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS
The following tables show the fair value and balance sheet location of derivative instruments. Although derivatives subject to master netting arrangements are
netted on the Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the
fair values shown.
Derivative Assets
(in millions)
Commodity Contracts
Not Designated as Hedging Instruments
Current
Noncurrent
Total Derivative Assets – Commodity Contracts
Interest Rate Contracts
Designated as Hedging Instruments
Current
Noncurrent
Total Derivative Assets – Interest Rate Contracts
Total Derivative Assets
Duke
Energy
Duke Energy
Carolinas
Progress
Energy
Duke Energy
Progress
Duke Energy
Florida
Duke Energy
Ohio
Duke Energy
Indiana
Piedmont
December 31, 2017
$ 34
1
$ 35
$
1
15
$ 16
$ 51
$
$
2
—
2
$ —
—
$ —
2
$
$
$
2
1
3
$ —
—
$ —
3
$
$
$
1
1
2
$ —
—
$ —
2
$
$
$
1
—
1
$ —
—
$ —
1
$
$
$
1
—
1
$ —
—
$ —
1
$
$
$
27
—
27
$ —
—
$ —
27
$
$
$
2
—
2
$ —
—
$ —
2
$
170
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Derivative Liabilities
(in millions)
Commodity Contracts
Duke
Energy
Duke Energy
Carolinas
Progress
Energy
Duke Energy
Progress
Duke Energy
Florida
Duke Energy
Ohio
Duke Energy
Indiana
Piedmont
December 31, 2017
Not Designated as Hedging Instruments
Current
Noncurrent
Total Derivative Liabilities – Commodity Contracts
Interest Rate Contracts
Designated as Hedging Instruments
Current
Noncurrent
Not Designated as Hedging Instruments
Current
Noncurrent
Total Derivative Liabilities – Interest Rate Contracts
Total Derivative Liabilities
$ 36
146
$ 182
$ 29
6
1
12
$ 48
$ 230
$
6
4
$ 10
$ 25
—
—
—
$ 25
$ 35
$ 18
10
$ 28
$ —
—
1
7
$
8
$ 36
$
8
4
$ 12
$ —
—
—
6
$
6
$ 18
$ 10
—
$ 10
$ —
—
—
2
$
2
$ 12
December 31, 2016
$ —
—
$ —
$ —
—
1
4
5
5
$
$
$ —
—
$ —
$ —
—
—
—
$ —
$ —
$ 11
131
$ 142
$ —
—
—
—
$ —
$ 142
Derivative Assets
(in millions)
Commodity Contracts
Not Designated as Hedging Instruments
Current
Noncurrent
Total Derivative Assets – Commodity Contracts
Interest Rate Contracts
Designated as Hedging Instruments
Noncurrent
Not Designated as Hedging Instruments
Current
Total Derivative Assets – Interest Rate Contracts
Total Derivative Assets
Derivative Liabilities
(in millions)
Commodity Contracts
Duke
Energy
Duke Energy
Carolinas
Progress
Energy
Duke Energy
Progress
Duke Energy
Florida
Duke Energy
Ohio
Duke Energy
Indiana
Piedmont
$ 108
32
$ 140
$
$
23
10
33
$
$
61
21
82
$
$
35
10
45
$
$
26
11
37
$
$
4
1
5
$
$
16
—
16
$
$
3
—
3
$
19
$ —
$ —
$ —
$ —
$ —
$ —
$ —
3
$
22
$ 162
—
$ —
33
$
3
3
85
$
$
1
1
46
$
$
2
2
39
$
$
—
$ —
5
$
—
$ —
16
$
—
$ —
3
$
Duke
Energy
Duke Energy
Carolinas
Progress
Energy
Duke Energy
Progress
Duke Energy
Florida
Duke Energy
Ohio
Duke Energy
Indiana
Piedmont
December 31, 2016
Not Designated as Hedging Instruments
Current
Noncurrent
Total Derivative Liabilities – Commodity Contracts
Interest Rate Contracts
Designated as Hedging Instruments
Current
Noncurrent
Not Designated as Hedging Instruments
Current
Noncurrent
Total Derivative Liabilities – Interest Rate Contracts
Total Derivative Liabilities
$
43
166
$ 209
$
8
8
1
26
$
43
$ 252
$ —
1
$
1
$ —
—
—
15
15
16
$
$
$
$
12
7
19
$ —
—
—
6
6
25
$
$
171
$ —
1
$
1
$ —
—
—
6
6
7
$
$
$
$
12
—
12
$ —
—
—
—
$ —
12
$
$ —
—
$ —
$ —
—
1
5
6
6
$
$
$
$
2
—
2
$ —
—
—
—
$ —
2
$
$
35
152
$ 187
$ —
—
—
—
$ —
$ 187
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) OFFSETTING ASSETS AND LIABILITIES
The following tables present the line items on the Consolidated Balance Sheets where derivatives are reported. Substantially all of Duke Energy’s outstanding
derivative contracts are subject to enforceable master netting arrangements. The Gross amounts offset in the tables below show the effect of these netting
arrangements on financial position and include collateral posted to offset the net position. The amounts shown are calculated by counterparty. Accounts receivable or
accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below.
Derivative Assets
(in millions)
Duke
Energy
Duke Energy
Carolinas
Progress
Energy
Duke Energy
Progress
Duke Energy
Florida
Duke Energy
Ohio
Duke Energy
Indiana
Piedmont
December 31, 2017
Current
Gross amounts recognized
Gross amounts offset
Net amounts presented in Current Assets: Other
Noncurrent
Gross amounts recognized
Gross amounts offset
Net amounts presented in Other Noncurrent Assets: Other
$ 35
—
$ 35
$ 16
—
$ 16
$
$
2
—
2
$ —
—
$ —
$
$
$
$
2
—
2
1
—
1
$
$
$
$
1
—
1
1
—
1
$
$
1
—
1
$ —
—
$ —
December 31, 2017
$
$
1
—
1
$ —
—
$ —
$ 27
—
$ 27
$ —
—
$ —
$
$
2
—
2
$ —
—
$ —
Derivative Liabilities
(in millions)
Duke
Energy
Duke Energy
Carolinas
Progress
Energy
Duke Energy
Progress
Duke Energy
Florida
Duke Energy
Ohio
Duke Energy
Indiana
Piedmont
Current
Gross amounts recognized
Gross amounts offset
Net amounts presented in Current Liabilities: Other
Noncurrent
Gross amounts recognized
Gross amounts offset
$ 66
(3)
$ 63
$ 164
(1)
Net amounts presented in Other Noncurrent Liabilities: Other
$ 163
$ 31
(2)
$ 29
$
$
4
—
4
$ 19
(2)
$ 17
$ 17
(1)
$ 16
$
$
8
(2)
6
$ 10
(1)
$
9
$ 10
—
$ 10
$
$
2
—
2
$
$
$
$
1
—
1
4
—
4
$ —
—
$ —
$ —
—
$ —
$ 11
—
$ 11
$ 131
—
$ 131
Derivative Assets
(in millions)
Duke
Energy
Duke Energy
Carolinas
Progress
Energy
Duke Energy
Progress
Duke Energy
Florida
Duke Energy
Ohio
Duke Energy
Indiana
Piedmont
December 31, 2016
Current
Gross amounts recognized
Gross amounts offset
Net amounts presented in Current Assets: Other
Noncurrent
Gross amounts recognized
Gross amounts offset
Net amounts presented in Other Noncurrent Assets: Other
$ 111
(11)
$ 100
$
$
51
(2)
49
$
$
$
$
23
—
23
10
(1)
9
$
$
$
$
64
(11)
53
21
(1)
20
$
$
$
$
36
—
36
10
(1)
9
$
$
$
$
28
(11)
17
11
—
11
$
$
$
$
4
—
4
1
—
1
$
$
16
—
16
$ —
—
$ —
$
$
3
—
3
$ —
—
$ —
Derivative Liabilities
(in millions)
Duke
Energy
Duke Energy
Carolinas
Progress
Energy
Duke Energy
Progress
Duke Energy
Florida
Duke Energy
Ohio
Duke Energy
Indiana
Piedmont
December 31, 2016
Current
Gross amounts recognized
Gross amounts offset
Net amounts presented in Current Liabilities: Other
Noncurrent
Gross amounts recognized
Gross amounts offset
$
$
52
(11)
41
$ 200
(2)
Net amounts presented in Other Noncurrent Liabilities: Other
$ 198
$ —
—
$ —
$
$
16
(1)
15
$
$
$
$
12
(11)
1
13
(1)
12
172
$ —
—
$ —
$
$
7
(1)
6
$
$
12
(11)
1
$ —
—
$ —
$
$
$
$
1
—
1
5
—
5
$
$
2
—
2
$ —
—
$ —
$
$
35
—
35
$ 152
—
$ 152
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) OBJECTIVE CREDIT CONTINGENT FEATURES
Certain derivative contracts contain objective credit contingent features. These features include the requirement to post cash collateral or letters of credit if
specific events occur, such as a credit rating downgrade below investment grade. The following tables show information with respect to derivative contracts that are
in a net liability position and contain objective credit-risk-related payment provisions.
(in millions)
Aggregate fair value of derivatives in a net liability position
Fair value of collateral already posted
Additional cash collateral or letters of credit in the event credit-risk-related contingent
features were triggered
(in millions)
Aggregate fair value of derivatives in a net liability position
Fair value of collateral already posted
Additional cash collateral or letters of credit in the event credit-risk-related contingent
features were triggered
December 31, 2017
Duke
Energy
Duke Energy
Carolinas
Progress
Energy
Duke Energy
Progress
Duke Energy
Florida
$
$
59
—
59
$
35
—
35
$
25
—
25
15
—
15
$
10
—
10
December 31, 2016
Duke
Energy
Duke Energy
Carolinas
Progress
Energy
Duke Energy
Progress
Duke Energy
Florida
$
$
34
—
34
$
16
—
16
$
18
—
18
6
—
6
$
12
—
12
The Duke Energy Registrants have elected to offset cash collateral and fair values of derivatives. For amounts to be netted, the derivative and cash collateral
must be executed with the same counterparty under the same master netting arrangement.
15. INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Duke Energy Registrants classify their investments in debt and equity
securities as either trading or available-for-sale.
TRADING SECURITIES
Piedmont’s investments in debt and equity securities held in rabbi trusts
associated with certain deferred compensation plans are classified as trading
securities. The fair value of these investments was $1 million and $5 million as
of December 31, 2017, and 2016, respectively.
AVAILABLE-FOR-SALE (AFS) SECURITIES
All other investments in debt and equity securities are classified as AFS.
Duke Energy’s AFS securities are primarily comprised of investments held
in (i) the nuclear decommissioning trust funds (NDTF) at Duke Energy Carolinas,
Duke Energy Progress and Duke Energy Florida, (ii) grantor trusts at Duke Energy
Progress, Duke Energy Florida and Duke Energy Indiana related to OPEB plans
and (iii) Bison.
Duke Energy classifies all other investments in debt and equity securities
as long term, unless otherwise noted.
Investment Trusts
The investments within the NDTF investments and the Duke Energy
Progress, Duke Energy Florida and Duke Energy Indiana grantor trusts
(Investment Trusts) are managed by independent investment managers with
discretion to buy, sell and invest pursuant to the objectives set forth by the
trust agreements. The Duke Energy Registrants have limited oversight of the
day-to-day management of these investments. As a result, the ability to hold
investments in unrealized loss positions is outside the control of the Duke
Energy Registrants. Accordingly, all unrealized losses associated with debt and
equity securities within the Investment Trusts are considered OTTIs and are
recognized immediately.
Investments within the Investment Trusts generally qualify for regulatory
accounting and accordingly realized and unrealized gains and losses are
generally deferred as a regulatory asset or liability.
Substantially all amounts of the Duke Energy Registrants’ gross unrealized
holding losses as of December 31, 2017, and 2016, are considered OTTIs on
investments within Investment Trusts that have been recognized immediately as
a regulatory asset.
Other AFS Securities
Unrealized gains and losses on all other AFS securities are included in
other comprehensive income until realized, unless it is determined the carrying
value of an investment is other-than-temporarily impaired. If an OTTI exists, the
unrealized loss is included in earnings based on the criteria discussed below.
The Duke Energy Registrants analyze all investment holdings each
reporting period to determine whether a decline in fair value should be
considered other-than-temporary. Criteria used to evaluate whether an
impairment associated with equity securities is other-than-temporary includes,
but is not limited to, (i) the length of time over which the market value has
been lower than the cost basis of the investment, (ii) the percentage decline
compared to the cost of the investment and (iii) management’s intent and
ability to retain its investment for a period of time sufficient to allow for any
anticipated recovery in market value. If a decline in fair value is determined
to be other-than-temporary, the investment is written down to its fair value
through a charge to earnings.
173
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) If the entity does not have an intent to sell a debt security and it is not
more likely than not management will be required to sell the debt security before
the recovery of its cost basis, the impairment write-down to fair value would
be recorded as a component of other comprehensive income, except for when
it is determined a credit loss exists. In determining whether a credit loss exists,
management considers, among other things, (i) the length of time and the extent
to which the fair value has been less than the amortized cost basis, (ii) changes
in the financial condition of the issuer of the security, or in the case of an asset
backed security, the financial condition of the underlying loan obligors, (iii)
consideration of underlying collateral and guarantees of amounts by government
entities, (iv) ability of the issuer of the security to make scheduled interest or
principal payments and (v) any changes to the rating of the security by rating
agencies. If a credit loss exists, the amount of impairment write-down to fair
value is split between credit loss and other factors. The amount related to credit
loss is recognized in earnings. The amount related to other factors is recognized
in other comprehensive income. There were no material credit losses as of
December 31, 2017, and 2016.
Other Investments amounts are recorded in Other within Other Noncurrent
Assets on the Consolidated Balance Sheets.
DUKE ENERGY
The following table presents the estimated fair value of investments in AFS securities.
December 31, 2017
December 31, 2016
Gross Unrealized
Holding Gains
Gross Unrealized
Holding Losses
Estimated
Fair Value
Gross Unrealized
Holding Gains
Gross Unrealized
Holding Losses(a)
Estimated
Fair Value
(in millions)
NDTF
Cash and cash equivalents
Equity securities
Corporate debt securities
Municipal bonds
U.S. government bonds
Other debt securities
Total NDTF
Other Investments
Cash and cash equivalents
Equity securities
Corporate debt securities
Municipal bonds
U.S. government bonds
Other debt securities
Total Other Investments
Total Investments
$ —
2,805
17
4
11
—
$
2,837
$ —
59
1
2
—
—
$
$
62
2,899
$ —
27
2
3
7
1
$
40
$ —
—
—
1
—
1
$
$
2
42
$
115
4,914
570
344
1,027
118
$ 7,088
$
$
15
123
57
83
41
44
363
$ 7,451
$ —
2,092
10
3
10
—
$ 2,115
$ —
38
1
2
—
—
$
41
$ 2,156
The table below summarizes the maturity date for debt securities.
(in millions)
Due in one year or less
Due after one through five years
Due after five through 10 years
Due after 10 years
Total
$ —
54
8
10
8
3
$ 83
$ —
—
1
1
1
2
$
5
$ 88
$
111
4,106
528
331
984
124
$ 6,184
$
$
25
104
66
82
51
42
370
$ 6,554
December 31, 2017
$
117
552
554
1,061
$ 2,284
Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were as follows.
(in millions)
Realized gains
Realized losses
Years Ended December 31,
2017
$202
160
2016
$246
187
2015
$ 193
98
174
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) — $
28
6
2
5
3
44
1
1
45
$
$
$
$
18
2,245
354
67
458
116
3,258
3
3
3,261
December 31, 2017
$
9
204
300
521
$ 1,034
DUKE ENERGY CAROLINAS
The following table presents the estimated fair value of investments in AFS securities.
December 31, 2017
December 31, 2016
Gross Unrealized
Holding Gains
Gross Unrealized
Holding Losses
Estimated
Fair Value
Gross Unrealized
Holding Gains
Gross Unrealized
Holding Losses(a)
Estimated
Fair Value
(in millions)
NDTF
Cash and cash equivalents
Equity securities
Corporate debt securities
Municipal bonds
U.S. government bonds
Other debt securities
Total NDTF
Other Investments
Other debt securities
Total Other Investments
Total Investments
$
$
$
$
$
—
1,531
9
—
3
—
1,543
—
—
1,543
$
$
$
$
$
—
12
2
1
4
1
20
—
—
20
$
$
$
$
$
32
2,692
359
60
503
112
3,758
—
—
3,758
$
$
$
$
$
—
1,157
5
1
2
—
1,165
—
—
1,165
$
$
$
$
$
The table below summarizes the maturity date for debt securities.
(in millions)
Due in one year or less
Due after one through five years
Due after five through 10 years
Due after 10 years
Total
Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were as follows.
(in millions)
Realized gains
Realized losses
Years Ended December 31,
2017
$135
103
2016
$ 157
121
2015
$ 158
83
175
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) PROGRESS ENERGY
The following table presents the estimated fair value of investments in AFS securities.
December 31, 2017
December 31, 2016
Gross Unrealized
Holding Gains
Gross Unrealized
Holding Losses
Estimated
Fair Value
Gross Unrealized
Holding Gains
Gross Unrealized
Holding Losses(a)
Estimated
Fair Value
(in millions)
NDTF
Cash and cash equivalents
Equity securities
Corporate debt securities
Municipal bonds
U.S. government bonds
Other debt securities
Total NDTF
Other Investments
Cash and cash equivalents
Municipal bonds
Total Other Investments
Total Investments
$
$
$
$
$
—
1,274
8
4
8
—
1,294
—
2
2
1,296
$ —
15
—
2
3
—
$
20
$ —
—
$ —
$
20
$
$
$
$
$
83
2,222
211
284
524
6
3,330
12
47
59
3,389
$
$
$
$
$
—
935
5
2
8
—
950
—
2
2
952
$ —
26
2
8
3
—
$
39
$ —
—
$ —
$
39
$
$
$
$
$
93
1,861
174
264
526
8
2,926
21
44
65
2,991
December 31, 2017
$
94
301
203
474
$ 1,072
The table below summarizes the maturity date for debt securities.
(in millions)
Due in one year or less
Due after one through five years
Due after five through 10 years
Due after 10 years
Total
Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were as follows.
(in millions)
Realized gains
Realized losses
Years Ended December 31,
2017
$ 65
56
2016
$ 84
64
2015
$ 33
13
176
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) DUKE ENERGY PROGRESS
The following table presents the estimated fair value of investments in AFS securities.
December 31, 2017
December 31, 2016
Gross Unrealized
Holding Gains
Gross Unrealized
Holding Losses
Estimated
Fair Value
Gross Unrealized
Holding Gains
Gross Unrealized
Holding Losses(a)
Estimated
Fair Value
— $
21
1
8
2
—
32
$
— $
— $
32
$
45
1,505
120
263
275
5
2,213
1
1
2,214
December 31, 2017
$
21
219
146
360
$ 746
Years Ended December 31,
2017
$54
48
2016
$ 71
55
2015
$ 26
11
(in millions)
NDTF
Cash and cash equivalents
Equity securities
Corporate debt securities
Municipal bonds
U.S. government bonds
Other debt securities
Total NDTF
Other Investments
Cash and cash equivalents
Total Other Investments
Total Investments
$
$
$
$
$
—
980
6
4
5
—
995
—
—
995
$
$
$
$
$
—
12
—
2
2
—
16
—
—
16
$
$
$
$
$
50
1,795
149
283
310
4
2,591
1
1
2,592
$
$
$
$
$
—
704
4
2
5
—
715
—
—
715
$
$
$
$
$
The table below summarizes the maturity date for debt securities.
(in millions)
Due in one year or less
Due after one through five years
Due after five through 10 years
Due after 10 years
Total
Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were as follows.
(in millions)
Realized gains
Realized losses
177
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) DUKE ENERGY FLORIDA
The following table presents the estimated fair value of investments in AFS securities.
(in millions)
NDTF
Cash and cash equivalents
Equity securities
Corporate debt securities
Municipal bonds
U.S. government bonds
Other debt securities
Total NDTF(a)
Other Investments
Cash and cash equivalents
Municipal bonds
Total Other Investments
Total Investments
December 31, 2017
December 31, 2016
Gross Unrealized
Holding Gains
Gross Unrealized
Holding Losses
Estimated
Fair Value
Gross Unrealized
Holding Gains
Gross Unrealized
Holding Losses(a)
Estimated
Fair Value
$
$
$
$
$
—
294
2
—
3
—
299
—
2
2
301
$ —
3
—
—
1
—
$
4
$ —
—
$ —
$
4
$
$
$
$
$
33
427
62
1
214
2
739
1
47
48
787
$
$
$
$
$
—
231
1
—
3
—
235
—
2
2
237
$ —
5
1
—
1
—
$
7
$ —
—
$ —
$
7
$
$
$
$
$
48
356
54
1
251
3
713
4
44
48
761
(a) During the year ended December 31, 2017, Duke Energy Florida continued to receive reimbursements from the NDTF for costs related to ongoing decommissioning activity of the Crystal River Unit 3 nuclear plant.
The table below summarizes the maturity date for debt securities.
(in millions)
Due in one year or less
Due after one through five years
Due after five through 10 years
Due after 10 years
Total
Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were as follows.
(in millions)
Realized gains
Realized losses
December 31, 2017
$
73
82
57
114
$ 326
Years Ended December 31,
2017
$11
8
2016
$ 13
9
2015
$
7
2
178
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) DUKE ENERGY INDIANA
The following table presents the estimated fair value of investments in AFS securities.
(in millions)
Other Investments
Equity securities
Corporate debt securities
Municipal bonds
U.S. government bonds
Total Other Investments
Total Investments
December 31, 2017
December 31, 2016
Gross Unrealized
Holding Gains
Gross Unrealized
Holding Losses
Estimated
Fair Value
Gross Unrealized
Holding Gains
Gross Unrealized
Holding Losses(a)
Estimated
Fair Value
$
$
$
49
—
—
—
49
49
$
$
$
— $
—
1
—
1
1
$
$
97
3
28
—
128
128
$
$
$
33
—
—
—
33
33
$
$
$
—
—
1
—
1
1
$
$
$
79
2
28
1
110
110
The table below summarizes the maturity date for debt securities.
(in millions)
Due in one year or less
Due after one through five years
Due after five through 10 years
Due after 10 years
Total
December 31, 2017
$ 5
12
7
7
$31
Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were insignificant for the years ended
December 31, 2017, 2016 and 2015.
16. FAIR VALUE MEASUREMENTS
Fair value is the exchange price to sell an asset or transfer a liability in
an orderly transaction between market participants at the measurement date.
The fair value definition focuses on an exit price versus the acquisition cost.
Fair value measurements use market data or assumptions market participants
would use in pricing the asset or liability, including assumptions about risk and
the risks inherent in the inputs to the valuation technique. These inputs may
be readily observable, corroborated by market data, or generally unobservable.
Valuation techniques maximize the use of observable inputs and minimize use
of unobservable inputs. A midmarket pricing convention (the midpoint price
between bid and ask prices) is permitted for use as a practical expedient.
Fair value measurements are classified in three levels based on the fair
value hierarchy:
Level 1 – Unadjusted quoted prices in active markets for identical assets
or liabilities that the reporting entity can access at the measurement date. An
active market is one in which transactions for an asset or liability occur with
sufficient frequency and volume to provide ongoing pricing information.
Level 2 – A fair value measurement utilizing inputs other than quoted
prices included in Level 1 that are observable, either directly or indirectly, for an
asset or liability. Inputs include (i) quoted prices for similar assets or liabilities
in active markets, (ii) quoted prices for identical or similar assets or liabilities in
markets that are not active, and (iii) inputs other than quoted market prices that
are observable for the asset or liability, such as interest rate curves and yield
curves observable at commonly quoted intervals, volatilities and credit spreads.
A Level 2 measurement cannot have more than an insignificant portion of its
valuation based on unobservable inputs. Instruments in this category include
non-exchange-traded derivatives, such as over-the-counter forwards, swaps
and options; certain marketable debt securities; and financial instruments
traded in less than active markets.
Level 3 – Any fair value measurement which includes unobservable
inputs for more than an insignificant portion of the valuation. These inputs may
be used with internally developed methodologies that result in management’s
best estimate of fair value. Level 3 measurements may include longer-term
instruments that extend into periods in which observable inputs are not
available.
Not Categorized – Certain investments are not categorized within the
Fair Value hierarchy. These investments are measured based on the fair value of
the underlying investments but may not be readily redeemable at that fair value.
Fair value accounting guidance permits entities to elect to measure
certain financial instruments that are not required to be accounted for at fair
value, such as equity method investments or the company’s own debt, at fair
value. The Duke Energy Registrants have not elected to record any of these
items at fair value.
179
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Transfers between levels represent assets or liabilities that were
previously (i) categorized at a higher level for which the inputs to the estimate
became less observable or (ii) classified at a lower level for which the inputs
became more observable during the period. The Duke Energy Registrant’s policy
is to recognize transfers between levels of the fair value hierarchy at the end
of the period. There were no transfers between levels during the years ended
December 31, 2017, 2016 and 2015. In addition, for Piedmont, there were no
transfers between levels during the two months ended December 31, 2016, and
the years ended October 31, 2016, and 2015.
Valuation methods of the primary fair value measurements disclosed
below are as follows.
Investments in equity securities
The majority of investments in equity securities are valued using Level
1 measurements. Investments in equity securities are typically valued at the
closing price in the principal active market as of the last business day of the
quarter. Principal active markets for equity prices include published exchanges
such as the New York Stock Exchange (NYSE) and the NASDAQ Stock Market.
Foreign equity prices are translated from their trading currency using the
currency exchange rate in effect at the close of the principal active market.
There was no after-hours market activity that was required to be reflected in the
reported fair value measurements.
Investments in debt securities
Most investments in debt securities are valued using Level 2
measurements because the valuations use interest rate curves and credit
spreads applied to the terms of the debt instrument (maturity and coupon
interest rate) and consider the counterparty credit rating. If the market for a
particular fixed-income security is relatively inactive or illiquid, the measurement
is Level 3.
Commodity derivatives
Commodity derivatives with clearinghouses are classified as Level 1.
Other commodity derivatives, including Piedmont’s natural gas supply contracts,
are primarily valued using internally developed discounted cash flow models that
incorporate forward price, adjustments for liquidity (bid-ask spread) and credit
or non-performance risk (after reflecting credit enhancements such as collateral)
and are discounted to present value. Pricing inputs are derived from published
exchange transaction prices and other observable data sources. In the absence
of an active market, the last available price may be used. If forward price
curves are not observable for the full term of the contract and the unobservable
period had more than an insignificant impact on the valuation, the commodity
derivative is classified as Level 3. In isolation, increases (decreases) in natural
gas forward prices result in favorable (unfavorable) fair value adjustments
for gas purchase contracts; and increases (decreases) in electricity forward
prices result in unfavorable (favorable) fair value adjustments for electricity
sales contracts. Duke Energy regularly evaluates and validates pricing inputs
used to estimate the fair value of natural gas commodity contracts by a market
participant price verification procedure. This procedure provides a comparison of
internal forward commodity curves to market participant generated curves.
Interest rate derivatives
Most over-the-counter interest rate contract derivatives are valued using
financial models that utilize observable inputs for similar instruments and
are classified as Level 2. Inputs include forward interest rate curves, notional
amounts, interest rates and credit quality of the counterparties.
Other fair value considerations
See Note 11 for a discussion of the valuation of goodwill and intangible
assets. See Note 2 related to the acquisition of Piedmont in 2016 and the
purchase of NCEMPA’s ownership interests in certain generating assets in 2015.
DUKE ENERGY
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets.
Derivative amounts in the table below for all Duke Energy Registrants exclude cash collateral, which is disclosed in Note 14. See Note 15 for additional information
related to investments by major security type for the Duke Energy Registrants.
(in millions)
NDTF equity securities
NDTF debt securities
Other AFS equity securities
Other trading and AFS debt securities
Derivative assets
Total assets
Derivative liabilities
Net assets (liabilities)
December 31, 2017
Total Fair Value
Level 1
Level 2
Level 3
Not Categorized
$ 4,914
2,174
123
241
51
7,503
(230)
$ 4,840
635
123
57
3
5,658
(2)
$ —
1,539
—
184
20
1,743
(86)
$ —
—
—
—
28
28
(142)
$ 7,273
$ 5,656
$ 1,657
$ (114)
$ 74
—
—
—
—
74
—
$ 74
180
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) (in millions)
NDTF equity securities
NDTF debt securities
Other trading and AFS equity securities
Other trading and AFS debt securities
Derivative assets
Total assets
Derivative liabilities
Net assets
December 31, 2016
Total Fair Value
Level 1
Level 2
Level 3
Not Categorized
$ 4,106
2,078
104
266
162
6,716
(252)
$ 4,029
632
104
75
5
$ —
1,446
—
186
136
4,845
(2)
1,768
(63)
$ —
—
—
5
21
26
(187)
$
77
—
—
—
—
77
—
$ 6,464
$ 4,843
$ 1,705
$ (161)
$
77
The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
Amounts included in earnings for derivatives are primarily included in Cost of natural gas on the Duke Energy Registrants’ Consolidated Statements of Operations and
Comprehensive Income. Amounts included in changes of net assets on the Duke Energy Registrants’ Consolidated Balance Sheets are included in regulatory assets or
liabilities. All derivative assets and liabilities are presented on a net basis.
(in millions)
Investments
Derivatives (net)
Total
Investments
Derivatives (net)
December 31, 2017
December 31, 2016
Balance at beginning of period
Total pretax realized or unrealized gains included in comprehensive income
Derivative liability resulting from the acquisition of Piedmont
Purchases, sales, issuances and settlements:
Purchases
Sales
Settlements
Total gains included on the Consolidated Balance Sheet
$
5
1
—
—
(6)
—
—
$ (166)
—
—
55
—
(47)
44
$ (161)
1
—
55
(6)
(47)
44
Balance at end of period
$ —
$ (114)
$ (114)
$
5
—
—
—
—
—
—
$
5
$
Total
15
—
(187)
33
—
(28)
6
$
10
—
(187)
33
—
(28)
6
$ (166)
$ (161)
DUKE ENERGY CAROLINAS
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets.
(in millions)
NDTF equity securities
NDTF debt securities
Derivative assets
Total assets
Derivative liabilities
Net assets
December 31, 2017
Total Fair Value
Level 1
Level 2
Level 3
Not Categorized
$ 2,692
1,066
2
3,760
$ 2,618
204
—
2,822
$ —
862
2
864
(35)
(1)
(34)
$ 3,725
$ 2,821
$ 830
$ —
—
—
—
—
$ —
$
$
74
—
—
74
—
74
181
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) (in millions)
NDTF equity securities
NDTF debt securities
Other AFS debt securities
Derivative assets
Total assets
Derivative liabilities
Net assets
December 31, 2016
Total Fair Value
Level 1
Level 2
Level 3
Not Categorized
$ 2,245
1,013
3
33
3,294
(16)
$ 2,168
178
—
—
2,346
—
$ —
835
—
33
868
(16)
$ 3,278
$ 2,346
$ 852
$
$ —
—
3
—
3
—
3
$ 77
—
—
—
77
—
$ 77
The following table provides reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
(in millions)
Balance at beginning of period
Total pretax realized or unrealized gains included in comprehensive income
Purchases, sales, issuances and settlements:
Sales
Balance at end of period
PROGRESS ENERGY
Investments
Years Ended December 31,
2017
$
3
1
(4)
$ —
2016
$ 3
—
—
$ 3
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets.
(in millions)
NDTF equity securities
NDTF debt securities
Other AFS debt securities
Derivative assets
Total assets
Derivative liabilities
Net assets
DUKE ENERGY PROGRESS
December 31, 2017
December 31, 2016
Total Fair Value
Level 1
Level 2
Total Fair Value
Level 1
Level 2
$ 2,222
1,108
59
3
$ 2,222
431
12
1
3,392
(36)
2,666
(1)
$ —
677
47
2
726
(35)
$ 1,861
1,065
65
85
3,076
(25)
$ 1,861
454
21
—
2,336
—
$ —
611
44
85
740
(25)
$ 3,356
$ 2,665
$ 691
$ 3,051
$ 2,336
$ 715
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets.
(in millions)
NDTF equity securities
NDTF debt securities
Other AFS debt securities
Derivative assets
Total assets
Derivative liabilities
Net assets
December 31, 2017
December 31, 2016
Total Fair Value
Level 1
Level 2
Total Fair Value
Level 1
Level 2
$ 1,795
796
1
2
2,594
(18)
$ 1,795
243
1
1
2,040
(1)
$ —
553
—
1
554
(17)
$ 1,505
708
1
46
2,260
(7)
$ 1,505
207
1
—
1,713
—
$ —
501
—
46
547
(7)
$ 2,576
$ 2,039
$ 537
$ 2,253
$ 1,713
$ 540
182
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) DUKE ENERGY FLORIDA
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets.
(in millions)
NDTF equity securities
NDTF debt securities
Other AFS debt securities
Derivative assets
Total assets
Derivative liabilities
Net assets
DUKE ENERGY OHIO
December 31, 2017
December 31, 2016
Total Fair Value
Level 1
Level 2
Total Fair Value
Level 1
Level 2
$ 427
312
48
1
788
(12)
$
427
188
1
—
616
—
$ —
124
47
1
172
(12)
$ 356
357
48
39
800
(12)
$ 356
247
4
—
607
—
$ —
110
44
39
193
(12)
$ 776
$
616
$ 160
$ 788
$ 607
$ 181
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets.
(in millions)
Derivative assets
Derivative liabilities
Net (liabilities) assets
December 31, 2017
December 31, 2016
Total Fair Value
Level 2
Level 3
Total Fair Value
Level 2
Level 3
$ 1
(5)
$ (4)
$ — $
(5)
1
—
$ (5)
$
1
$ 5
(6)
$ (1)
$ —
(6)
$
(6)
$ 5
—
$ 5
The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
(in millions)
Balance at beginning of period
Purchases, sales, issuances and settlements:
Purchases
Settlements
Total gains included on the Consolidated Balance Sheet
Balance at end of period
DUKE ENERGY INDIANA
Derivatives (net)
Years Ended December 31,
2017
$ 5
3
(4)
(3)
2016
$ 3
5
(5)
2
$ 1
$ 5
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets.
