0001326160duk:DukeEnergyFloridaMemberduk:SpentNuclearFuelMattersMember2018-06-182018-06-18
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
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ý☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
20172020 or |
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from________to________
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Commission file number | | Registrant, State of Incorporation or Organization, Address of Principal Executive Offices and Telephone Number | | IRS Employer Identification No. |
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| 1-32853 | | DUKE ENERGY CORPORATION (a Delaware corporation)
550 South Tryon Street
Charlotte, NC
| 20-2777218 |
(a Delaware corporation)
550 South Tryon Street
Charlotte, North Carolina 28202-1803
704-382-3853
| 20-2777218 | |
| | | | | | | | | | |
Commission file number1-4928 | | Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number and IRS Employer Identification Number | | Commission file number | | Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number and IRS Employer Identification Number |
1-4928 | | DUKE ENERGY CAROLINAS, LLC | 56-0205520 |
(a North Carolina limited liability company)
526 South Church Street
Charlotte, North Carolina 28202-1803
704-382-3853
56-0205520
| | 1-3274 | | DUKE ENERGY FLORIDA, LLC
(a Florida limited liability company)
299 First Avenue North
St. Petersburg, Florida 33701
704-382-3853
59-0247770
| | | | | | | |
| 1-15929 | | PROGRESS ENERGY, INC. | 56-2155481 |
(a North Carolina corporation)
410 South Wilmington Street
Raleigh, North Carolina 27601-1748
704-382-3853
56-2155481
| | 1-1232 | | DUKE ENERGY OHIO, INC.
(an Ohio corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
704-382-3853
31-0240030
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| 1-3382 | | DUKE ENERGY PROGRESS, LLC | 56-0165465 |
(a North Carolina limited liability company)
410 South Wilmington Street
Raleigh, North Carolina 27601-1748
704-382-3853
56-0165465
| | 1-3543 | | | | | | | | | |
| 1-3274 | DUKE ENERGY FLORIDA, LLC | 59-0247770 |
(a Florida limited liability company)
299 First Avenue North
St. Petersburg, Florida 33701
704-382-3853
| | | | | | | | | | | |
| 1-1232 | DUKE ENERGY OHIO, INC. | 31-0240030 |
(an Ohio corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
704-382-3853
| | | | | | | | | | | |
| 1-3543 | DUKE ENERGY INDIANA, LLC | 35-0594457 |
(an Indiana limited liability company)
1000 East Main Street
Plainfield, Indiana 46168
704-382-3853
35-0594457
1-6196 | | PIEDMONT NATURAL GAS COMPANY, INC.
(a North Carolina corporation)
4720 Piedmont Row Drive
Charlotte, North Carolina 28210
704-364-3120
56-0556998
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: |
Registrant1-6196 | PIEDMONT NATURAL GAS COMPANY, INC. | Title of each class | | Name of each exchange on
which registered
|
Duke Energy Corporation
(Duke Energy)
| | Common Stock, $0.001 par value | | New York Stock Exchange, Inc. |
Duke Energy | | 5.125% Junior Subordinated Debentures due January 15, 2073 | | New York Stock Exchange, Inc.56-0556998 |
(a North Carolina corporation)
4720 Piedmont Row Drive
Charlotte, North Carolina 28210
704-364-3120
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
RegistrantTitle of each classTrading symbolswhich registered
Duke Energy Corporation Common Stock, $0.001 par value DUK New York Stock Exchange LLC
(Duke Energy)
Duke Energy 5.125% Junior Subordinated Debentures due DUKH New York Stock Exchange LLC
January 15, 2073
Duke Energy 5.625% Junior Subordinated Debentures due DUKB New York Stock Exchange LLC
September 15, 2078
Duke Energy Depositary Shares, each representing a 1/1,000th DUK PR A New York Stock Exchange LLC
interest in a share of 5.75% Series A Cumulative
Redeemable Perpetual Preferred Stock, par value
$0.001 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities ActAct. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Duke Energy | Yesx | ☒ | No¨ | ☐ | | Duke Energy Florida, LLC (Duke Energy Florida) | Yesx | ☒ | No¨ | ☐ |
| Duke Energy Carolinas, LLC (Duke Energy Carolinas) | Yesx | ☒ | No¨ | ☐ | | Duke Energy Ohio, Inc. (Duke Energy Ohio) | Yesx | ☒ | No¨ | ☐ |
| Progress Energy, Inc. (Progress Energy) | Yes¨ | ☐ | Nox | ☒ | | Duke Energy Indiana, LLC (Duke Energy Indiana) | Yesx | ☒ | No¨ | ☐ |
| Duke Energy Progress, LLC (Duke Energy Progress) | Yesx | ☒ | No¨ | ☐ | | Piedmont Natural Gas Company, Inc. (Piedmont) | Yesx | ☒ | No¨ | ☐ |
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 x☒ (Response applicable to all registrants.)
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 x☒ 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 x☒ 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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer xAccelerated filer Filer ☒ Accelerated Filer ¨ Non-accelerated filer ¨Filer ☐ Smaller reporting company ¨Reporting Company ☐ Emerging growth company ¨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 each of Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont areis a large accelerated filers,filer, accelerated filers,filer, non-accelerated filers, orfiler, smaller reporting companies.company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨Accelerated filer Filer ¨ Accelerated Filer ¨ Non-accelerated filer xFiler ☒ Smaller reporting company ¨Reporting Company ☐ Emerging growth company ¨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 registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7252(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether each of the registrants areis a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x |
| | | |
| Estimated aggregate market value of the common equity held by nonaffiliates of Duke Energy at June 30, 2017. | $ | 58,468,482,557 |
|
| Number of shares of Common Stock, $0.001 par value, outstanding at January 31, 2018. | 700,092,667 |
|
| | | | | |
| Estimated aggregate market value of the common equity held by nonaffiliates of Duke Energy at June 30, 2020. | $ | 58,688,204,289 | |
| Number of shares of Common Stock, $0.001 par value, outstanding at January 31, 2021. | 768,663,580 | |
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Duke Energy definitive proxy statement for the 20182021 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.
TABLE OF CONTENTS
FORM 10-K FOR THE YEAR ENDED December 31, 20172020 | | | | | | | | |
Item | | Page |
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| CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION | |
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| GLOSSARY OF TERMS | |
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| PART I. | | |
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| PART II. | | |
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| PART III. | | |
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| PART IV. | | |
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| | EXHIBIT INDEX | |
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Item | | Page |
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| CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION | |
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| GLOSSARY OF TERMS | |
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| PART I. | | |
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| PART II. | | |
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| PART III. | | |
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| 14. | | |
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| PART IV. | | |
| 15. | | |
| | EXHIBIT INDEX | |
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| FORWARD LOOKING STATEMENTS | |
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:
◦The impact of the COVID-19 pandemic;
◦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;
◦Changing customer expectations and demands including heightened emphasis on environmental, social and governance concerns;
◦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.United States 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, andoperational accidents, information technology failures or 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;
◦The ability to obtain adequate insurance at acceptable costs;
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| FORWARD LOOKING STATEMENTS | |
◦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.United States 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; and
The ability to successfully complete future merger, acquisition or divestiture plans; and
◦The ability to implement our business strategy.strategy, including enhancing existing technology systems.
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.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 |
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Term or Acronym | Definition |
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| 2013 Settlement | Revised and Restated Stipulation and Settlement Agreement approved in November 2013 among Duke Energy Florida, the Florida OPCOffice of Public Counsel and other customer advocates |
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the 2015 Plan | Duke Energy Corporation 2015 Long-Term Incentive Plan |
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| 2017 Settlement | Second Revised and Restated Settlement Agreement in 2017 among Duke Energy Florida, the Florida OPCOffice of Public Counsel and other customer advocates, which replaces and supplants the 2013 Settlement |
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ACPACE | Affordable Clean Energy |
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| ACP | Atlantic Coast Pipeline, LLC, a limited liability company owned by Dominion, Duke Energy and Southern Company Gas |
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ACP Pipelinepipeline | The approximately 600-mile proposedcanceled interstate natural gas pipeline |
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ADITAFUDC | Net Accumulated Deferred Income Tax |
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AFUDC | Allowance for funds used during construction |
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the AgentsAFS | Wells Fargo Securities, LLC, Citigroup Global Market Inc.,J.P. Morgan Securities, LLCAvailable for Sale |
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ALJAMI | Administrative Law Judge |
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Amended Complaint | Amended Verified Consolidated Shareholder Derivative Complaint |
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AMI | Advanced Metering Infrastructure |
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ANPRMAMT | Advance Notice of Proposed RulemakingAlternative Minimum Tax |
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| AOCI | Accumulated Other Comprehensive Income (Loss) |
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| ARO | Asset Retirement Obligation |
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the ASRATM | Accelerated Stock Repurchase ProgramAt-the-market |
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ASRP | Accelerated natural gas service line replacement program |
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| Audit Committee | Audit Committee of the Board of Directors |
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BarclaysBeckjord | Barclays Capital Inc. |
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BCWF | Benton County Wind Farm, LLC |
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Beckjord | Beckjord Generating Station |
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| Belews Creek | Belews Creek Steam Station |
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| Bison | Bison Insurance Company Limited |
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| Board of Directors | Duke Energy Board of Directors |
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Bresalier ComplaintBrunswick | Shareholder derivative lawsuit filed by Saul Bresalier related to ash basin management practices |
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Bresalier Defendants | Several current and former Duke Energy officers and directors named in the Bresalier Complaint |
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Bridge Facility | $4.9 billion senior secured financing facility with Barclays Capital Inc. |
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Brunswick | Brunswick Nuclear Plant |
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CAACardinal | Clean Air Act |
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Cardinal | Cardinal Pipeline Company, LLC |
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| Catawba | Catawba Nuclear Station |
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| CC | Combined Cycle |
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| CCR | Coal Combustion Residuals |
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CCSCinergy | Carbon Capture and Storage |
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CECPCN | Certificate of Environmental Compatibility and Public Convenience and Necessity |
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CEO | Chief Executive Officer |
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CertainTeed | CertainTeed Gypsum NC, Inc. |
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Cinergy | Cinergy Corp. (collectively with its subsidiaries) |
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CO2
| Carbon Dioxide |
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| Citrus County CC | Citrus County Combined Cycle Facility |
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CO2 | Carbon Dioxide |
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| Coal Ash Act | North Carolina Coal Ash Management Act of 2014 |
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COL | Combined Operating License |
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| the Company | Duke Energy Corporation and its subsidiaries |
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Consolidated ComplaintConstitution | Corrected Verified Consolidated Shareholder Derivative Complaint |
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Constitution | Constitution Pipeline Company, LLC |
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COSOCPCN | Committee of Sponsoring Organizations of the Treadway Commission |
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CP | Capacity Performance |
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CPCN | Certificate of Public Convenience and Necessity |
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CPPCRC | Clean Power Plan |
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CRC | Cinergy Receivables Company LLC |
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| Crystal River Unit 3 | Crystal River Unit 3 Nuclear Plant |
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CSACT | Comprehensive Site AssessmentCombustion Turbine |
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CSAPRCWA | Cross-State Air Pollution Rule |
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CT | Combustion Turbine |
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CTG | China Three Gorges Energy S.à.r.l. |
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CWA | Clean Water Act |
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| DATC | Duke-American Transmission Co.Company, LLC |
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| D.C. Circuit Court | U.S. Court of Appeals for the District of Columbia |
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the DealersGLOSSARY OF TERMS | Goldman, Sachs & Co. and JPMorgan Chase Bank |
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DEFPF | Duke Energy Florida Project Finance, LLC |
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| DEFR | Duke Energy Florida Receivables, LLC |
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| Deloitte | Deloitte & Touche LLP, and the member firms of Deloitte Touche Tohmatsu and their respective affiliates |
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| DEPR | Duke Energy Progress Receivables, LLC |
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| DERF | Duke Energy Receivables Finance Company, LLC |
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DHHSDOE | North Carolina Department of Health and Human Services |
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Directors' Savings Plan | Duke Energy Corporation Directors' Savings Plan |
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DOE | U.S. Department of Energy |
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DOJDominion | Department of JusticeDominion Energy, Inc. |
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DominionDth | Dominion ResourcesDekatherms |
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DRIP | Dividend Reinvestment Program |
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DSM | Demand Side Management |
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Dth | Dekatherm |
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| Duke Energy | Duke Energy Corporation (collectively with its subsidiaries) |
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Duke Energy Carolinas | Duke Energy Carolinas, LLC |
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Duke Energy Defendants | Several current and former Duke Energy officers and directors named as defendants in the Consolidated Complaint |
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Duke Energy Florida | Duke Energy Florida, LLC |
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Duke Energy Indiana | Duke Energy Indiana, LLC |
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Duke Energy Kentucky | Duke Energy Kentucky, Inc. |
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Duke Energy Ohio | Duke Energy Ohio, Inc. |
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Duke Energy Progress | Duke Energy Progress, LLC |
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| Duke Energy Carolinas | Duke Energy Carolinas, LLC |
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| Duke Energy Florida | Duke Energy Florida, LLC |
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| Duke Energy Indiana | Duke Energy Indiana, LLC |
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| Duke Energy Kentucky | Duke Energy Kentucky, Inc. |
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| Duke Energy Ohio | Duke Energy Ohio, Inc. |
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| Duke Energy Progress | Duke Energy Progress, LLC |
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| Duke Energy Registrants | Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont |
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Dynegy | Dynegy Inc. |
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| East Bend | East Bend Generating Station |
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the EDAEE | Equity Distribution AgreementEnergy efficiency |
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EEEPA | Energy efficiency |
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EGU | Electric Generating Units |
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EIS | Environmental Impact Statement |