(in millions)
Other AFS equity securities
Other AFS debt securities
Derivative assets
Total assets
Derivative liabilities
Net assets
December 31, 2017
December 31, 2016
Total Fair Value
Level 1 Level 2 Level 3
Total Fair Value
Level 1 Level 2 Level 3
$ 97
$ 97
$ — $ —
$ 79
$ 79
$ — $ —
31
27
155
—
—
—
97
—
31
—
31
—
—
27
27
—
31
16
126
(2)
—
—
31
—
79
31
(2) —
—
16
16
—
$ 155
$ 97
$ 31
$ 27
$ 124
$ 77
$ 31
$ 16
183
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
(in millions)
Balance at beginning of period
Purchases, sales, issuances and settlements:
Purchases
Settlements
Total gains included on the Consolidated Balance Sheet
Balance at end of period
PIEDMONT
Derivatives (net)
Years Ended December 31,
2017
$ 16
52
(43)
2
2016
$ 7
29
(24)
4
$ 27
$ 16
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets.
(in millions)
Other trading equity securities
Other trading debt securities
Derivative assets
Total assets
Derivative liabilities
Net assets
December 31, 2017
December 31, 2016
Total Fair Value Level 1 Level 3
Total Fair Value
Level 1 Level 3
$ — $ — $ —
$
1
2
3
(142)
1
2
—
—
3
—
— (142)
4
1
3
$
4
1
3
$ —
—
—
8
(187)
8
—
— (187)
$ (139)
$
3 $ (142)
$ (179)
$
8
$ (187)
The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
(in millions)
Balance at beginning of period
Total gains (losses) and settlements
Balance at end of period
Derivatives (net)
Year Ended
Two Months Ended
Year Ended
December 31, 2017 December 31, 2016
October 31, 2016
$ (187)
45
$ (142)
$ (188)
1
$ (187)
$ —
(188)
$ (188)
184
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) QUANTITATIVE INFORMATION ABOUT UNOBSERVABLE INPUTS
The following tables include quantitative information about the Duke Energy Registrants’ derivatives classified as Level 3.
Investment Type
Duke Energy Ohio
FTRs
Duke Energy Indiana
FTRs
Piedmont
Natural gas contracts
Duke Energy
Total Level 3 derivatives
Investment Type
Duke Energy Ohio
FTRs
Duke Energy Indiana
FTRs
Piedmont
Natural gas contracts
Duke Energy
Total Level 3 derivatives
December 31, 2017
Fair Value
(in millions)
Valuation Technique
Unobservable Input
$
1
RTO auction pricing
FTR price – per MWh
27
RTO auction pricing
FTR price – per MWh
Range
$ 0.07 — $ 1.41
(0.77) — 7.44
(142)
Discounted cash flow
Forward natural gas curves - price per MMBtu
2.10 — 2.88
$ (114)
Fair Value
(in millions)
December 31, 2016
Valuation Technique
Unobservable Input
Range
$
5
RTO auction pricing
FTR price – per MWh
16
RTO auction pricing
FTR price – per MWh
$ 0.77 — 3.52
(0.83) — 9.32
(187)
Discounted cash flow
Forward natural gas curves - price per MMBtu
2.31 — 4.18
$ (166)
OTHER FAIR VALUE DISCLOSURES
The fair value and book value of long-term debt, including current maturities, is summarized in the following table. Estimates determined are not necessarily
indicative of amounts that could have been settled in current markets. Fair value of long-term debt uses Level 2 measurements.
(in millions)
Duke Energy
Duke Energy Carolinas
Progress Energy
Duke Energy Progress
Duke Energy Florida
Duke Energy Ohio
Duke Energy Indiana
Piedmont
December 31, 2017
December 31, 2016
Book Value
Fair Value
Book Value
Fair Value
$ 52,279
10,103
17,837
7,357
7,095
2,067
3,783
2,037
$ 55,331
11,372
20,000
7,992
7,953
2,249
4,464
2,209
$ 47,895
9,603
17,541
7,011
6,125
1,884
3,786
1,821
$ 49,161
10,494
19,107
7,357
6,728
2,020
4,260
1,933
At both December 31, 2017, and December 31, 2016, fair value of cash and cash equivalents, accounts and notes receivable, accounts payable, notes payable
and commercial paper and nonrecourse notes payable of VIEs are not materially different from their carrying amounts because of the short-term nature of these
instruments and/or because the stated rates approximate market rates.
185
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) 17. VARIABLE INTEREST ENTITIES
A VIE is an entity that is evaluated for consolidation using more than
a simple analysis of voting control. The analysis to determine whether an
entity is a VIE considers contracts with an entity, credit support for an entity,
the adequacy of the equity investment of an entity and the relationship of
voting power to the amount of equity invested in an entity. This analysis is
performed either upon the creation of a legal entity or upon the occurrence of
an event requiring reevaluation, such as a significant change in an entity’s
assets or activities. A qualitative analysis of control determines the party that
consolidates a VIE. This assessment is based on (i) what party has the power
to direct the activities of the VIE that most significantly impact its economic
performance and (ii) what party has rights to receive benefits or is obligated to
absorb losses that could potentially be significant to the VIE. The analysis of the
party that consolidates a VIE is a continual reassessment.
CONSOLIDATED VIEs
The obligations of these VIEs discussed in the following paragraphs
are nonrecourse to the Duke Energy Registrants. The registrants have no
requirement to provide liquidity to, purchase assets of or guarantee performance
of these VIEs unless noted in the following paragraphs.
No financial support was provided to any of the consolidated VIEs during
the years ended December 31, 2017, 2016 and 2015, or is expected to be
provided in the future, that was not previously contractually required.
Receivables Financing – DERF/DEPR/DEFR
Duke Energy Receivables Finance Company, LLC (DERF), Duke Energy
Progress Receivables, LLC (DEPR) and Duke Energy Florida Receivables, LLC
(DEFR) are bankruptcy remote, special purpose subsidiaries of Duke Energy
Carolinas, Duke Energy Progress and Duke Energy Florida, respectively. DERF,
DEPR and DEFR are wholly owned limited liability companies with separate
legal existence from their parent companies and their assets are not generally
available to creditors of their parent companies. On a revolving basis, DERF,
DEPR and DEFR buy certain accounts receivable arising from the sale of
electricity and related services from their parent companies.
DERF, DEPR and DEFR borrow amounts under credit facilities to buy these
receivables. Borrowing availability from the credit facilities is limited to the
amount of qualified receivables purchased. The sole source of funds to satisfy
the related debt obligations is cash collections from the receivables. Amounts
borrowed under the credit facilities are reflected on the Consolidated Balance
Sheets as Long-Term Debt.
The most significant activity that impacts the economic performance of
DERF, DEPR and DEFR are the decisions made to manage delinquent receivables.
Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida
consolidate DERF, DEPR and DEFR, respectively, as they make those decisions.
Receivables Financing – CRC
CRC is a bankruptcy remote, special purpose entity indirectly owned by
Duke Energy. On a revolving basis, CRC buys certain accounts receivable arising
from the sale of electricity, natural gas and related services from Duke Energy
Ohio and Duke Energy Indiana. CRC borrows amounts under a credit facility to
buy the receivables from Duke Energy Ohio and Duke Energy Indiana. Borrowing
availability from the credit facility is limited to the amount of qualified receivables
sold to CRC. The sole source of funds to satisfy the related debt obligation is cash
collections from the receivables. Amounts borrowed under the credit facility are
reflected on Duke Energy’s Consolidated Balance Sheets as Long-Term Debt.
The proceeds Duke Energy Ohio and Duke Energy Indiana receive from
the sale of receivables to CRC are typically 75 percent cash and 25 percent in
the form of a subordinated note from CRC. The subordinated note is a retained
interest in the receivables sold. Depending on collection experience, additional
equity infusions to CRC may be required by Duke Energy to maintain a minimum
equity balance of $3 million.
CRC is considered a VIE because (i) equity capitalization is insufficient to
support its operations, (ii) power to direct the activities that most significantly
impact the economic performance of the entity are not performed by the equity
holder and (iii) deficiencies in net worth of CRC are funded by Duke Energy. The
most significant activities that impact the economic performance of CRC are
decisions made to manage delinquent receivables. Duke Energy consolidates
CRC as it makes these decisions. Neither Duke Energy Ohio nor Duke Energy
Indiana consolidate CRC.
Receivables Financing – Credit Facilities
The following table outlines amounts and expiration dates of the credit facilities described above.
Expiration date
Credit facility amount (in millions)
Amounts borrowed at December 31, 2017
Amounts borrowed at December 31, 2016
Duke Energy
Duke Energy
Carolinas
Duke Energy
Progress
Duke Energy
Florida
CRC
DERF
DEPR
December 2020 December 2020
$ 450
450
425
$ 325
325
325
February 2019
$ 300
300
300
DEFR
April 2019
$ 225
225
225
186
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Nuclear Asset-Recovery Bonds – DEFPF
Duke Energy Florida Project Finance, LLC (DEFPF) is a bankruptcy remote, wholly owned special purpose subsidiary of Duke Energy Florida. DEFPF was formed
in 2016 for the sole purpose of issuing nuclear asset-recovery bonds to finance Duke Energy Florida’s unrecovered regulatory asset related to Crystal River Unit 3.
In June 2016, DEFPF issued $1,294 million of senior secured bonds and used the proceeds to acquire nuclear asset-recovery property from Duke Energy
Florida. The nuclear asset-recovery property acquired includes the right to impose, bill, collect and adjust a non-bypassable nuclear asset-recovery charge from all
Duke Energy Florida retail customers until the bonds are paid in full and all financing costs have been recovered. The nuclear asset-recovery bonds are secured by
the nuclear asset-recovery property and cash collections from the nuclear asset-recovery charges are the sole source of funds to satisfy the debt obligation. The
bondholders have no recourse to Duke Energy Florida. For additional information see Notes 4 and 6.
DEFPF is considered a VIE primarily because the equity capitalization is insufficient to support its operations. Duke Energy Florida has the power to direct the
significant activities of the VIE as described above and therefore Duke Energy Florida is considered the primary beneficiary and consolidates DEFPF.
The following table summarizes the impact of DEFPF on Duke Energy Florida’s Consolidated Balance Sheets.
(in millions)
Receivables of VIEs
Regulatory Assets: Current
Current Assets: Other
Other Noncurrent Assets: Regulatory assets
Current Liabilities: Other
Current maturities of long-term debt
Long-Term Debt
Commercial Renewables
December 31, 2017
December 31, 2016
$
4
51
40
1,091
10
53
1,164
$
6
50
53
1,142
17
62
1,217
Certain of Duke Energy’s renewable energy facilities are VIEs due to Duke Energy issuing guarantees for debt service and operations and maintenance reserves
in support of debt financings. Assets are restricted and cannot be pledged as collateral or sold to third parties without prior approval of debt holders. The activities
that most significantly impact the economic performance of these renewable energy facilities were decisions associated with siting, negotiating PPAs, engineering,
procurement and construction and decisions associated with ongoing operations and maintenance-related activities. Duke Energy consolidates the entities as it is
responsible for all of these decisions.
The table below presents material balances reported on Duke Energy’s Consolidated Balance Sheets related to renewables VIEs.
(in millions)
Current Assets: Other
Property, plant and equipment, cost
Accumulated depreciation and amortization
Current maturities of long-term debt
Long-Term Debt
Other Noncurrent Liabilities: Deferred income taxes
Other Noncurrent Liabilities: Other
December 31, 2017
December 31, 2016
$
174
3,923
(591)
170
1,700
(148)
241
$
223
3,419
(453)
198
1,097
275
252
187
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) NON-CONSOLIDATED VIEs
The following tables summarize the impact of non-consolidated VIEs on the Consolidated Balance Sheets.
December 31, 2017
Duke Energy
(in millions)
Receivables from affiliated companies
Investments in equity method unconsolidated affiliates
Other noncurrent assets
Total assets
Taxes accrued
Other current liabilities
Deferred income taxes
Other noncurrent liabilities
Total liabilities
Net assets
Pipeline
Investments
Commercial
Renewables
Other
VIEs(a)
$ —
42
—
Total
$ —
919
17
Duke
Energy
Ohio
Duke
Energy
Indiana
$ 87
$
106
—
—
—
—
$ —
180
—
$ 180
$ 42
$ 936
$ 87
$
106
—
—
—
—
$ —
$ 180
—
4
—
12
$ 16
$ 26
(29)
4
42
12
—
—
—
—
—
—
—
—
$ 29
$ 907
$ — $ —
$ 87
$
106
$ —
697
17
$ 714
(29)
—
42
—
$ 13
$ 701
(a) Duke Energy holds a 50 percent equity interest in Duke-American Transmission Company, LLC (DATC). As of December 31, 2016, DATC was considered a VIE due to having insufficient equity to finance its own activities
without subordinated financial support. However, DATC is no longer considered a VIE based on sufficient equity to finance its own activities, and, therefore, is no longer considered a VIE as of December 31, 2017. Duke
Energy’s investment in DATC was $46 million at December 31, 2017.
(in millions)
Receivables from affiliated companies
Investments in equity method unconsolidated affiliates
Other noncurrent assets
Total assets
Other current liabilities
Other noncurrent liabilities
Total liabilities
Net assets
December 31, 2016
Duke Energy
Pipeline
Investments
Commercial
Renewables
$ —
487
12
$ 499
—
—
$ —
$ 499
$ —
174
—
$ 174
—
—
$ —
$ 174
Other
$ —
90
—
$ 90
3
13
$ 16
$ 74
Total
$ —
751
12
$ 763
3
13
$ 16
$ 747
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont(a)
$
$
$ 82
—
—
$ 82
—
—
101
—
—
101
—
—
$ — $ —
101
$ 82
$
$ —
139
—
$ 139
—
4
$
4
$ 135
(a)
In April 2017, Piedmont transferred its non-consolidated VIE investments to a wholly owned subsidiary of Duke Energy. See Note 12 and the “Pipeline Investments” section below for additional detail.
The Duke Energy Registrants are not aware of any situations where the
maximum exposure to loss significantly exceeds the carrying values shown above
except for the power purchase agreement with OVEC, which is discussed below,
and various guarantees, some of which are reflected in the table above as Other
noncurrent liabilities. For more information on various guarantees, refer to Note 7.
Pipeline Investments
Duke Energy has investments in various joint ventures with pipeline
projects currently under construction. These entities are considered VIEs due to
having insufficient equity to finance their own activities without subordinated
financial support. Duke Energy does not have the power to direct the activities
that most significantly impact the economic performance, the obligation to
absorb losses or the right to receive benefits of these VIEs and therefore does
not consolidate these entities.
The table below presents Duke Energy’s ownership interest and
investment balance in in these joint ventures.
Investment Amount (in millions)
Ownership
Interest
December 31,
2017
December 31,
2016
47% $
7.5%
24%
$
397
219
81
697
$
$
265
140
82
487
Entity Name
ACP
Sabal Trail
Constitution
Total
Commercial Renewables
Duke Energy has investments in various renewable energy project entities.
Some of these entities are VIEs due to Duke Energy issuing guarantees for debt
service and operations and maintenance reserves in support of debt financings.
Duke Energy does not consolidate these VIEs because power to direct and
control key activities is shared jointly by Duke Energy and other owners.
188
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Other VIEs
CRC
Duke Energy holds a 50 percent equity interest in Pioneer. Pioneer is
considered a VIE due to having insufficient equity to finance their own activities
without subordinated financial support. The activities that most significantly
impact Pioneer’s economic performance are decisions related to the
development of new transmission facilities. The power to direct these activities
is jointly and equally shared by Duke Energy and the other joint venture partner,
American Electric Power, therefore Duke Energy does not consolidate Pioneer.
OVEC
Duke Energy Ohio’s 9 percent ownership interest in OVEC is considered a
non-consolidated VIE due to having insufficient equity to finance their activities
without subordinated financial support. As a counterparty to an inter-company
power agreement (ICPA), Duke Energy Ohio has a contractual arrangement
to buy power from OVEC’s power plants through June 2040 commensurate
with its power participation ratio, which is equivalent to Duke Energy Ohio’s
ownership interest. Costs, including fuel, operating expenses, fixed costs, debt
amortization, and interest expense are allocated to counterparties to the ICPA
based on their power participation ratio. The value of the ICPA is subject to
variability due to fluctuation in power prices and changes in OVEC’s cost of
business, including costs associated with its 2,256 MW of coal-fired generation
capacity. Deterioration in the credit quality, or bankruptcy of one or more parties
to the ICPA could increase the costs of OVEC. In addition, certain proposed
environmental rulemaking could result in future increased cost allocations.
See discussion under Consolidated VIEs for additional information related
to CRC.
Amounts included in Receivables from affiliated companies in the above
table for Duke Energy Ohio and Duke Energy Indiana reflect their retained
interest in receivables sold to CRC. These subordinated notes held by Duke
Energy Ohio and Duke Energy Indiana are stated at fair value. Carrying values of
retained interests are determined by allocating carrying value of the receivables
between assets sold and interests retained based on relative fair value. The
allocated bases of the subordinated notes are not materially different than
their face value because (i) the receivables generally turnover in less than
two months, (ii) credit losses are reasonably predictable due to the broad
customer base and lack of significant concentration and (iii) the equity in CRC
is subordinate to all retained interests and thus would absorb losses first. The
hypothetical effect on fair value of the retained interests assuming both a 10
percent and a 20 percent unfavorable variation in credit losses or discount rates
is not material due to the short turnover of receivables and historically low credit
loss history. Interest accrues to Duke Energy Ohio and Duke Energy Indiana on
the retained interests using the acceptable yield method. This method generally
approximates the stated rate on the notes since the allocated basis and the
face value are nearly equivalent. An impairment charge is recorded against
the carrying value of both retained interests and purchased beneficial interest
whenever it is determined that an OTTI has occurred.
Key assumptions used in estimating fair value are detailed in the following table.
Anticipated credit loss ratio
Discount rate
Receivable turnover rate
The following table shows the gross and net receivables sold.
(in millions)
Receivables sold
Less: Retained interests
Net receivables sold
The following table shows sales and cash flows related to receivables sold.
(in millions)
Sales
Receivables sold
Loss recognized on sale
Cash Flows
Cash proceeds from receivables sold
Collection fees received
Return received on retained interests
Duke Energy Ohio
Duke Energy Indiana
2017
0.5%
2.1%
13.5%
2016
0.5%
1.5%
13.3%
2017
0.3%
2.1%
10.7%
2016
0.3%
1.5%
10.6%
Duke Energy Ohio
Duke Energy Indiana
2017
$ 273
87
$ 186
2016
$ 267
82
$ 185
2017
$ 312
106
$ 206
2016
306
101
205
$
$
Duke Energy Ohio
Duke Energy Indiana
Years Ended December 31,
Years Ended December 31,
2017
2016
2015
2017
2016
2015
$1,879
10
1,865
1
3
$1,926
9
1,882
1
2
$1,963
9
1,995
1
3
$2,711
12
$ 2,635
11
$ 2,627
11
2,694
1
7
2,583
1
5
2,670
1
5
189
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Cash flows from the sales of receivables are reflected within Cash Flows
From Operating Activities on Duke Energy Ohio’s and Duke Energy Indiana’s
Consolidated Statements of Cash Flows.
Collection fees received in connection with servicing transferred accounts
receivable are included in Operation, maintenance and other on Duke Energy
Ohio’s and Duke Energy Indiana’s Consolidated Statements of Operations
and Comprehensive Income. The loss recognized on sales of receivables is
calculated monthly by multiplying receivables sold during the month by the
required discount. The required discount is derived monthly utilizing a three-
year weighted average formula that considers charge-off history, late charge
history and turnover history on the sold receivables, as well as a component for
the time value of money. The discount rate, or component for the time value of
money, is the prior month-end LIBOR plus a fixed rate of 1.00 percent.
18. COMMON STOCK
Basic Earnings Per Share (EPS) is computed by dividing net income
attributable to Duke Energy common stockholders, as adjusted for distributed
and undistributed earnings allocated to participating securities, by the weighted
average number of common shares outstanding during the period. Diluted
EPS is computed by dividing net income attributable to Duke Energy common
stockholders, as adjusted for distributed and undistributed earnings allocated
to participating securities, by the diluted weighted average number of common
shares outstanding during the period. Diluted EPS reflects the potential dilution
that could occur if securities or other agreements to issue common shares, such
as stock options and equity forward sale agreements, were exercised or settled.
Duke Energy’s participating securities are restricted stock units that are entitled
to dividends declared on Duke Energy common stock during the restricted stock
unit’s vesting periods.
The following table presents Duke Energy’s basic and diluted EPS
calculations and reconciles the weighted average number of common stock
outstanding to the diluted weighted average number of common stock
outstanding.
(in millions, except per share amounts)
Income from continuing operations attributable to Duke Energy common stockholders excluding impact of participating securities
Weighted average shares outstanding – basic
Weighted average shares outstanding – diluted
Earnings per share from continuing operations attributable to Duke Energy common stockholders
Basic
Diluted
Potentially dilutive items excluded from the calculation(a)
Dividends declared per common share
(a) Performance stock awards were not included in the dilutive securities calculation because the performance measures related to the awards had not been met.
Years Ended December 31,
2017
$3,059
700
700
$ 4.37
$ 4.37
2
$ 3.49
2016
$2,567
691
691
$ 3.71
$ 3.71
2
$ 3.36
2015
$ 2,640
694
694
$ 3.80
$ 3.80
2
$ 3.24
Equity Distribution Agreement
On February 20, 2018, Duke Energy filed a prospectus supplement and
executed an Equity Distribution Agreement (the EDA) under which it may sell up
to $1 billion of its common stock through an at-the-market offering program,
including an equity forward sales component. The EDA was entered into with
Wells Fargo Securities, LLC, Citigroup Global Markets Inc., and J.P. Morgan
Securities LLC (the Agents). Under the terms of the EDA, Duke Energy may issue
and sell, through either of the Agents, shares of common stock during the period
ending September 23, 2019.
In addition to the issuance and sales of shares by Duke Energy through the
Agents, Duke Energy may enter into Equity Forward Agreements with affiliates
of the Agents as Forward Purchasers. There were no transactions under the EDA
from the time of execution of the EDA to the filing of this document.
Stock Issuance
In March 2016, Duke Energy marketed an equity offering of 10.6 million shares
of common stock. In lieu of issuing equity at the time of the offering, Duke Energy
entered into Equity Forwards with Barclays. The Equity Forwards required Duke
Energy to either physically settle the transactions by issuing 10.6 million shares, or
net settle in whole or in part through the delivery or receipt of cash or shares.
On October 5, 2016, following the close of the Piedmont acquisition, Duke
Energy physically settled the Equity Forwards in full by delivering 10.6 million
shares of common stock in exchange for net cash proceeds of approximately
190
$723 million. The net proceeds were used to finance a portion of the Piedmont
acquisition. As a result of the acquisition, all of Piedmont’s issued and
outstanding stock became the issued and outstanding shares of a wholly owned
subsidiary of Duke Energy. See Note 2 for additional information related to the
Piedmont acquisition.
Accelerated Stock Repurchase Program
On April 6, 2015, Duke Energy entered into agreements with each of
Goldman, Sachs & Co. and JPMorgan Chase Bank, National Association (the
Dealers) to repurchase a total of $1.5 billion of Duke Energy common stock
under an accelerated stock repurchase program (the ASR). Duke Energy made
payments of $750 million to each of the Dealers and was delivered 16.6 million
shares, with a total fair value of $1.275 billion, which represented approximately
85 percent of the total number of shares of Duke Energy common stock expected
to be repurchased under the ASR. The company recorded the $1.5 billion
payment as a reduction to common stock as of April 6, 2015. In June 2015, the
Dealers delivered 3.2 million additional shares to Duke Energy to complete the
ASR. Approximately 19.8 million shares, in total, were delivered to Duke Energy
and retired under the ASR at an average price of $75.75 per share. The final
number of shares repurchased was based upon the average of the daily volume
weighted average stock prices of Duke Energy’s common stock during the term
of the program, less a discount.
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) 19. SEVERANCE
As part of its strategic planning processes, Duke Energy implemented
targeted cost savings initiatives during 2016 and 2015 aimed at reducing
operations and maintenance expense. The initiatives included efforts to reduce
costs through the standardization of processes and systems, leveraging
technology and workforce optimization throughout the company.
During 2016, Duke Energy and Piedmont announced severance plans
covering certain eligible employees whose employment will be involuntarily
terminated without cause as a result of Duke Energy’s acquisition of Piedmont.
These reductions continue to be implemented and are a part of the synergies
expected to be realized with the acquisition. Refer to Note 2 for additional
information on the Piedmont acquisition.
Severance benefit costs for initiatives and plans discussed above were
accrued for a total of approximately 100 employees in 2017, 600 employees
in 2016 and 900 employees in 2015. The following table presents the direct
and allocated severance and related expenses recorded by the Duke Energy
Registrants. Amounts are included within Operation, maintenance and other on
the Consolidated Statements of Operations.
(in millions)
Year Ended December 31, 2017
Year Ended December 31, 2016
Year Ended December 31, 2015
Duke
Energy
Carolinas
$ 2
39
Progress
Energy
$ 2
40
Duke
Energy
Progress
1
$
23
93
36
28
Duke
Energy
$ 15
118
142
Duke
Energy
Florida
1
$
17
8
Duke
Energy
Ohio
$ —
3
2
Duke
Energy
Indiana Piedmont(a)
$ 9
$
1
7
6
(a) Piedmont severance benefit costs were $3 million for the two months ended December 31, 2016, and $19 million for the year ended October 31, 2016. Piedmont did not record any severance benefit costs for the year ended
October 31, 2015.
The table below presents the severance liability for past and ongoing severance plans including the plans described above. Amounts for Duke Energy Indiana
and Duke Energy Ohio are not material.
(in millions)
Balance at December 31, 2016
Provision/Adjustments
Cash Reductions
Balance at December 31, 2017
Duke
Energy
$
79
17
(77)
$
19
Duke
Energy
Carolinas
$ 13
2
(10)
$
5
Progress
Energy
$ 14
—
(12)
$
2
Duke
Energy
Progress
$
6
—
(5)
$
1
Duke
Energy
Florida
$
8
—
(8)
$ —
Piedmont
$ 20
9
(24)
$ 5
20. STOCK-BASED COMPENSATION
The Duke Energy Corporation 2015 Long-Term Incentive Plan (the 2015
Plan) provides for the grant of stock-based compensation awards to employees
and outside directors. The 2015 Plan reserves 10 million shares of common stock
for issuance. Duke Energy has historically issued new shares upon exercising or
vesting of share-based awards. However, Duke Energy may use a combination of
new share issuances and open market repurchases for share-based awards that
are exercised or vest in the future. Duke Energy has not determined with certainty
the amount of such new share issuances or open market repurchases.
The following table summarizes the total expense recognized by the Duke
Energy Registrants, net of tax, for stock-based compensation.
(in millions)
Duke Energy
Duke Energy Carolinas
Progress Energy
Duke Energy Progress
Duke Energy Florida
Duke Energy Ohio
Duke Energy Indiana
Piedmont(a)
Years Ended December 31,
2016
$ 35
12
12
7
5
2
3
2015
$ 38
14
14
9
5
2
4
2017
$ 43
15
16
10
6
3
4
3
(a) See discussion below for information on Piedmont’s pre-merger stock-based compensation plans.
191
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Duke Energy’s pretax stock-based compensation costs, the tax benefit
associated with stock-based compensation expense and stock-based
compensation costs capitalized are included in the following table.
(in millions)
Restricted stock unit awards
Performance awards
Pretax stock-based compensation cost
Tax benefit associated with stock-based compensation expense
Stock-based compensation costs capitalized
RESTRICTED STOCK UNIT AWARDS
Years Ended December 31,
2017
$ 41
27
$ 68
$ 25
4
2016
$ 36
19
$ 55
$ 20
2
2015
$ 38
23
$ 61
$ 23
3
Restricted stock unit (RSU) awards generally vest over periods from
immediate to three years. Fair value amounts are based on the market price of
Duke Energy’s common stock on the grant date. The following table includes
information related to restricted stock unit awards.
Shares awarded (in thousands)
Fair value (in millions)
Years Ended December 31,
2017
583
$ 47
2016
684
$ 52
2015
524
$ 41
The following table summarizes information about restricted stock unit
awards outstanding.
Outstanding at December 31, 2016
Granted
Vested
Forfeited
Outstanding at December 31, 2017
Restricted stock unit awards expected to vest
Weighted Average
Grant Date Fair
Value
(per share)
Shares
(in thousands)
1,139
583
(553)
(48)
1,121
1,094
$
76
80
76
78
78
78
The total grant date fair value of shares vested during the years ended
December 31, 2017, 2016 and 2015 was $42 million, $38 million and $41 million,
respectively. At December 31, 2017, Duke Energy had $29 million of unrecognized
compensation cost, which is expected to be recognized over a weighted average
period of twenty-three months.
PERFORMANCE AWARDS
Stock-based performance awards generally vest after three years if
performance targets are met.
Performance awards granted in 2017, 2016 and 2015 contain market
conditions based on the total shareholder return (TSR) of Duke Energy stock
relative to a predefined peer group (relative TSR). These awards are valued using
a path-dependent model that incorporates expected relative TSR into the fair value
determination of Duke Energy’s performance-based share awards. The model uses
three-year historical volatilities and correlations for all companies in the predefined
peer group, including Duke Energy, to simulate Duke Energy’s relative TSR as of the
end of the performance period. For each simulation, Duke Energy’s relative TSR
associated with the simulated stock price at the end of the performance period
plus expected dividends within the period results in a value per share for the award
portfolio. The average of these simulations is the expected portfolio value per
share. Actual life to date results of Duke Energy’s relative TSR for each grant are
incorporated within the model. For performance awards granted in 2017, the model
used a risk-free interest rate of 1.5 percent, which reflects the yield on three-year
Treasury bonds as of the grant date, and an expected volatility of 17.2 percent based
on Duke Energy’s historical volatility over three years using daily stock prices.
In addition to TSR, performance awards granted in 2017 and 2016 contain
a performance condition based on Duke Energy’s cumulative adjusted EPS.
Performance awards granted in 2017 also contain a performance condition
based on the total incident case rate, one of our key employee safety metrics.
The actual number of shares issued will range from zero to 200 percent of target
shares depending on the level of performance achieved.
The following table includes information related to stock-based
performance awards.
Shares granted assuming target performance (in thousands)
Fair value (in millions)
Years Ended December 31,
2017
461
$ 37
2016
338
$ 25
2015
321
$ 26
The following table summarizes information about stock-based
performance awards outstanding and assumes payout at the target level.
Weighted Average
Grant Date Fair
Value
(per share)
Shares
(in thousands)
Outstanding at December 31, 2016
Granted
Forfeited
Outstanding at December 31, 2017
Stock-based performance awards expected to vest
862
461
(258)
1,065
1,034
$ 75
81
69
79
79
No performance awards vested during the year ended December 31,
2017. The total grant date fair value of shares vested during the years ended
December 31, 2016 and 2015 was $25 million and $26 million, respectively. At
December 31, 2017, Duke Energy had $34 million of unrecognized compensation
cost, which is expected to be recognized over a weighted average period of
twenty-three months.
STOCK OPTIONS
Stock options, when granted, have a maximum option term of 10 years
and with an exercise price not less than the market price of Duke Energy’s
common stock on the grant date. There were no stock options granted or
exercised during the year ended December 31, 2017. There were no stock
options outstanding at December 31, 2017.
The following table summarizes additional information related to stock
options exercised and granted.
(in millions)
Intrinsic value of options exercised
Tax benefit related to options exercised
Cash received from options exercised
192
Years Ended December 31,
2016
2015
$
1
—
7
$
5
2
17
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) PIEDMONT
Prior to Duke Energy’s acquisition of Piedmont, Piedmont had an incentive
compensation plan that had a series of three-year performance and RSU
awards for eligible officers and other participants. The Agreement and Plan of
Merger (Merger Agreement) between Duke Energy and Piedmont provided for
the conversion of the 2014-2016 and 2015-2017 performance awards and the
nonvested 2016 RSU award into the right to receive $60 cash per share upon
the close of the transaction. In December 2015, Piedmont’s board of directors
authorized the accelerated vesting, payment and taxation of the 2014-2016
and 2015-2017 performance awards, as well as the 2016 RSU award, at the
election of the participant. Substantially all participants elected to accelerate
the settlement of these awards. As a result of the settlement of these awards,
194 thousand shares of Piedmont shares were issued to participants, net of
shares withheld for applicable federal and state income taxes, at a closing price
of $56.85 and a fair value of $11 million. The 2016-2018 performance award
cycle was approved subsequent to the Merger Agreement and was converted
into a Duke Energy RSU award as discussed above at the consummation of the
acquisition.
Piedmont’s stock-based compensation costs and the tax benefit
associated with stock-based compensation expense are included in the
following table. Piedmont’s stock-based compensation costs were not material
for the two months ended December 31, 2016.
(in millions)
Pretax stock-based compensation cost
Tax benefit associated with stock-based compensation expense
Net of tax stock-based compensation cost
21. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT RETIREMENT PLANS
Duke Energy and certain subsidiaries maintain, and the Subsidiary
Registrants participate in, qualified, non-contributory defined benefit retirement
plans. The Duke Energy plans cover most employees using a cash balance
formula. Under a cash balance formula, a plan participant accumulates a
retirement benefit consisting of pay credits based upon a percentage of current
eligible earnings, age or age and years of service and interest credits. Certain
employees are eligible for benefits that use a final average earnings formula.
Under these final average earnings formulas, a plan participant accumulates
a retirement benefit equal to the sum of percentages of their (i) highest three-
year, four-year, or five-year average earnings, (ii) highest three-year, four-year,
or five-year average earnings in excess of covered compensation per year of
participation (maximum of 35 years), (iii) highest three-year average earnings
times years of participation in excess of 35 years. Duke Energy also maintains,
and the Subsidiary Registrants participate in, non-qualified, non-contributory
defined benefit retirement plans that cover certain executives. The qualified
and non-qualified, non-contributory defined benefit plans are closed to new
participants.
Duke Energy approved plan amendments to restructure its qualified
non-contributory defined benefit retirement plans, effective January 1, 2018.
The restructuring involved (i) the spin-off of the majority of inactive participants
from two plans into a separate inactive plan and (ii) the merger of the active
Years Ended October 31,
2016
$ 16
6
$ 10
2015
$ 14
4
$ 10
participant portions of such plans, along with a pension plan acquired as part
of the Piedmont transaction, into a single active plan. Benefits offered to the
plan participants remain unchanged except that the Piedmont plan’s final
average earnings formula was frozen as of December 31, 2017, and affected
participants were moved into the active plan’s cash balance formula. Actuarial
gains and losses associated with the Inactive Plan will be amortized over the
remaining life expectancy of the inactive participants. The longer amortization
period is expected to lower Duke Energy’s 2018 pretax qualified pension plan
expense by approximately $33 million.