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ELG | Effluent Limitations Guidelines |
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EPA | U.S. Environmental Protection Agency |
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| EPC | Engineering, Procurement and Construction agreement |
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| EPS | Earnings Per Share |
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ESPETR | Electric Security Plan |
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ETR | Effective tax rate |
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| Exchange Act | Securities Exchange Act of 1934 |
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| FASB | Financial Accounting Standards Board |
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| FERC | Federal Energy Regulatory Commission |
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FitchFES | Fitch Ratings, Inc.FirstEnergy Solutions Corp. |
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FirstEnergy | FirstEnergy Corp. |
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Florida OPC | Florida Office of Public Counsel |
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| Form S-3 | Registration statement |
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FP&LFPSC | Florida Power & Light Company |
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FPSC | Florida Public Service Commission |
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FRRFTR | Fixed Resource Requirement |
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FTR | Financial transmission rights |
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GAAPFV-NI | Fair value through net income |
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| GAAP | Generally Accepted Accounting Principles in the United States |
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GHGGAAP Reported EPS | Greenhouse GasBasic EPS Available to Duke Energy Corporation common stockholders |
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GWhGHG | Gigawatt-hoursGreenhouse Gas |
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| GIC | GIC Private Limited |
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| GWh | Gigawatt-hour |
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| Hardy Storage | Hardy Storage Company, LLC |
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| Harris | Shearon Harris Nuclear Plant |
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HinesHLBV | Hines Energy ComplexHypothetical Liquidation at Book Value |
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I SquaredIGCC | ISQ Enerlam Aggregator, L.P. and Enerlam Holding Ltd. |
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IBNR | Incurred but not yet reported |
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ICPA | Inter-Company Power Agreement |
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IGCC | Integrated Gasification Combined Cycle |
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IGCC RiderGLOSSARY OF TERMS | Tracking mechanism used to recover costs related to the Edwardsport IGCC plant from retail electric customers |
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| IMPA | Indiana Municipal Power Agency |
IGCC Settlement | 2015 Settlement to resolve disputes with intervenors related to five IGCC riders |
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| IMR | Integrity Management Rider |
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International Disposal GroupIRP | Duke Energy's international business, excluding National Methanol Company |
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IRP | Integrated Resource Plans |
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IRS | Internal Revenue Service |
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ISFSIIRS | Independent Spent Fuel Storage InstallationInternal Revenue Service |
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| ISO | Independent System Operator |
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| ITC | Investment Tax Credit |
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| IURC | Indiana Utility Regulatory Commission |
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| Investment Trusts | Grantor trusts of Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana |
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JDA | Joint Dispatch Agreement |
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| KO Transmission | KO Transmission Company |
| |
| KPSC | Kentucky Public Service Commission |
| |
kVLIBOR | 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 MitigationLLC | The revised market power mitigation plan related to the Progress Energy mergerLimited Liability Company |
| |
Master TrustMcGuire | Duke Energy Master Retirement Trust |
| |
McGuire | McGuire Nuclear Station |
| |
Merger AgreementMGP | 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 GroupMISO | 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 |
| |
MPPMTBE | Money Purchase Pension |
| |
Moody’s | Moody’s Investors Service, Inc. |
| |
MTBE | Methyl tertiary butyl ether |
| |
MTEPMW | MISO Transmission Expansion PlanningMegawatt |
| |
MWMWh | MegawattMegawatt-hour |
| |
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 |
| |
NCRCNCUC | Florida’s Nuclear Cost Recovery Clause |
| |
NCRS | Nuclear Power Plant Cost Recovery Statutes |
| |
NCUC | North Carolina Utilities Commission |
| |
NDTF | Nuclear decommissioning trust funds |
| |
NEIL | Nuclear Electric Insurance Limited |
| |
|
| |
| NDTF | Nuclear decommissioning trust funds |
| |
| New Source Review | New Source Review (NSR) is a CAAClean Air Act program that requires industrial facilities to install modern pollution control equipment when they are built or when making a change that increases emissions significantly |
| |
NYSDECNMC | New York State Department of Environmental Conservation |
| |
NMC | National Methanol Company |
| |
| NOL | Net operating loss |
| |
NOVNPNS | Notice of violation |
| |
NOx
| Nitrogen oxide |
| |
NPDES | National Pollutant Discharge Elimination System |
| |
NPNS | Normal purchase/normal sale |
| |
NPRNRC | Notice of Proposed Rulemaking |
| |
NRC | U.S. Nuclear Regulatory Commission |
| |
NWPANYSE | 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 acquisitionOTTI | Duke Energy Florida's purchase of a Calpine Corporation's 599-MW combined-cycle natural gas plant in Auburndale, FloridaOther-than-temporary impairment |
| |
OTTIOVEC | Other-than-temporary impairment |
| |
OVEC | Ohio Valley Electric Corporation |
| |
| the Parent | Duke Energy Corporation holding company |
| |
PCAOBPGA | Public Company Accounting Oversight Board |
| |
PGA | Purchased Gas Adjustments |
| |
Phase I CCR Compliance ProjectsPHMSA | 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 |
| |
| | | | | |
PiedmontGLOSSARY OF TERMS | |
| | | | | |
| 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 |
| |
PPAPISCC | Post-in-service carrying costs |
| |
| 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 OrderPURPA | 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 |
| |
QF | Qualifying Facility |
| |
|
| |
RCAQF | Revolving Credit AgreementQualifying Facility |
| |
RCRAREC | Resource Conservation and Recovery ActRenewable Energy Certificate |
| |
| Relative TSR | TSR of Duke Energy stock relative to a predefined peer group |
| |
| Robinson | Robinson Nuclear Plant |
| |
RRBAROU | Roanoke River Basin AssociationRight-of-use |
| |
| RSU | Restricted Stock Unit |
| |
| RTO | Regional Transmission Organization |
| |
| Sabal Trail | Sabal Trail Transmission, LLC |
| |
Sabal Trail PipelineSAFSTOR | 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 AppealsSEC | 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 500State utility commissions | 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 Commissionselectric utility commissions | NCUC, PSCSC, FPSC, PUCO, IURC and KPSC (Collectively) |
| |
State Gas Utility Commissionsgas 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 CutCuts and Jobs Act |
| |
T&D RiderTPUC | Tracking mechanism to recover grid infrastructure improvement costs in Indiana |
| |
TPUC | Tennessee Public Utility Commission |
| |
| TSR | Total shareholder return |
| |
Uprate ProjectU.S. | Hines Chiller Uprate ProjectUnited States |
| |
U.S.VIE | 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 |
| |
WNAW.S. Lee CC | weather normalization adjustmentWilliam States Lee Combined Cycle Facility |
| |
| WVPA | Wabash Valley Power Association, Inc. |
ITEM 1. BUSINESS
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).FERC and other regulatory agencies listed below. Duke Energy operates in the United States (U.S.)U.S. primarily through its direct and indirect subsidiaries. Certain Duke Energy subsidiaries are also subsidiary registrants,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).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),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),SEC, including Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxiesproxy statements 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.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.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);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 32 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 7.67.9 million customers within the Southeast and Midwest regions of the U.S. The service territory is approximately 95,00091,000 square miles across six states with a total estimated population of 2425 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 percent50% ownership interest in Duke-American Transmission Co. (DATC),DATC, a partnership with American Transmission Company, formed to design, build and operate transmission infrastructure. DATC owns 72 percent72% of the transmission service rights to Path 15, an 84-mile transmission line in central California. Electric Utilities and Infrastructure also has a 50 percent50% ownership interest in Pioneer, Transmission, LLC, which builds, owns and operates electric transmission facilities in North America. The following map shows the service territory for Electric Utilities and Infrastructure as of December 31, 2020.
The electric operations and investments in projects are subject to the rules and regulations of the FERC, the North Carolina Utilities Commission (NCUC),NRC, the Public Service Commission of South Carolina (PSCSC),NCUC, the Florida Public Service Commission (FPSC),PSCSC, the Indiana Utility Regulatory Commission (IURC),FPSC, the Public Utilities Commission of Ohio (PUCO)IURC, the PUCO and the Kentucky Public Service Commission (KPSC).KPSC.