Duke Energy uses a December 31 measurement date for its defined
benefit retirement plan assets and obligations.
Net periodic benefit costs disclosed in the tables below represent the cost
of the respective benefit plan for the periods presented. However, portions of the
net periodic benefit costs disclosed in the tables below have been capitalized as
a component of property, plant and equipment. Amounts presented in the tables
below for the Subsidiary Registrants represent the amounts of pension and
other post-retirement benefit cost allocated by Duke Energy for employees of
the Subsidiary Registrants. Additionally, the Subsidiary Registrants are allocated
their proportionate share of pension and post-retirement benefit cost for
employees of Duke Energy’s shared services affiliate that provide support to the
Subsidiary Registrants. These allocated amounts are included in the governance
and shared service costs discussed in Note 13.
193
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Duke Energy’s policy is to fund amounts on an actuarial basis to provide assets sufficient to meet benefit payments to be paid to plan participants. The
following table includes information related to the Duke Energy Registrants’ contributions to its qualified defined benefit pension plans.
(in millions)
Anticipated Contributions:
Total anticipated 2018 contributions
Contributions made January 2, 2018
Contributions to be made in 2018
Contributions Made:
2017
2016
2015
Duke
Energy
Duke Energy
Carolinas
Progress
Energy
Duke Energy
Progress
Duke Energy
Florida
Duke Energy
Ohio
$ 148
141
$
7
$ 19
155
302
$ 46
46
$ —
$ —
43
91
$ 45
45
$ —
$ —
43
83
$ 25
25
$ —
$ —
24
42
$ 20
20
$ —
$ —
20
40
$ —
—
$ —
$ 4
5
8
Duke
Energy
Indiana Piedmont(a)
$
7
—
$
7
$ 11
$ 8
8
$ —
$ —
9
19
(a) Piedmont contributed $10 million to its U.S. qualified defined benefit pension plan during the two months ended December 31, 2016, and for each of the years ended October 31, 2016, and 2015, respectively.
QUALIFIED PENSION PLANS
Components of Net Periodic Pension Costs
Year Ended December 31, 2017
(in millions)
Service cost
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of actuarial loss
Amortization of prior service credit
Settlement charge
Other
Net periodic pension costs(a)(b)
Duke
Energy
Duke Energy
Carolinas
Progress
Energy
Duke Energy
Progress
Duke Energy
Florida
Duke Energy
Ohio
$ 159
328
(545)
146
(24)
12
8
$ 84
$ 48
79
(142)
31
(8)
—
2
$ 10
$
$
45
100
(167)
52
(3)
—
2
29
$ 26
47
(82)
23
(2)
—
1
$ 13
$ 19
53
(85)
29
(1)
—
1
$ 16
$
4
18
(27)
5
(1)
—
—
$ (1)
Duke
Energy
Indiana
$
$
9
26
(42)
12
(2)
—
1
4
Piedmont
$ 10
14
(24)
11
(2)
12
1
$ 22
(in millions)
Service cost
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of actuarial loss
Amortization of prior service (credit)
Settlement charge
Other
Net periodic pension costs(a)(b)
Year Ended December 31, 2016
Duke
Energy
Duke Energy
Carolinas
Progress
Energy
Duke Energy
Progress
Duke Energy
Florida
Duke Energy
Ohio
Duke Energy
Indiana
$ 147
335
(519)
134
(17)
3
8
$
91
$ 48
86
(142)
33
(8)
—
2
$ 19
$ 42
106
(168)
51
(3)
—
3
$ 31
$ 24
49
(82)
23
(2)
—
1
$ 13
$ 19
55
(84)
29
(1)
—
1
$ 19
$ 4
19
(27)
4
—
—
1
$ 1
$
9
28
(42)
11
(1)
—
1
$
6
194
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) (in millions)
Service cost
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of actuarial loss
Amortization of prior service (credit) cost
Other
Net periodic pension costs(a)(b)
Duke
Energy
Duke Energy
Carolinas
Year Ended December 31, 2015
Duke Energy
Progress
Progress
Energy
Duke Energy
Florida
$ 159
324
(516)
166
(15)
8
$ 126
$
$
50
83
(139)
39
(7)
2
28
$
$
44
104
(171)
65
(3)
3
42
$ 23
48
(79)
33
(2)
1
$ 24
$ 20
54
(87)
31
(1)
1
$ 18
Duke Energy
Ohio
Duke Energy
Indiana
$
$
4
18
(26 )
7
—
—
3
$ 10
27
(42)
13
1
1
$ 10
(a) Duke Energy amounts exclude $7 million, $8 million and $9 million for the years ended December 2017, 2016 and 2015, respectively, of regulatory asset amortization resulting from purchase accounting adjustments
associated with Duke Energy’s merger with Cinergy in April 2006.
(b) Duke Energy Ohio amounts exclude $3 million, $4 million and $4 million for the years ended December 2017, 2016 and 2015, respectively, of regulatory asset amortization resulting from purchase accounting adjustments
associated with Duke Energy’s merger with Cinergy in April 2006.
(in millions)
Service cost
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of actuarial loss
Amortization of prior service credit
Settlement charge
Net periodic pension costs
Two Months Ended
December 31, 2016
$ 2
2
(4)
2
(1)
3
$ 4
Piedmont
Years Ended October 31,
$
2016
$ 11
9
(24)
8
(2)
—
$
2
$
2015
11
12
(24)
9
(2)
—
6
Amounts Recognized in Accumulated Other Comprehensive Income and Regulatory Assets
(in millions)
Regulatory assets, net (decrease) increase
Accumulated other comprehensive loss (income)
Deferred income tax expense
Prior year service cost arising during the year
Amortization of prior year actuarial losses
Net amount recognized in accumulated other
comprehensive income
Duke Energy
Carolinas
Year Ended December 31, 2017
Duke Energy
Florida
Duke Energy
Progress
Progress
Energy
Duke Energy
Ohio
Duke Energy
Indiana
Piedmont
$ (70)
$ (49 )
$ (37)
$ (11)
$
9
$ (19)
$ (64)
—
—
—
3
—
(7 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Duke
Energy
$ (212)
$ —
1
(7)
$
(6)
$ —
$ (4 )
$ —
$ —
$ —
$ —
$ —
(in millions)
Regulatory assets, net increase
Accumulated other comprehensive (income) loss
Deferred income tax expense
Prior year service credit arising during the year
Amortization of prior year actuarial losses
Net amount recognized in accumulated other comprehensive income
Year Ended December 31, 2016
Duke Energy
Carolinas
Progress
Energy
Duke Energy
Progress
Duke Energy
Florida
Duke Energy
Ohio
Duke Energy
Indiana
$
4
$ 34
$ —
—
—
$ —
$ —
—
(1)
$ (1)
$ 18
$ —
—
—
$ —
$ 16
$ —
—
—
$ —
$
2
$ —
—
—
$ —
$
9
$ —
—
—
$ —
Duke
Energy
$ 214
$
$
4
(2)
(7)
(5)
195
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Piedmont’s regulatory asset net increase was $34 million, $35 million and $20 million for the two months ended December 31, 2016, and for the years ended
October 31, 2016, and 2015, respectively.
Reconciliation of Funded Status to Net Amount Recognized
(in millions)
Change in Projected Benefit Obligation
Obligation at prior measurement date
Service cost
Interest cost
Actuarial loss
Transfers
Plan amendments
Benefits paid
Benefits paid - settlements
Obligation at measurement date
Accumulated Benefit Obligation at measurement date
Change in Fair Value of Plan Assets
Plan assets at prior measurement date
Employer contributions
Actual return on plan assets
Benefits paid
Benefits paid - settlements
Transfers
Plan assets at measurement date
Funded status of plan
(in millions)
Change in Projected Benefit Obligation
Obligation at prior measurement date
Obligation assumed from acquisition
Service cost
Interest cost
Actuarial loss
Transfers
Plan amendments
Benefits paid
Impact of settlements
Obligation at measurement date
Accumulated Benefit Obligation at measurement date
Change in Fair Value of Plan Assets
Plan assets at prior measurement date
Assets received from acquisition
Employer contributions
Actual return on plan assets
Benefits paid
Impact of settlements
Transfers
Plan assets at measurement date
Funded status of plan
Duke
Energy
$ 8,131
159
328
455
—
(61)
(537)
(27)
$ 8,448
$ 8,369
$ 8,531
19
1,017
(537)
(27)
—
$ 9,003
$
555
Duke
Energy
$ 7,727
352
147
335
307
—
(52)
(679)
(6)
$ 8,131
$ 8,006
$ 8,136
343
155
582
(679)
(6)
—
$ 8,531
$
400
Year Ended December 31, 2017
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
$ 1,952
48
79
68
27
—
(145)
—
$ 2,029
$ 2,029
$ 2,225
—
265
(145)
—
27
$ 2,372
$
343
$ 2,512
45
100
158
(32)
—
(146)
—
$ 2,637
$ 2,601
$ 2,675
—
317
(146)
—
(32 )
$ 2,814
$
177
$ 1,158
26
47
57
(2)
—
(75)
—
$ 1,211
$ 1,211
$ 1,290
—
153
(75 )
—
(2)
$ 1,366
$
155
Duke
Energy
Florida
$ 1,323
19
53
99
(15)
—
(69)
—
$ 1,410
$ 1,375
$ 1,352
—
161
(69)
—
(15)
$ 1,429
$
19
Duke
Energy
Ohio
$ 447
4
18
35
12
(37)
—
$ 479
$ 468
$ 428
4
51
(37)
—
12
$ 458
$ (21)
Year Ended December 31, 2016
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
$ 2,451
—
42
106
111
(3)
—
(195)
—
$ 2,512
$ 2,479
$ 2,640
—
43
190
(195)
—
(3)
$ 2,675
$
163
$ 1,143
—
24
49
52
(3)
—
(107)
—
$ 1,158
$ 1,158
$ 1,284
—
24
92
(107)
—
(3)
$ 1,290
$
132
$ 1,995
—
48
86
46
14
(3)
(234)
—
$ 1,952
$ 1,952
$ 2,243
—
43
159
(234)
—
14
$ 2,225
$
273
196
Duke
Energy
Florida
$ 1,276
—
19
55
57
—
—
(84)
—
$ 1,323
$ 1,290
$ 1,321
—
20
95
(84)
—
—
$ 1,352
$
29
Duke
Energy
Indiana
Piedmont
$ 658
9
26
26
—
—
(50)
—
$ 669
$ 652
$ 657
—
77
(50)
—
—
$ 684
$
15
$ 344
10
14
38
—
(61)
(5)
(27)
$ 313
$ 313
$ 346
11
43
(5)
(27)
—
$ 368
$
55
Duke
Energy
Ohio
Duke
Energy
Indiana
$ 453
—
4
19
13
(3 )
(3 )
(36 )
—
$ 447
$ 436
$ 433
—
5
29
(36)
—
(3)
$ 428
$ (19)
$ 649
—
9
28
41
—
(15)
(54)
—
$ 658
$ 649
$ 655
—
9
47
(54)
—
—
$ 657
$
(1)
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) (in millions)
Change in Projected Benefit Obligation
Obligation at prior measurement date
Service cost
Interest cost
Actuarial gain
Benefits paid
Impact of settlements
Obligation at measurement date
Accumulated Benefit Obligation at measurement date
Change in Fair Value of Plan Assets
Plan assets at prior measurement date
Employer contributions
Actual return on plan assets
Benefits paid
Impact of settlements
Plan assets at measurement date
Funded status of plan
Amounts Recognized in the Consolidated Balance Sheets
Piedmont
Two Months Ended
December 31, 2016
Years Ended
October 31, 2016
$ 352
2
2
(5)
(1)
(6)
$ 344
$ 289
$ 343
10
—
(1)
(6)
$ 346
$
2
$ 312
11
9
34
(14)
—
$ 352
$ 296
$ 329
10
18
(14)
—
$ 343
$
(9)
(in millions)
Prefunded pension(a)
Noncurrent pension liability(b)
Net asset (liability) recognized
Regulatory assets
Accumulated other comprehensive (income) loss
Deferred income tax benefit
Prior service credit
Net actuarial loss
Net amounts recognized in accumulated other comprehensive loss
Amounts to be recognized in net periodic pension costs in the
next year
Unrecognized net actuarial loss
Unrecognized prior service credit
Duke
Energy
$
$
$
680
125
555
$ 1,886
$
$
$
(41)
(5)
116
70
132
(32)
Duke
Energy
Carolinas
Progress
Energy
December 31, 2017
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
$ 343
$ —
$ 343
$ 406
$ —
—
—
$ —
$ 245
$ 68
$ 177
$ 756
$
$
(3)
—
9
6
$ 155
$ —
$ 155
$ 341
$ —
—
—
$ —
$ 87
$ 68
$ 19
$ 415
$ —
—
—
$ —
$
8
$ 29
$ (21)
$ 90
$ —
—
—
$ —
$
$
$
16
1
15
$ 152
$ —
—
—
$ —
$ 55
$ —
$ 55
$ 73
$ —
—
—
$ —
$
29
(8)
$ 44
(3)
$
21
(2 )
$ 23
(1)
$
5
—
$
7
(2)
$ 11
(9)
197
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) (in millions)
Prefunded pension(a)
Noncurrent pension liability(b)
Net asset recognized
Regulatory assets
Accumulated other comprehensive (income) loss
Deferred income tax benefit
Prior service credit
Net actuarial loss
Net amounts recognized in accumulated other
comprehensive loss
Amounts to be recognized in net periodic pension costs in
the next year
Unrecognized net actuarial loss
Unrecognized prior service credit
December 31, 2016
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
$ 273
$ —
$ 273
$ 476
$ —
—
—
$ 225
$ 62
$ 163
$ 805
$
(6 )
—
16
$ 132
$ —
$ 132
$ 378
$ —
—
—
Duke
Energy
Florida
$ 91
$ 62
$ 29
$ 426
$ —
—
—
$ —
$ 10
$ —
$ —
$
$
31
(8 )
$ 52
(3)
$
$ 23
$ (2)
$ 29
(1)
$
Duke
Energy
518
$
118
$
$
400
$ 2,098
$
$
$
$
(41)
(6)
123
76
147
(24)
(a)
(b)
Included in Other within Other Noncurrent Assets on the Consolidated Balance Sheets.
Included in Accrued pension and other post-retirement benefit costs on the Consolidated Balance Sheets.
Information for Plans with Accumulated Benefit Obligation in Excess of Plan Assets
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
$
6
$ 25
$ (19)
$ 81
$ —
—
—
$ —
$
5
$ —
$ —
$
1
$ (1)
$ 171
$ —
—
—
$ —
$
8
$ (2)
(in millions)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
(in millions)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
December 31, 2017
Duke
Energy
$ 1,386
1,326
1,260
Progress
Energy
$ 718
683
650
Duke
Energy
Florida
$ 718
683
650
December 31, 2016
Duke
Energy
$ 1,299
1,239
1,182
Progress
Energy
$ 665
633
604
Duke
Energy
Florida
$ 665
633
604
3
—
$
3
$ 137
$ —
—
—
$ —
$ 13
$ (2)
Duke
Energy
Ohio
$ 337
326
308
Duke
Energy
Ohio
$ 311
299
286
Assumptions Used for Pension Benefits Accounting
The discount rate used to determine the current year pension obligation and following year’s pension expense is based on a bond selection-settlement portfolio
approach. This approach develops a discount rate by selecting a portfolio of high quality corporate bonds that generate sufficient cash flow to provide for projected
benefit payments of the plan. The selected bond portfolio is derived from a universe of non-callable corporate bonds rated Aa quality or higher. After the bond portfolio
is selected, a single interest rate is determined that equates the present value of the plan’s projected benefit payments discounted at this rate with the market value
of the bonds selected.
The average remaining service period of active covered employees is 13 years for Duke Energy and Duke Energy Progress, 12 years for Duke Energy Carolinas,
Progress Energy, and Duke Energy Florida, 14 years for Duke Energy Ohio and Duke Energy Indiana, and nine years for Piedmont.
198
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) The following tables present the assumptions or range of assumptions used for pension benefit accounting.
Benefit Obligations
Discount rate
Salary increase
Net Periodic Benefit Cost
Discount rate
Salary increase
Expected long-term rate of return on plan assets
Benefit Obligations
Discount rate
Salary increase
Net Periodic Benefit Cost
Discount rate
Salary increase
Expected long-term rate of return on plan assets
Expected Benefit Payments
(in millions)
Years ending December 31,
2018
2019
2020
2021
2022
2023-2027
NON-QUALIFIED PENSION PLANS
Components of Net Periodic Pension Costs
(in millions)
Service cost
Interest cost on projected benefit obligation
Amortization of actuarial loss
Amortization of prior service credit
Net periodic pension costs
$
$
$
2017
December 31,
2016
2015
3.60%
3.50% – 4.00%
4.10%
4.00% – 4.50%
4.40%
4.00% – 4.40%
4.10%
4.00% – 4.50%
6.50% – 6.75%
4.40%
4.00% – 4.40%
6.50% – 6.75%
4.10%
4.00% – 4.40%
6.50%
Piedmont
Two Months Ended
Years Ended October 31,
December 31, 2016
2016
2015
4.10%
4.50%
3.80%
4.05%
6.75%
3.80%
4.05%
4.34%
4.07%
7.25%
4.34%
4.07%
4.13%
3.68%
7.50%
Duke
Energy
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
642 $
644
661
666
672
3,099
185 $
185
195
194
197
865
161 $
164
172
175
176
888
85 $
86
90
93
92
449
75 $
77
80
81
83
435
36 $
36
36
37
36
166
47 $
46
44
44
44
210
29
26
24
24
23
103
Year Ended December 31, 2017
Duke
Energy
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
2 $
13
8
(2)
21 $
1 $
1
—
—
2 $
— $
5
2
—
7 $
— $
1
1
—
2 $
— $
2
1
—
3 $
— $
—
—
—
— $
— $
—
—
—
— $
—
—
—
—
—
199
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) (in millions)
Service cost
Interest cost on projected benefit obligation
Amortization of actuarial loss
Amortization of prior service credit
Net periodic pension costs
(in millions)
Service cost
Interest cost on projected benefit obligation
Amortization of actuarial loss
Amortization of prior service credit
Net periodic pension costs
(in millions)
Amortization of prior service cost
Settlement charge
Net periodic pension costs
$
$
$
$
Year Ended December 31, 2016
Duke
Energy
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
2 $
14
8
(1)
23 $
— $
1
1
—
2 $
— $
5
1
—
6 $
— $
1
1
—
2 $
— $
2
1
—
3 $
— $
—
—
—
— $
—
—
—
—
—
Year Ended December 31, 2015
Duke
Energy
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
3 $
13
6
(1)
21 $
— $
1
—
—
1 $
$
1
4
2
(1 )
6
$
— $
1
1
—
2 $
— $
2
2
—
4
$
— $
—
—
—
— $
Piedmont
Years Ended October 31,
$
$
2016
— $
1
1 $
—
—
1
—
1
2015
1
—
1
Amounts Recognized in Accumulated Other Comprehensive Income and Regulatory Assets and Liabilities
(in millions)
Regulatory assets, net (decrease) increase
Accumulated other comprehensive (income) loss
Deferred income tax benefit
Actuarial loss arising during the year
Net amount recognized in accumulated other
comprehensive loss (income)
$
$
$
Year Ended December 31, 2017
Duke
Energy
Carolinas
$
(1) $
Progress
Energy
3
Duke
Energy
Progress
1
$
Duke
Energy
5
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
$
2 $
— $
— $
Piedmont
—
(1) $
2
— $
—
— $
—
— $
—
— $
—
— $
—
— $
—
1
$
— $
— $
— $
— $
— $
— $
—
—
—
200
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) (in millions)
Regulatory assets, net (decrease) increase
Accumulated other comprehensive (income) loss
Prior service credit arising during the year
Actuarial gains arising during the year
Net amount recognized in accumulated other comprehensive loss (income)
Reconciliation of Funded Status to Net Amount Recognized
(in millions)
Change in Projected Benefit Obligation
Obligation at prior measurement date
Service cost
Interest cost
Actuarial losses (gains)
Benefits paid
Obligation at measurement date
Accumulated Benefit Obligation at measurement date
Change in Fair Value of Plan Assets
Benefits paid
Employer contributions
Plan assets at measurement date
(in millions)
Change in Projected Benefit Obligation
Obligation at prior measurement date
Obligation assumed from acquisition
Service cost
Interest cost
Actuarial losses (gains)
Plan amendments
Benefits paid
Obligation at measurement date
Accumulated Benefit Obligation at measurement date
Change in Fair Value of Plan Assets
Benefits paid
Employer contributions
Plan assets at measurement date
Year Ended December 31, 2016
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
$
$
$
$
$
(3)
(1)
1
— $
(2) $
2
$
1
$
1
$
— $
(1)
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
—
—
—
Year Ended December 31, 2017
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana Piedmont
$
$
$
$
$
332 $
2
13
15
(31)
331 $
331 $
(31) $
31
— $
14 $
1
1
—
(2)
14 $
14 $
(2) $
2
— $
114 $
—
5
5
(8)
116 $
116 $
(8) $
8
— $
33 $
—
1
4
(3)
35 $
35 $
(3) $
3
— $
46 $
—
2
2
(3)
47 $
47 $
(3) $
3
— $
4 $
3 $
—
—
—
—
4 $
4 $
— $
—
— $
—
—
—
—
3 $
3 $
— $
—
— $
4
—
—
—
—
4
4
—
—
—
Year Ended December 31, 2016
Duke
Energy
Energy Carolinas
Duke
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
$
$
$
$
$
341 $
5
2
14
4
(2)
(32)
332 $
332 $
(32) $
32
— $
16 $
—
—
1
(1)
—
(2)
14 $
14 $
(2) $
2
— $
112 $
—
—
5
5
—
(8)
114 $
114 $
(8) $
8
— $
33 $
—
—
1
2
—
(3)
33 $
33 $
(3) $
3
— $
46 $
—
—
2
1
—
(3)
46 $
46 $
(3)
3
— $
4 $
—
—
—
—
—
—
4 $
4 $
—
—
— $
5
—
—
—
(2)
—
3
3
—
—
—
201
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) (in millions)
Change in Projected Benefit Obligation
Obligation at prior measurement date
Actuarial gain
Impact of settlements
Obligation at measurement date
Accumulated Benefit Obligation at measurement date
Change in Fair Value of Plan Assets
Plan assets at prior measurement date
Impact of settlements
Plan assets at measurement date
Amounts Recognized in the Consolidated Balance Sheets
Piedmont
Two Months Ended
Years Ended
December 31, 2016
October 31, 2016
$
$
$
$
$
5
(1)
—
4
$
$
— $
— $
—
— $
6
—
(1)
5
5
1
(1)
—
(in millions)
Current pension liability(a)
Noncurrent pension liability(b)
Total accrued pension liability
Regulatory assets
Accumulated other comprehensive (income) loss
Deferred income tax benefit
Prior service credit
Net actuarial loss
Net amounts recognized in accumulated other comprehensive loss
Amounts to be recognized in net periodic pension
expense in the next year
Unrecognized net actuarial loss
Unrecognized prior service credit
(in millions)
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
December 31, 2017
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
$
$
$
$
$
$
23 $
308
331 $
78 $
(4) $
(1)
12
7 $
8 $
(2)
2 $
12
14 $
4 $
— $
—
—
— $
— $
—
8 $
108
116 $
21 $
(3) $
—
9
6 $
2 $
—
3 $
32
35 $
8 $
— $
—
—
— $
1 $
—
3 $
44
47 $
13 $
— $
—
—
— $
1 $
—
— $
4
4 $
1 $
— $
—
—
— $
— $
—
— $
3
3 $
— $
— $
—
—
— $
— $
—
—
4
4
1
—
—
—
—
—
—
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
December 31, 2016
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
Current pension liability(a)
Noncurrent pension liability(b)
Total accrued pension liability
Regulatory assets
Accumulated other comprehensive (income) loss
Deferred income tax benefit
Prior service credit
Net actuarial loss
Net amounts recognized in accumulated other comprehensive loss
Amounts to be recognized in net periodic pension expense in the next year
Unrecognized net actuarial loss
Unrecognized prior service credit
$
$
$
$
$
$
$
28 $
304
332 $
73 $
(3) $
(1)
10
6 $
7 $
(2) $
(a)
(b)
Included in Other within Current Liabilities on the Consolidated Balance Sheets.
Included in Accrued pension and other post-retirement benefit costs on the Consolidated Balance Sheets.
202
2 $
12
14 $
5 $
— $
—
—
— $
— $
— $
8 $
106
114 $
18 $
(3) $
—
9
6 $
2 $
— $
2 $
31
33 $
7 $
— $
—
—
— $
1 $
— $
3 $
43
46 $
11 $
— $
—
—
— $
1 $
— $
— $
4
4 $
1 $
— $
—
—
— $
— $
— $
— $
3
3 $
— $
— $
—
—
— $
— $
— $
—
4
4
1
—
—
—
—
—
—
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Information for Plans with Accumulated Benefit Obligation in Excess of Plan Assets
(in millions)
Projected benefit obligation
Accumulated benefit obligation
(in millions)
Projected benefit obligation
Accumulated benefit obligation
Duke
Energy
Carolinas
Progress
Energy
December 31, 2017
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
14 $
14
116 $
116
35 $
35
47 $
47
4 $
4
3 $
3
Duke
Energy
Carolinas
Progress
Energy
December 31, 2016
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
14 $
14
114 $
114
33 $
33
46 $
46
4 $
4
3 $
3
Piedmont
4
4
Piedmont
4
4
Duke
Energy
331 $
331
Duke
Energy
332 $
332
$
$
Assumptions Used for Pension Benefits Accounting
The discount rate used to determine the current year pension obligation and following year’s pension expense is based on a bond selection-settlement portfolio
approach. This approach develops a discount rate by selecting a portfolio of high quality corporate bonds that generate sufficient cash flow to provide for projected
benefit payments of the plan. The selected bond portfolio is derived from a universe of non-callable corporate bonds rated Aa quality or higher. After the bond portfolio
is selected, a single interest rate is determined that equates the present value of the plan’s projected benefit payments discounted at this rate with the market value
of the bonds selected.
The average remaining service period of active covered employees is 11 years for Duke Energy and Duke Energy Progress, 14 years for Progress Energy, 15
years for Duke Energy Florida, eight years for Duke Energy Carolinas, Duke Energy Ohio, and Duke Energy Indiana, and nine years for Piedmont. The following tables
present the assumptions used for pension benefit accounting.
Benefit Obligations
Discount rate
Salary increase
Net Periodic Benefit Cost
Discount rate
Salary increase
Benefit Obligations
Discount rate
Net Periodic Benefit Cost
Discount rate
December 31,
2017
2016
2015
3.60%
3.50% – 4.00%
4.10%
4.40%
4.10%
4.40%
4.40%
4.40%
4.40%
4.40%
4.10%
4.40%
Piedmont
Two Months Ended
December 31, 2016
Years Ended October 31,
2015
2016
4.10%
3.80%
3.85%
3.80%
3.85 %
3.69%
203
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Expected Benefit Payments
(in millions)
Years ending December 31,
2018
2019
2020
2021
2022
2023-2027
Duke
Energy
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
$
23 $
21
21
22
25
117
2 $
1
1
1
1
6
8 $
8
8
8
8
36
3 $
2
2
2
2
11
3 $
3
3
3
3
15
— $
—
—
—
—
1
— $
—
—
—
—
1
—
—
—
—
—
2
OTHER POST-RETIREMENT BENEFIT PLANS
Duke Energy provides, and the Subsidiary Registrants participate in, some health care and life insurance benefits for retired employees on a contributory and
non-contributory basis. Employees are eligible for these benefits if they have met age and service requirements at retirement, as defined in the plans. The health care
benefits include medical, dental and prescription drug coverage and are subject to certain limitations, such as deductibles and copayments.
Duke Energy did not make any pre-funding contributions to its other post-retirement benefit plans during the years ended December 31, 2017, 2016 or 2015.
Components of Net Periodic Other Post-Retirement Benefit Costs
(in millions)
Service cost
Interest cost on accumulated post-retirement
benefit obligation
Expected return on plan assets
Amortization of actuarial loss (gain)
Amortization of prior service credit
Curtailment credit (c)
Net periodic post-retirement benefit costs(a)(b)
(in millions)
Service cost
Interest cost on accumulated post-retirement
benefit obligation
Expected return on plan assets
Amortization of actuarial loss (gain)
Amortization of prior service credit
Year Ended December 31, 2017
Duke
Energy
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
$
4
$
1
$
— $
— $
— $
— $
— $
34
(14)
10
(115)
(30) $
(111) $
$
$
8
(8)
(2)
(10)
(4) $
(15) $
13
—
21
(84)
(16) $
(66) $
7
—
12
(54)
— $
(35) $
6
—
9
(30)
(16) $
(31) $
1
—
(2)
—
(2) $
(3) $
3
(1)
(1)
(1)
(2) $
(2) $
Year Ended December 31, 2016
Duke
Energy
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
$
3
$
1
$
1
$
— $
1
$
— $
35
(12)
6
(141)
8
(8)
(3)
(14)
15
—
22
(103)
8
—
13
(68)
7
—
9
(35)
1
—
(2)
—
1
1
(2)
1
—
—
1
Duke
Energy
Indiana
—
4
(1)
(1)
(1)
1
Net periodic post-retirement benefit costs(a)(b)
$
(109) $
(16) $
(65) $
(47) $
(18) $
(1) $
204
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) (in millions)
Service cost
Interest cost on accumulated post-retirement benefit obligation
Expected return on plan assets
Amortization of actuarial loss (gain)
Amortization of prior service credit
Net periodic post-retirement benefit costs(a)(b)
$
$
Year Ended December 31, 2015
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
$
1
9
(8)
(2)
(14)
$
1
15
—
28
(102)
$
1
8
—
18
(68)
$
1
7
—
10
(35)
(95) $
(14) $
(58) $
(41) $
(17) $
— $
2
(1)
(2)
—
(1) $
1
4
(1)
(2)
—
2
$
Duke
Energy
6
36
(13)
16
(140)
(a) Duke Energy amounts exclude $7 million, $8 million and $10 million for the years ended December 2017, 2016 and 2015, respectively, of regulatory asset amortization resulting from purchase accounting adjustments
associated with Duke Energy’s merger with Cinergy in April 2006.
(b) Duke Energy Ohio amounts exclude $2 million, $2 million and $3 million for the years ended December 2017, 2016 and 2015, respectively, of regulatory asset amortization resulting from purchase accounting adjustments
associated with Duke Energy’s merger with Cinergy in April 2006.
(c) Curtailment credit resulted from a reduction in average future service of plan participants due to a plan amendment.
(in millions)
Service cost
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of actuarial loss
Net periodic pension costs
Amounts Recognized in Accumulated Other Comprehensive Income and Regulatory Assets and Liabilities
Piedmont
Years Ended October 31,
2016
1 $
1
(2)
1
1 $
2015
1
2
(2)
—
1
$
$
(in millions)
Regulatory assets, net increase (decrease)
Regulatory liabilities, net increase (decrease)
Accumulated other comprehensive (income) loss
Deferred income tax benefit
Amortization of prior year prior service credit
Net amount recognized in accumulated other
comprehensive income
(in millions)
Regulatory assets, net increase (decrease)
Regulatory liabilities, net increase (decrease)
Accumulated other comprehensive (income) loss
Deferred income tax benefit
Actuarial losses arising during the year
Amortization of prior year prior service credit
Net amount recognized in accumulated other
comprehensive income
$
$
$
$
$
$
$
$
Year Ended December 31, 2017
Duke
Energy
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
71
$
(27) $
(1) $
3
— $
(2) $
— $
—
81
$
— $
— $
—
42
$
— $
— $
—
39
$
— $
— $
—
— $
(3) $
— $
—
(5) $
(7) $
— $
—
2
$
— $
— $
— $
— $
— $
— $
(11)
—
—
—
—
Year Ended December 31, 2016
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
— $
(22) $
— $
—
—
47
$
(51) $
— $
—
1
38
$
(25) $
— $
—
—
9
$
(26) $
— $
—
—
— $
(2) $
— $
—
—
Duke
Energy
53
$
(114) $
(2) $
3
1
2
$
— $
1
$
— $
— $
— $
(6)
(12)
—
—
—
—
Piedmont’s regulatory assets net decreased $1 million for the two months ended December 31, 2016, and increased $2 million and $1 million for the years
ended October 31, 2016, and 2015, respectively.