The following table represents the distribution of GWh billed sales by customer class for the year ended December 31, 2017.2020. | | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | Duke |
| | Duke | | Duke | | Duke | | Duke | | Duke |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | Energy | | Energy | | Energy | | Energy | | Energy |
| | Carolinas |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Carolinas | | Progress | | Florida | | Ohio | | Indiana |
| Residential | 30 | % | | 26 | % | | 49 | % | | 34 | % | | 26 | % | Residential | 33 | % | | 27 | % | | 51 | % | | 38 | % | | 30 | % |
| General service | 33 | % | | 23 | % | | 37 | % | | 38 | % | | 25 | % | General service | 33 | % | | 22 | % | | 35 | % | | 37 | % | | 25 | % |
| Industrial | 25 | % | | 16 | % | | 8 | % | | 23 | % | | 32 | % | Industrial | 23 | % | | 16 | % | | 7 | % | | 23 | % | | 31 | % |
| Total retail sales | 88 | % | | 65 | % | | 94 | % | | 95 | % | | 83 | % | Total retail sales | 89 | % | | 65 | % | | 93 | % | | 98 | % | | 86 | % |
| Wholesale and other sales | 12 | % | | 35 | % | | 6 | % | | 5 | % | | 17 | % | Wholesale and other sales | 11 | % | | 35 | % | | 7 | % | | 2 | % | | 14 | % |
| Total sales | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | Total sales | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
The number of residential and general service customers within the Electric Utilities and Infrastructure service territory is expected to increase over time. While economic conditionsSales growth is expected within the service territory continuebut continues to improve, sales growth has been hamperedbe influenced by continued adoption of energy efficiencies and self-generation. TheResidential sales increased in 2020 compared to 2019 due to customer growth and the stay-at-home orders as a result of the COVID-19 pandemic. Meanwhile, sales for general service and industrial customers decreased in 2020 due to the impacts of the COVID-19 pandemic. These trends in residential, general service and industrial sales may continue in the short term but are not expected to be permanent. It is still expected that the continued adoption of more efficient housing and appliances is expected towill 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-degreeHeating degree days measure the variation in weather based on the extent the average daily temperature falls below a base temperature. Cooling-degreeCooling 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-degreeheating degree day and each degree of temperature above the base temperature counts as one cooling-degreecooling 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 generate, transmit, distribute and distribute electricity and, except in Ohio, to generatesell electricity. Services are priced by state commission approvedcommission-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, andbut not on the cost of the underlying energy.
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.
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.service and price. 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)50,807 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 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,natural gas, nuclear fuel and natural gascoal for its generation of electricity. The following table lists sources of electricity and fuel costs for the three years ended December 31, 2017.2020. | | | | | | | | | | | | | | | | | Cost of Delivered Fuel per Net |
| | | | Cost of Delivered Fuel per Net | | Generation by Source | | Kilowatt-hour Generated (Cents) |
| | Generation by Source | | Kilowatt-hour Generated (Cents) | | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
| | 2017 |
| | 2016 |
| | 2015 |
| | 2017 |
| | 2016 |
| | 2015 |
| |
Natural gas and oil(a) | | Natural gas and oil(a) | 31.3 | % | | 29.2 | % | | 26.2 | % | | 2.55 | | | 2.96 | | | 3.57 | |
Nuclear(a) | | Nuclear(a) | 29.6 | % | | 28.6 | % | | 26.0 | % | | 0.58 | | | 0.60 | | | 0.50 | |
Coal(a) | 27.4 | % | | 27.1 | % | | 29.0 | % | | 2.72 |
| | 3.07 |
| | 3.24 |
| Coal(a) | 18.1 | % | | 21.6 | % | | 24.4 | % | | 2.99 | | | 3.08 | | | 2.82 | |
Nuclear(a) | 27.8 | % | | 27.4 | % | | 27.0 | % | | 0.69 |
| | 0.66 |
| | 0.65 |
| |
Natural gas and oil(a) | 23.6 | % | | 22.9 | % | | 23.1 | % | | 2.85 |
| | 3.07 |
| | 3.74 |
| |
All fuels (cost-based on weighted average)(a) | 78.8 | % | | 77.4 | % | | 79.1 | % | | 2.04 |
| | 2.22 |
| | 2.50 |
| All fuels (cost-based on weighted average)(a) | 79.0 | % | | 79.4 | % | | 76.6 | % | | 1.91 | | | 2.14 | | | 2.29 | |
Hydroelectric and solar(b) | 0.7 | % | | 0.7 | % | | 0.8 | % | | | | | | | Hydroelectric and solar(b) | 1.9 | % | | 1.2 | % | | 1.3 | % | |
| Total generation | 79.5 | % | | 78.1 | % | | 79.9 | % | | | | | | | Total generation | 80.9 | % | | 80.6 | % | | 77.9 | % | |
| Purchased power and net interchange | 20.5 | % | | 21.9 | % | | 20.1 | % | | | | | | | Purchased power and net interchange | 19.1 | % | | 19.4 | % | | 22.1 | % | |
| Total sources of energy | 100.0 | % | | 100.0 | % | | 100.0 | % | | | | | | | Total sources of energy | 100.0 | % | | 100.0 | % | | 100.0 | % | |
| |
(a) | (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,ownership interest in combination with the usejointly owned generation facilities.
(b) Generating figures are net of sulfur dioxide (SO2) emission allowances, enable Electric Utilities and Infrastructureoutput required to satisfy current SO2 emission limitations for its existing facilities.replenish pumped storage facilities during off-peak periods.
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 with the FPSC on future hedging with the Florida Public Service Commission.of natural gas prices.
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.
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 source 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% of its uranium concentrates and conversion services through at least 2021, 100% of its enrichment services through at least 2022, and 100% of its 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.
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 may have various price adjustment provisions and market reopeners, range from 2021 to 2023 for Duke Energy Carolinas and Duke Energy Progress and 2021 to 2025 for Duke Energy Indiana. Expiration dates for Duke Energy Florida and Duke Energy Ohio are in 2021. 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 risk management 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 the Illinois Basin. Coal purchased for Kentucky 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. There are adequate domestic coal reserves to serve Electric Utilities and Infrastructure's coal generation needs through end of life. The current average sulfur content of coal purchased by Electric Utilities and Infrastructure is between 1.5% and 2% for Duke Energy Carolinas and Duke Energy Progress, and between 2.5% and 3% for Duke Energy Florida, Duke Energy Ohio and 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.
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:
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
Purchase obligations and leases (in millions of MWh)(a) | 32.7 | | | 34.8 | | | 21.3 | |
Purchase capacity under contract (in MW)(b) | 4,716 | | | 4,238 | | | 4,025 | |
|
| | | | | | | | |
| | 2017 |
| | 2016 |
| | 2015 |
|
Purchase obligations and leases (in millions of megawatt-hours (MWh))(a) | 17.7 |
| | 18.0 |
| | 14.9 |
|
Purchase capacity under contract (in MW)(b) | 4,028 |
| | 4,588 |
| | 4,573 |
|
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(a) | Represents approximately 7 percent of total system requirements for 2017 and 2016 and 6 percent for 2015. |
(b) TheseFor 2020, 2019 and 2018, these agreements include approximately 451412 MW of firm capacity under contract by Duke Energy Florida with QFs.
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, 2017,2020, the inventory balance for Electric Utilities and Infrastructure was approximately $3.1$3 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 determinationsDuring 2015, EPA issued regulations related to closurethe management of coal ashCCR from power plants. These regulations classify CCR as nonhazardous waste under the Resource Conservation and Recovery Act (RCRA) and apply to electric generating sites with new and existing landfills and new and existing surface impoundments 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 (ash basins or impoundments) will continue to be regulated by existing state laws, regulations and permits, such as the normal ratemaking processes before utility regulatory commissions. Duke EnergyCoal Ash Management Act in North Carolina.
Electric Utilities and Infrastructure has and will periodically submit to applicable authorities required site-specific coal ash impoundment remediation or closure plans. TheseClosure plans and all associated permits must be approvedwill receive necessary approvals before any work can begin.
On April 17, Closure activities have begun in all of Duke Energy's jurisdictions. Excavation began in 2015 at 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 Carolinafour sites specified as high priority by the NC Coal Ash Management Act including movingand at the W.S. Lee Steam Station site in South Carolina in connection with other legal requirements. Excavation at these sites involves movement of CCR materials to off-site locations for use as structural fill, to appropriate engineered off-site or on-site lined landfills or for reuse in an approved beneficial application. Duke Energy has completed excavation of coal ash off-site for use in structural fill or to lined landfills. Additional modifications to operating coal plants are underway to comply withat three of the four high-priority NC sites. At other sites where CCR management is required, planning and closure methods have been studied and factored into the estimated retirement and management costs, and closure activities have commenced.
The EPA CCR rule and the NC Coal Ash Management Act leave the decision on cost recovery determinations related to closure of coal ash surface impoundments to the normal ratemaking processes before utility regulatory commissions. Duke Energy's electric utilities have included compliance costs associated with federal and RCRA.
state requirements in their respective rate proceedings. In January 2021, Duke Energy Carolinas and Duke Energy Progress have included compliancereached a settlement agreement on recovery of coal ash costs, associated withwhich is subject to review and approval of the EPA CCR rule and the Coal Ash Act in their respective rate case filings.NCUC. During 2017, Duke Energy Carolinas' and Duke Energy Progress’ wholesale contracts were amended to include the recovery of expenditures related to asset retirement obligationsAROs 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 Item 7, "Other Matters" and Notes 3, 4 5 and 9 to the Consolidated Financial Statements, "Regulatory Matters," "Commitments and Contingencies" and "Asset Retirement Obligations," respectively.
Nuclear Matters
Duke Energy owns, wholly or partially, 11 operating nuclear reactors located at six operating 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$13.8 billion. For additional information on nuclear insurance, see Note 54 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 NDTF investments and the most recent site-specific nuclear decommissioning trust fund (NDTF) balances and cost study results for Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida.studies. Decommissioning costs in the table below are stated in 20132018 or 20142019 dollars, depending on the year of the cost study, and include costs to decommission plant components not subject to radioactive contamination. |
| | | | | | | | | | | | | |
| | NDTF(a) | | Decommissioning |
| | |
| (in millions) | December 31, 2017 |
| | December 31, 2016 |
| | Costs(a)(b) |
| | Year of Cost Study |
| Duke Energy | $ | 7,097 |
| | $ | 6,205 |
| | $ | 8,150 |
| | 2013 and 2014 |
| Duke Energy Carolinas | 3,772 |
| | 3,273 |
| | 3,420 |
| | 2013 |
| Duke Energy Progress | 2,588 |
| | 2,217 |
| | 3,550 |
| | 2014 |
Duke Energy Florida(c) | 736 |
| | 715 |
| | 1,180 |
| | 2013 |
| | | | | | | | | | | | | | | | | | | | | | | |
| NDTF(a) | | Decommissioning | | |
| (in millions) | December 31, 2020 | | December 31, 2019 | | Costs(a) | | Year of Cost Study |
| Duke Energy | $ | 9,114 | | | $ | 8,140 | | | $ | 9,105 | | | 2018 or 2019 |
Duke Energy Carolinas(b)(c) | 4,977 | | | 4,359 | | | 4,365 | | | 2018 |
Duke Energy Progress(d) | 3,500 | | | 3,047 | | | 4,181 | | | 2019 |
Duke Energy Florida(e) | 637 | | | 734 | | | 559 | | | N/A |
(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. |
(b) Decommissioning cost for Duke Energy Carolinas reflects its ownership interest in jointly owned reactors. Other joint owners are responsible for decommissioning costs related to their interest in the reactors.
(c) Duke Energy Carolinas' site-specific nuclear decommissioning cost study completed in 2018 was filed with the NCUC and PSCSC in 2019. A new funding study was also completed and filed with the NCUC and PSCSC in 2019.
(d) Duke Energy Progress' site-specific nuclear decommissioning cost study completed in 2019 was filed with the NCUC and PSCSC in March 2020. Duke Energy Progress also completed a funding study, which was filed with the NCUC and PSCSC in July 2020.
(e) During 2019, Duke Energy Florida reached an agreement to transfer decommissioning work for Crystal River Unit 3 to a third party and decommissioning costs are based on the agreement with this third party rather than a cost study. Regulatory approval was received from the NRC and the FPSC in April 2020 and August 2020, respectively. See Note 3 for more information.
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)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. With certain modifications and approvals by the 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 Brunswick, Catawba, McGuire, Oconee and Robinson. 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 untilinstallation. During 2020, the DOE removes it. With certain modificationsNRC and approvals by the U.S. Nuclear Regulatory Commission (NRC)FPSC approved an agreement to expand the on-site dry cask storage facilities, spent nuclear fuel dry storage facilities will be sufficient to provide storage spacetransfer ownership 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).Crystal River Unit 3 to a third party. See Note 3 for more information.
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. NuclearDuring 2019, Duke Energy announced its intention to seek 20-year operating licenses are potentially subject to extension.license renewals for each of the reactors it operates in Duke Energy Carolinas and Duke Energy Progress. |
| | | | |
| Unit | Year of Expiration |
| Duke Energy Carolinas | |
| Catawba Units 1 and 2 | 2043 |
| McGuire Unit 1 | 2041 |
| McGuire Unit 2 | 2043 |
| Oconee Units 1 and 2 | 2033 |
| Oconee Unit 3 | 2034 |
| Duke Energy Progress | |
| Brunswick Unit 1 | 2036 |
| Brunswick Unit 2 | 2034 |
| Harris | 2046 |
| Robinson | 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 nuclear decommissioning activity, see Note 4Notes 3 and 9 to the Consolidated Financial Statements, "Regulatory Matters."
On October 27, 2016,Matters" 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,"Asset Retirement Obligations," 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."