205
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Reconciliation of Funded Status to Accrued Other Post-Retirement Benefit Costs
(in millions)
Change in Projected Benefit Obligation
Accumulated post-retirement benefit obligation
at prior measurement date
Service cost
Interest cost
Plan participants’ contributions
Actuarial (gains) losses
Transfers
Plan amendments
Benefits paid
Accumulated post-retirement benefit obligation
at measurement date
Change in Fair Value of Plan Assets
Plan assets at prior measurement date
Actual return on plan assets
Benefits paid
Employer contributions (reimbursements)
Plan participants’ contributions
Plan assets at measurement date
$
$
$
$
(in millions)
Change in Projected Benefit Obligation
Accumulated post-retirement benefit obligation
at prior measurement date
Obligation assumed from acquisition
Service cost
Interest cost
Plan participants’ contributions
Actuarial (gains) losses
Transfers
Plan amendments
Benefits paid
Accumulated post-retirement benefit obligation
at measurement date
Change in Fair Value of Plan Assets
Plan assets at prior measurement date
Assets received from acquisition
Actual return on plan assets
Benefits paid
Employer contributions
Plan participants’ contributions
Plan assets at measurement date
Year Ended December 31, 2017
Duke
Energy
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
$
$
$
868
4
34
17
4
—
(28)
(86)
813
244
25
(86)
25
17
$
$
$
201
1
8
3
(3)
2
(5)
(18)
189
137
15
(18)
(4)
3
$
$
$
357
—
13
6
4
(1)
(3)
(34)
342
1
1
(34)
26
6
225
$
133
$
— $
$
191
—
7
3
1
—
(1)
(17)
$
164
—
6
3
3
(1)
(2)
(17)
32
—
1
1
—
1
(2)
(3)
184
$
156
$
30
7
2
(3)
—
1
— $
—
(17)
14
3
— $
— $
—
(17)
14
3
— $
Year Ended December 31, 2016
$
$
$
$
$
$
83
—
3
2
3
—
(2)
(11)
78
22
1
(11)
(3)
2
7
$
11
$
Duke
Energy
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
$
354
—
1
15
7
16
—
—
(36)
$
188
—
—
8
4
8
—
—
(17)
164
—
1
7
3
8
—
—
(19)
357
$
191
$
164
— $
—
1
(36)
29
7
1
$
— $
—
—
(17)
13
4
— $
1
—
—
(19)
15
3
$
$
$
$
$
$
35
—
—
1
1
—
—
(1)
(4)
32
8
—
1
(4)
1
1
— $
7
$
$
$
$
$
$
$
$
828
39
3
35
19
33
—
(1)
(88)
868
208
29
14
(88)
62
19
$
$
$
200
—
1
8
3
5
1
—
(17)
201
134
—
8
(17)
9
3
244
$
137
$
206
39
1
1
—
1
—
(9)
(1)
32
29
3
(1)
—
—
31
87
—
—
4
2
3
—
—
(13)
83
19
—
2
(13)
12
2
22
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) (in millions)
Change in Projected Benefit Obligation
Accumulated post-retirement benefit obligation at prior measurement date
Service cost
Interest cost
Actuarial gain
Benefits paid
Accumulated post-retirement benefit obligation at measurement date
Change in Fair Value of Plan Assets
Plan assets at prior measurement date
Employer contributions
Actual return on plan assets
Benefits paid
Plan assets at measurement date
Amounts Recognized in the Consolidated Balance Sheets
Piedmont
Two Months Ended
December 31, 2016
Years Ended
October 31, 2016
39
—
—
—
—
39
29
—
—
—
29
$
$
$
$
38
1
1
2
(3)
39
28
3
1
(3)
29
$
$
$
$
(in millions)
Current post-retirement liability(a)
Noncurrent post-retirement liability(b)
Total accrued post-retirement liability
Regulatory assets
Regulatory liabilities
Accumulated other comprehensive (income) loss
Deferred income tax expense
Prior service credit
Net actuarial gain
Net amounts recognized in accumulated
other comprehensive income
Amounts to be recognized in net periodic pension
expense in the next year
Unrecognized net actuarial loss
Unrecognized prior service credit
$
$
$
$
$
$
$
December 31, 2017
Duke
Energy
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
$
$
$
$
$
36
552
588
125
147
4
(2)
(10)
— $
56
56
$
— $
44
$
— $
—
—
29
313
342
129
$
$
$
15
169
184
80
$
$
$
14
142
156
49
$
$
$
— $
— $
— $
— $
—
—
— $
—
—
— $
—
—
2
21
23
$
$
— $
16
$
— $
—
—
— $
67
67
$
46
64
$
$
— $
—
—
(8) $
— $
— $
— $
— $
— $
— $
5
$
(19)
3
$
(5)
1
$
(7)
— $
(1)
1
$
— $
— $
(6 )
(1)
(1)
—
1
1
(4)
—
—
—
—
—
—
(2)
207
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) (in millions)
Current post-retirement liability(a)
Noncurrent post-retirement liability(b)
Total accrued post-retirement liability
Regulatory assets
Regulatory liabilities
Accumulated other comprehensive
(income) loss
Deferred income tax expense
Prior service credit
Net actuarial gain
Net amounts recognized in accumulated
other comprehensive income
Amounts to be recognized in net periodic
pension expense in the next year
Unrecognized net actuarial loss (gain)
Unrecognized prior service credit
$
$
$
$
$
$
$
Duke
Energy
Duke
Energy
Carolinas
Progress
Energy
December 31, 2016
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
$
$
$
$
$
38
586
624
54
174
5
(5)
(10)
— $
64
64
$
— $
46
$
— $
—
—
31
325
356
48
$
$
$
17
174
191
38
$
$
$
15
149
164
10
$
$
$
— $
— $
— $
— $
—
—
— $
—
—
— $
—
—
2
23
25
$
$
— $
19
$
— $
—
—
— $
63
63
51
71
$
$
$
— $
—
—
(10) $
— $
— $
— $
— $
— $
— $
$
10
(115)
(2) $
(10)
$
21
(85)
$
12
(55)
$
9
(30)
(2) $
—
(6) $
(1)
—
10
10
7
—
—
—
—
—
—
—
(a)
(b)
Included in Other within Current Liabilities on the Consolidated Balance Sheets.
Included in Accrued pension and other post-retirement benefit costs on the Consolidated Balance Sheets.
Assumptions Used for Other Post-Retirement Benefits Accounting
The discount rate used to determine the current year other post-retirement benefits obligation and following year’s other post-retirement benefits expense is
based on a bond selection-settlement portfolio approach. This approach develops a discount rate by selecting a portfolio of high quality corporate bonds that generate
sufficient cash flow to provide for projected benefit payments of the plan. The selected bond portfolio is derived from a universe of non-callable corporate bonds rated
Aa quality or higher. After the bond portfolio is selected, a single interest rate is determined that equates the present value of the plan’s projected benefit payments
discounted at this rate with the market value of the bonds selected. The average remaining service period of active covered employees is nine years for Duke Energy,
eight years for Duke Energy Carolinas, seven years for Duke Energy Florida, Duke Energy Ohio, and Piedmont, and six years for Progress Energy, Duke Energy Progress,
and Duke Energy Indiana.
The following tables present the assumptions used for other post-retirement benefits accounting.
Benefit Obligations
Discount rate
Net Periodic Benefit Cost
Discount rate
Expected long-term rate of return on plan assets
Assumed tax rate
December 31,
2017
2016
2015
3.60%
4.10%
4.40%
4.10%
6.50%
35%
4.40%
6.50%
35 %
4.10%
6.50%
35%
208
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Benefit Obligations
Discount rate
Net Periodic Benefit Cost
Discount rate
Expected long-term rate of return on plan assets
Assumed Health Care Cost Trend Rate
Health care cost trend rate assumed for next year
Rate to which the cost trend is assumed to decline (the ultimate trend rate)
Year that rate reaches ultimate trend
Sensitivity to Changes in Assumed Health Care Cost Trend Rates
Piedmont
Two Months Ended
Years Ended October 31,
December 31, 2016
2016
2015
4.10%
3.80%
4.38%
3.80%
6.75%
4.38%
7.25%
4.03%
7.50%
December 31,
2017
7.00%
4.75%
2024
2016
7.00%
4.75%
2023
(in millions)
1-Percentage Point Increase
Effect on total service and interest costs
Effect on post-retirement benefit obligation
1-Percentage Point Decrease
Effect on total service and interest costs
Effect on post-retirement benefit obligation
Expected Benefit Payments
(in millions)
Years ending December 31,
2018
2019
2020
2021
2022
2023 – 2027
$
$
Year Ended December 31, 2017
Duke
Energy
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
1 $
27
(1)
(24)
— $
6
—
(6)
1 $
11
—
(10)
1 $
6
—
(5 )
— $
5
—
(5)
— $
1
—
(1)
— $
3
—
(2)
—
1
—
(1)
Duke
Energy
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
78 $
76
73
71
68
290
17 $
17
17
17
17
70
30 $
29
29
28
27
117
16 $
15
15
15
14
63
14 $
14
14
13
13
54
3 $
3
3
3
3
12
9 $
9
8
7
7
29
2
2
2
3
3
13
209
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) PLAN ASSETS
Description and Allocations
Duke Energy Master Retirement Trust
Assets for both the qualified pension and other post-retirement benefits
are maintained in the Duke Energy Master Retirement Trust. Qualified pension
and other post-retirement assets related to Piedmont were transferred into the
Duke Energy Master Retirement Trust during 2017. Approximately 98 percent
of the Duke Energy Master Retirement Trust assets were allocated to qualified
pension plans and approximately 2 percent were allocated to other post-
retirement plans (comprised of 401(h) accounts), as of December 31, 2017,
and 2016. The investment objective of the Duke Energy Master Retirement Trust
is to achieve reasonable returns, subject to a prudent level of portfolio risk, for
the purpose of enhancing the security of benefits for plan participants.
As of December 31, 2017, Duke Energy assumes pension and other
post-retirement plan assets will generate a long-term rate of return of 6.50
percent. The expected long-term rate of return was developed using a weighted
average calculation of expected returns based primarily on future expected
returns across asset classes considering the use of active asset managers,
where applicable. The asset allocation targets were set after considering the
investment objective and the risk profile. Equity securities are held for their
higher expected returns. Debt securities are primarily held to hedge the qualified
pension plan liability. Hedge funds, real estate and other global securities
are held for diversification. Investments within asset classes are diversified
to achieve broad market participation and reduce the impact of individual
managers or investments.
In 2013, Duke Energy adopted a de-risking investment strategy for the
Duke Energy Master Retirement Trust. As the funded status of the pension
plans increase, the targeted allocation to fixed-income assets may be
increased to better manage Duke Energy’s pension liability and reduce funded
status volatility. Duke Energy regularly reviews its actual asset allocation
and periodically rebalances its investments to the targeted allocation when
considered appropriate.
The Duke Energy Master Retirement Trust is authorized to engage in the
lending of certain plan assets. Securities lending is an investment management
enhancement that utilizes certain existing securities of the Duke Energy Master
Retirement Trust to earn additional income. Securities lending involves the
loaning of securities to approved parties. In return for the loaned securities, the
Duke Energy Master Retirement Trust receives collateral in the form of cash and
securities as a safeguard against possible default of any borrower on the return
of the loan under terms that permit the Duke Energy Master Retirement Trust
to sell the securities. The Duke Energy Master Retirement Trust mitigates credit
risk associated with securities lending arrangements by monitoring the fair
value of the securities loaned, with additional collateral obtained or refunded as
necessary. The fair value of securities on loan was approximately $195 million
and $156 million at December 31, 2017, and 2016, respectively. Cash and
securities obtained as collateral exceeded the fair value of the securities loaned
at December 31, 2017, and 2016, respectively. Securities lending income
earned by the Duke Energy Master Retirement Trust was immaterial for the years
ended December 31, 2017, 2016 and 2015, respectively.
Qualified pension and other post-retirement benefits for the Subsidiary
Registrants are derived from the Duke Energy Master Retirement Trust, as such,
each are allocated their proportionate share of the assets discussed below.
The following table includes the target asset allocations by asset class at December 31, 2017, and the actual asset allocations for the Duke Energy Master
Retirement Trust.
U.S. equity securities
Non-U.S. equity securities
Global equity securities
Global private equity securities
Debt securities
Hedge funds
Real estate and cash
Other global securities
Total
Target
Allocation
10%
8%
10%
3%
63%
2%
2%
2%
100%
Actual Allocation at December 31,
2017
11%
8%
10%
2%
63%
2%
2%
2%
100%
2016(a)
11%
8%
10%
2%
63%
2%
2%
2%
100%
(a) Excludes Piedmont Pension Assets, which had a targeted asset allocation of 60 percent return-seeking and 40 percent liability hedging fixed-income. Actual asset allocations were 61 percent return-seeking and 39 percent
liability hedging fixed-income at December 31, 2016.
210
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Other post-retirement assets
Duke Energy’s other post-retirement assets are comprised of Voluntary Employees’ Beneficiary Association (VEBA) trusts and 401(h) accounts held within the
Duke Energy Master Retirement Trust. Duke Energy’s investment objective is to achieve sufficient returns, subject to a prudent level of portfolio risk, for the purpose of
promoting the security of plan benefits for participants.
The following table presents target and actual asset allocations for the VEBA trusts at December 31, 2017.
U.S. equity securities
Non-US equity securities
Real estate
Debt securities
Cash
Total
Target
Allocation
32%
6%
2%
45%
15%
100%
Actual Allocation at December 31,
2017
41%
8%
2%
36%
13%
100%
2016
39%
—%
2%
37%
22%
100%
Fair Value Measurements
Investments in real estate limited partnerships
Duke Energy classifies recurring and non-recurring fair value
measurements based on the fair value hierarchy as discussed in Note 16.
Valuation methods of the primary fair value measurements disclosed
below are as follows:
Investments in equity securities
Investments in equity securities are typically valued at the closing price in
the principal active market as of the last business day of the reporting period.
Principal active markets for equity prices include published exchanges such
as NASDAQ and NYSE. Foreign equity prices are translated from their trading
currency using the currency exchange rate in effect at the close of the principal
active market. Prices have not been adjusted to reflect after-hours market
activity. The majority of investments in equity securities are valued using
Level 1 measurements. When the price of an institutional commingled fund is
unpublished, it is not categorized in the fair value hierarchy, even though the
funds are readily available at the fair value.
Investments in corporate debt securities and U.S. government securities
Most debt investments are valued based on a calculation using interest
rate curves and credit spreads applied to the terms of the debt instrument
(maturity and coupon interest rate) and consider the counterparty credit rating.
Most debt valuations are Level 2 measurements. If the market for a particular
fixed-income security is relatively inactive or illiquid, the measurement is Level
3. U.S. Treasury debt is typically Level 2.
Investments in short-term investment funds
Investments in short-term investment funds are valued at the net asset
value of units held at year end and are readily redeemable at the measurement
date. Investments in short-term investment funds with published prices
are valued as Level 1. Investments in short-term investment funds with
unpublished prices are valued as Level 2.
Investments in real estate limited partnerships are valued by the trustee
at each valuation date (monthly). As part of the trustee’s valuation process,
properties are externally appraised generally on an annual basis, conducted
by reputable, independent appraisal firms, and signed by appraisers that are
members of the Appraisal Institute, with the professional designation MAI. Fair
value is defined as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the
measurement date. There are three valuation techniques that can be used to
value investments in real estate assets: the market, income or cost approach.
The appropriateness of each valuation technique depends on the type of
asset or business being valued. In addition, the trustee may cause additional
appraisals to be performed as warranted by specific asset or market conditions.
Property valuations and the salient valuation-sensitive assumptions of each
direct investment property are reviewed by the trustee quarterly and values
are adjusted if there has been a significant change in circumstances related to
the investment property since the last valuation. Value adjustments for interim
capital expenditures are only recognized to the extent that the valuation process
acknowledges a corresponding increase in fair value. An independent firm is
hired to review and approve quarterly direct real estate valuations. Key inputs
and assumptions used to determine fair value includes among others, rental
revenue and expense amounts and related revenue and expense growth rates,
terminal capitalization rates and discount rates. Development investments
are valued using cost incurred to date as a primary input until substantive
progress is achieved in terms of mitigating construction and leasing risk at
which point a discounted cash flow approach is more heavily weighted. Key
inputs and assumptions in addition to those noted above used to determine
the fair value of development investments include construction costs and the
status of construction completion and leasing. Investments in real estate limited
partnerships are valued at net asset value of units held at year end and are not
readily redeemable at the measurement date. Investments in real estate limited
partnerships are not categorized within the fair value hierarchy.
211
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued)
Duke Energy Master Retirement Trust
The following tables provide the fair value measurement amounts for the Duke Energy Master Retirement Trust qualified pension and other post-retirement
assets.
(in millions)
Equity securities
Corporate debt securities
Short-term investment funds
Partnership interests
Hedge funds
Real estate limited partnerships
U.S. government securities
Guaranteed investment contracts
Governments bonds – foreign
Cash
Government and commercial mortgage backed securities
Net pending transactions and other investments
Total assets(a)
December 31, 2017
Total Fair Value
$2,823
4,694
246
137
226
135
762
28
38
6
2
17
Level 1
$1,976
—
192
—
—
—
—
—
—
6
—
15
Level 2
$ —
4,694
54
—
—
—
762
—
38
—
2
2
Level 3
$ —
—
—
—
—
—
—
28
—
—
—
—
Not
Categorized(b)
847
$
—
—
137
226
135
—
—
—
—
—
—
$9,114
$2,189
$5,552
$ 28
$ 1,345
(a) Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana, and Piedmont were allocated approximately 27 percent, 30 percent, 15 percent, 15 percent, 5
percent, 8 percent, and 4 percent, respectively, of the Duke Energy Master Retirement Trust at December 31, 2017. Accordingly, all amounts included in the table above are allocable to the Subsidiary Registrants using these
percentages.
(b) Certain investments that are measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy.
(in millions)
Equity securities
Corporate debt securities
Short-term investment funds
Partnership interests
Hedge funds
Real estate limited partnerships
U.S. government securities
Guaranteed investment contracts
Governments bonds – foreign
Cash
Net pending transactions and other investments
Total assets(a)
December 31, 2016
Total Fair Value
$2,472
4,330
476
157
232
144
734
29
32
17
32
Level 1
$1,677
8
211
—
—
17
—
—
—
15
1
$
Level 2
27
4,322
265
—
—
—
734
—
32
2
6
Level 3
9
$
—
—
—
—
—
—
29
—
—
—
Not
Categorized(b)
759
$
—
—
157
232
127
—
—
—
—
25
$8,655
$1,929
$5,388
$ 38
$ 1,300
(a) Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana were allocated approximately 27 percent, 30 percent, 15 percent, 15 percent, 5 percent and 8
percent, respectively, of the Duke Energy Master Retirement Trust and Piedmont’s Pension assets at December 31, 2016. Accordingly, all amounts included in the table above are allocable to the Subsidiary Registrants using
these percentages.
(b) Certain investments that are measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy.
The following table provides a reconciliation of beginning and ending balances of Duke Energy Master Retirement Trust qualified pension and other post-retirement
assets and Piedmont Pension Assets at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3).
(in millions)
Balance at January 1
Combination of Piedmont Pension Assets
Sales
Total gains (losses) and other, net
Transfer of Level 3 assets to other classifications
Balance at December 31
212
2017
$ 38
—
(2)
1
(9)
$ 28
2016
$ 31
9
(2)
—
—
$ 38
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued)
Other post-retirement assets
The following tables provide the fair value measurement amounts for VEBA trust assets.
(in millions)
Cash and cash equivalents
Real estate
Equity securities
Debt securities
Total assets
(in millions)
Cash and cash equivalents
Real estate
Equity securities
Debt securities
Total assets
EMPLOYEE SAVINGS PLANS
Retirement Savings Plan
Duke Energy or its affiliates sponsor, and the Subsidiary Registrants
participate in, employee savings plans that cover substantially all U.S.
employees. Most employees participate in a matching contribution formula
where Duke Energy provides a matching contribution generally equal to 100
percent of employee before-tax and Roth 401(k) contributions of up to 6 percent
of eligible pay per pay period (5 percent for Piedmont employees). Dividends on
$
$
December 31, 2017
Total Fair Value Level 2
8
8
1
1
28
28
21
21
$ 58
58
$
$
December 31, 2016
Total Fair Value Level 2
$ 14
14
1
1
26
26
25
25
$ 66
66
$
Duke Energy shares held by the savings plans are charged to retained earnings
when declared and shares held in the plans are considered outstanding in the
calculation of basic and diluted EPS.
As of January 1, 2014, for new and rehired non-union and certain
unionized employees (excludes Piedmont employees until 2018 plan year,
discussed below) who are not eligible to participate in Duke Energy’s defined
benefit plans, an additional employer contribution of 4 percent of eligible pay per
pay period, which is subject to a three-year vesting schedule, is provided to the
employee’s savings plan account.
The following table includes pretax employer matching contributions made by Duke Energy and expensed by the Subsidiary Registrants.
(in millions)
Years ended December 31,
2017
2016
2015
Duke
Energy
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont(a)
$179
169
159
$61
57
54
$53
50
48
$37
35
34
$16
15
13
$3
3
3
$9
8
7
$ 7
—
—
(a) Piedmont’s pretax employer matching contributions were $1 million, $7 million and $7 million during the two months ended December 31, 2016 and for the years ended October 31, 2016 and 2015, respectively.
Money Purchase Pension Plan
Piedmont sponsors the MPP plan, which is a defined contribution
pension plan that allows employees to direct investments and assume risk
of investment returns. Under the MPP plan, Piedmont annually deposits a
percentage of each participant’s pay into an account of the MPP plan. This
contribution equals 4 percent of the participant’s eligible compensation plus
an additional 4 percent of eligible compensation above the Social Security
wage base up to the IRS compensation limit. The participant is vested in MPP
plan after three years of service. No contributions were made to the MPP plan
during the two months ended December 31, 2016. Piedmont contributed $2
million to the MPP plan during each of the years ended December 31, 2017,
October 31, 2016 and 2015. Effective December 31, 2017, the MPP Plan was
merged into the Retirement Savings Plan and the money purchase plan formula
was discontinued. Beginning with the 2018 plan year, the former MPP Plan
participants are eligible to receive the additional employer contribution under
the Retirement Savings Plan, discussed above.
213
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued)
22.
INCOME TAXES
Tax Act
On December 22, 2017, President Trump signed the Tax Act into law.
Among other provisions, the Tax Act lowers the corporate federal income tax rate
from 35 percent to 21 percent and eliminates bonus depreciation for regulated
utilities, effective January 1, 2018. The Tax Act also could be amended or
subject to technical correction, which could change the financial impacts that
were recorded at December 31, 2017, or are expected to be recorded in future
periods. The FERC and state utility commissions will determine the regulatory
treatment of the impacts of the Tax Act for the Subsidiary Registrants. The Duke
Energy Registrants’ future results of operations, financial condition and cash
flows could be adversely impacted by the Tax Act, subsequent amendments or
corrections or the actions of the FERC, state utility commissions or credit rating
agencies related to the Tax Act. Duke Energy is reviewing orders to address
the rate treatment of the Tax Act by each state utility commission in which the
Subsidiary Registrants operate. See Note 4 for additional information. Beginning
in January 2018, the Subsidiary Registrants will defer the estimated ongoing
impacts of the Tax Act that are expected to be returned to customers.
As a result of the Tax Act, Duke Energy revalued its existing deferred tax
assets and deferred tax liabilities as of December 31, 2017, to account for
the estimated future impact of lower corporate tax rates on these deferred tax
amounts. For Duke Energy’s regulated operations, where the reduction in the
net accumulated deferred income tax (ADIT) liability is expected to be returned
to customers in future rates, the net remeasurement has been deferred as a
regulatory liability. The regulatory liability for income taxes includes the effect
of the reduction of the net deferred tax liability including the tax gross-up of the
excess accumulated deferred tax liabilities and the effect of the new tax rate on
the previous regulatory asset for income taxes. Excess accumulated deferred
income taxes are generally classified as either “protected” or “unprotected”
under IRS rules. Protected excess ADIT, resulting from accumulated tax
depreciation of public utility property, are required to utilize the average rate
assumption method under the IRS normalization rules for determining the
timing of the return to customers. The majority of the excess ADIT is related
to protected amounts associated with public utility property. See Note 4 for
additional information on the Tax Act’s impact to the regulatory asset and
liability accounts.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin
No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB
118), which provides guidance on accounting for the Tax Act’s impact. SAB 118
provides a measurement period, which in no case should extend beyond one
year from the Tax Act enactment date, during which a company acting in good
faith may complete the accounting for the impacts of the Tax Act under ASC
Topic 740. In accordance with SAB 118, a company must reflect the income tax
effects of the Tax Act in the reporting period in which the accounting under ASC
Topic 740 is complete. To the extent that a company’s accounting for certain
income tax effects of the Tax Act is incomplete, a company can determine a
reasonable estimate for those effects and record a provisional estimate in the
financial statements in the first reporting period in which a reasonable estimate
can be determined.
Duke Energy recorded a provisional net tax benefit of $112 million
related to the Tax Act in the period ending December 31, 2017. This net benefit
primarily consists of a net benefit of $534 million due to the remeasurement
of deferred tax accounts to reflect the corporate rate reduction impact to net
deferred tax balances, a net expense for the establishment of a valuation
allowance related to foreign tax credits of $406 million and a transition tax on
previously untaxed earnings and profits on foreign subsidiaries of $10 million.
The majority of Duke Energy’s operations are regulated and it is expected that
the Subsidiary Registrants will ultimately pass on the savings associated with
the amount representing the remeasurement of deferred tax balances related to
regulated operations to customers. Duke Energy recorded a regulatory liability
of $8,313 million, representing the revaluation of those deferred tax balances.
The Subsidiary Registrants continue to respond to requests from regulators in
various jurisdictions to determine the timing and magnitude of savings they will
pass on to customers.
The net provisional charge from deferred tax remeasurement and
assessment of valuation allowance is based on currently available information
and interpretations which are continuing to evolve. Duke Energy continues
to analyze additional information and guidance related to certain aspects of
the Tax Act, such as limitations on the deductibility of interest and executive
compensation, conformity or decoupling by state legislatures in response to the
Tax Act, and the final determination of the net deferred tax liabilities subject
to the remeasurement. The prospects of supplemental legislation or regulatory
processes to address questions that arise because of the Tax Act, or evolving
technical interpretations of the tax law, may also cause the final impact from
the Tax Act to differ from the estimated amounts. Duke Energy continues to
appropriately refine such amounts within the measurement period allowed by
SAB 118, which will be completed no later than the fourth quarter of 2018.
214
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) Income Tax Expense
Components of Income Tax Expense
(in millions)
Current income taxes
Federal
State
Foreign
Total current income taxes
Deferred income taxes
Federal
State
Total deferred income taxes(a) (b)
Investment tax credit amortization
Income tax expense from continuing operations
Tax benefit from discontinued operations
Total income tax expense included in Consolidated
Statements of Operations
Year Ended December 31, 2017
Duke
Energy
$ (247)
4
3
(240)
1,344
102
1,446
(10)
1,196
(6)
Duke
Energy
Carolinas
$
221
20
—
241
381
35
416
(5)
652
—
Progress
Energy
$ (436)
(5)
—
(441)
664
44
708
(3)
264
—
Duke
Energy
Progress
$ (95)
2
—
(93)
378
10
388
(3)
292
—
Duke
Energy
Florida
$ (188)
(11)
—
(199)
194
51
245
—
46
—
Duke
Energy
Ohio
$ (37)
2
—
(35)
99
(4)
95
(1)
59
—
Duke
Energy
Indiana
Piedmont
$ 128
21
—
149
138
14
152
—
301
—
$ (90)
(3)
—
(93)
147
8
155
—
62
—
$ 1,190
$
652
$ 264
$ 292
$
46
$ 59
$ 301
$ 62
(a)
Includes utilization of NOL (Net operating loss) carryforwards and tax credit carryforwards of $428 million at Duke Energy, $74 million at Progress Energy, $36 million at Duke Energy Florida, $17 million at Duke Energy Ohio,
$42 million at Duke Energy Indiana and $79 million at Piedmont. In addition the total deferred income taxes Includes benefits of NOL carryforwards and tax credit carryforwards of $10 million at Duke Energy Carolinas and
$1 million at Duke Energy Progress.
(b) As a result of the Tax Act, Duke Energy’s deferred tax assets and liabilities were revalued as of December 31, 2017. See the Statutory Rate Reconciliation section below for additional information on the Tax Act’s impact on
income tax expense.
(in millions)
Current income taxes
Federal
State
Foreign
Total current income taxes
Deferred income taxes
Federal
State
Total deferred income taxes(a)
Investment tax credit amortization
Income tax expense from continuing operations
Tax (benefit) expense from discontinued operations
Total income tax expense included in Consolidated
Statements of Operations
Year Ended December 31, 2016
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
$
139
25
—
164
430
45
475
(5)
634
—
$
15
(19)
—
(4)
486
50
536
(5)
527
1
$ (59)
(25)
—
(84)
350
40
390
(5)
301
—
$ 76
22
—
98
199
25
224
—
322
—
$
(7)
(13)
—
(20)
88
11
99
(1)
78
(36)
$
7
6
—
13
202
11
213
(1)
225
—
Duke
Energy
$ —
(15)
2
(13)
1,064
117
1,181
(12)
1,156
(30)
$ 1,126
$
634
$ 528
$ 301
$ 322
$ 42
$ 225
(a)
Includes benefits of NOL carryforwards and utilization of NOL and tax credit carryforwards of $648 million at Duke Energy, $4 million at Duke Energy Carolinas, $190 million at Progress Energy, $60 million at Duke Energy
Progress, $49 million at Duke Energy Florida, $26 million at Duke Energy Ohio and $58 million at Duke Energy Indiana.
215
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued)
(in millions)
Current income taxes
Federal
State
Foreign
Total current income taxes
Deferred income taxes
Federal
State
Total deferred income taxes(a)
Investment tax credit amortization
Income tax expense from continuing operations
Tax expense (benefit) from discontinued operations
Total income tax expense included in
Consolidated Statements of Operations
Duke
Energy
$ —
(12)
4
(8)
1,097
181
1,278
(14)
1,256
89
Duke
Energy
Carolinas
$
216
14
—
230
345
57
402
(5)
627
—
Year Ended December 31, 2015
Progress
Energy
$ (193)
1
—
(192)
694
27
721
(7)
522
(1)
Duke
Energy
Progress
$ (56)
(4)
—
(60)
334
27
361
(7)
294
—
Duke
Energy
Florida
$
1
(7)
—
(6)
290
58
348
—
342
—
Duke
Energy
Ohio
$ (18)
(1)
—
(19)
96
5
101
(1)
81
22
Duke
Energy
Indiana
$ (86)
(12)
—
(98)
245
17
262
(1)
163
—
$ 1,345
$
627
$ 521
$ 294
$ 342
$ 103
$ 163
(a)
Includes utilization of NOL carryforwards and tax credit carryforwards of $264 million at Duke Energy, $15 million at Duke Energy Carolinas, $119 million at Progress Energy, $21 million at Duke Energy Progress, $84 million at
Duke Energy Florida, $3 million at Duke Energy Ohio and $45 million at Duke Energy Indiana.
(in millions)
Current income taxes
Federal
State
Total current income taxes
Deferred income taxes
Federal
State
Total deferred income taxes(a)(b)
Total income tax expense from continuing operations included in Consolidated Statements of Operations
Piedmont
Two Months Ended
Years Ended October 31,
December 31, 2016
2016
2015
$
$
4
(2)
2
24
6
30
32
$
$
27
12
39
79
6
85
$ 124
$
(1)
1
—
78
12
90
90
(a)
(b)
Includes benefits of NOL and tax carryforwards of $17 million and $91 million for the two months ended December 31, 2016, and the year ended October 31, 2016, respectively.
Includes benefits and utilization of NOL carryforwards of $46 million for the year ended October 31, 2015.
Duke Energy Income from Continuing Operations before Income Taxes
(in millions)
Domestic(a)
Foreign
Income from continuing operations before income taxes
Years Ended December 31,
2017
$ 4,207
59
$ 4,266
2016
$ 3,689
45
$ 3,734
2015
$ 3,831
79
$ 3,910
(a)
Includes a $16 million expense in 2017 related to the Tax Act impact on equity earnings included within Equity in earnings (losses) of unconsolidated affiliates on the Consolidated Statement of Operations.
216
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued)
Taxes on Foreign Earnings
In February 2016, Duke Energy announced it had initiated a process to
divest the International Disposal Group and, accordingly, no longer intended to
indefinitely reinvest post-2014 undistributed foreign earnings. This change in
the company’s intent, combined with the extension of bonus depreciation by
Congress in late 2015, allowed Duke Energy to more efficiently utilize foreign
tax credits and reduce U.S. deferred tax liabilities associated with the historical
unremitted foreign earnings by approximately $95 million during the year ended
December 31, 2016.
Statutory Rate Reconciliation
Due to the classification of the International Disposal Group as
discontinued operations beginning in the fourth quarter of 2016, income tax
amounts related to the International Disposal Group’s foreign earnings are
presented within (Loss) Income From Discontinued Operations, net of tax on the
Consolidated Statements of Operations. In December 2016, Duke Energy closed
on the sale of the International Disposal Group in two separate transactions to
execute the divestiture. See Note 2 for additional information on the sale.
The following tables present a reconciliation of income tax expense at the U.S. federal statutory tax rate to the actual tax expense from continuing operations.
(in millions)
Income tax expense, computed at the statutory rate of 35
percent
State income tax, net of federal income tax effect
AFUDC equity income
Renewable energy production tax credits
Tax Act(a)
Tax true-up
Other items, net
Income tax expense from continuing operations
Year Ended December 31, 2017
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
$
653
36
(37)
—
15
(24)
9
$
652
$ 536
25
(32)
—
(246)
(19)
—
$ 264
$ 353
8
(17)
—
(40)
(13)
1
$ 292
$ 265
26
(16)
—
(226)
(7)
4
$ 46
$ 88
(1)
(4)
—
(23)
(5)
4
$ 59
$ 229
23
(8)
—
55
(6)
8
$ 301
Duke
Energy
$ 1,493
69
(81)
(132)
(112)
(52)
11
$ 1,196
Piedmont
$ 70
3
—
—
(12)
—
1
$ 62
Effective tax rate
28.0%
34.9%
17.2%
29.0%
6.1%
23.4%
46.0%
30.8%
(a) Amounts primarily include but are not limited to items that are excluded for ratemaking purposes related to abandoned or impaired assets, certain wholesale fixed rate contracts, remeasurement of nonregulated net deferred
tax liabilities, Federal net operating losses, and valuation allowance on foreign tax credits.
(in millions)
Income tax expense, computed at the statutory rate of 35 percent
State income tax, net of federal income tax effect
AFUDC equity income
Renewable energy production tax credits
Audit adjustment
Tax true-up
Other items, net
Income tax expense from continuing operations
Duke
Energy
$ 1,307
64
(70)
(97)
5
(14)
(39)
$ 1,156
Duke
Energy
Carolinas
$
630
46
(36)
—
3
(14)
5
$
634
Year Ended December 31, 2016
Progress
Energy
$ 548
20
(26)
—
—
(11)
(4)
$ 527
Duke
Energy
Progress
$ 315
10
(17)
—
—
(3)
(4)
$ 301
Duke
Energy
Florida
$ 306
30
(9)
—
—
(9)
4
$ 322
Duke
Energy
Ohio
$ 95
(2)
(2)
—
—
(16)
3
$ 78
Duke
Energy
Indiana
$ 212
11
(6)
—
—
2
6
$ 225
Effective tax rate
31.0%
35.2%
33.7%
33.4%
36.9%
28.9%
37.1%
217
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued)
(in millions)
Income tax expense, computed at the statutory rate of 35 percent
State income tax, net of federal income tax effect
AFUDC equity income
Renewable energy production tax credits
Audit adjustment
Tax true-up
Other items, net
Income tax expense from continuing operations
Duke
Energy
$ 1,369
109
(58)
(72)
(22)
2
(72)
$ 1,256
Duke
Energy
Carolinas
$
598
46
(34)
—
—
2
15
$
627
Year Ended December 31, 2015
Progress
Energy
$ 555
18
(19)
(1)
(23)
(3)
(5)
$ 522
Duke
Energy
Progress
$ 302
15
(17)
—
1
(4)
(3)
$ 294
Duke
Energy
Florida
$ 330
33
(3)
—
(24)
2
4
$ 342
Duke
Energy
Ohio
$ 81
2
(1)
—
—
(5)
4
$ 81
Duke
Energy
Indiana
$ 168
2
(4)
—
—
(9)
6
$ 163
Effective tax rate
32.1%
36.7%
32.9%
34.2%
36.3%
35.2%
34.0%
(in millions)
Income tax expense, computed at the statutory rate of 35 percent
State income tax, net of federal income tax effect
Other items, net
Income tax expense from continuing operations
Effective tax rate
Piedmont
Two Months Ended
Years Ended October 31,
December 31, 2016
$
$
30
1
1
32
2016
$ 111
11
2
$ 124
2015
79
9
2
90
$
$
37.2%
39.1 %
39.7%
Valuation allowances have been established for certain state NOL carryforwards and state income tax credits that reduce deferred tax assets to an amount that
will be realized on a more-likely-than-not basis. The net change in the total valuation allowance is included in the State income tax, net of federal income tax effect in
the above tables.