Regulation
State
The NCUC, PSCSC, FPSC, PUCO, IURC and KPSC (collectively, the state electric utility commissions)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 NecessityCPCNs 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. | | | | | Annual | Return | Equity | | |
| | Regulatory | Increase | on | Component of | Effective | | | | | | | | | | | | | | | | | | |
| | Body | (in millions) | Equity | Capital Structure | Date | | Regulatory Body | Annual Increase (Decrease) (in millions) | Return on Equity | Equity Component of Capital Structure | Effective Date | |
| Approved Rate Cases: | | | | | Approved Rate Cases: | | | | |
Duke Energy Progress 2016 South Carolina Rate Case(a) | PSCSC | (a) |
| 10.1 | % | 53 | % | 1/1/2017 | |
Duke Energy Indiana 2019 Indiana Rate Case(a) | | Duke Energy Indiana 2019 Indiana Rate Case(a) | IURC | $ | 146 | | 9.7 | % | 53 | % | 7/30/2020 | |
| Duke Energy Kentucky 2019 Kentucky Electric Rate Case | | Duke Energy Kentucky 2019 Kentucky Electric Rate Case | KPSC | 24 | | 9.25 | % | 48.23 | % | 5/1/2020 | |
| Duke Energy Carolinas 2018 South Carolina Rate Case | | Duke Energy Carolinas 2018 South Carolina Rate Case | PSCSC | 45 | | 9.5 | % | 53 | % | 6/1/2019 | |
| Duke Energy Progress 2018 South Carolina Rate Case | | Duke Energy Progress 2018 South Carolina Rate Case | PSCSC | 29 | | 9.5 | % | 53 | % | 6/1/2019 | |
| Duke Energy Ohio 2017 Ohio Electric Rate Case | | Duke Energy Ohio 2017 Ohio Electric Rate Case | PUCO | (19) | | 9.84 | % | 50.75 | % | 1/2/2019 | |
| Duke Energy Carolinas 2017 North Carolina Rate Case | | Duke Energy Carolinas 2017 North Carolina Rate Case | NCUC | (73) | | 9.9 | % | 52 | % | 8/1/2018 | |
| Duke Energy Kentucky 2017 Kentucky Electric Rate Case | | Duke Energy Kentucky 2017 Kentucky Electric Rate Case | KPSC | 8 | | 9.725 | % | 49 | % | 5/1/2018 | |
Duke Energy Progress 2017 North Carolina Rate Case(b) | | NCUC | 151 | | 9.9 | % | 52 | % | 3/16/2018 | |
| | | | | | | | |
| Pending Rate Cases: | | | | | Pending Rate Cases: | | |
| Duke Energy Carolinas 2017 North Carolina Rate Case | NCUC | $ | 647 |
| 10.75 | % | 53 | % | 5/1/2018(d) | |
Duke Energy Progress 2017 North Carolina Rate Case(b) | NCUC | 85 |
| 9.9 | % | 52 | % | 2/1/2018(d) | |
Duke Energy Progress 2017 North Carolina Rate Case(c) | NCUC | 221 |
| 9.9 | % | 52 | % | 2/1/2018(d) | |
| Duke Energy Kentucky 2017 Kentucky Rate Case | KPSC | 49 |
| 10.3 | % | 49 | % | 4/15/2018(d) | |
| Duke Energy Ohio 2017 Ohio Rate Case | PUCO | 15 |
| 10.4 | % | 50.75 | % | 1/1/2018(d) | |
Duke Energy Carolinas 2019 North Carolina Rate Case(b) | | Duke Energy Carolinas 2019 North Carolina Rate Case(b) | NCUC | $ | 291 | | 10.3 | % | 53 | % | 8/1/2020 | |
Duke Energy Progress 2019 North Carolina Rate Case(b) | | Duke Energy Progress 2019 North Carolina Rate Case(b) | NCUC | 464 | | 10.3 | % | 53 | % | 9/1/2020 | |
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(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. |
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(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. |
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(c) | Represents portions in the original 2017 rate case application not covered by the Agreement and Stipulation of Partial Settlement. |
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(d) | Represents the requested effective dates in the filings. Actual effective dates may differ based on orders from the respective commission. |
(a) Step 1 rates are approximately 75% of the total and became effective July 30, 2020. Step 2 rates are approximately 25% of the total rate case increase and will be implemented in mid-2021. Amounts exclude the Utility Receipt Tax amounts.
(b) Partial Settlements were reached on July 31, 2020, which are subject to approval by the NCUC. Components of the partial settlements included a return of equity of 9.6% and a capital structure of 52% equity. These temporary rates went into effect August 24, 2020, for Duke Energy Carolinas and September 1, 2020, for Duke Energy Progress. A settlement was also reached, subject to approval by the NCUC, on coal ash cost recovery in January of 2021.
Additionally, in January 2021, Duke Energy Florida filed a settlement agreement with the FPSC that, if approved, will allow annual increases to its base rates at an agreed upon return on equity (“ROE”) band and includes a base rate stay-out provision through 2024, among other provisions. For more information on rate matters and other regulatory proceedings, see Note 43 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).RTOs
PJM Interconnection, LLC (PJM) and Midcontinent Independent System Operator, Inc. (MISO)MISO are the Independent System Operators (ISO)ISOs 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.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 the “Other Matters” section of MD&AManagement's Discussion and Analysis 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, Duke Energy Ohio and Duke Energy Ohio.Kentucky. 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)TPUC, PHMSA and the FERC. Gas Utilities and Infrastructure serves residential, commercial, industrial and power generation natural gas customers, including customers served by municipalities who are wholesale customers. Gas Utilities and Infrastructure has over 1.51.6 million customers, including more than 11.1 million customers located in North Carolina, South Carolina and Tennessee, and an additional 526,000541,000 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 following map shows the service territory and investments in operating pipelines for Gas Utilities and Infrastructure as of December 31, 2020.
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,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 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 2017,2020, firm supply purchase commitment agreements provided 100 percent100% of the natural gas supply for both Piedmont and 100 percent for Duke Energy Ohio.
Impact of Weather
Gas Utilities and Infrastructure's costs andInfrastructure revenues are influenced by seasonal patternsgenerally protected from the impact of weather fluctuations 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 Tennesseethat are available in most service territories that normalize the margins collected from certain customer classes during the winter, providing for an adjustment either up or down.territories. In North Carolina, rate designmargin decoupling provides protection from both weather and other usage variations such as conservation.like conservation for residential and commercial customer classes. Margin decoupling provides a set revenue per customer independent of actual usage. In South Carolina, Tennessee and Tennessee,Kentucky, weather normalization adjusts revenues are adjusted solely basedeither up or down depending on weather during the periods ofhow much warmer or colder than normal a given month has been. Weather normalization adjustments occur from November through March andin South Carolina, from October through April respectively. Rate design for thein Tennessee and from November through April in Kentucky. Duke Energy Ohio service territory also mitigates the impactscollects most 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 belowits non-fuel revenue through a base temperature. The methodology used to estimate the applicable impact of weather doesfixed monthly charge that is 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-termusage fluctuations that result from weather trends to shorter-term periods.changes or conservation.
Competition
Gas Utilities and Infrastructure’s businesses operate as the sole supplierprovider of natural gas service within their retail service territories, with the exception of Ohio, which has a competitive natural gas supply market for distribution service.territories. 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 approvedcommission-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 percent7.5% equity ownership interest in Sabal Trail Transmission, LLC (Sabal Trail).Trail. Sabal Trail is a joint venture that owns a 515-mile natural gas pipelinethe Sabal Trail Natural Gas Pipeline (Sabal Trail pipeline) to transport natural gas to Florida, regulated by FERC. The Sabal Trail phase onePhase I mainline was placed into service in July 2017 and traverses Alabama, Georgia and Florida. A request to place in-service aThe remaining lateral line to the Duke Energy Florida's Citrus County Combined Cycle facility is pending with FERC. Current legal challengesCC was placed into service in March 2018. Phase II of Sabal Trail went into service in May 2020, adding approximately 200,000 Dth of capacity 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 percent47% equity ownership interest in ACP, which planned to build the ACP pipeline, an approximately 600-mile interstate natural gas pipeline. The ACP pipeline was intended to transport diverse natural gas supplies into southeastern markets and would be regulated by FERC. Dominion Energy owns 53% of ACP and was contracted to construct and operate the ACP pipeline upon completion. On July 5, 2020, Dominion announced a sale of substantially all of its gas transmission and storage segment assets, which were critical to the ACP pipeline. Further, permitting delays and legal challenges had materially affected the timing and cost of the pipeline. As a result, Duke Energy determined that they would no longer invest in the construction of the ACP pipeline. For the year ended December 31, 2020, Duke Energy recorded $2.1 billion of costs related to ACP.
Gas Utilities and Infrastructure has a 24% 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 shaleregulated by FERC. Constitution was slated to transport natural gas supplies and gathering systemsfrom the Marcellus supply region in Susquehanna County,northern Pennsylvania to Iroquois Gas Transmissionmajor northeastern markets. As of February 5, 2020, the Constitution partners formally resolved to initiate the dissolution of Constitution, and Tennessee Gasto terminate the Constitution 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.project.