DEFERRED TAXES
Net Deferred Income Tax Liability Components
(in millions)
Deferred credits and other liabilities
Capital lease obligations
Pension, post-retirement and other employee benefits
Progress Energy merger purchase accounting adjustments(a)
Tax credits and NOL carryforwards
Regulatory liabilities and deferred credits
Investments and other assets
Other
Valuation allowance
Total deferred income tax assets
Investments and other assets
Accelerated depreciation rates
Regulatory assets and deferred debits, net
Other
Total deferred income tax liabilities
December 31, 2017
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
$
33
14
(17)
—
234
222
—
10
—
496
(849)
(3,060)
—
—
(3,909)
$
78
—
111
—
402
—
—
1
(14)
578
(470)
(2,803)
(807)
—
(4,080)
$
23
—
44
—
156
—
—
4
—
227
$
49
—
60
—
143
—
—
—
—
252
(289)
(1,583)
(238)
—
(2,110)
(187)
(1,257)
(569)
—
(2,013)
$
11
—
14
—
25
65
—
—
—
115
—
(896)
—
—
(896)
$
6
2
18
—
216
—
1
—
—
243
(14)
(966)
(188)
—
(1,168)
$
Duke
Energy
143
49
295
536
4,527
—
—
73
(519)
5,104
(1,419)
(9,216)
(1,090)
—
(11,725)
$
Piedmont
(5)
—
(4)
—
70
61
18
—
—
140
—
(697)
—
(7)
(704)
Net deferred income tax liabilities
$ (6,621)
$(3,413)
$(3,502)
$(1,883)
$(1,761)
$ (781)
$ (925)
$ (564)
(a) Primarily related to capital lease obligations and debt fair value adjustments.
218
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued)
As noted above, as a result of the Tax Act, Duke Energy revalued its existing deferred tax assets and liabilities as of December 31, 2017, to account for the
estimated future impact of lower corporate tax rates on these deferred amounts. The following table shows the decrease reflected in the net deferred income tax
liabilities balance above:
(in millions)
Duke Energy
Duke Energy Carolinas
Progress Energy
Duke Energy Progress
Duke Energy Florida
Duke Energy Ohio
Duke Energy Indiana
Piedmont
The following table presents the expiration of tax credits and NOL carryforwards.
(in millions)
Investment tax credits
Alternative minimum tax credits
Federal NOL carryforwards
State NOL carryforwards and credits(a)
Foreign NOL carryforwards(b)
Foreign Tax Credits(c)
Total tax credits and NOL carryforwards
December 31, 2017
$ 8,982
3,454
3,282
1,882
1,420
771
1,053
521
December 31, 2017
Expiration Year
2024 – 2037
Refundable by 2021
2022 – 2036
2018 – 2037
2027 – 2036
2024 – 2027
Amount
$ 1,406
1,147
393
296
13
1,272
$ 4,527
(a) A valuation allowance of $90 million has been recorded on the state NOL carryforwards, as presented in the Net Deferred Income Tax Liability Components table.
(b) A valuation allowance of $13 million has been recorded on the foreign NOL carryforwards, as presented in the Net Deferred Income Tax Liability Components table.
(c) A valuation allowance of $416 million has been recorded on the foreign tax credits, as presented in the Net Deferred Income Tax Liability Components table.
(in millions)
Deferred credits and other liabilities
Capital lease obligations
Pension, post-retirement and other employee benefits
Progress Energy merger purchase accounting adjustments(a)
Tax credits and NOL carryforwards
Investments and other assets
Other
Valuation allowance
Total deferred income tax assets
Investments and other assets
Accelerated depreciation rates
Regulatory assets and deferred debits, net
Total deferred income tax liabilities
Net deferred income tax liabilities
December 31, 2016
$
Duke
Energy
382
60
561
918
4,682
—
205
(96)
6,712
(1,892)
(14,872)
(4,103)
(20,867)
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
$
66
8
16
—
192
—
16
—
298
(1,149)
(4,664)
(1,029)
(6,842)
$
126
—
199
—
1,165
—
35
(12)
1,513
(597)
(4,490)
(1,672)
(6,759)
$
40
—
91
—
222
—
8
—
361
$
93
—
96
—
232
—
—
—
421
(313)
(2,479)
(892)
(3,684)
(297)
(2,038)
(780)
(3,115)
$
21
—
22
—
49
3
5
—
100
—
(1,404)
(139)
(1,543)
$
4
1
37
—
278
—
9
—
329
(21)
(1,938)
(270)
(2,229)
$
71
—
10
—
192
—
45
(1)
317
(21)
(1,080)
(147)
(1,248)
$ (14,155)
$ (6,544)
$ (5,246)
$ (3,323)
$ (2,694)
$ (1,443)
$ (1,900)
$ (931)
(a) Primarily related to capital lease obligations and debt fair value adjustments.
On August 6, 2015, pursuant to N.C. Gen. Stat. 105-130.3C, the North
Carolina Department of Revenue announced the North Carolina corporate
income tax rate would be reduced from a statutory rate of 5.0 percent to 4.0
percent beginning January 1, 2016. Duke Energy and Piedmont recorded net
reductions of approximately $95 million and $18 million to their North Carolina
deferred tax liabilities in the third quarter of 2015. The significant majority of
these deferred tax liability reductions were offset by recording a regulatory
liability pending NCUC determination of the disposition of amounts related to
Duke Energy Carolinas, Duke Energy Progress and Piedmont. The impact did not
have a significant impact on the financial position, results of operation, or cash
flows of Duke Energy, Duke Energy Carolinas, Progress Energy or Duke Energy
Progress.
219
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued)
On August 4, 2016, pursuant to N.C. Gen. Stat. 105-130.3C, the North
Carolina Department of Revenue announced the North Carolina corporate income
tax rate would be reduced from a statutory rate of 4.0 percent to 3.0 percent
beginning January 1, 2017. Duke Energy and Piedmont recorded net reductions
of approximately $80 million and $16 million to their North Carolina deferred tax
liabilities in the third quarter of 2016. The significant majority of this deferred
tax liability reduction was offset by recording a regulatory liability pending NCUC
determination of the disposition of amounts related to Duke Energy Carolinas,
Duke Energy Progress and Piedmont. The impact did not have a significant
impact on the financial position, results of operation, or cash flows of Duke
Energy, Duke Energy Carolinas, Progress Energy or Duke Energy Progress.
On June 28, 2017, the North Carolina General Assembly amended
N.C. Gen. Stat. 105-130.3, reducing the North Carolina corporate income tax
rate from a statutory rate of 3.0 percent to 2.5 percent beginning January 1,
2019. Duke Energy recorded a net reduction of approximately $55 million to
their North Carolina deferred tax liabilities in the second quarter of 2017. The
significant majority of this deferred tax liability reduction was offset by recording
a regulatory liability pending NCUC determination of the disposition of amounts
related to Duke Energy Carolinas, Duke Energy Progress and Piedmont. The
impact did not have a significant impact on the financial position, results of
operation or cash flows of Duke Energy, Duke Energy Carolinas, Progress Energy
or Duke Energy Progress.
UNRECOGNIZED TAX BENEFITS
The following tables present changes to unrecognized tax benefits.
(in millions)
Unrecognized tax benefits – January 1
Unrecognized tax benefits increases (decreases)
Gross increases – tax positions in prior periods
Gross decreases – tax positions in prior periods
Total changes
Unrecognized tax benefits – December 31
(in millions)
Unrecognized tax benefits – January 1
Unrecognized tax benefits increases (decreases)
Gross increases – tax positions in prior periods
Gross decreases – tax positions in prior periods
Decreases due to settlements
Reduction due to lapse of statute of limitations
Total changes
Unrecognized tax benefits – December 31
(in millions)
Unrecognized tax benefits – January 1
Unrecognized tax benefits increases (decreases)
Gross increases – tax positions in prior periods
Gross decreases – tax positions in prior periods
Decreases due to settlements
Reduction due to lapse of statute of limitations
Total changes
Unrecognized tax benefits – December 31
Year Ended December 31, 2017
Duke
Energy
$ 17
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
$ 1
$ 2
$
2
Duke
Energy
Florida
$
4
Duke
Energy
Ohio
$
4
Duke
Energy
Indiana
$ —
12
(4)
8
4
—
4
3
—
3
3
—
3
1
—
1
1
(4)
(3)
1
—
1
Piedmont
$ —
3
—
3
$ 25
$ 5
$ 5
$
5
$
5
$
1
$
1
$
3
Duke
Energy
$
88
—
(4)
(68)
1
(71)
17
$
Duke
Energy
Carolinas
$
72
—
(4)
(67)
—
(71)
1
$
Year Ended December 31, 2016
Progress
Energy
$
1
—
(1)
—
2
1
2
$
Duke
Energy
Progress
$
3
Duke
Energy
Florida
$ —
Duke
Energy
Ohio
$ —
—
(1)
—
—
(1)
$
2
$
4
—
—
—
4
4
4
—
—
—
4
4
$
Duke
Energy
Indiana
$
1
—
—
(1)
—
(1)
$ —
Year Ended December 31, 2015
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
$160
$ 32
$ 23
Duke
Energy
Florida
$ 8
Duke
Energy
Indiana
$ 1
—
(45)
(43)
—
(88)
1
—
—
(32)
(31)
1
—
—
(21)
(20)
—
—
—
(8)
(8)
—
—
—
—
—
$ 72
$
1
$ 3
$ —
$ 1
Duke
Energy
$ 213
—
(48)
(45)
(32)
(125)
$ 88
220
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued)
The following table includes additional information regarding the Duke Energy Registrants’ unrecognized tax benefits at December 31, 2017. During the
first quarter of 2018, Duke Energy recognized an approximate $8 million reduction and Duke Energy Carolinas recognized an approximate $1 million reduction in
unrecognized tax benefits. No additional material reductions are expected in the next 12 months.
(in millions)
Amount that if recognized, would affect the
effective tax rate or regulatory liability(a)
Amount that if recognized, would be recorded as
a component of discontinued operations
December 31, 2017
Duke
Energy
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
$15
7
$ 4
$ 7
$ 5
$ 1
$ 1
$ 1
$ 3
—
—
—
—
2
—
—
(a) Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Indiana and Piedmont are unable to estimate the specific amounts that would affect the effective tax rate versus
the regulatory liability.
OTHER TAX MATTERS
The following tables include interest recognized in the Consolidated Statements of Operations and the Consolidated Balance Sheets.
(in millions)
Net interest income recognized related to income taxes
Net interest expense recognized related to income taxes
Interest payable related to income taxes
(in millions)
Net interest income recognized related to income taxes
Net interest expense recognized related to income taxes
Interest payable related to income taxes
(in millions)
Net interest income recognized related to income taxes
Net interest expense recognized related to income taxes
Interest receivable related to income taxes
Interest payable related to income taxes
Year Ended December 31, 2017
Duke
Energy
$ —
—
5
Duke
Energy
Carolinas
$ —
2
25
Progress
Energy
$
1
—
1
Duke
Energy
Progress
$ —
—
1
Year Ended December 31, 2016
Duke
Energy
$ —
—
4
Duke
Energy
Carolinas
$ —
7
23
Progress
Energy
$
1
—
1
Duke
Energy
Progress
$ —
—
1
Duke
Energy
Florida
$
1
—
—
Duke
Energy
Florida
$
2
—
—
Year Ended December 31, 2015
Duke
Energy
$
12
—
3
—
Duke
Energy
Carolinas
$ —
1
—
14
Progress
Energy
$
2
—
—
—
Duke
Energy
Progress
$
2
—
—
1
Duke
Energy
Florida
Duke
Energy
Indiana
$
1
—
—
—
$
1
—
3
—
Piedmont recognized $1 million in net interest income recognized related to income taxes in the Consolidated Statements of Operations for the year ended
October 31, 2016.
Duke Energy and its subsidiaries are no longer subject to U.S. federal examination for years before 2015. With few exceptions, Duke Energy and its subsidiaries
are no longer subject to state, local or non-U.S. income tax examinations by tax authorities for years before 2015.
221
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) 23. OTHER INCOME AND EXPENSES, NET
The components of Other income and expenses, net on the Consolidated Statements of Operations are as follows. Amounts for Piedmont were not material.
(in millions)
Interest income
AFUDC equity
Post in-service equity returns
Nonoperating income, other
Other income and expense, net
(in millions)
Interest income
AFUDC equity
Post in-service equity returns
Nonoperating income (expense), other
Other income and expense, net
(in millions)
Interest income
AFUDC equity
Post in-service equity returns
Nonoperating income (expense), other
Other income and expense, net
24. SUBSEQUENT EVENTS
Year Ended December 31, 2017
Duke
Energy
$
13
237
40
62
Duke
Energy
Carolinas
$
2
106
28
3
Progress
Energy
$
6
92
12
18
$
352
$
139
$
128
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
$
$
2
47
12
4
65
$
$
5
45
—
11
61
$
$
6
11
—
—
17
$
$
8
28
—
1
37
Year Ended December 31, 2016
Duke
Energy
$
21
200
67
36
Duke
Energy
Carolinas
$
4
102
55
1
Progress
Energy
$
4
76
12
22
$
324
$
162
$
114
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
$
$
3
50
12
6
71
$
$
2
26
—
16
44
$
$
5
6
—
(2)
$
9
$
6
16
—
—
22
Year Ended December 31, 2015
Duke
Energy
$
20
164
73
33
Duke
Energy
Carolinas
$
2
96
60
2
$
290
$
160
Progress
Energy
$
$
4
54
13
26
97
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
$
$
2
47
13
9
71
$
$
2
7
—
15
24
$
$
4
3
—
(1)
$
6
$
6
11
—
(6)
11
For information on subsequent events related to regulatory matters, commitments and contingencies, debt and credit facilities, investments in unconsolidated affiliates,
variable interest entities and common stock see Notes 4, 5, 6, 12, 17 and 18, respectively.
222
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) 25. QUARTERLY FINANCIAL DATA (UNAUDITED)
DUKE ENERGY
Quarterly EPS amounts may not sum to the full-year total due to changes
in the weighted average number of common shares outstanding and rounding.
(in millions, except per share data)
2017
Operating revenues
Operating income
Income from continuing operations
Loss from discontinued operations,
net of tax
Net income
Net income attributable to Duke
Energy Corporation
Earnings per share:
Income from continuing operations
attributable to Duke Energy
Corporation common stockholders
Basic
Diluted
Loss from discontinued operations
attributable to Duke Energy
Corporation common stockholders
Basic
Diluted
Net income attributable to Duke Energy
Corporation common stockholders
Basic
Diluted
2016
Operating revenues
Operating income
Income from continuing operations
Income (Loss) from discontinued
operations, net of tax
Net income (loss)
Net income (loss) attributable to Duke
Energy Corporation
Earnings per share:
Income from continuing operations
attributable to Duke Energy
Corporation common stockholders
Basic
Diluted
Income (Loss) from discontinued
operations attributable to Duke
Energy Corporation common
stockholders
Basic
Diluted
Net income (loss) attributable to
Duke Energy Corporation common
stockholders
Basic
Diluted
The following table includes unusual or infrequently occurring items in
each quarter during the two most recently completed fiscal years. All amounts
discussed below are pretax.
(in millions)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
2017
Costs to Achieve Piedmont Merger
(see Note 2)
$
Regulatory Settlements (see Note 4)
Commercial Renewables Impairments
(see Notes 10 and 11)
Impacts of the Tax Act (see Note 22)
(16) $ (30) $ (23) $ (34) $ (103)
(158)
—
— (135)
(23)
—
—
—
—
(84)
—
(18)
102
(102)
102
Total
$
(16) $ (30) $ (242) $
27 $ (261)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$5,729
1,437
717
$5,555
1,387
691
$6,482
1,695
957
$5,799 $23,565
5,781
1,262
3,070
705
—
717
716
(2)
689
(2)
955
(2)
703
(6)
3,064
686
954
703
3,059
2016
Costs to Achieve Mergers (see Note 2)
Commercial Renewables Impairment
(see Note 12)
$ 1.02
$ 1.02
$ 0.98
$ 0.98
$ 1.36
$ 1.36
$ 1.00 $
$ 1.00 $
4.37
4.37
Loss on Sale of International Disposal
Group (see Note 2)
Impairment of Assets in Central America
(see Note 2)
Cost Savings Initiatives (see Note 19)
$ (120) $ (111) $
(84) $ (208) $
(523)
—
—
—
—
(71)
—
(71)
— (514)
(514)
— (194)
(24)
(20)
—
(19)
— (194)
(92)
(29)
$ — $ — $ — $ — $ (0.01)
$ — $ — $ — $ — $ (0.01)
Total
$ (140) $ (329) $ (174) $ (751) $ (1,394)
DUKE ENERGY CAROLINAS
$ 1.02
$ 1.02
$ 0.98
$ 0.98
$ 1.36
$ 1.36
$ 1.00 $
$ 1.00 $
4.36
4.36
$5,377
1,240
577
$5,213
1,259
624
$6,576
1,954
1,001
$5,577 $22,743
5,341
2,578
888
376
122
699
694
(112)
512
180
1,181
(598)
(222)
(408)
2,170
509
1,176
(227)
2,152
(in millions)
2017
Operating revenues
Operating income
Net income
2016
Operating revenues
Operating income
Net income
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$ 1,716 $ 1,729 $ 2,136 $ 1,721 $7,302
2,149
1,214
777
466
484
270
485
273
403
205
$ 1,740 $ 1,675 $ 2,226 $ 1,681 $7,322
2,062
1,166
464
261
302
140
815
494
481
271
The following table includes unusual or infrequently occurring items in
each quarter during the two most recently completed fiscal years. All amounts
discussed below are pretax.
$ 0.83
$ 0.83
$ 0.90
$ 0.90
$ 1.44
$ 1.44
$ 0.53 $
$ 0.53 $
3.71
3.71
(in millions)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$ 0.18
$ 0.18
$ (0.16) $ 0.26
$ (0.16) $ 0.26
$ (0.86) $ (0.60)
$ (0.86) $ (0.60)
2017
Costs to Achieve Piedmont Merger
(see Note 2)
Impacts of the Tax Act (see Note 22)
Total
2016
Costs to Achieve Mergers
Cost Savings Initiatives (see Note 19)
$ 1.01
$ 1.01
$ 0.74
$ 0.74
$ 1.70
$ 1.70
$ (0.33) $
$ (0.33) $
3.11
3.11
Total
223
$
$
$
$
(4) $
—
(4) $
(6) $
—
(6) $
(5) $ (20)
(5) $
—
(15)
(15)
(5) $ (20) $ (35)
(11) $
(10)
(21) $
(12) $
(10)
(22) $
(13) $
(8)
(21) $
(68) $ (104)
(11)
(39)
(79) $ (143)
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued)
PROGRESS ENERGY
(in millions)
2017
Operating revenues
Operating income
Net income
Net income attributable to Parent
2016
Operating revenues
Operating income
Income from continuing operations
Net income
Net income attributable to Parent
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$ 2,179 $ 2,392 $ 2,864
657
343
341
591
277
274
487
201
199
$ 2,332 $ 2,348 $ 2,965
814
449
449
446
560
274
274
272
475
212
212
209
$ 2,348 $ 9,783
2,228
1,268
1,258
493
447
444
$ 2,208 $ 9,853
2,141
1,039
1,041
1,031
292
104
106
104
The following table includes unusual or infrequently occurring items in
each quarter during the two most recently completed fiscal years. All amounts
discussed below are pretax.
(in millions)
2017
Costs to Achieve Piedmont Merger
(see Note 2)
Regulatory Settlements (see Note 4)
Impacts of the Tax Act (see Note 22)
Total
2016
Costs to Achieve Mergers
Cost Savings Initiatives (see Note 19)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$
$
$
$ (4)
—
—
$ (4)
$ (7)
(8)
(7) $
(6)
— (135)
—
—
$
(6) $ (23)
(158)
(23)
246
246
(7) $ (141)
$ 217
$
65
(8) $ (10)
(10)
(8)
$ (44) $ (69)
(40)
(14)
Total
$(15)
$ (16) $ (20)
$ (58) $ (109)
DUKE ENERGY PROGRESS
(in millions)
2017
Operating revenues
Operating income
Net income
2016
Operating revenues
Operating income
Net income
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$ 1,219 $ 1,199 $ 1,460 $ 1,251 $ 5,129
1,235
715
411
246
282
154
286
147
256
168
$ 1,307 $ 1,213 $ 1,583 $ 1,174 $ 5,277
1,086
599
255
131
135
60
258
137
438
271
The following table includes unusual or infrequently occurring items
in each quarter during the two most recently completed fiscal years. All
amounts discussed below are pretax.
(in millions)
2017
Costs to Achieve Piedmont Merger
(see Note 2)
Regulatory Settlements (see Note 4)
Impacts of the Tax Act (see Note 22)
Total
2016
Costs to Achieve Mergers
$
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
(2) $
—
—
(4) $
—
—
(4) $
—
—
(4) $ (14)
(23)
(23)
40
40
(2) $
(4) $
(4) $
13
$
3
Cost Savings Initiatives (see Note 19)
(5)
(5)
(7)
(6)
Total
$
(10) $
(10) $
(13) $
(46) $
(5) $
(5) $
(6) $
(40) $
(56)
(23)
(79)
DUKE ENERGY FLORIDA
(in millions)
2017
Operating revenues
Operating income
Net income
2016
Operating revenues
Operating income
Net income
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$
959
196
90
$ 1,024
213
110
$ 1,191 $ 1,401 $ 1,095 $4,646
976
712
234
344
240
120
306
158
$ 1,133 $ 1,381 $ 1,030 $4,568
1,041
551
155
64
373
206
300
171
The following table includes unusual or infrequently occurring items in
each quarter during the two most recently completed fiscal years. All amounts
discussed below are pretax.
(in millions)
2017
Costs to Achieve Piedmont Merger
(see Note 2)
Regulatory Settlements (see Note 4)
Impacts of the Tax Act (see Note 22)
Total
2016
Costs to Achieve Mergers
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$ (2)
—
—
$ (2)
(2) $
$ (3) $
(2) $
(9)
— (135)
— (135)
226
226
—
—
82
$ (3) $ (137) $ 224
$
Cost Savings Initiatives (see Note 19)
(2)
(3)
(3)
$ (2)
$ (3) $
(4) $
(4)
(9)
$ (13)
(17)
Total
$ (4)
$ (6) $
(7) $ (13)
$ (30)
224
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued) DUKE ENERGY OHIO
(in millions)
2017
Operating revenues
Operating income
Loss from discontinued
operations, net of tax
Net income
2016
Operating revenues
Operating income
Income from discontinued
operations, net of tax
Net income
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$ 518
83
—
42
$ 516
96
2
59
$
$
$
$
437
65
—
30
428
55
—
23
$
$
471
102
(1)
55
489
106
34
89
497 $ 1,923
326
76
—
65
(1)
192
511 $ 1,944
347
90
—
57
36
228
The following table includes unusual or infrequently occurring items in
each quarter during the two most recently completed fiscal years. All amounts
discussed below are pretax.
The following table includes unusual or infrequently occurring items in
each quarter during the two most recently completed fiscal years. All amounts
discussed below are pretax.
(in millions)
2017
Costs to Achieve Piedmont Merger
(see Note 2)
Impacts of the Tax Act (see Note 22)
Total
2016
Costs to Achieve Mergers
Cost Savings Initiatives (see Note 19)
Total
PIEDMONT
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$
$
$
$
(1) $
(2) $
(2) $
(1) $
(6)
—
—
—
(55)
(55)
(1) $
(2) $
(2) $ (56) $ (61)
(1) $
(2) $
(3) $
(1)
(4)
(1)
(2) $
(6) $
(4) $
(3)
(1)
(4)
$
(9)
(7)
$ (16)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
The following tables include data for Piedmont’s fiscal years ending
December 31, 2017, and October 31, 2016.
$
$
$
$
(1) $
(1) $
(2) $
(2) $
(6)
—
—
—
23
(1) $
(1) $
(2) $
21 $
(1) $
(1) $
(2) $
(2) $
(1)
(1)
—
(1)
(2) $
(2) $
(2) $
(3) $
23
17
(6)
(3)
(9)
(in millions)
2017
Operating revenues
Operating income (loss)
Net income (loss)
2016
Operating revenues
Operating income (loss)
Net income (loss)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$ 500
170
95
$ 464
171
98
$ 201
5
(8)
$ 183
(4)
(11)
$ 444 $ 1,328
286
139
115
63
$ 353
104
63
$ 160
—
(7)
$ 172 $ 1,149
225
193
(50)
39
(in millions)
2017
Costs to Achieve Piedmont Merger
(see Note 2)
Impacts of the Tax Act (see Note 22)
Total
2016
Costs to Achieve Mergers
Cost Savings Initiatives (see Note 19)
Total
DUKE ENERGY INDIANA
(in millions)
2017
Operating revenues
Operating income
Net income
2016
Operating revenues
Operating income
Net income
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$ 758
186
91
$ 714
176
95
$ 742
210
106
$ 702
174
85
$ 802
230
121
$ 809
239
129
$ 745 $ 3,047
796
354
170
36
$ 733 $ 2,958
765
381
176
72
For the two months ended December 31, 2016, Piedmont’s operating
revenues, operating income, and net income were $322 million, $96 million and
$54 million, respectively.
The following table includes unusual or infrequently occurring items in
each quarter during the two most recently completed fiscal years. All amounts
discussed below are pretax.
(in millions)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
2017
Costs to Achieve Piedmont Merger
(see Note 2)
Impacts of the Tax Act (see Note 22)
Total
2016
Costs to Achieve Mergers
$
$
$
(6)
—
(6)
$ (13)
—
$ (13)
$ (8)
—
$ (8)
$ (19) $ (46)
2
$ (17) $ (44)
2
(6)
$ (2)
$ (1)
$ (53) $
(62)
For the two months ended December 31, 2016, Piedmont’s costs to achieve merger
were $7 million.
225
PART IIDUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, LLC • PIEDMONT NATURAL GAS COMPANY, INC.Combined Notes to Consolidated Financial Statements – (Continued)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Management’s Annual Report On Internal Control Over Financial Reporting
Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed by the
Duke Energy Registrants in the reports they file or submit under the Securities
Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized and
reported, within the time periods specified by the SEC rules and forms.
Disclosure controls and procedures include, without limitation, controls
and procedures designed to provide reasonable assurance that information
required to be disclosed by the Duke Energy Registrants in the reports they
file or submit under the Exchange Act is accumulated and communicated to
management, including the Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of management,
including the Chief Executive Officer and Chief Financial Officer, the Duke Energy
Registrants have evaluated the effectiveness of their disclosure controls and
procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the
Exchange Act) as of December 31, 2017, and, based upon this evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that these
controls and procedures are effective in providing reasonable assurance of
compliance.
Changes in Internal Control Over Financial Reporting
Under the supervision and with the participation of management,
including the Chief Executive Officer and Chief Financial Officer, the Duke Energy
Registrants have evaluated changes in internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) that occurred during the fiscal quarter ended December 31, 2017, and
have concluded no change has materially affected, or is reasonably likely to
materially affect, internal control over financial reporting.
The Duke Energy Registrants’ management is responsible for establishing
and maintaining an adequate system of internal control over financial reporting,
as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The
Duke Energy Registrants’ internal control system was designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes, in accordance with
generally accepted accounting principles in the United States. Due to inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness of the
internal control over financial reporting to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with policies and procedures may deteriorate.
The Duke Energy Registrants’ management, including their Chief
Executive Officer and Chief Financial Officer, has conducted an evaluation of the
effectiveness of their internal control over financial reporting as of December 31,
2017, based on the framework in the Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on that evaluation, management concluded that its internal
controls over financial reporting were effective as of December 31, 2017.
Deloitte & Touche LLP, Duke Energy’s independent registered public
accounting firm, has issued an attestation report on the effectiveness of Duke
Energy’s internal control over financial reporting. This attestation report is
included in Part II, Item 8 of this Form 10-K. This report is not applicable to
the Subsidiary Registrants as these companies are not accelerated or large
accelerated filers.
226
PART II REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Duke Energy Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Duke
Energy Corporation and subsidiaries (the “Company”) as of December 31,
2017, based on criteria established in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2017, based on criteria established in Internal Control – Integrated Framework
(2013) issued by COSO.
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States) (PCAOB), the consolidated
balance sheets as of December 31, 2017, the related consolidated statements
of operations, comprehensive income, changes in equity, and cash flows, for the
period ended December 31, 2017, and the related notes of the Company and
our report dated February 21, 2018, expressed an unqualified opinion on those
financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the
accompanying Management’s Annual Report On Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We
are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 2018
227
PART II ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding Duke Energy’s Executive Officers is set forth in Part I, Item 1, “Business – Executive Officers of the Registrants,” in this Annual Report
on Form 10-K. Duke Energy will provide information that is responsive to the remainder of this Item 10 in its definitive proxy statement or in an amendment to this
Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report. That information is incorporated in this Item 10 by reference.
ITEM 11. EXECUTIVE COMPENSATION
Duke Energy will provide information that is responsive to this Item 11 in its definitive proxy statement or in an amendment to this Annual Report not later than
120 days after the end of the fiscal year covered by this Annual Report. That information is incorporated in this Item 11 by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table shows information as of December 31, 2017, about securities to be issued upon exercise of outstanding options, warrants and rights
under Duke Energy’s equity compensation plans, along with the weighted-average exercise price of the outstanding options, warrants and rights and the number of
securities remaining available for future issuance under the plans.
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of securities
to be issued upon exercise
of outstanding options,
warrants and rights
(a)
Weighted average exercise
price of outstanding
options, warrants and rights
(b)(1)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in column (a))
(c)
3,566,563(2)
191,394(4)
3,757,957
n/a
n/a
n/a
7,314,882(3)
n/a(5)
7,314,882
(1) As of December 31, 2017, no options were outstanding under equity compensation plans.
(2)
(3)
(4)
Includes restricted stock units and performance shares (assuming the maximum payout level) granted under the Duke Energy Corporation 2010 Long-Term Incentive Plan or the Duke Energy Corporation 2015 Long-Term
Incentive Plan, as well as shares that could be payable with respect to certain compensation deferred under the Duke Energy Corporation Executive Savings Plan (Executive Savings Plan) or the Duke Energy Corporation
Directors’ Savings Plan (Directors’ Savings Plan).
Includes shares remaining available for issuance pursuant to stock awards under the Duke Energy Corporation 2015 Long-Term Incentive Plan.
Includes shares that could be payable with respect to certain compensation deferred under the Executive Savings Plan or and the Directors’ Savings Plan, each of which is a nonqualified deferred compensation plan described
in more detail below. Upon the acquisition of Piedmont Natural Gas Company, Inc., performance shares granted prior to such acquisition under the Piedmont Natural Gas Company, Inc. Incentive Compensation Plan were
converted into restricted stock units payable in shares of Duke Energy common stock. As of December 31, 2017, 45,173 such restricted stock units were outstanding. Following the acquisition, no further stock awards were
permitted to be granted under the Piedmont Natural Gas Company, Inc. Incentive Compensation Plan. These converted awards are not listed in the table above.
(5) The number of shares remaining available for future issuance under equity compensation plans not approved by security holders cannot be determined because it is based on the amount of future voluntary deferrals, if any,
under the Executive Savings Plan and the Directors’ Savings Plan.
Under the Executive Savings Plan, participants can elect to defer a portion
of their base salary and short-term incentive compensation. Participants also
receive a company matching contribution in excess of the contribution limits
prescribed by the Internal Revenue Code under the Duke Energy Retirement
Savings Plan, which is the 401(k) plan in which employees are generally
eligible to participate. In general, payments are made following termination of
employment or death in the form of a lump sum or installments, as selected
by the participant. Participants may direct the deemed investment of base
salary deferrals, short-term incentive compensation deferrals and matching
contributions among investment options available under the Duke Energy
Retirement Savings Plan, including the Duke Energy Common Stock Fund.
Participants may change their investment elections on a daily basis. Deferrals of
equity awards are credited with earnings and losses based on the performance
of the Duke Energy Common Stock Fund. The benefits payable under the plan
are unfunded and subject to the claims of Duke Energy’s creditors.
Under the Directors’ Savings Plan, outside directors may elect to defer
all or a portion of their annual compensation, generally consisting of retainers.
Deferred amounts are credited to an unfunded account, the balance of which is
adjusted for the performance of phantom investment options, including the Duke
Energy common stock fund, as elected by the director, and generally are paid
when the director terminates his or her service from the Board of Directors.
Duke Energy will provide additional information that is responsive to this
Item 12 in its definitive proxy statement or in an amendment to this Annual
Report not later than 120 days after the end of the fiscal year covered by this
Annual Report. That information is incorporated in this Item 12 by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Duke Energy will provide information that is responsive to this Item 13 in its definitive proxy statement or in an amendment to this Annual Report not later than
120 days after the end of the fiscal year covered by this Annual Report. That information is incorporated in this Item 13 by reference.
228
PART III ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Deloitte & Touche LLP and the member firms of Deloitte Touche Tohmatsu and their respective affiliates (collectively, Deloitte) provided professional services to
the Duke Energy Registrants. The following tables present the Deloitte fees for services rendered to the Duke Energy Registrants during 2017 and 2016.
(in millions)
Types of Fees
Audit Fees(a)
Audit-Related Fees(b)
Tax Fees(c)
Other Fees(d)
Total Fees
(in millions)
Types of Fees
Audit Fees(a)
Audit-Related Fees(b)
Tax Fees(c)
Other Fees(d)
Total Fees
(in millions)
Types of Fees
Audit Fees(a)
Audit-Related Fees(b)
Total Fees
Year Ended December 31, 2017
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana Piedmont
$ 4.7
—
0.6
—
$ 5.3
$ 5.6
—
0.1
—
$ 5.7
$ 3.1
—
0.4
—
$ 3.5
$ 2.4
—
—
—
$ 2.4
$ 0.8
—
0.1
—
$ 0.9
$ 1.4
—
0.1
—
$ 1.5
$ 0.8
—
0.1
—
$ 0.9
Duke
Energy
$ 13.6
0.2
1.7
0.1
$ 15.6
Duke
Energy
$ 13.6
0.7
0.4
0.2
$ 14.9
Year Ended December 31, 2016
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
$ 4.8
—
0.1
0.1
$ 5.0
$ 5.2
—
0.1
0.1
$ 5.4
$ 3.0
—
0.1
0.1
$ 3.2
$ 2.2
—
—
—
$ 2.2
$ 0.8
—
—
—
$ 1.4
—
0.1
—
$ 0.8
$ 1.5
Piedmont(e)
Two Months Ended
December 31, 2016
Year Ended October 31,
2016
$ 0.6
—
$ 0.6
$ 1.3
0.1
$ 1.4
(a) Audit Fees are fees billed, or expected to be billed, by Deloitte for professional services for the financial statement audits, audit of the Duke Energy Registrants’ financial statements included in the Annual Report on Form
10-K, reviews of financial statements included in Quarterly Reports on Form 10-Q, and services associated with securities filings such as comfort letters and consents.
(b) Audit-Related Fees are fees billed, or expected to be billed, by Deloitte for assurance and related services that are reasonably related to the performance of an audit or review of financial statements, including statutory
reporting requirements.
(c) Tax Fees are fees billed by Deloitte for tax return assistance and preparation, tax examination assistance and professional services related to tax planning and tax strategy.
(d) Other Fees are billed by Deloitte for attendance at Deloitte-sponsored conferences and access to Deloitte research tools and subscription services. In 2016, Other Fees also included non-audit fees related to consulting
services.
Includes all accounting fees and services paid prior to and subsequent to the acquisition. Prior to the acquisition, Piedmont’s Audit Committee preapproved all services provided by the independent auditor.
(e)
To safeguard the continued independence of the independent auditor,
the Audit Committee of the Board of Directors (Audit Committee) of Duke
Energy adopted a policy that all services provided by the independent auditor
require preapproval by the Audit Committee. Pursuant to the policy, certain
audit services, audit-related services, tax services and other services have
been specifically preapproved up to fee limits. In the event the cost of any
of these services may exceed the fee limits, the Audit Committee must
specifically approve the service. All services performed in 2017 and 2016 by the
independent accountant were approved by the Audit Committee pursuant to the
preapproval policy.
229
PART III
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Consolidated Financial Statements, Supplemental Financial Data and Supplemental Schedules included in Part II of this annual report are as follows:
Duke Energy Corporation
Consolidated Financial Statements
Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Balance Sheets as of December 31, 2017, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2016 and 2015
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
Report of Independent Registered Public Accounting Firm
All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes.
Duke Energy Carolinas, LLC
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Balance Sheets as of December 31, 2017, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2016 and 2015
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
Report of Independent Registered Public Accounting Firm
All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes.
Progress Energy, Inc.
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Balance Sheets as of December 31, 2017, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2016 and 2015
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
Report of Independent Registered Public Accounting Firm
All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes.
Duke Energy Progress, LLC
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Balance Sheets as of December 31, 2017, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2016 and 2015
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
Report of Independent Registered Public Accounting Firm
All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes.
Duke Energy Florida, LLC
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Balance Sheets as of December 31, 2017, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2016 and 2015
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
Report of Independent Registered Public Accounting Firm
All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes.
230
PART IV Duke Energy Ohio, Inc.
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Balance Sheets as of December 31, 2017, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2016 and 2015
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
Report of Independent Registered Public Accounting Firm
All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes.
Duke Energy Indiana, LLC
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Balance Sheets as of December 31, 2017, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2016 and 2015
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
Report of Independent Registered Public Accounting Firm
All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes.
Piedmont Natural Gas Company, Inc.
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Year Ended December 31, 2017, Two Months Ended December 31, 2016, and the
Years Ended October 31, 2016, and 2015
Consolidated Balance Sheets as of December 31, 2017, and 2016
Consolidated Statements of Cash Flows for the Year Ended December 31, 2017, Two Months Ended December 31, 2016, and the Years Ended October 31, 2016,
and 2015
Consolidated Statements of Changes in Equity for the Year Ended December 31, 2017, Two Months Ended December 31, 2016, and the Years Ended October 31,
2016, and 2015
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited, included in Note 25 to the Consolidated Financial Statements)
Report of Independent Registered Public Accounting Firm
All other schedules are omitted because they are not required, or because the required information is included in the Consolidated Financial Statements or Notes.
231
PART IV EXHIBIT INDEX
Exhibits filed herewithin are designated by an asterisk (*). All exhibits not so designated are incorporated by reference to a prior filing, as indicated. Items
constituting management contracts or compensatory plans or arrangements are designated by a double asterisk (**). The Company agrees to furnish upon request to the
Commission a copy of any omitted schedules or exhibits upon request on all items designated by a triple asterisk (***).
Exhibit
Number
2.1
2.2
3.1
3.2
3.3
3.3.1
3.4
3.4.1
3.5
3.5.1
3.5.2
3.5.3
3.5.4
3.6
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
X
X
X
X
Agreement and Plan of Merger between Duke Energy Corporation, Diamond
Acquisition Corporation and Progress Energy, Inc., dated as of January 8, 2011
(incorporated by reference to Exhibit 2.1 to Duke Energy Corporation’s Current
Report on Form 8-K filed on January 11, 2011, File No. 1-32853).
Agreement and Plan of Merger between Piedmont Natural Gas Company, Duke
Energy Corporation and Forest Subsidiary, Inc. (incorporated by reference to
Exhibit 2.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on
October 26, 2015, File No. 1-32853).
Amended and Restated Certificate of Incorporation (incorporated by reference
to Exhibit 3.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on
May 20, 2014, File No. 1-32853).
Amended and Restated By-Laws of Duke Energy Corporation (incorporated by
reference to Exhibit 3.1 to Duke Energy Corporation’s Current Report on Form
8-K filed on January 4, 2016, File No. 1-32853).
Articles of Organization including Articles of Conversion (incorporated by
reference to Exhibit 3.1 to Duke Energy Carolinas, LLC’s Current Report on Form
8-K filed on April 7, 2006, File No. 1-4928).
Amended Articles of Organization, effective October 1, 2006, (incorporated by
reference to Exhibit 3.1 to Duke Energy Carolinas, LLC’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2006, filed on November 13,
2006, File No. 1-4928).
Amended Articles of Incorporation of Duke Energy Ohio, Inc. (formerly The
Cincinnati Gas & Electric Company), effective October 23, 1996, (incorporated
by reference to Exhibit 3(a) to registrant’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, filed on November 13, 1996,
File No. 1-1232).
Amended Articles of Incorporation, effective September 19, 2006, (incorporated
by reference to Exhibit 3.1 to Duke Energy Ohio, Inc.’s (formerly The Cincinnati
Gas & Electric Company) Quarterly Report on Form 10-Q for the quarter ended
September 30, 2006, filed on November 17, 2006, File No. 1-1232).
Certificate of Conversion of Duke Energy Indiana, LLC (incorporated by reference
to Exhibit 3.1 to registrant’s Current Report on Form 8-K filed on January 4,
2016, File No. 1-3543).
Articles of Entity Conversion of Duke Energy Indiana, LLC (incorporated by
reference to Exhibit 3.2 to registrant’s Current Report on Form 8-K filed on
January 4, 2016, File No. 1-3543).
Plan of Entity Conversion of Duke Energy Indiana, LLC (incorporated by
reference to Exhibit 3.3 to registrant’s Current Report on Form 8-K filed on
January 4, 2016, File No. 1-3543).
Articles of Organization of Duke Energy Indiana, LLC (incorporated by reference
to Exhibit 3.4 to registrant’s Current Report on Form 8-K filed on January 4,
2016, File No. 1-3543).
Limited Liability Company Operating Agreement of Duke Energy Indiana, LLC
(incorporated by reference to Exhibit 3.5 to registrant’s Current Report on Form
8-K filed on January 4, 2016, File No. 1-3543).
Limited Liability Company Operating Agreement of Duke Energy Carolinas, LLC
(incorporated by reference to Exhibit 3.2 to registrant’s Current Report on Form
8-K filed on April 7, 2006, File No. 1-4928).
E-1
X
X
X
X
X
X
X
X
X
X
PART IV Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Exhibit
Number
3.7
3.8
3.8.1
3.8.2
3.9
3.9.1
3.9.2
3.9.3
3.10
3.10.1
3.10.2
3.10.3
3.11
3.11.1
Regulations of Duke Energy Ohio, Inc. (formerly The Cincinnati Gas & Electric
Company), effective July 23, 2003, (incorporated by reference to Exhibit 3.2 to
registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003,
filed on August 13, 2003, File No. 1-1232).
Articles of Organization including Articles of Conversion for Duke Energy
Progress, LLC (incorporated by reference to Exhibit 3.1 to registrant’s Current
Report on Form 8-K filed on August 4, 2015, File No. 1-3382).
Plan of Conversion of Duke Energy Progress, Inc. (incorporated by reference to
Exhibit 3.2 to registrant’s Current Report on Form 8-K filed on August 4, 2015,
File No. 1-3382).
Limited Liability Company Operating Agreement of Duke Energy Progress, LLC
(incorporated by reference to Exhibit 3.3 to registrant’s Current Report on Form
8-K filed on August 4, 2015, File No. 1-3382).
Amended and Restated Articles of Incorporation of Progress Energy, Inc.
(formerly CP&L Energy, Inc.), effective June 15, 2000, (incorporated by
reference to Exhibit 3(a)(1) to registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000, filed on August 14, 2000, File No. 1-3382).
Articles of Amendment to the Amended and Restated Articles of Incorporation of
Progress Energy, Inc. (formerly CP&L Energy, Inc.), effective December 4, 2000,
(incorporated by reference to Exhibit 3(b)(1) to registrant’s Annual Report on
Form 10-K for the year ended December 31, 2001, filed on March 28, 2002, File
No. 1-3382).
Articles of Amendment to the Amended and Restated Articles of Incorporation
of Progress Energy, Inc. (formerly CP&L Energy, Inc.), effective May 10, 2006,
(incorporated by reference to Exhibit 3(a) to registrant’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2006, filed on August 9, 2006, File
No. 1-15929).
By-Laws of Progress Energy, Inc. (formerly CP&L Energy, Inc.), effective May 10,
2006, (incorporated by reference to Exhibit 3(b) to registrant’s Quarterly Report
on Form 10-Q for the quarter ended June 30, 2006, filed on August 9, 2006, File
No. 1-15929).
Articles of Conversion for Duke Energy Florida, LLC (incorporated by reference to
Exhibit 3.4 to registrant’s Current Report on Form 8-K filed on August 4, 2015,
File No. 1-3274).
Articles of Organization for Duke Energy Florida, LLC (incorporated by reference
to Exhibit 3.5 to registrant’s Current Report on Form 8-K filed on August 4,
2015, File No. 1-3274).
Plan of Conversion of Duke Energy Florida, Inc. (incorporated by reference to
Exhibit 3.6 to registrant’s Current Report on Form 8-K filed on August 4, 2015,
File No. 1-3274).
Limited Liability Company Operating Agreement of Duke Energy Florida, LLC
(incorporated by reference to Exhibit 3.7 to registrant’s Current Report on Form
8-K filed on August 4, 2015, File No. 1-3274).
Amended and Restated Articles of Incorporation of Piedmont Natural Gas
Company, Inc., dated as of October 3, 2016 (incorporated by reference to Exhibit
3.1 to registrant’s Annual Report on Form 10-K for the fiscal year ended October
31, 2016, filed on December 22, 2016, File No. 001-06196).
Bylaws of Piedmont Natural Gas Company, Inc., as amended and restated
effective October 3, 2016 (incorporated by reference to Exhibit 3.2 to
registrant’s Current Report on Form 8-K filed on October 3, 2016,
File No. 1-06196).
E-2
PART IV Exhibit
Number
4.1
4.1.1
4.1.2
4.1.3
4.1.4
4.1.5
4.1.6
4.1.7
4.1.8
4.1.9
4.1.10
4.1.11
4.1.12
4.1.13
4.1.14
4.1.15
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
Indenture between Duke Energy Corporation and The Bank of New York Mellon
Trust Company, N.A., as Trustee, dated as of June 3, 2008, (incorporated by
reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form
8-K filed on June 16, 2008, File No. 1-32853).
First Supplemental Indenture, dated as of June 16, 2008, (incorporated by
reference to Exhibit 4.2 to Duke Energy Corporation’s Current Report on Form
8-K filed on June 16, 2008, File No. 1-32853).
Second Supplemental Indenture, dated as of January 26, 2009, (incorporated
by reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form
8-K filed on January 26, 2009, File No. 1-32853).
Third Supplemental Indenture, dated as of August 28, 2009, (incorporated by
reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form
8-K filed on August 28, 2009, File No. 1-32853).
Fourth Supplemental Indenture, dated as of March 25, 2010, (incorporated by
reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form
8-K filed on March 25, 2010, File No. 1-32853).
Fifth Supplemental Indenture, dated as of August 25, 2011, (incorporated by
reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form
8-K filed on August 25, 2011, File No. 1-32853).
Sixth Supplemental Indenture, dated as of November 17, 2011, (incorporated
by reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form
8-K filed on November 17, 2011, File No. 1-32853).
Seventh Supplemental Indenture, dated as of August 16 , 2012, (incorporated
by reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form
8-K filed on August 16, 2012, File No. 1-32853).
Eighth Supplemental Indenture, dated as of January 14, 2013, (incorporated by
reference to Exhibit 2 to the Registration Statement of Form 8-A of the Company
filed on January 14, 2013, File No. 1-32853).
Ninth Supplemental Indenture, dated as of June 13, 2013, (incorporated by
reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form
8-K filed on June 13, 2013, File No. 1-32853).
Tenth Supplemental Indenture, dated as of October 11, 2013, (incorporated by
reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form
8-K filed on October 11, 2013, File No. 1-32853).
Eleventh Supplemental Indenture, dated as of April 4, 2014, (incorporated by
reference to Exhibit 4.1 to Duke Energy Corporation’s Current Report on Form
8-K filed on April 4, 2014, File No. 1-32853).
Twelfth Supplemental Indenture, dated as of November 19, 2015, (incorporated
by reference to Exhibit 4.2 to Duke Energy Corporation’s Current Report on Form
8-K filed on November 19, 2015, File No. 1-32853).
Thirteenth Supplemental Indenture, dated as of April 18, 2016, to the indenture
dated as of June 3, 2008, between Duke Energy Corporation and The Bank of
New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to
Exhibit 4.1 to Duke Energy Corporation’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2016, filed on May 5, 2016, File No. 1-32853).
Fourteenth Supplemental Indenture, dated as of August 12, 2016, (incorporated
by reference to Exhibit 4.1 to registrant’s Current Report on Form 8-K filed on
August 12, 2016, File No. 1-32853).
Fifteenth Supplemental Indenture, dated as of April 11, 2017 (incorporated by
reference to Exhibit 4.2 to registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2017 filed on May 9, 2017, File No. 1-32853).
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
E-3
PART IV Exhibit
Number
4.1.16
4.1.17
4.2
4.2.1
4.2.2
4.3
4.3.1
4.3.2
4.3.3
4.3.4
4.3.5
4.3.6
4.3.7
4.3.8
4.3.9
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
Sixteenth Supplemental Indenture, dated as of June 13, 2017 (incorporated by
reference to Exhibit 4.1 to registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2017 filed on August 3, 2017, File No. 1-32853).
Seventeenth Supplemental Indenture, dated as of August 10, 2017
(incorporated by reference to Exhibit 4.1 to registrant’s Current Report on Form
8-K filed on August 10, 2017, File No. 1-32853).
X
X
Senior Indenture between Duke Energy Carolinas, LLC and The Bank of New
York Mellon Trust Company, N.A., as successor trustee to JPMorgan Chase Bank
(formerly known as The Chase Manhattan Bank), dated as of September 1,
1998, (incorporated by reference to Exhibit 4-D-1 to registrant’s Post-Effective
Amendment No. 2 to Registration Statement on Form S-3 filed on April 7, 1999,
File No. 333-14209).
Fifteenth Supplemental Indenture, dated as of April 3, 2006, (incorporated by
reference to Exhibit 4.4.1 to registrant’s Registration Statement on Form S-3
filed on October 3, 2007, File No. 333-146483-03).
Sixteenth Supplemental Indenture, dated as of June 5, 2007, (incorporated by
reference to Exhibit 4.1 registrant’s Current Report on Form 8-K filed on June 6,
2007, File No. 1-4928).
First and Refunding Mortgage from Duke Energy Carolinas, LLC to The Bank
of New York Mellon Trust Company, N.A., successor trustee to Guaranty
Trust Company of New York, dated as of December 1, 1927, (incorporated by
reference to Exhibit 7(a) to registrant’s Form S-1, effective October 15, 1947,
File No. 2-7224).
Instrument of Resignation, Appointment and Acceptance among Duke Energy
Carolinas, LLC, JPMorgan Chase Bank, N.A., as Trustee, and The Bank of New
York Mellon Trust Company, N.A., as Successor Trustee, dated as of September
24, 2007, (incorporated by reference to Exhibit 4.6.1 to registrant’s Registration
Statement on Form S-3 filed on October 3, 2007, File No. 333-146483).
Ninth Supplemental Indenture, dated as of February 1, 1949, (incorporated by
reference to Exhibit 7(j) to registrant’s Form S-1 filed on February 3, 1949,
File No. 2-7808).
Twentieth Supplemental Indenture, dated as of June 15, 1964, (incorporated by
reference to Exhibit 4-B-20 to registrant’s Form S-1 filed on August 23, 1966,
File No. 2-25367).
Twenty-third Supplemental Indenture, dated as of February 1, 1968,
(incorporated by reference to Exhibit 2-B-26 to registrant’s Form S-9 filed on
January 21, 1969, File No. 2-31304).
Sixtieth Supplemental Indenture, dated as of March 1, 1990, (incorporated by
reference to Exhibit 4-B-61 to registrant’s Annual Report on Form 10-K for the
year ended December 31, 1990, File No.1-4928).
Sixty-third Supplemental Indenture, dated as of July 1, 1991, (incorporated by
reference to Exhibit 4-B-64 to registrant’s Registration Statement on Form S-3
filed on February 13, 1992, File No. 33-45501).
Eighty-fourth Supplemental Indenture, dated as of March 20, 2006,
(incorporated by reference to Exhibit 4.6.9 to registrant’s Registration Statement
on Form S-3 filed on October 3, 2007, File No. 333-146483-03).
Eighty-fifth Supplemental Indenture, dated as of January 10, 2008,
(incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s
Current Report on Form 8-K filed on January 11, 2008, File No.1-4928).
Eighty-seventh Supplemental Indenture, dated as of April 14, 2008,
(incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s
Current Report on Form 8-K filed on April 15, 2008, File No.1-4928).
E-4
X
X
X
X
X
X
X
X
X
X
X
X
X
PART IV Exhibit
Number
4.3.10
4.3.11
4.3.12
4.3.13
4.3.14
4.3.15
4.3.16
4.3.17
4.3.18
4.3.19
4.4
4.4.1
4.4.2
4.4.3
4.4.4
4.4.5
4.4.6
4.4.7
Eighty-eighth Supplemental Indenture, dated as of November 17, 2008,
(incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s
Current Report on Form 8-K filed on November 20, 2008, File No.1-4928).
Ninetieth Supplemental Indenture, dated as of November 19, 2009,
(incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s
Current Report on Form 8-K filed on November 19, 2009, File No.1-4928).
Ninety-first Supplemental Indenture, dated as of June 7, 2010, (incorporated by
reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on Form
8-K filed on June 7, 2010, File No.1-4928).
Ninety-third Supplemental Indenture, dated as of May 19, 2011, (incorporated
by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s Current Report on
Form 8-K filed on May 19, 2011, File No.1-4928).
Ninety-fourth Supplemental Indenture, dated as of December 8, 2011,
(incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s
Current Report on Form 8-K filed on December 8, 2011, File No.1-4928).
Ninety-fifth Supplemental Indenture, dated as of September 21, 2012,
(incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s
Current Report on Form 8-K filed on September 21, 2012, File No.1-4928).
Ninety-sixth Supplemental Indenture, dated as of March 12, 2015, between
Duke Energy Carolinas, LLC and The Bank of New York Mellon Trust Company,
N.A., as Trustee (incorporated by reference to Exhibit 4.1 to Duke Energy
Carolinas, LLC’s Current Report on Form 8-K filed on March 12, 2015,
File No. 1-4928).
Ninety-seventh Supplemental Indenture, dated as of March 11, 2016,
(incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s
Current Report on Form 8-K filed on March 11, 2016, File No. 1-4928).
Ninety-eighth Supplemental Indenture, dated as of November 17, 2016,
(incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC’s
Current Report on Form 8-K filed on November 17, 2016, File No. 1-4928).
Ninety-ninth Supplemental Indenture, dated as of November 14, 2017,
(incorporated by reference to Exhibit 4.1 to Duke Energy Carolinas, LLC Current
Report on Form 8-K filed on November 14, 2017, File No. 1-4928).
Mortgage and Deed of Trust between Duke Energy Progress, Inc. (formerly
Carolina Power & Light Company) and The Bank of New York Mellon (formerly
Irving Trust Company) and Frederick G. Herbst (Tina D. Gonzalez, successor), as
Trustees, dated as of May 1, 1940.
First through Fifth Supplemental Indentures thereto (incorporated by reference
to Exhibit 2(b), File No. 2-64189).
Sixth Supplemental Indenture dated April 1, 1960 (incorporated by reference to
Exhibit 2(b)-5, File No. 2-16210).
Seventh Supplemental Indenture dated November 1, 1961 (incorporated by
reference to Exhibit 2(b)-6, File No. 2-16210).
Eighth Supplemental Indenture dated July 1, 1964 (incorporated by reference to
Exhibit 4(b)-8, File No. 2-19118).
Ninth Supplemental Indenture dated April 1, 1966 (incorporated by reference to
Exhibit 4(b)-2, File No. 2-22439).
Tenth Supplemental Indenture dated October 1, 1967 (incorporated by reference
to Exhibit 4(b)-2, File No. 2-24624).
Eleventh Supplemental Indenture dated October 1, 1968 (incorporated by
reference to Exhibit 2(c), File No. 2-27297).
E-5
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
PART IV Exhibit
Number
4.4.8
4.4.9
4.4.10
4.4.11
4.4.12
4.4.13
4.4.14
4.4.15
4.4.16
4.4.17
4.4.18
4.4.19
4.4.20
4.4.21
4.4.22
4.4.23
4.4.24
4.4.25
4.4.26
4.4.27
4.4.28
4.4.29
4.4.30
4.4.31
Twelfth Supplemental Indenture dated January 1, 1970 (incorporated by
reference to Exhibit 2(c), File No. 2-30172).
Thirteenth Supplemental Indenture dated August 1, 1970 (incorporated by
reference to Exhibit 2(c), File No. 2-35694).
Fourteenth Supplemental Indenture dated January 1, 1971 (incorporated by
reference to Exhibit 2(c), File No. 2-37505).
Fifteenth Supplemental Indenture dated October 1, 1971 (incorporated by
reference to Exhibit 2(c), File No. 2-39002).
Sixteenth Supplemental Indenture dated May 1, 1972 (incorporated by reference
to Exhibit 2(c), File No. 2-41738).
Seventeenth Supplemental Indenture dated November 1, 1973 (incorporated by
reference to Exhibit 2(c), File No. 2-43439).
Eighteenth Supplemental Indenture dated (incorporated by reference to Exhibit
2(c), File No. 2-47751).
Nineteenth Supplemental Indenture dated May 1, 1974 (incorporated by
reference to Exhibit 2(c), File No. 2-49347).
Twentieth Supplemental Indenture dated December 1, 1974 (incorporated by
reference to Exhibit 2(c), File No. 2-53113).
Twenty-first Supplemental Indenture dated April 15, 1975 (incorporated by
reference to Exhibit 2(d), File No. 2-53113).
Twenty-second Supplemental Indenture dated October 1, 1977 (incorporated by
reference to Exhibit 2(c), File No. 2-59511).
Twenty-third Supplemental Indenture dated June 1, 1978 (incorporated by
reference to Exhibit 2(c), File No. 2-61611).
Twenty-fourth Supplemental Indenture dated May 15, 1979 (incorporated by
reference to Exhibit 2(d), File No. 2-64189).
Twenty-fifth Supplemental Indenture dated November 1, 1979 (incorporated by
reference to Exhibit 2(c), File No. 2-65514).
Twenty-sixth Supplemental Indenture dated November 1, 1979 (incorporated by
reference to Exhibit 2(c), File No. 2-66851).
Twenty-seventh Supplemental Indenture dated April 1, 1980 (incorporated by
reference to Exhibit 2 (d), File No. 2-66851).
Twenty-eighth Supplemental Indenture dated October 1, 1980 (incorporated by
reference to Exhibit 4(b)-1, File No. 2-81299).
Twenty-ninth Supplemental Indenture dated October 1, 1980 (incorporated by
reference to Exhibit 4(b)-2, File No. 2-81299).
Thirtieth Supplemental Indenture dated December 1, 1982 (incorporated by
reference to Exhibit 4(b)- 3, File No. 2-81299).
Thirty-first Supplemental Indenture dated March 15, 1983 (incorporated by
reference to Exhibit 4(c)-1, File No. 2-95505).
Thirty-second Supplemental Indenture dated March 15, 1983 (incorporated by
reference to Exhibit 4(c)-2, File No. 2-95505).
Thirty-third Supplemental Indenture dated December 1, 1983 (incorporated by
reference to Exhibit 4(c)-3, File No. 2-95505).
Thirty-fourth Supplemental Indenture dated December 15, 1983 (incorporated
by reference to Exhibit 4(c)-4, File No. 2-95505).
Thirty-fifth Supplemental Indenture dated April 1, 1984 (incorporated by
reference to Exhibit 4(c)-5, File No. 2-95505).
E-6
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
PART IV Exhibit
Number
4.4.32
4.4.33
4.4.34
4.4.35
4.4.36
4.4.37
4.4.38
4.4.39
4.4.40
4.4.41
4.4.42
4.4.43
4.4.44
4.4.45
4.4.46
4.4.47
4.4.48
4.4.49
4.4.50
4.4.51
4.4.52
4.4.53
4.4.54
Thirty-sixth Supplemental Indenture dated June 1, 1984 (incorporated by
reference to Exhibit 4(c)-6, File No. 2-95505).
Thirty-seventh Supplemental Indenture dated June 1, 1984 (incorporated by
reference to Exhibit 4(c)-7, File No. 2-95505).
Thirty-eighth Supplemental Indenture dated June 1, 1984 (incorporated by
reference to Exhibit 4(c)- 8, File No. 2-95505).
Thirty-ninth Supplemental Indenture dated April 1, 1985 (incorporated by
reference to Exhibit 4(b), File No. 33-25560).
Fortieth Supplemental Indenture dated October 1, 1985 (incorporated by
reference to Exhibit 4(c), File No. 33-25560).
Forty-first Supplemental Indenture dated March 1, 1986 (incorporated by
reference to Exhibit 4(d), File No. 33-25560).
Forty-second Supplemental Indenture dated July 1, 1986 (incorporated by
reference to Exhibit 4(e), File No. 33-25560).
Forty-third Supplemental Indenture dated January 1, 1987 (incorporated by
reference to Exhibit 4(f), File No. 33-25560).
Forty-fourth Supplemental Indenture dated December 1, 1987 (incorporated by
reference to Exhibit 4(g), File No. 33-25560).
Forty-fifth supplemental Indenture dated September 1, 1988 (incorporated by
reference to Exhibit 4(h), File No. 33-25560).
Forty-sixth Supplemental Indenture dated April 1, 1989 (incorporated by
reference to Exhibit 4(b), File No. 33-33431).
Forty-seventh Supplemental Indenture dated August 1, 1989 (incorporated by
reference to Exhibit 4(c), File No. 33-33431).
Forty-eighth Supplemental Indenture dated November 15, 1990 (incorporated
by reference to Exhibit 4(b), File No. 33-38298).
Forty-ninth Supplemental Indenture dated November 15, 1990 (incorporated by
reference to Exhibit 4(c), File No. 33-38298).
Fiftieth Supplemental Indenture dated February 15, 1991 (incorporated by
reference to Exhibit 4(h), File No. 33-42869).
Fifty-first Supplemental Indenture dated April 1, 1991 (incorporated by
reference to Exhibit 4(i), File No. 33-42869).
Fifty-second Supplemental Indenture dated September 15, 1991(incorporated
by reference to Exhibit 4(e), File No. 33-48607).
Fifty-third Supplemental Indenture dated January 1, 1992 (incorporated by
reference to Exhibit 4(f), File No. 33-48607).
Fifty-fourth Supplemental Indenture dated April 15, 1992 (incorporated by
reference to Exhibit 4 (g), File No. 33-48607).
Fifty-fifth Supplemental Indenture dated July 1, 1992 (incorporated by reference
to Exhibit 4(e), File No. 33-55060).
Fifty-sixth Supplemental Indenture dated October 1, 1992 (incorporated by
reference to Exhibit 4(f), File No. 33-55060).
Fifty-seventh Supplemental Indenture dated February 1, 1993 (incorporated by
reference to Exhibit 4(e), File No. 33-60014).
Fifty-eighth Supplemental Indenture dated March 1, 1993 (incorporated by
reference to Exhibit 4(f), File No. 33-60014).
E-7
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
PART IV Exhibit
Number
4.4.55
4.4.56
4.4.57
4.4.58
4.4.59
4.4.60
4.4.61
4.4.62
4.4.63
4.4.64
4.4.65
4.4.66
4.4.67
4.4.68
4.4.69
4.4.70
4.4.71
Fifty-ninth Supplemental Indenture dated July 1, 1993 (incorporated by
reference to Exhibit 4(a) to Post-Effective Amendment No. 1, File No. 33-38349).
Sixtieth Supplemental Indenture dated July 1, 1993 (incorporated by reference
to Exhibit 4(b) to Post-Effective Amendment No. 1, File No. 33-38349).
Sixty-first Supplemental Indenture dated August 15, 1993 (incorporated by
reference to Exhibit 4(e), File No. 33-50597).
Sixty-second Supplemental Indenture dated January 15, 1994 (incorporated
by reference to Exhibit 4 to Duke Energy Progress’ Current Report on Form 8-K
dated January 19, 1994, File No. 1-3382).
Sixty-third Supplemental Indenture dated May 1, 1994 (incorporated by reference
to Exhibit 4(f) for Duke Energy Progress’ Form S-3, File No. 033-57835).
Sixty-fourth Supplemental Indenture dated August 15, 1997 (incorporated by
reference to Exhibit to Duke Energy Progress’ Current Report on Form 8-K dated
August 26, 1997, File No. 1-3382).
Sixty-fifth Supplemental Indenture dated April 1, 1998 (incorporated by
reference to Exhibit 4(b) for Duke Energy Progress’ Registration Statement on
Form S-3 filed December 18, 1998 , File No. 333-69237).
Sixty-sixth Supplemental Indenture dated March 1, 1999 (incorporated by
reference to Exhibit 4(c) to Duke Energy Progress’ Current Report on Form 8-K
dated March 19, 1999, File No. 1-3382).
Form of Carolina Power & Light Company First Mortgage Bond, 6.80% Series Due
August 15, 2007 (incorporated by reference to Exhibit 4 to Duke Energy Progress’
Form 10-Q for the period ended September 30, 1998, File No. 1-3382).
Sixty-eighth Supplemental Indenture dated April 1, 2000 (incorporated by
reference to Exhibit No. 4(b) to Duke Energy Progress’ Current Report on Form
8-K dated April 20, 2000, File No. 1-3382).
Sixty-ninth Supplemental Indenture dated June 1, 2000 (incorporated by
reference to Exhibit No. 4b(2) to Duke Energy Progress’ Annual Report on Form
10-K dated March 29, 2001, File No. 1-3382).
Seventieth Supplemental Indenture dated July 1, 2000 (incorporated by
reference to Exhibit 4b(3) to Duke Energy Progress’ Annual Report on Form 10-K
dated March 29, 2001, File No. 1-3382).
Seventy-first Supplemental Indenture dated February 1, 2002 (incorporated by
reference to Exhibit 4b(2) to Duke Energy Progress’ Annual Report on Form 10-K
dated March 28, 2002, File No. 1-3382 and 1-15929).
Seventy-second Supplemental Indenture, dated as of September 1, 2003,
(incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.’s (formerly
Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.))
Current Report on Form 8-K filed on September 12, 2003, File No. 1-3382).
Seventy-third Supplemental Indenture, dated as of March 1, 2005,
(incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.’s (formerly
Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.))
Current Report on Form 8-K filed on March 22, 2005, File No. 1-3382).
Seventy-fourth Supplemental Indenture, dated as of November 1, 2005,
(incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.’s (formerly
Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.))
Current Report on Form 8-K filed on November 30, 2005, File No. 1-3382).
Seventy-fifth Supplemental Indenture, dated as of March 1, 2008, (incorporated
by reference to Exhibit 4 to Duke Energy Progress, Inc.’s (formerly Carolina
Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report
on Form 8-K filed on March 13, 2008, File No. 1-3382).
E-8
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
PART IV Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
X
X
X
X
X
X
X
X
X
X
X
X
X
Exhibit
Number
4.4.72
4.4.73
4.4.74
4.4.75
4.4.76
4.4.77
4.4.78
4.4.79
4.4.80
4.4.81
4.5
4.6
4.7
Seventy-sixth Supplemental Indenture, dated as of January 1, 2009,
(incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.’s (formerly
Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.))
Current Report on Form 8-K filed on January 15, 2009, File No. 1-3382).