As a result of the Piedmont acquisition, Duke Energy, through its Gas Utilities and Infrastructure segment, has a 21.49 percent21.49% equity ownership interest in Cardinal, Pipeline Company, LLC (Cardinal), an intrastate pipeline located in North Carolina regulated by the NCUC, a 45 percent45% equity ownership in Pine Needle, LNG Company, LLC (Pine Needle), an interstate liquefied natural gas storage facility located in North Carolina and a 50 percent50% 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 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 4,3, 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, 2017,2020, the inventory balance for Gas Utilities and Infrastructure was $106$82 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)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 NecessityCPCNs 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 thoughthrough 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.imprudent. 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. |
| | | | | | | | | | |
| | Annual |
| | Return |
| | Equity |
| | |
| | Increase |
| | on |
| | Component of |
| | |
| | (in millions) |
| | Equity |
| | Capital Structure |
| | Effective Date |
Piedmont 2016 South Carolina Rate Stabilization Adjustment Filing(a) | 8 |
| | 10.2 | % | | 53.0 | % | | November 2016 |
Piedmont 2017 South Carolina Rate Stabilization Adjustment Filing(a) | 6 |
| | 10.2 | % | | 53.0 | % | | November 2017 |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Annual Increase (Decrease) (in millions) | | Return on Equity | | Equity Component of Capital Structure | | Effective Date | | |
| Approved Rate Cases: | | | | | | | | | |
| Piedmont 2017 South Carolina Rate Stabilization Adjustment Filing | $ | 6 | | | 10.2 | % | | 53.0 | % | | November 2017 | | |
| Piedmont 2018 South Carolina Rate Stabilization Adjustment Filing | (14) | | | 10.2 | % | | 53.0 | % | | November 2018 | | |
| Piedmont 2019 South Carolina Rate Stabilization Adjustment Filing | 6 | | | 9.9 | % | | 55.4 | % | | November 2019 | | |
| Piedmont 2020 South Carolina Rate Stabilization Adjustment Filing | 7 | | | 9.8 | % | | 52.3 | % | | November 2020 | | |
| Duke Energy Kentucky 2018 Natural Gas Base Rate Case | 7 | | | 9.7 | % | | 50.8 | % | | April 2019 | | |
| Piedmont 2019 North Carolina Natural Gas Base Rate Case | 109 | | | 9.7 | % | | 52.0 | % | | November 2019 | | |
| Piedmont 2020 Tennessee Natural Gas Base Rate Case | 16 | | | 9.8 | % | | 50.5 | % | | January 2021 | | |
| | | | | | | | | |
| | | | | | | | | |
| |
(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)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.programs. The following table summarizes information related to the recently approved or pending IMR filings.filing. |
| | | | | | | | | |
| | Cumulative |
| | Annual Margin |
| | Effective |
| (in millions) | Investment |
| | Revenues |
| | Date |
Piedmont 2017 IMR Filing – North Carolina(a) | $ | 738 |
| | $ | 77 |
| | December 2017 |
Piedmont 2016 IMR Filing – Tennessee(b) | 193 |
| | 23 |
| | January 2017 |
| | | | | | |
| Pending Filing: | | | | | Proposed Effective Date |
Piedmont 2017 IMR Filing – Tennessee(c) | $ | 231 |
| | $ | 23.4 |
| | January 2018 |
| | | | | | | | | | | | | | | | | |
| Cumulative | | Annual | | Effective |
| (in millions) | Investment | | Revenues | | Date |
| Piedmont 2020 IMR Filing – North Carolina | $ | 307 | | | $ | 30 | | | December 2020 |
| | | | | |
| | | | | |
| | | | | |
(a) CumulativeIn Piedmont's Tennessee rate case settled in February 2021, the Company included projected IMR investment amounts through September 30, 2017.
(b) CumulativeDecember 31, 2021, in its rate base. The recovery of integrity investment amountswas requested in the rate case and not through October 31, 2016.the Tennessee IMR mechanism.
| |
(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 43 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.
•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.
Regulations of the 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.
Gas 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 Management's Discussion and Analysis 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.
COMMERCIAL RENEWABLES
Commercial Renewables primarily acquires, develops, builds, developsoperates and operatesowns 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, distributed solar generation assets, distributed fuel cell assets and battery storage projects, which total 2,9072,763 MW across 1421 states from 21 wind facilities, 150 solar projects, 70 fuel cell locations and 63 solartwo battery storage 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 industrialcorporate 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,The following map shows the locations of renewable generation facilities of which Commercial Renewables has an ownership interest as of December 31, 2020.
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)PTCs as power is generated by wind projects over 10 years. Renewableyears or ITCs when the renewable solar or fuel cell project achieves commercial availability. ITCs are recognized over the useful life of the asset as a reduction to depreciation expense with the benefitexpense. Benefits of the tax basis adjustment due to the ITC are recognized in income in the year of commercial availability. The ITC for solar and fuel cells is being phased down from a rate of 30% for projects that began construction before 2020 to a permanent 10% rate for solar and no ITC available for fuel cells if construction begins after 2023. The PTC is being phased out and wind turbines will earn 10 years of PTCs at phased-out rates if construction begins in 2017 through 2021.
Commercial Renewables has entered into agreements for certain of its generating assets that are held by LLCs whose members include a noncontrolling tax equity investor. The allocation of tax attributes and cash flows to the tax equity investor are governed by the provisions of the LLC agreements. The GAAP earnings allocations to the tax equity investors can result in variability in earnings to Duke Energy as a result of the application of the HLBV method in allocating income or loss to the owners. 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 tailoredexpects to commercial businesses. These investments include the 2015 acquisition of a controlling interest in REC Solar Corp., a California-based provider of solar installationsenter into these arrangements 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.future generating assets.
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.
Market Environment and Competition
Commercial Renewables primarily competes for wholesale contracts for the generation and sale of electricity from generation assets it either develops or acquires and owns. The market price of commodities and services, along with the quality and reliability of services provided, drive competition in the wholesale energy business. The number and type of competitors may vary based on location, generation type and project size. Commercial Renewables' main competitors include other nonregulated generators and wholesale power providers.
Sources of Electricity
Commercial Renewables relies on wind, solar, fuel cells and solarbattery resources for its generation of electric energy.
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.
OTHER
The remainder of Duke Energy’s operations is presented as Other. While it is not an operatinga business 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 isDuke Energy owns a 17.5% equity interest in NMC. The joint venture that operatescompany has production facilities in Jubail, Saudi Arabia, as a large regional producerwhere it manufactures certain petrochemicals and plastics. The company annually produces approximately 1 million metric tons each of MTBE and methanol and methyl tertiary butyl ether (MTBE), an additivehas the capacity to gasoline. In 2017, NMC produced approximately 934,000produce 50,000 metric tons of methanolpolyacetal. The main feedstocks to produce these products are natural gas 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.butane. Duke Energy records the investment activity of NMC using the equity method of accounting and retains 25 percent25% of NMC's board of directorsdirectors' representation and voting rights.
Regulation
Certain entities within OtherHuman Capital Management
Governance
Our employees are subjectcritical to the jurisdictionsuccess of federal, stateour company. Our Human Resources organization is responsible for our human capital management strategy, which includes recruiting and local agencies.hiring, onboarding and training, diversity and inclusion, workforce planning, talent and succession planning, performance management and employee development. Key areas of focus include fostering a high-performance and inclusive culture built on strong leadership and highly engaged and diverse employees, building a pipeline of skilled workers and ensuring knowledge transfer as employees retire.