Seventy-seventh Supplemental Indenture, dated as of June 18, 2009,
(incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.’s (formerly
Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.))
Current Report on Form 8-K filed on June 23, 2009, File No. 1-3382).
Seventy-eighth Supplemental Indenture, dated as of September 1, 2011,
(incorporated by reference to Exhibit 4 to Duke Energy Progress, Inc.’s (formerly
Carolina Power & Light Company (d/b/a Progress Energy Carolinas, Inc.))
Current Report on Form 8-K filed on September 15, 2011, File No. 1-3382).
Seventy-ninth Supplemental Indenture, dated as of May 1, 2012, (incorporated
by reference to Exhibit 4 to Duke Energy Progress, Inc.’s (formerly Carolina
Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report
on Form 8-K filed on May 18, 2012, File No. 1-3382).
Eightieth Supplemental Indenture, dated as of March 1, 2013, (incorporated by
reference to Exhibit 4.1 to Duke Energy Progress, Inc.’s (formerly Carolina Power
& Light Company (d/b/a Progress Energy Carolinas, Inc.)) Current Report on
Form 8-K filed on March 12, 2013, File No. 1-3382).
Eighty-second Supplemental Indenture, dated as of March 1, 2014, between the
Company and The Bank of New York Mellon (formerly Irving Trust Company) and
Tina D. Gonzalez (successor to Frederick G. Herbst) and forms of global notes
(incorporated by reference to Exhibit 4.1 to Duke Energy Progress, Inc.’s Current
Report on Form 8-K filed on March 6, 2014, File No. 1-3382).
Eighty-third Supplemental Indenture, dated as of November 1, 2014, between
the Company and The Bank of New York Mellon (formerly Irving Trust Company)
and Tina D. Gonzalez (successor to Frederick G. Herbst) and forms of global
notes (incorporated by reference to Exhibit 4.1 to Duke Energy Progress, Inc.’s
Current Report on Form 8-K filed on November 20, 2014, File No. 1-3382).
Eighty-fifth Supplemental Indenture, dated as of August 1, 2015, (incorporated
by reference to Exhibit 4.1 to Duke Energy Progress, LLC’s Current Report on
Form 8-K filed on August 13, 2015, File No. 1-3382).
Eighty-sixth Supplemental Indenture, dated as of September 1, 2016,
(incorporated by reference to Exhibit 4.1 to registrant’s Current Report on Form
8-K filed on September 16, 2016, File No. 1-15929).
Eighty-seventh Supplemental Indenture, dated as of September 1, 2017
(incorporated by reference to Exhibit 4.1 to registrant’s Current Report on Form
8-K filed on September 8, 2017, File No. 1-3382).
Indenture (for Debt Securities) between Duke Energy Progress, Inc. (formerly
Carolina Power & Light Company) and The Bank of New York Mellon (successor
in interest to The Chase Manhattan Bank), as Trustee (incorporated by reference
to Exhibit 4(a) to registrant’s Current Report on Form 8-K filed on November 5,
1999, File No. 1-3382).
Indenture (for [Subordinated] Debt Securities) (open ended) (incorporated by
reference to Exhibit 4(a)(2) to Duke Energy Progress, Inc.’s (formerly Carolina
Power & Light Company (d/b/a Progress Energy Carolinas, Inc.)) Registration
Statement on Form S-3 filed on November 18, 2008, File No. 333-155418).
Indenture (for First Mortgage Bonds) between Duke Energy Florida, Inc.
(formerly Florida Power Corporation) and The Bank of New York Mellon (as
successor to Guaranty Trust Company of New York and The Florida National
Bank of Jacksonville), as Trustee, dated as of January 1, 1944, (incorporated by
reference to Exhibit B-18 to registrant’s Form A-2, File No. 2-5293).
E-9
PART IV Exhibit
Number
4.7.1
4.7.2
4.7.3
4.7.4
4.7.5
4.7.6
4.7.7
4.7.8
4.7.9
4.7.10
4.7.11
4.7.12
4.7.13
4.7.14
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
Seventh Supplemental Indenture (incorporated by reference to Exhibit 4(b) to
Duke Energy Florida, Inc.’s (formerly Florida Power Corporation) Registration
Statement on Form S-3 filed on September 27, 1991, File No. 33-16788).
Eighth Supplemental Indenture (incorporated by reference to Exhibit 4(c) to
Duke Energy Florida, Inc.’s (formerly Florida Power Corporation) Registration
Statement on Form S-3 filed on September 27, 1991, File No. 33-16788).
Sixteenth Supplemental Indenture (incorporated by reference to Exhibit 4(d) to
Duke Energy Florida, Inc.’s (formerly Florida Power Corporation) Registration
Statement on Form S-3 filed on September 27, 1991, File No. 33-16788).
Twenty-ninth Supplemental Indenture (incorporated by reference to Exhibit 4(c)
to Duke Energy Florida, Inc.’s (formerly Florida Power Corporation) Registration
Statement on Form S-3 filed on September 17, 1982, File No. 2-79832).
Thirty-eighth Supplemental Indenture, dated as of July 25, 1994, (incorporated
by reference to exhibit 4(f) to Duke Energy Florida, Inc.’s (formerly Florida Power
Corporation) Registration Statement on Form S-3 filed on August 29, 1994,
File No. 33-55273).
Forty-first Supplemental Indenture, dated as of February 1, 2003, (incorporated
by reference to Exhibit 4 to Duke Energy Florida, Inc.’s (formerly Duke Energy
Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report
on Form 8-K filed on February 21, 2003, File No. 1-3274).
Forty-second Supplemental Indenture, dated as of April 1, 2003, (incorporated
by reference to Exhibit 4 to Duke Energy Florida, Inc.’s (formerly Florida Power
Corporation (d/b/a Progress Energy Florida, Inc.)) Quarterly Report on Form 10-Q
for the quarter ended June 30, 2003, filed on August 11, 2003, File No. 1-3274).
Forty-third Supplemental Indenture, dated as of November 1, 2003,
(incorporated by reference to Exhibit 4 to Duke Energy Florida, Inc.’s (formerly
Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report
on Form 8-K filed on November 21, 2003, File No. 1-3274).
Forty-fourth Supplemental Indenture, dated as of August 1, 2004, (incorporated
by reference to Exhibit 4(m) to Duke Energy Florida, Inc.’s (formerly Florida Power
Corporation (d/b/a Progress Energy Florida, Inc.)) Annual Report on Form 10-K for
the year ended December 31, 2004, filed on March 16, 2005, File No. 1-3274).
Forty-sixth Supplemental Indenture, dated as of September 1, 2007,
(incorporated by reference to Exhibit 4 to Duke Energy Florida, Inc.’s (formerly
Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report
on Form 8-K filed on September 19, 2007, File No. 1-3274).
Forty-seventh Supplemental Indenture, dated as of December 1, 2007,
(incorporated by reference to Exhibit 4 to Duke Energy Florida, Inc.’s (formerly
Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report
on Form 8-K filed on December 13, 2007, File No. 1-3274).
Forty-eighth Supplemental Indenture, dated as of June 1, 2008, (incorporated
by reference to Exhibit 4 to Duke Energy Florida, Inc.’s (formerly Florida Power
Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report on Form 8-K
filed on June 18, 2008, File No. 1-3274).
Forty-ninth Supplemental Indenture, dated as of March 1, 2010, (incorporated
by reference to Exhibit 4 to Duke Energy Florida, Inc.’s (formerly Florida Power
Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report on Form 8-K
filed on March 25, 2010, File No. 1-3274).
Fiftieth Supplemental Indenture, dated as of August 11, 2011, (incorporated
by reference to Exhibit 4 to Duke Energy Florida, Inc.’s (formerly Florida Power
Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report on Form 8-K
filed on August 18, 2011, File No. 1-3274).
E-10
X
X
X
X
X
X
X
X
X
X
X
X
X
X
PART IV Exhibit
Number
4.7.15
4.7.16
4.8
4.8.1
4.9
4.10
4.10.1
4.10.2
4.11
4.11.1
4.11.2
4.11.3
4.11.4
Fifty-first Supplemental Indenture, dated as of November 1, 2012, (incorporated
by reference to Exhibit 4.1 to Duke Energy Florida, Inc.’s (formerly Florida Power
Corporation (d/b/a Progress Energy Florida, Inc.)) Current Report on Form 8-K
filed on November 20, 2012, File No. 1-3274).
Fifty-third Supplemental Indenture, dated as of September 1, 2016,
(incorporated by reference to Exhibit 4.1 to registrant’s Current Report on Form
8-K filed on September 9, 2016, File No. 1-03274).
Indenture (for Debt Securities) between Duke Energy Florida, Inc. (formerly
Florida Power Corporation (d/b/a Progress Energy Florida, Inc.)) and The Bank
of New York Mellon Trust Company, National Association (successor in interest
to J.P. Morgan Trust Company, National Association), as Trustee, dated as of
December 7, 2005, (incorporated by reference to Exhibit 4(a) to registrant’s
Current Report on Form 8-K filed on December 13, 2005, File No. 1-3274).
First Supplemental Indenture, dated as of December 12, 2017, (incorporated
by reference to Exhibit 4.1 to registrant’s Current Report on Form 8-K filed on
December 12, 2017, File No. 1-03274).
Indenture (for [Subordinated] Debt Securities) (open ended) (incorporated by
reference to Exhibit 4(a)(2) Duke Energy Florida, Inc.’s (formerly Florida Power
Corporation (d/b/a Progress Energy Florida, Inc.)) Registration Statement on
Form S-3 filed on November 18, 2008, File No. 333-155418).
Original Indenture (Unsecured Debt Securities) between Duke Energy Ohio, Inc.
(formerly The Cincinnati Gas & Electric Company) and The Bank of New York
Mellon Trust Company, N.A., as Successor Trustee, dated as of May 15, 1995,
(incorporated by reference to Exhibit 3 to registrant’s Form 8-A filed on
July 27, 1995, File No. 1-1232).
First Supplemental Indenture, dated as of June 1, 1995, (incorporated by
reference to Exhibit 4 B to Duke Energy Ohio, Inc.’s (formerly The Cincinnati Gas
& Electric Company) Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995, filed on August 11, 1995, File No. 1-1232).
Seventh Supplemental Indenture, dated as of June 15, 2003, (incorporated by
reference to Exhibit 4.1 to Duke Energy Ohio, Inc.’s (formerly The Cincinnati Gas
& Electric Company) Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003, filed on August 13, 2003, File No. 1-1232).
Original Indenture (First Mortgage Bonds) between Duke Energy Ohio, Inc.
(formerly The Cincinnati Gas & Electric Company) and The Bank of New York
Mellon Trust Company, N.A., as Successor Trustee, dated as of August 1, 1936,
(incorporated by reference to an exhibit to registrant’s Registration Statement
No. 2-2374).
Fortieth Supplemental Indenture, dated as of March 23, 2009, (incorporated by
reference to Exhibit 4.1 to Duke Energy Ohio, Inc.’s (formerly The Cincinnati Gas
& Electric Company) Current Report on Form 8-K filed on March 24, 2009,
File No. 1-1232).
Forty-second Supplemental Indenture, dated as of September 6, 2013,
(incorporated by reference to Exhibit 4.1 to Duke Energy Ohio, Inc.’s (formerly
The Cincinnati Gas & Electric Company) Current Report on Form 8-K filed on
September 6, 2013, File No. 1-1232).
Forty-fourth Supplemental Indenture, dated as of June 23, 2016, (incorporated
by reference to Exhibit 4.1 registrant’s Current Report on Form 8-K filed on
June 23, 2016, File No. 1-1232).
Forty-fifth Supplemental Indenture, dated as of March 27, 2017 (incorporated
by reference to Exhibit 4.1 to registrant’s Current Report on Form 8-K filed on
March 27,2017, File No. 1-01232).
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
X
X
X
X
X
X
X
X
X
X
X
X
X
E-11
PART IV Exhibit
Number
4.12
4.12.1
4.12.2
4.12.3
4.12.4
4.13
4.13.1
4.13.2
4.13.3
4.13.4
4.13.5
4.13.6
4.13.7
4.13.8
4.13.9
Indenture between Duke Energy Indiana, LLC (formerly PSI Energy, Inc.) and The
Bank of New York Mellon Trust Company, N.A., as Successor Trustee, dated as
of November 15, 1996, (incorporated by reference to Exhibit 4(v) to the Cinergy
Corp. Form 10–K for the year ended December 31, 1996, filed on March 27,
1997, File No. 1–11377).
Third Supplemental Indenture, dated as of March 15, 1998, (incorporated by
reference to Exhibit 4-w to Cinergy Corp.’s Annual Report on Form 10-K for the
year ended December 31, 1997, filed on March 27, 1998, File No. 1-11377).
Eighth Supplemental Indenture, dated as of September 23, 2003, (incorporated
by reference to Exhibit 4.2 to Duke Energy Indiana, LLC’s (formerly PSI Energy,
Inc.) Quarterly Report on Form 10-Q for the quarter ended September 30, 2003,
filed on November 13, 2003, File No. 1-3543).
Ninth Supplemental Indenture, dated as of October 21, 2005, (incorporated by
reference to Exhibit 4.7.3 to Duke Energy Indiana, LLC’s (formerly PSI Energy,
Inc.) Registration Statement on Form S-3 filed on September 29, 2010,
File No. 333-169633).
Tenth Supplemental Indenture, dated as of June 9, 2006, (incorporated by
reference to Exhibit 4.1 to Duke Energy Indiana, LLC’s (formerly PSI Energy, Inc.)
Current Report on Form 8-K filed on June 15, 2006, File No. 1-3543).
Original Indenture (First Mortgage Bonds) between Duke Energy Indiana, LLC
(formerly PSI Energy, Inc.) and Deutsche Bank National Trust Company, as
Successor Trustee, dated as of September 1, 1939, (filed as an exhibit in
File No. 70-258).
Tenth Supplemental Indenture, dated as of July 1, 1952, (filed as an exhibit in
File No. 2-9687).
Twenty-third Supplemental Indenture, dated as of January 1, 1977,
(filed as an exhibit in File No. 2-57828).
Twenty-fifth Supplemental Indenture, dated as of September 1, 1978, (filed as
an exhibit in File No. 2-62543).
Twenty-sixth Supplemental Indenture, dated as of September 1, 1978, (filed as
an exhibit in File No. 2-62543).
Thirtieth Supplemental Indenture, dated as of August 1, 1980, (filed as an
exhibit in File No. 2-68562).
Thirty-fifth Supplemental Indenture, dated as of March 30, 1984, (filed as an
exhibit to registrant’s Annual Report on Form 10-K for the year ended
December 31, 1984, File No. 1-3543).
Forty-sixth Supplemental Indenture, dated as of June 1, 1990, (filed as an
exhibit to registrant’s Annual Report on Form 10-K for the year ended
December 31, 1991, File No. 1-3543).
Forty-seventh Supplemental Indenture, dated as of July 15, 1991, (filed as an
exhibit to registrant’s Annual Report on Form 10-K for the year ended
December 31, 1991, File No. 1-3543).
Forty-eighth Supplemental Indenture, dated as of July 15, 1992, (filed as an
exhibit to registrant’s Annual Report on Form 10-K for the year ended
December 31, 1992, File No. 1-3543).
4.13.10
Fifty-second Supplemental Indenture, dated as of April 30, 1999, (incorporated
by reference to Exhibit 4 to Duke Energy Indiana, LLC’s (formerly PSI Energy,
Inc.) Quarterly Report on Form 10-Q for the quarter ended March 31, 1999,
filed on May 13, 1999, File No. 1-3543).
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
E-12
PART IV Exhibit
Number
4.13.11
4.13.12
4.13.13
4.13.14
4.13.15
4.13.16
4.13.17
4.13.18
4.13.19
4.13.20
4.13.21
4.13.22
4.14
Fifty-seventh Supplemental Indenture, dated as of August 21, 2008,
(incorporated by reference to Exhibit 4.1 to Duke Energy Indiana, LLC’s (formerly
PSI Energy, Inc.) Current Report Form 8-K filed on August 21, 2008,
File No. 1-3543).
Fifty-eighth Supplemental Indenture, dated as of December 19, 2008,
(incorporated by reference to Exhibit 4.8.12 to Duke Energy Indiana, LLC’s
(formerly PSI Energy, Inc.) Registration Statement on Form S-3 filed on
September 29, 2010, File No. 333-169633-02).
Fifty-ninth Supplemental Indenture, dated as of March 23, 2009, (incorporated
by reference to Exhibit 4.1 to Duke Energy Indiana, LLC’s (formerly PSI Energy,
Inc.) Current Report on Form 8-K filed on March 24, 2009, File No. 1-3543).
Sixtieth Supplemental Indenture, dated as of June 1, 2009, (incorporated by
reference to Exhibit 4.8.14 to Duke Energy Indiana, LLC’s (formerly PSI Energy,
Inc.) Registration Statement on Form S-3 filed on September 29, 2010,
File No. 333-169633-02).
Sixty-first Supplemental Indenture, dated as of October 1, 2009, (incorporated
by reference to Exhibit 4.8.15 to Duke Energy Indiana, LLC’s (formerly PSI
Energy, Inc.) Registration Statement on Form S-3 filed on September 29, 2010,
File No. 333-169633-02).
Sixty-second Supplemental Indenture, dated as of July 9, 2010, (incorporated by
reference to Exhibit 4.1 to Duke Energy Indiana, LLC’s (formerly PSI Energy, Inc.)
Current Report on Form 8-K filed on July 9, 2010, File No. 1-3543).
Sixty-third Supplemental Indenture, dated as of September 23, 2010,
(incorporated by reference to Exhibit 4.8.17 to Duke Energy Indiana, LLC’s
(formerly PSI Energy, Inc.) Registration Statement on Form S-3 filed on
September 29, 2010, File No. 333-169633-02).
Sixty-fourth Supplemental Indenture, dated as of December 1, 2011,
(incorporated by reference to Exhibit 4(d)(2)(xviii) to Duke Energy Indiana,
LLC’s (formerly PSI Energy, Inc.) Registration Statement on Form S-3 filed on
September 30, 2013, File No. 333-191462-03).
Sixty-fifth Supplemental Indenture, dated as of March 15, 2012, (incorporated
by reference to Exhibit 4.1 to Duke Energy Indiana, LLC’s (formerly PSI Energy,
Inc.) Current Report on Form 8-K filed on March 15, 2012, File No. 1-3543).
Sixty-sixth Supplemental Indenture, dated as of July 11, 2013, (incorporated by
reference to Exhibit 4.1 to Duke Energy Indiana, LLC’s (formerly PSI Energy, Inc.)
Current Report on Form 8-K filed on July 11, 2013, File No. 1-3543).
Sixty-seventh Supplemental Indenture, dated as of January 1, 2016, between
Duke Energy Indiana, Inc. and Deutsche Bank National Trust Company, as
Trustee, supplementing and amending the Indenture of Mortgage or Deed
of Trust, dated September 1, 1939, between Duke Energy Indiana, Inc. and
Deutsche Bank National Trust Company, as Trustee (incorporated by reference
to Exhibit 4.2 to Duke Energy Indiana, LLC’s (formerly PSI Energy, Inc.) Quarterly
Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 5,
2016, File No. 1-3543).
Sixty-eighth Supplemental Indenture, dated as of May 12, 2016, (incorporated
by reference to Exhibit 4.1 to registrant’s Current Report on Form 8-K filed on
May 12, 2016, File No. 1-3543).
Repayment Agreement between Duke Energy Ohio, Inc. (formerly The Cincinnati
Gas & Electric Company) and The Dayton Power and Light Company, dated as of
December 23, 1992, (filed with registrant’s Annual Report on Form 10-K for the
year ended December 31, 1992, File No. 1-1232).
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
X
X
X
X
X
X
X
X
X
X
X
X
X
E-13
PART IV Exhibit
Number
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
4.23
4.24
4.25
4.26
4.26.1
4.26.2
4.26.3
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
Unsecured Promissory Note between Duke Energy Indiana, LLC (formerly PSI
Energy, Inc.) and the Rural Utilities Service, dated as of October 14, 1998,
(incorporated by reference to Exhibit 4 to registrant’s Annual Report on Form
10-K for the year ended December 31, 1998, filed on March 8, 1999,
File No. 1-3543).
6.302% Subordinated Note between Duke Energy Indiana, LLC (formerly PSI
Energy, Inc.) and Cinergy Corp., dated as of February 5, 2003, (incorporated by
reference to Exhibit 4(yyy) to registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2003, filed on May 12,2003, File No. 1-3543).
6.403% Subordinated Note between Duke Energy Indiana, LLC (formerly PSI
Energy, Inc.) and Cinergy Corp., dated as of February 5, 2003, (incorporated by
reference to Exhibit 4(zzz) to registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2003, filed on May 12, 2003, File No. 1-3543).
Contingent Value Obligation Agreement between Progress Energy, Inc. (formerly
CP&L Energy, Inc.) and The Chase Manhattan Bank, as Trustee, dated as of
November 30, 2000, (incorporated by reference to Exhibit 4.1 to registrant’s
Current Report on Form 8-K filed on December 1, 2000, File No. 1-3382).
Form of 3.47% Series A Senior Notes due July 16, 2027 (incorporated by
reference to Exhibit 4.1 to registrant’s Current Report on Form 8-K filed on
March 29, 2012, File No. 1-06196).
Form of 3.57% Series B Senior Notes due July 16, 2027 (incorporated by
reference to Exhibit 4.2 to registrant’s Current Report on Form 8-K filed on
March 29, 2012, File No. 1-06196).
Form of 4.65% Senior Notes due 2043 (incorporated by reference to Exhibit
4.2 to registrant’s Current Report on Form 8-K filed on August 1, 2013, File No.
1-06196).
Form of 4.10% Senior Notes due 2034 (incorporated by reference to Exhibit 4.2
to registrant’s Current Report on Form 8-K filed on September 18, 2014,
File No. 1-06196).
Form of 3.60% Senior Notes due 2025 (incorporated by reference to Exhibit 4.2
to registrant’s Current Report on Form 8-K filed on September 14, 2015,
File No. 1-06196).
Form of 3.64% Senior Notes due 2046 (incorporated by reference to Exhibit 4.2
to registrant’s Current Report on Form 8-K filed on July 28, 2016,
File No. 1-06196).
Form of 4.24% Series B Senior Notes due June 6, 2021 (incorporated by
reference to Exhibit 4.2 to registrant’s Current Report on Form 8-K filed on
May 12, 2011, File No. 1-06196).
Indenture, dated as of April 1, 1993, between Piedmont and The Bank of New
York Mellon Trust Company, N.A. (as successor to Citibank, N.A.), Trustee
(incorporated by reference to Exhibit 4.1 to registrant’s Registration Statement
on Form S-3 filed on May 16, 1995, File No. 33-59369).
Second Supplemental Indenture, dated as of June 15, 2003, between Piedmont
and Citibank, N.A., Trustee (incorporated by reference to Exhibit 4.3 to
registrant’s Registration Statement on Form S-3 filed on June 19, 2003,
File No. 333-106268).
Fourth Supplemental Indenture, dated as of May 6, 2011, between Piedmont
Natural Gas Company, Inc. and The Bank of New York Mellon Trust Company,
N.A., as trustee (incorporated by reference to Exhibit 4.2 to registrant’s
Registration Statement on Form S-3-ASR filed on July 7, 2011,
File No. 333-175386).
Fifth Supplemental Indenture, dated August 1, 2013, between the Company and
The Bank of New York Mellon Trust Company, N.A. (incorporated by reference to
Exhibit 4.1 to registrant’s Current Report on Form 8-K filed on August 1, 2013,
File No. 1-06196).
E-14
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
PART IV Exhibit
Number
4.26.4
4.26.5
4.26.6
4.27
4.28
4.29
4.30
4.31
4.32
4.33
4.34
10.1**
10.1.1**
10.1.2**
10.1.3**
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
X
X
X
X
X
X
X
X
X
X
X
Sixth Supplemental Indenture, dated September 18, 2014, between the
Company and The Bank of New York Mellon Trust Company, N.A. (incorporated
by reference to Exhibit 4.1 to registrant’s Current Report on Form 8-K filed on
September 18, 2014, File No. 1-06196).
Seventh Supplemental Indenture, dated September 14, 2015, between the
Company and The Bank of New York Mellon Trust Company, N.A. (incorporated
by reference to Exhibit 4.1 to registrant’s Current Report on Form 8-K filed on
September 14, 2015, File No. 1-06196).
Eighth Supplemental Indenture, dated July 28, 2016, between the Company and
The Bank of New York Mellon Trust Company, N.A. (incorporated by reference
to Exhibit 4.1 to registrant’s Current Report on Form 8-K filed on July 28, 2016,
File No. 1-06196).
Medium-Term Note, Series A, dated as of October 6, 1993 (incorporated by
reference to Exhibit 4.8 to registrant’s Annual Report on Form 10-K for the
year ended October 31, 1993, File No. 1-06196).
Medium-Term Note, Series A, dated as of September 19, 1994 (incorporated by
reference to Exhibit 4.9 to registrant’s Annual Report on Form 10-K for the
year ended October 31, 1994, File No. 1-06196).
Form of 6% Medium-Term Note, Series E, dated as of December 19, 2003
(incorporated by reference to Exhibit 99.2 to registrant’s Current Report on
Form 8-K filed on December 23, 2003, File No. 1-06196).
Form of Master Global Note (incorporated by reference to Exhibit 4.4 to
registrant’s Registration Statement on Form S-3 filed on April 30, 1997,
File No. 333-26161).
Pricing Supplement of Medium-Term Notes, Series B, dated October 3, 1995
(incorporated by reference to Exhibit 4.10 to registrant’s Annual Report on
Form 10-K for the year ended October 31, 1995, File No. 1-06196).
Pricing Supplement of Medium-Term Notes, Series B, dated October 4, 1996
(incorporated by reference to Exhibit 4.11 to registrant’s Annual Report on Form
10-K for the year ended October 31, 1996, File No. 1-06196).
Pricing Supplement of Medium-Term Notes, Series C, dated September 15, 1999
(incorporated by reference to Rule 424(b)(3) Pricing Supplement to Form S-3
Registration Statement Nos. 33-59369 and 333-26161).
Agreement of Resignation, Appointment and Acceptance dated as of March 29,
2007, by and among Piedmont Natural Gas Company, Inc., Citibank, N.A., and
The Bank of New York Trust Company, N.A. (incorporated by reference to Exhibit
4.1 to registrant’s Quarterly Report on Form 10-Q for the quarter ended April 30,
2007, filed on June 8, 2007, File No. 1-06196).
Directors’ Charitable Giving Program (incorporated by reference to Exhibit 10-P
to Duke Energy Carolinas, LLC’s Annual Report on Form 10-K for the year ended
December 31, 1992, File No. 1-4928).
Amendment to Directors’ Charitable Giving Program, dated as of June 18, 1997,
(incorporated by reference to Exhibit 10-1.1 to Duke Energy Carolinas, LLC’s
Annual Report on Form 10-K for the year ended December 31, 2003, filed on
March 15, 2004, File No. 1-4928).
Amendment to Directors’ Charitable Giving Program, dated as of July 28, 1997,
(incorporated by reference to Exhibit 10-1.2 to Duke Energy Carolinas, LLC’s
Annual Report on Form 10-K for the year ended December 31, 2003, filed on
March 15, 2004, File No. 1-4928).
Amendment to Directors’ Charitable Giving Program, dated as of February 18,
1998, (incorporated by reference to Exhibit 10-1.3 to Duke Energy Carolinas,
LLC’s Annual Report on Form 10-K for the year ended December 31, 2003,
filed on March 15, 2004, File No. 1-4928).
E-15
X
X
X
X
PART IV Exhibit
Number
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
X
X
X
X
Agreements with Piedmont Electric Membership Corporation, Rutherford Electric
Membership Corporation and Blue Ridge Electric Membership Corporation
(incorporated by reference to Exhibit 10.15 to Duke Energy Corporation’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2006,
filed on August 9, 2006, File No. 1-32853).
Asset Purchase Agreement between Saluda River Electric Cooperative, Inc., as
Seller, and Duke Energy Carolinas, LLC, as Purchaser, dated as of December 20,
2006, (incorporated by reference to Exhibit 10.1 to registrant’s Current Report
on Form 8-K filed on December 27, 2006, File No. 1-4928).
Settlement between Duke Energy Corporation, Duke Energy Carolinas, LLC
and the U.S. Department of Justice resolving Duke Energy’s used nuclear fuel
litigation against the U.S. Department of Energy, dated as of March 6, 2007,
(incorporated by reference to Item 8.01 to registrant’s Current Report on Form
8-K filed on March 12, 2007, File No. 1-4928).
ATM Equity Offering Sales Agreement dated January 7, 2015 between the
Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated
by reference to Exhibit 1.1 to registrant’s Current Report on Form 8-K filed on
January 7, 2015, File No. 1-06196).
Letter Agreement between Georgia Natural Gas Company and Piedmont Energy
Company dated February 12, 2016 (incorporated by reference to Exhibit 10.1 to
registrant’s Current Report on Form 8-K filed on February 18, 2016,
File No. 1-06196).
Assignment of Membership Interests dated as of October 3, 2016 between
Piedmont ACP Company, LLC and Dominion Atlantic Coast Pipeline, LLC,
(incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form
8-K filed on October 7, 2016, File No. 1-06196).
Agreements between Piedmont Electric Membership Corporation, Rutherford
Electric Membership Corporation and Blue Ridge Electric Membership
Corporation (incorporated by reference to Exhibit 10.15 to Duke Energy
Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2006 filed on August 9, 2006, File No. 1-32853).
Conveyance and Assignment Agreement, dated as of October 3, 2016, by
and between Piedmont Energy Company and Georgia Natural Gas Company
(incorporated by reference to Exhibit 10.1 to registrant’s Current Report on
Form 8-K filed on October 3, 2016, File No. 1-06196).
Engineering, Procurement and Construction Management Agreement between
Duke Energy Indiana, LLC (formerly PSI Energy, Inc.) and Bechtel Power
Corporation, dated as of December 15, 2008, (incorporated by reference to
Exhibit 10.16 to registrant’s Annual Report on Form 10-K for the year ended
December 31, 2008, filed on March 13, 2009, File No. 1-3543). (Portions of the
exhibit have been omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment pursuant to Rule
24b-2 under the Securities Exchange Act of 1934, as amended.)
Formation and Sale Agreement between Duke Ventures, LLC, Crescent
Resources, LLC, Morgan Stanley Real Estate Fund V U.S. L.P., Morgan Stanley
Real Estate Fund V Special U.S., L.P., Morgan Stanley Real Estate Investors
V U.S., L.P., MSP Real Estate Fund V, L.P., and Morgan Stanley Strategic
Investments, Inc., dated as of September 7, 2006, (incorporated by reference
to Exhibit 10.3 to Duke Energy Corporation’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2006, filed on November 9, 2006,
File No. 1-32853).
Operating Agreement of Pioneer Transmission, LLC (incorporated by reference
to Exhibit 10.1 to Duke Energy Corporation’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2008, filed on November 7, 2008,
File No. 1-32853).
X
X
E-16
X
X
X
X
X
PART IV Exhibit
Number
10.13**
10.14
10.15**
10.16
10.16.1
10.16.2
10.16.3
Amended and Restated Duke Energy Corporation Directors’ Saving Plan, dated
as of January 1, 2014, (incorporated by reference to Exhibit 10.32 to Duke
Energy Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2013, filed on February 28, 2014, File No. 1-32853).
Engineering, Procurement and Construction Management Agreement between
Duke Energy Indiana, LLC (formerly PSI Energy, Inc.) and Bechtel Power
Corporation, dated as of December 15, 2008, (incorporated by reference to Item
1.01 to registrant’s Current Report on Form 8-K filed on December 19, 2008,
File Nos. 1-32853 and 1-3543). (Portions of the exhibit have been omitted and
filed separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.)
Duke Energy Corporation Executive Severance Plan (incorporated by reference
to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed on January 13,
2011, File No. 1-32853).
$6,000,000,000 Five-Year Credit Agreement between Duke Energy Corporation,
Duke Energy Carolinas, LLC, Duke Energy Ohio, Inc., Duke Energy Indiana, LLC,
Duke Energy Kentucky, Inc., Carolina Power and Light Company d/b/a Duke
Energy Progress, Inc. and Florida Power Corporation, d/b/a Duke Energy Florida,
Inc., as Borrowers, the lenders listed therein, Wells Fargo Bank, National
Association, as Administrative Agent, Bank of America, N.A. and The Royal
Bank of Scotland plc, as Co-Syndication Agents and Bank of China, New York
Branch, Barclays Bank PLC, Citibank, N.A., Credit Suisse AG, Cayman Islands
Branch, Industrial and Commercial Bank of China Limited, New York Branch,
JPMorgan Chase Bank, N.A. and UBS Securities LLC, as Co-Documentation
Agents, dated as of November 18, 2011, (incorporated by reference to Exhibit
10.1 to registrant’s Current Report on Form 8-K filed on November 25, 2011,
File Nos. 1-32853, 1-4928, 1-1232 and 1-3543).
Amendment No. 1 and Consent between Duke Energy Corporation, Duke
Energy Carolinas, LLC, Duke Energy Ohio, Inc., Duke Energy Indiana, LLC, Duke
Energy Kentucky, Inc., Duke Energy Progress, Inc., Duke Energy Florida, Inc.,
and Wells Fargo Bank, National Association, dated as of December 18, 2013,
(incorporated by reference to Exhibit 10.1 to registrant’s Current Report on
Form 8-K filed on December 23, 2013, File Nos. 1-32853, 1-4928, 1-3382,
1-3274, 1-1232 and 1-3543).
Amendment No. 2 and Consent between Duke Energy Corporation, Duke Energy
Carolinas, LLC, Duke Energy Ohio, Inc., Duke Energy Indiana, LLC, Duke Energy
Kentucky, Inc., Duke Energy Progress, Inc., and Duke Energy Florida, Inc., the
Lenders party hereto, the issuing Lenders party hereto, Wells Fargo Bank,
National Association, as Administrative Agent and Swingline Lender, dated as
of January 30, 2015, (incorporated by reference to Exhibit 10.1 of registrant’s
Current Report on Form 8-K filed on February 5, 2015, File Nos. 1-32853,
1-4928, 1-1232, 1-3543, 1-3382 and 1-3274).
Amendment No. 3 and Consent, dated as of March 16, 2017, among the
registrants, the Lenders party thereto, the issuing Lenders party thereto, and
Wells Fargo Bank, National Association, as Administrative Agent and Swingline
Lender (incorporated by reference to Exhibit 10.1 to registrants’ Current Report
on Form 8-K filed on March 17, 2017, File Nos. 1-32853, 1-04928, 1-03382,
1-03274, 1-01232, 1-03543, 1-06196).
10.17**
Duke Energy Corporation 2010 Long-Term Incentive Plan (incorporated by
reference to Appendix A to registrant’s Form DEF 14A filed on March 22, 2010,
File No. 1-32853).
10.17.1** Amendment to Duke Energy Corporation 2010 Long-Term Incentive Plan
(incorporated by reference to Exhibit 10.3 to registrant’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2012, filed on August 8, 2012,
File No. 1-32853).
E-17
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
PART IV Exhibit
Number
10.18**
10.19**
10.20**
10.21**
10.22**
10.23**
10.24**
10.25**
10.26**
10.27*
10.28
10.29
10.30**
10.31**
10.32
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Duke Energy Corporation 2015 Long-Term Incentive Plan (incorporated by reference
to Appendix C to registrant’s DEF 14A filed on March 26, 2015, File No. 1-32853).
Form of Restricted Stock Unit Award Agreement of Duke Energy Corporation
under the Duke Energy Corporation 2015 Long-Term Incentive Plan (incorporated
by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed on
May 12, 2015, File No. 1-32853).
Form of Performance Award Agreement of Duke Energy Corporation under
the Duke Energy Corporation 2015 Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.2 to registrant’s Current Report on Form 8-K filed on
May 12, 2015, File No. 1-32853).
Form of Performance Award Agreement of Duke Energy Corporation under
the Duke Energy Corporation 2015 Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed on
February 18, 2016, File No. 1-32853).
Form of Restricted Stock Unit Award Agreement of Duke Energy Corporation
under the Duke Energy Corporation 2015 Long-Term Incentive Plan (incorporated
by reference to Exhibit 10.2 to registrant’s Current Report on Form 8-K filed on
February 18, 2016, File No. 1-32853).
Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit
10.4 to registrant’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2017 filed on May 9, 2017, File No. 1-32853).
Restricted Stock Unit Award Agreement (incorporated by reference to
Exhibit 10.24 to registrant’s Annual Report on Form 10-K for the year ended
December 31, 2017, filed on February 21, 2018, File No. 1-32853).
Performance-Based Retention Award Agreement (incorporated by reference to
Exhibit 10.2 to registrant’s Current Report on Form 10-Q for the quarter ended
March 31, 2017 filed on May 9, 2017, File No. 1-32853).
Performance Award Agreement (incorporated by reference to Exhibit 10.3 to
registrant’s Current Report on Form 10-Q for the quarter ended March 31, 2017
filed on May 9, 2017, File No. 1-32853).
Performance Award Agreement (incorporated by reference to Exhibit 10.27
to registrant’s Annual Report on Form 10-K for the year ended December 31,
2017, filed on February 21, 2018, File No. 1-32853).
Settlement Agreement between Duke Energy Corporation, the North Carolina
Utilities Commission Staff and the North Carolina Public Staff, dated as of
November 28, 2012, (incorporated by reference to Exhibit 10.1 to registrant’s
Current Report on Form 8-K filed on November 29, 2012, File No. 1-32853).
Settlement Agreement between Duke Energy Corporation and the North Carolina
Attorney General, dated as of December 3, 2012, (incorporated by reference
Item 7.01 to registrant’s Current Report on Form 8-K filed on December 3,
2012, File No. 1-32853).
Form of Change-in-Control Agreement (incorporated by reference to Exhibit
10.58 to Duke Energy Corporation’s Annual Report on Form 10-K for the
year ended December 31, 2012, filed on March 1, 2013, File No. 1-32853).
Amended and Restated Duke Energy Corporation Executive Cash Balance Plan,
dated as of January 1, 2014, (incorporated by reference to Exhibit 10.52 to Duke
Energy Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2013, filed on February 28, 2014, File No. 1-32852).
Purchase, Construction and Ownership Agreement, dated as of July 30, 1981,
between Duke Energy Progress, Inc. (formerly Carolina Power & Light Company)
and North Carolina Municipal Power Agency Number 3 and Exhibits, together
with resolution, dated as of December 16, 1981, changing name to North
Carolina Eastern Municipal Power Agency, amending letter, dated as of February
18, 1982, and amendment, dated as of February 24, 1982, (incorporated by
reference to Exhibit 10(a) to registrant’s File No. 33-25560).
E-18
X
PART IV Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
X
X
X
X
X
X
X
X
X
X
Exhibit
Number
10.33
10.34
10.35
10.36**
10.37**
10.38**
10.39
Operating and Fuel Agreement, dated as of July 30, 1981, between Duke Energy
Progress, Inc. (formerly Carolina Power & Light Company) and North Carolina
Municipal Power Agency Number 3 and Exhibits, together with resolution, dated
as of December 16, 1981, changing name to North Carolina Eastern Municipal
Power Agency, amending letters, dated as of August 21, 1981, and December
15, 1981, and amendment, dated as of February 24, 1982, (incorporated by
reference to Exhibit 10(b) to registrant’s File No. 33-25560).
Power Coordination Agreement, dated as of July 30, 1981, between Duke Energy
Progress, Inc. (formerly Carolina Power & Light Company) and North Carolina
Municipal Power Agency Number 3 and Exhibits, together with resolution, dated
as of December 16, 1981, changing name to North Carolina Eastern Municipal
Power Agency and amending letter, dated as of January 29, 1982, (incorporated
by reference to Exhibit 10(c) to registrant’s File No. 33-25560).
Amendment, dated as of December 16, 1982, to Purchase, Construction
and Ownership Agreement, dated as of July 30, 1981, between Duke Energy
Progress, Inc. (formerly Carolina Power & Light Company) and North Carolina
Eastern Municipal Power Agency (incorporated by reference to Exhibit 10(d)
to registrant’s File No. 33-25560).
Progress Energy, Inc. 2007 Equity Incentive Plan (incorporated by reference
to Exhibit C to registrant’s Form DEF 14A filed on March 30, 2007,
File No. 1-15929).
Form of Letter Agreement executed by certain officers of Progress Energy, Inc.,
waiving certain rights under Progress Energy, Inc.’s Management Change-in-
Control Plan and their employment agreements, dated as of January 8, 2011,
(incorporated by reference to Exhibit 10.1 to registrant’s Current Report on
Form 8-K filed on January 10, 2011, File No. 1-15929).
Progress Energy, Inc. Management Change-in-Control Plan, Amended and
Restated, effective July 13, 2011, (incorporated by reference to Exhibit 10(d) to
registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30,
2011, filed on November 8, 2011, File Nos. 1-15929, 1-3382 and 1-3274).
Precedent and Related Agreements between Duke Energy Florida, Inc. (formerly
Florida PowerCorporation d/b/a Progress Energy Florida, Inc. (“PEF”)), Southern
Natural Gas Company, FloridaGas Transmission Company (“FGT”), and BG LNG
Services, LLC (“BG”), including:a) Precedent Agreement between Southern
Natural Gas Company and PEF, dated as ofDecember 2, 2004;b) Gas Sale and
Purchase Contract between BG and PEF, dated as of December 1, 2004;c)
Interim Firm Transportation Service Agreement by and between FGT and PEF,
dated as ofDecember 2, 2004;d) Letter Agreement between FGT and PEF,
dated as of December 2, 2004, andFirm Transportation Service Agreement
between FGT and PEF to be entered into upon satisfactionof certain conditions
precedent;e) Discount Agreement between FGT and PEF, dated as of December
2, 2004;f) Amendment to Gas Sale and Purchase Contract between BG and
PEF, dated as of January 28,2005; andg) Letter Agreement between FGT and
PEF, dated as of January 31, 2005, (incorporated byreference to Exhibit 10.1 to
registrant’s Current Report on Form 8-K/A filed on March 15, 2005, FileNos.
1-15929 and 1-3274). (Portions of the exhibit have been omitted and filed
separately with theSecurities and Exchange Commission pursuant to a request
for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.)
E-19
PART IV Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
X
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
X
Exhibit
Number
10.40
Engineering, Procurement and Construction Agreement between Duke Energy
Florida, Inc. (formerly Florida Power Corporation d/b/a/ Progress Energy Florida,
Inc.), as owner, and a consortium consisting of Westinghouse Electric Company
LLC and Stone & Webster, Inc., as contractor, for a two-unit AP1000 Nuclear
Power Plant, dated as of December 31, 2008, (incorporated by reference to
Exhibit 10.1 to registrant’s Current Report on Form 8-K filed on March 2, 2009,
File Nos. 1-15929 and 1-3274). (Portions of the exhibit have been omitted and
filed separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.)
10.41**
Employment Agreement between Duke Energy Corporation and Lynn J. Good,
dated as of June 17, 2013, (incorporated by reference to Exhibit 10.1 to Duke
Energy Corporation’s Current Report on Form 8-K filed on June 18, 2013,
File No. 1-32853).
10.41.1** Amendment to Employment Agreement between Duke Energy Corporation and
Lynn J. Good, dated as of June 25, 2015, (incorporated by reference to Exhibit
10.1 to Duke Energy Corporation’s Current Report on Form 8-K filed on June 29,
2015, File No. 1-32853).
10.42**
10.43**
10.44**
10.44.1
10.45
10.46
10.47
10.48
10.49
Duke Energy Corporation Executive Short-Term Incentive Plan, effective February
25, 2013, (incorporated by reference to Exhibit 10.1 to Duke Energy Corporation’s
Current Report on Form 8-K filed on May 7, 2013, File No. 1-32853).
Duke Energy Corporation 2017 Director Compensation Program Summary
(incorporated by reference to Exhibit 10.3 to Duke Energy Corporation’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 filed on
August 3, 2017, File No. 1-32853).
Amended and Restated Duke Energy Corporation Executive Savings Plan, dated
as of January 1, 2014, (incorporated by reference to Exhibit 10.82 to Duke
Energy Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2013, filed on February 28, 2014, File No. 1-32853).
Amendment to Duke Energy Corporation Executive Savings Plan, effective as
of January 1, 2014 (incorporated by reference to Exhibit 10.1 to Duke Energy
Corporation’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2017 filed on November 3, 2017, File No. 1-32853).
Agreement between Duke Energy SAM, LLC, Duke Energy Ohio, Inc., Duke Energy
Commercial Enterprise, Inc. and Dynegy Resource I, LLC, dated as of August 21,
2014, (incorporated by reference to Exhibit 10.61 to Duke Energy Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2014,
filed on March 2, 2015, File No. 1-32853).
Asset Purchase Agreement between Duke Energy Progress, Inc. and North
Carolina Eastern Municipal Power Agency, dated as of September 5, 2014,
(incorporated by reference to Exhibit 10.62 to Duke Energy Corporation’s Annual
Report on Form 10-K for the year ended December 31, 2014, filed on March 2,
2015, File No. 1-32853).
Change in Control Agreement between Duke Energy Corporation and Lloyd M. Yates,
dated as of April 30, 2014, (incorporated by reference to Exhibit 10.1 to Duke Energy
Corporation’s Current Report on Form 8-K filed on May 6, 2014, File No. 1-32853).
Accelerated Stock Repurchase Program executed by Goldman, Sachs & Co.,
and JPMorgan Chase Bank, N.A. on April 6, 2015, under an agreement with
Duke Energy Corporation (incorporated by reference to Exhibit 10.1 to Duke
Energy Corporation’s Current Report on Form 8-K filed on April 6, 2015,
File No. 1-32853).
Plea Agreement between Duke Energy Corporation and the Court of the Eastern
District of North Carolina in connection with the May 14, 2015, Dan River
Grand Jury Settlement (incorporated by reference to Exhibit 10.3 to Duke Energy
Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2015, filed on August 7, 2015, File No. 1-32853).
X
X
X
X
X
X
X
X
X
X
X
E-20
X
X
PART IV Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
Exhibit
Number
10.50
10.51
10.52
10.53
10.54**
10.55**
10.56**
Plea Agreement between Duke Energy Corporation and the Court of the Eastern
District of North Carolina in connection with the May 14, 2015, Dan River
Grand Jury Settlement (incorporated by reference to Exhibit 10.4 to Duke Energy
Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2015, filed on August 7, 2015, File No. 1-32853).
$1,500,000,000 Amended and Restated Term Loan Agreement among Duke
Energy Corporation, as Borrower, the Lenders listed therein, The Bank of Tokyo-
Mitsubishi UFJ, Ltd., as Administrative Agent, and The Bank of Tokyo-Mitsubishi
UFJ, Ltd., Santander Bank, N.A. and TD Bank, N.A., as Joint Lead Arrangers
and Bookrunners, dated as of August 1, 2016, (incorporated by reference to
Exhibit 10.1 to Duke Energy Corporation’s Quarterly Report on Form 10-Q for the
quarter ended June 30,2016, filed on August 4, 2016, File No. 1-32853).
Purchase and Sale Agreement by and among Duke Energy International Group
S.à.r.l., Duke Energy International Brazil Holdings S.à.r.l. and China Three Gorges
(Luxembourg) Energy S.à.r.l., dated as of October 10, 2016, (incorporated by
reference to Exhibit 2.1 to registrant’s Current Report on Form 8-K filed on
October 13, 2016, File No. 1-32853).
Purchase and Sale Agreement by and among Duke Energy Brazil Holdings
II, C.V., Duke Energy International Uruguay Investments SRL, Duke Energy
International Group S.à.r.l., Duke Energy International España Holdings SL,
Duke Energy International Investments No. 2 Ltd., ISQ Enerlam Aggregator, L.P.,
and Enerlam (UK) Holdings Ltd., dated as of October 10, 2016, (incorporated
by reference to Exhibit 2.2. to registrant’s Current Report on Form 8-K filed on
October 13, 2016, File No. 1-32853).
Amended and Restated Employment Agreement, dated May 25, 2012, between
Piedmont Natural Gas Company, Inc. and Franklin H. Yoho (incorporated by
reference to Exhibits 10.1 and 10.2 to Piedmont Natural Gas Company, Inc.’s
Quarterly Report on Form 10–Q for the quarter ended July 31, 2012, filed on
September 7, 2012, File No. 1–06196).
Severance Agreements with Thomas E. Skains and Franklin H. Yoho, dated
September 4, 2007, (incorporated by reference to Exhibits 10.2 and 10.2a to
Piedmont Natural Gas Company, Inc’s Quarterly Report on Form 10-Q for the
quarter ended July 31, 2007, filed on September 7, 2007, File No. 1-06196).
Piedmont Natural Gas Company, Inc. Defined Contribution Restoration Plan,
dated as of December 8, 2008, effective January 1, 2009, (incorporated by
reference to Exhibit 10.2 to registrant’s Quarterly Report on Form 10-Q for the
quarter ended January 31, 2009, filed on March 9, 2009, File No. 1-06196).
10.56.1** Instrument of Amendment for Piedmont Natural Gas Company, Inc. Defined
Contribution Restoration Plan, dated as of January 23, 2012, by Piedmont
Natural Gas Company, Inc. (incorporated by reference to Exhibit 10.1 to
registrant’s Quarterly Report on Form 10-Q for the quarter ended January 31,
2012, filed on March 9, 2012, File No. 1-06196).
10.56.2** Instrument of Second Amendment for Piedmont Natural Gas Company, Inc.
Defined Contribution Restoration Plan, dated September 15, 2016 (incorporated
by reference to Exhibit 10.63.2 to registrant’s Annual Report on Form 10-K
for the year ended December 31, 2016 filed on February 24, 2017, File No.
1-32853).
10.57**
Piedmont Natural Gas Company, Inc. Incentive Compensation Plan
(incorporated by reference to Exhibit 10.64 to registrant’s Annual Report on
Form 10-K for the year ended December 31, 2016 filed on February 24 2017,
File No. 1-32853).
10.57.1** First Amendment to Piedmont Natural Gas Company, Inc. Incentive
Compensation Plan (incorporated by reference to Exhibit 4.2 to registrant’s
Registration Statement on Form S-8 filed on October 3, 2016,
File No. 1-32853).
E-21
X
X
X
X
X
X
X
X
X
X
X
PART IV Exhibit
Number
10.58**
10.59**
10.60**
10.61**
10.62
10.62.1
10.63
10.64
10.65
10.66
10.66.1
Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
X
X
X
X
X
X
X
Form of Performance Unit Award Agreement (incorporated by reference to
Exhibit 10.4 to registrant’s Quarterly Report on Form 10-Q for the quarter ended
January 31, 2016, filed on March 9, 2016, File No. 1-06196).
Waiver of Certain Rights to Terminate for Good Reason between Duke Energy
Corporation and Franklin H. Yoho (incorporated by reference to Exhibit 10.66 to
registrant’s Annual Report on Form 10-K for the year ended December 31, 2016
filed on February 24, 2017, File No. 1-32853).
Notice of Non-Renewal of Employment Agreement between Duke Energy
Corporation and Franklin H. Yoho (incorporated by reference to Exhibit 10.67 to
registrant’s Annual Report on Form 10-K for the year ended December 31, 2016
filed on February 24, 2017, File No. 1-32853).
Retention Award Agreement, dated as of October 24, 2015, between Duke
Energy Corporation and Franklin H. Yoho (incorporated by reference to Exhibit
10.68 to registrant’s Annual Report on Form 10-K for the year ended
December 31, 2016 filed on February 24, 2017, File No. 1-32853).
Confirmation of Forward Sale Transaction, dated as of March 1, 2016, between
Duke Energy Corporation and Barclays Capital Inc. (incorporated by referenced
to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed on March 7,
2016, File No. 1-32853).
Additional Confirmation of Forward Sale Transaction, dated as of March 2,
2016, between Duke Energy Corporation and Barclays Capital Inc. (incorporated
by reference to Exhibit 10.2 to registrant’s Current Report on Form 8-K filed on
March 7, 2016, File No. 1-32853).
$1,000,000,000 Credit Agreement, dated as of June 14, 2017, among Duke
Energy Corporation, the lenders listed therein, The Bank of Nova Scotia, as
Administrative Agent, PNC Bank, National Association, Sumitomo Mitsui
Banking Corporation and TD Bank, N.A., as C0-Syndication Agents, and Bank
of China, New York Branch, BNP Paribas, Santander Bank, N.A. and U.S. Bank
National Association, as Co-Documentation Agents (incorporated by reference
to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed on June 14,
2017, File No. 1-32853).
$250,000,000 Term Loan Credit Agreement, dated as of June 14, 2017, among
Piedmont Natural Gas Company, Inc. the lenders listed therein, U.S. Bank
National Association, as Administrative Agent, Branch Banking and Trust
Company and Regions Bank, as Co-Syndication Agents and PNC Bank, National
Association, as Documentation Agent (incorporated by reference to Exhibit 10.1
to registrant’s Current Report on Form 8-K filed on June 14, 2017,
File No. 1-06196).
Note Purchase Agreement, dated as of May 6, 2011, among Piedmont Natural
Gas Company, Inc. and the Purchasers party thereto (incorporated by reference
to Exhibit 10 to registrant’s Current Report on Form 8-K filed on May 12, 2011,
File No. 1-06196).
Amended and Restated Limited Liability Company Agreement of Constitution
Pipeline Company, LLC dated April 9, 2012, by and among Williams Partners
Operating LLC and Cabot Pipeline Holdings LLC (incorporated by reference to
Exhibit 10.1 to registrant’s Quarterly Report on Form 10-Q for the quarter ended
January 31, 2013, filed on March 6, 2013, File No. 1-06196).
First Amendment to Amended and Restated Limited Liability Company
Agreement of Constitution Pipeline Company, LLC, dated as of November 9,
2012, by and among Constitution Pipeline Company, LLC, Williams Partners
Operating LLC, Cabot Pipeline Holdings LLC, and Piedmont Constitution
Pipeline Company, LLC (incorporated by reference to Exhibit 10.2 to registrant’s
Quarterly Report on Form 10-Q for the quarter ended January 31, 2013,
filed on March 6, 2013, File No. 1-06196).
E-22
X
X
X
X
PART IV Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
Exhibit
Number
10.66.2
10.67
10.68
12.1
12.2
12.3
12.4
12.5
12.6
12.7
12.8
21
Second Amendment to Amended and Restated Limited Liability Company
Agreement of Constitution Pipeline Company, LLC, dated as of May 29, 2013,
by and among Constitution Pipeline Company, LLC, Williams Partners Operating
LLC, Cabot Pipeline Holdings LLC, Piedmont Constitution Pipeline Company, LLC,
and Capitol Energy Ventures Corp. (incorporated by reference to Exhibit 99.1 to
registrant’s Current Report on Form 8-K filed on September 4, 2013,
File No. 1-06196).
Second Amended and Restated Limited Liability Company Agreement of
SouthStar Energy Services LLC, dated as of September 1, 2013, by and between
Georgia Natural Gas Company and Piedmont Energy Company (incorporated by
reference to Exhibit 10.39 to registrant’s Annual Report on Form 10-K for the
year ended October 31, 2013, filed on December 23, 2013, File No. 1-06196).
Limited Liability Company Agreement of Atlantic Coast Pipeline, LLC, dated as
of September 2, 2014, by and between Dominion Atlantic Coast Pipeline, LLC,
Duke Energy ACP, LLC, Piedmont ACP Company, LLC, and Maple Enterprise
Holdings, Inc. (incorporated by reference to Exhibit 10.35 to registrant’s Annual
Report on Form 10-K for the year ended October 31, 2014, filed on December
23, 2014, File No. 1-06196).
Computation of Ratio of Earnings to Fixed Charges – DUKE ENERGY
CORPORATION (incorporated by reference to Exhibit 12.1 to registrant’s
Annual Report on Form 10-K for the year ended December 31, 2017, filed on
February 21, 2018, File No. 1-32853).
X
Computation of Ratio of Earnings to Fixed Charges – DUKE ENERGY CAROLINAS,
LLC (incorporated by reference to Exhibit 12.2 to registrant’s Annual Report on
Form 10-K for the year ended December 31, 2017, filed on February 21, 2018,
File No. 1-32853).
Computation of Ratio of Earnings to Fixed Charges – PROGRESS ENERGY,
INC. (incorporated by reference to Exhibit 12.3 to registrant’s Annual Report on
Form 10-K for the year ended December 31, 2017, filed on February 21, 2018,
File No. 1-32853).
Computation of Ratio of Earnings to Fixed Charges – DUKE ENERGY PROGRESS,
LLC (incorporated by reference to Exhibit 12.4 to registrant’s Annual Report on
Form 10-K for the year ended December 31, 2017, filed on February 21, 2018,
File No. 1-32853).
Computation of Ratio of Earnings to Fixed Charges – DUKE ENERGY FLORIDA,
LLC (incorporated by reference to Exhibit 12.5 to registrant’s Annual Report on
Form 10-K for the year ended December 31, 2017, filed on February 21, 2018,
File No. 1-32853).
Computation of Ratio of Earnings to Fixed Charges – DUKE ENERGY OHIO,
INC. (incorporated by reference to Exhibit 12.6 to registrant’s Annual Report on
Form 10-K for the year ended December 31, 2017, filed on February 21, 2018,
File No. 1-32853).
Computation of Ratio of Earnings to Fixed Charges – DUKE ENERGY INDIANA,
LLC (incorporated by reference to Exhibit 12.7 to registrant’s Annual Report on
Form 10-K for the year ended December 31, 2017, filed on February 21, 2018,
File No. 1-32853).
Computation of Ratio of Earnings to Fixed Charges – PIEDMONT NATURAL
GAS COMPANY, INC. (incorporated by reference to Exhibit 12.8 to registrant’s
Annual Report on Form 10-K for the year ended December 31, 2017, filed on
February 21, 2018, File No. 1-32853).
List of Subsidiaries (incorporated by reference to Exhibit 21 to registrant’s
Annual Report on Form 10-K for the year ended December 31, 2017, filed on
February 21, 2018, File No. 1-32853).
23.1.1
Consent of Independent Registered Public Accounting Firm (incorporated by
reference to Exhibit 23.1.1 to registrant’s Annual Report on Form 10-K for the
year ended December 31, 2017, filed on February 21, 2018, File No. 1-32853).
E-23
X
X
X
X
X
X
X
X
X
X
X
X
PART IV Exhibit
Number
23.1.2
23.1.3
23.1.4
23.1.5
23.1.6
23.1.7
24.1
24.2
*31.1.1
*31.1.2
*31.1.3
*31.1.4
*31.1.5
*31.1.6
*31.1.7
*31.1.8
*31.2.1
*31.2.2
*31.2.3
*31.2.4
*31.2.5
Consent of Independent Registered Public Accounting Firm (incorporated by
reference to Exhibit 23.1.2 to registrant’s Annual Report on Form 10-K for the
year ended December 31, 2017, filed on February 21, 2018, File No. 1-32853).
Consent of Independent Registered Public Accounting Firm (incorporated by
reference to Exhibit 23.1.3 to registrant’s Annual Report on Form 10-K for the
year ended December 31, 2017, filed on February 21, 2018, File No. 1-32853).
Consent of Independent Registered Public Accounting Firm (incorporated by
reference to Exhibit 23.1.5 to registrant’s Annual Report on Form 10-K for the
year ended December 31, 2017, filed on February 21, 2018, File No. 1-32853).
Consent of Independent Registered Public Accounting Firm (incorporated by
reference to Exhibit 23.1.5 to registrant’s Annual Report on Form 10-K for the
year ended December 31, 2017, filed on February 21, 2018, File No. 1-32853).
Consent of Independent Registered Public Accounting Firm (incorporated by
reference to Exhibit 23.1.6 to registrant’s Annual Report on Form 10-K for the
year ended December 31, 2017, filed on February 21, 2018, File No. 1-32853).
Consent of Independent Registered Public Accounting Firm (incorporated by
reference to Exhibit 23.1.7 to registrant’s Annual Report on Form 10-K for the
year ended December 31, 2017, filed on February 21, 2018, File No. 1-32853).
Power of attorney authorizing Lynn J. Good and others to sign the annual report
on behalf of the registrant and certain of its directors and officers (incorporated
by reference to Exhibit 24.1 to registrant’s Annual Report on Form 10-K for the
year ended December 31, 2017, filed on February 21, 2018, File No. 1-32853).
Certified copy of resolution of the Board of Directors of the registrant authorizing
power of attorney incorporated by reference to Exhibit 24.2 to registrant’s
Annual Report on Form 10-K for the year ended December 31, 2017, filed on
February 21, 2018, File No. 1-32853).
Certification of the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Duke
Energy
Duke
Energy
Carolinas
X
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
E-24
PART IV Duke
Energy
Carolinas
Duke
Energy
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Piedmont
Exhibit
Number
*31.2.6
*31.2.7
*31.2.8
*32.1.1
*32.1.2
*32.1.3
*32.1.4
*32.1.5
*32.1.6
*32.1.7
*32.1.8
*32.2.1
*32.2.2
*32.2.3
*32.2.4
*32.2.5
*32.2.6
*32.2.7
*32.2.8
Certification of the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
X
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
X
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
*101.INS
XBRL Instance Document
*101.SCH
XBRL Taxonomy Extension Schema Document
*101.CAL
XBRL Taxonomy Calculation Linkbase Document
*101.LAB
XBRL Taxonomy Label Linkbase Document
*101.PRE
XBRL Taxonomy Presentation Linkbase Document
*101.DEF
XBRL Taxonomy Definition Linkbase Document
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
The total amount of securities of each respective registrant or its subsidiaries authorized under any instrument with respect to long-term debt not filed as an exhibit
does not exceed 10 percent of the total assets of such registrant and its subsidiaries on a consolidated basis. Each registrant agrees, upon request of the SEC, to
furnish copies of any or all of such instruments to it.
E-25
PART IV SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized.
Date: February 22, 2018
DUKE ENERGY CORPORATION
(Registrant)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
By:
/s/ LYNN J. GOOD
Lynn J. Good
Chairman, President and Chief Executive Officer
(i)
/s/ LYNN J. GOOD
Lynn J. Good
Chairman, President and Chief Executive Officer (Principal Executive Officer and Director)
(ii)
/s/ STEVEN K. YOUNG
Steven K. Young
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
(iii)
/s/ WILLIAM E. CURRENS JR.
William E. Currens Jr.
Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)
(iv) Directors:
Michael G. Browning*
Theodore F. Craver, Jr.*
Robert M. Davis*
Daniel R. DiMicco*
John H. Forsgren*
Lynn J. Good*
John T. Herron*
James B. Hyler, Jr.*
William E. Kennard*
E. Marie McKee*
Charles W. Moorman IV*
Carlos A. Saladrigas*
Thomas E. Skains*
William E. Webster, Jr.*
Steven K. Young, by signing his name hereto, does hereby sign this document on behalf of the registrant and on behalf of each of the above-named persons previously
indicated by asterisk (*) pursuant to a power of attorney duly executed by the registrant and such persons, filed with the Securities and Exchange Commission as an exhibit hereto.
By:
/s/ STEVEN K. YOUNG
Attorney-In-Fact
Date: February 22, 2018
E-26
PART IV
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: February 22, 2018
DUKE ENERGY CAROLINAS, LLC
(Registrant)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
By:
/s/ LYNN J. GOOD
Lynn J. Good
Chief Executive Officer
registrant and in the capacities and on the date indicated.
(i)
/s/ LYNN J. GOOD
Lynn J. Good
Chief Executive Officer (Principal Executive Officer)
(ii)
/s/ STEVEN K. YOUNG
Steven K. Young
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
(iii)
/s/ WILLIAM E. CURRENS JR.
William E. Currens Jr.
Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)
(iv) Directors:
/s/ LYNN J. GOOD
Lynn J. Good
/s/ DHIAA M. JAMIL
Dhiaa M. Jamil
/s/ LLOYD M. YATES
Lloyd M. Yates
Date: February 22, 2018
E-27
PART IV
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: February 22, 2018
PROGRESS ENERGY, INC.
(Registrant)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
By:
/s/ LYNN J. GOOD
Lynn J. Good
Chief Executive Officer
registrant and in the capacities and on the date indicated.
(i)
/s/ LYNN J. GOOD
Lynn J. Good
Chief Executive Officer (Principal Executive Officer)
(ii)
/s/ STEVEN K. YOUNG
Steven K. Young
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
(iii)
/s/ WILLIAM E. CURRENS JR.
William E. Currens Jr.
Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)
(iv) Directors:
/s/ LYNN J. GOOD
Lynn J. Good
/s/ JULIA S. JANSON
Julia S. Janson
Date: February 22, 2018
E-28
PART IV
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: February 22, 2018
DUKE ENERGY PROGRESS, LLC
(Registrant)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
By:
/s/ LYNN J. GOOD
Lynn J. Good
Chief Executive Officer
registrant and in the capacities and on the date indicated.
(i)
/s/ LYNN J. GOOD
Lynn J. Good
Chief Executive Officer (Principal Executive Officer)
(ii)
/s/ STEVEN K. YOUNG
Steven K. Young
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
(iii)
/s/ WILLIAM E. CURRENS JR.
William E. Currens Jr.
Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)
(iv) Directors:
/s/ DOUGLAS F ESAMANN
Douglas F Esamann
/s/ LYNN J. GOOD
Lynn J. Good
/s/ DHIAA M. JAMIL
Dhiaa M. Jamil
/s/ JULIA S. JANSON
Julia S. Janson
/s/ LLOYD M. YATES
Lloyd M. Yates
Date: February 22, 2018
E-29
PART IV
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: February 22, 2018
DUKE ENERGY FLORIDA, LLC
(Registrant)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
By:
/s/ LYNN J. GOOD
Lynn J. Good
Chief Executive Officer
(i)
/s/ LYNN J. GOOD
Lynn J. Good
Chief Executive Officer (Principal Executive Officer)
(ii)
/s/ STEVEN K. YOUNG
Steven K. Young
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
(iii)
/s/ WILLIAM E. CURRENS JR.
William E. Currens Jr.
Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)
(iv) Directors:
/s/ DOUGLAS F ESAMANN
Douglas F Esamann
/s/ LYNN J. GOOD
Lynn J. Good
/s/ DHIAA M. JAMIL
Dhiaa M. Jamil
/s/ JULIA S. JANSON
Julia S. Janson
/s/ LLOYD M. YATES
Lloyd M. Yates
Date: February 22, 2018
E-30
PART IV
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: February 22, 2018
DUKE ENERGY OHIO, INC.
(Registrant)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
By:
/s/ LYNN J. GOOD
Lynn J. Good
Chief Executive Officer
(i)
/s/ LYNN J. GOOD
Lynn J. Good
Chief Executive Officer (Principal Executive Officer)
(ii)
/s/ STEVEN K. YOUNG
Steven K. Young
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
(iii)
/s/ WILLIAM E. CURRENS JR.
William E. Currens Jr.
Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)
(iv) Directors:
/s/ DOUGLAS F ESAMANN
Douglas F Esamann
/s/ LYNN J. GOOD
Lynn J. Good
/s/ DHIAA M. JAMIL
Dhiaa M. Jamil
Date: February 22, 2018
E-31
PART IV
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: February 22, 2018
DUKE ENERGY INDIANA, LLC
(Registrant)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
By:
/s/ LYNN J. GOOD
Lynn J. Good
Chief Executive Officer
(i)
/s/ LYNN J. GOOD
Lynn J. Good
Chief Executive Officer (Principal Executive Officer)
(ii)
/s/ STEVEN K. YOUNG
Steven K. Young
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
(iii)
/s/ WILLIAM E. CURRENS JR.
William E. Currens Jr.
Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)
(iv) Directors:
/s/ MELODY BIRMINGHAM-BYRD
Melody Birmingham-Byrd
/s/ DOUGLAS F ESAMANN
Douglas F Esamann
/s/ KELLEY A. KARN
Kelley A. Karn
Date: February 22, 2018
E-32
PART IV
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: February 22, 2018
PIEDMONT NATURAL GAS COMPANY, INC.
(Registrant)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
By:
/s/ LYNN J. GOOD
Lynn J. Good
Chief Executive Officer
(i)
/s/ LYNN J. GOOD
Lynn J. Good
Chief Executive Officer (Principal Executive Officer)
(ii)
/s/ STEVEN K. YOUNG
Steven K. Young
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
(iii)
/s/ WILLIAM E. CURRENS JR.
William E. Currens Jr.
Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)
(iv) Directors:
/s/ LYNN J. GOOD
Lynn J. Good
/s/ FRANKLIN H. YOHO
Franklin H. Yoho
/s/ DHIAA M. JAMIL
Dhiaa M. Jamil
Date: February 22, 2018
E-33
PART IV
WWW.DUKE-ENERGY.COM