Our Board of Directors provides oversight on certain human capital management matters, primarily through the Compensation and People Development Committee, which is responsible for reviewing strategies and policies related to human capital management, including with respect to matters such as diversity and inclusion, employee engagement and talent development. The Compensation and People Development Committee also receives updates on employee engagement surveys and action plans. Employees
On December 31, 2017,2020, Duke Energy had a total of 29,06027,535 full-time, part-time and temporary employees, on its payroll.the overwhelming majority of which were full-time employees. The total includes 5,4835,165 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.
Compensation
The company seeks to attract and retain an appropriately qualified workforce and leverages Duke Energy’s leadership imperatives to foster a culture focused on customers, innovation, and highly engaged employees. Our compensation program is designed to link pay to performance with the goal of attracting and retaining talented employees, rewarding individual performance, encouraging long-term commitment to our business, and aligning the interests of our management team with those of key stakeholders, including shareholders and customers. In addition to competitive base pay, we provide eligible employees with compensation and benefits under a variety of plans and programs, including with respect to health care benefits, retirement savings, pension, health savings and flexible spending accounts, wellness, family leaves, employee assistance, as well as other benefits including a charitable matching program. We supplement our pay for performance program with a number of compensation policies that are aligned with the long-term interests of Duke Energy and our shareholders, including a short-term incentive plan and a long-term incentive plan for eligible employees.
Diversity and Inclusion
Duke Energy is committed to continuing to build a diverse workforce that reflects the communities we serve while strengthening a culture of inclusion where employees and customers feel respected and valued. Our Enterprise Diversity and Inclusion Advisory Council, which is chaired by our Chief Operating Officer, is responsible for reviewing our diversity and inclusion initiatives for continuous improvement, as well as helping to develop actionable outcomes and results. We have established aspirational goals with respect to diversity and inclusion, and we regularly report our progress toward achieving those goals. Our aspirational goals include achieving a workforce representation of at least 25% female and 20% racial and ethnic diversity. As of December 31, 2020, our workforce consisted of approximately 23% female and 18% racial and ethnic diversity.
The company also has a number of Employee Resource Groups (ERGs), which are networks of employees formed around a common dimension of diversity whose goals and objectives align with the company's goals and objectives. These groups focus on employee professional development and networking, community outreach, cultural awareness, recruiting and retention. They also serve as a resource to the company for advocacy and community outreach and improving customer service through innovation. ERG-sponsored forums include networking events, mentoring, scholarship banquets for aspiring college students, and workshops on topics such as time management, stress reduction, career planning and work-life balance. Our ERGs are open to all employees.
Among other efforts, the company has developed partnerships with community organizations, community colleges and historically black colleges and universities to support our strategy of building a diverse and highly skilled talent pipeline.
Operational Excellence
The foundation for our growth and success is our continued focus on operational excellence, the leading indicator of which is safety. As such, the safety of our workforce remains our top priority. The company closely monitors the Total Incident Case Rate (TICR), which is a metric based on strict OSHA definitions that measures the number of occupational injuries and illnesses per 100 employees. This objective emphasizes our focus on achieving an event-free and injury-free workplace. As an indication of our commitment to safety, we include safety metrics in both the short-term and long-term incentive plans based on the TICR for employees. Our employees delivered strong safety results in 2020, consistent with our industry-leading performance levels from 2016 through 2019.
COVID-19 Response
Safety continued to be of paramount importance during the COVID-19 pandemic and included executing on robust business continuity plans that helped ensure critical functions continued to operate under a broad range of circumstances while maintaining a safe work environment. Actions included the following:
•Engaged our environmental, health and safety experts to develop new safety protocols for thousands of essential workers
•Quickly transitioned thousands of employees to virtual status
•Added bandwidth for our information technology systems, reviewed inventory in supply chain, implemented a series of surveys to get employee input, and provided ongoing communications to keep them informed as conditions evolved
•Created a cross-functional COVID-19 case management team to track and disposition positive cases, ensure appropriate contact tracing and compliance with quarantine and safe return to work requirements
•Ensured power plants and electricity and natural gas delivery facilities were staffed, helping safeguard dependable service to customers
•Implemented stringent preventive measures in alignment with the Centers for Disease Control and Prevention’s (CDC) guidance to help keep employees and customers safe and help ensure we had adequate resources to maintain reliability
The company also provided additional benefits to support our workforce throughout the pandemic, including:
•60 hours of additional personal time off to employees who experienced a disruption in dependent care due to school, daycare or other dependent care issues
•A $1,500 stipend to assist with unplanned expenses resulting from costs related to COVID-19 to employees at a certain pay threshold
•Donated more than $550,000 to the Relief4Employees program, which is a fund that employees can draw upon for short-term financial help during times of personal need
Information about Our 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 | | Age(a) | | Current and Recent Positions Held |
| Lynn J. Good | | 5861 |
| | Chair, President and Chief Executive Officer. Ms. Good has served as Chair, President and Chief Executive Officer of Duke Energy since January 1, 2016, and was Vice Chairman, President and Chief Executive Officer. Ms. Good was elected as ChairmanOfficer of the Board, effective January 1, 2016, and assumed her position as President and Chief Executive Officer inDuke Energy from July 2013.2013 through December 2015. Prior to that, she served as Executive Vice President and Chief Financial Officer since 2009. |
| Steven K. Young | | 5962 |
| | 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 Aprilassuming the role of Chief Accounting Officer in July 2012 and the role of Controller in December 2006. |
| Douglas F Esamann | | 6063 |
| | Executive Vice President, Energy Solutions and President, Midwest/Florida Regions and Natural Gas Business. Mr. Esamann assumed his current position in October 2019, was Executive Vice President, Energy Solutions and President, Midwest and Florida Regions. Mr. Esamann assumed his current position inRegions since September 2016 and was Executive Vice President and President, Midwest and Florida Regions since June 2015. Prior to that, he wasserved as President, Duke Energy Indiana since November 2010. |
Lloyd M. YatesKodwo Ghartey-Tagoe | | 57 |
| | Executive Vice President, CustomerChief Legal Officer and Delivery Operations and President, Carolinas Region.Corporate Secretary. Mr. YatesGhartey-Tagoe 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,Chief Legal Officer and prior to that, had served asCorporate Secretary in May 2020. He was appointed Executive Vice President Customer Operationsand Chief Legal Officer in October 2019, after serving as President, South Carolina since 2017. Mr. Ghartey-Tagoe joined Duke Energy in 2002 and has held numerous management positions in Duke Energy’s Legal Department, including Duke Energy's Senior Vice President of State and Federal Regulatory Legal Support. |
| Dwight L. Jacobs | | 55 | | | Senior Vice President, Chief Accounting Officer, Tax and Controller. Mr. Jacobs has served as Senior Vice President, Chief Accounting Officer, Tax and Controller since January 1, 2019. Prior to that, he served as Senior Vice President, Chief Accounting Officer and Controller since June 1, 2018. Prior to that, he served as Senior Vice President, Financial Planning & Analysis since February 2016 and as Chief Risk Officer since July 2012, upon the merger of Duke Energy and Progress Energy.2014. Prior to the merger,his role as Chief Risk Officer, Mr. Yates wasJacobs served as Vice President, and Chief Executive Officer of Progress Energy Carolinas, Inc., which is now known as Duke Energy Progress, LLCRates & Regulatory Strategy since July 2007.May 2010. |
| Dhiaa M. Jamil | | 6164 |
| | 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 was 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. |
Franklin H. YohoJulia S. Janson | | 5856 |
| | Executive Vice President, External Affairs and President, Natural Gas.Carolinas Region. Ms. Janson has held the position of Executive Vice President, External Affairs and President, Carolinas Region since October 2019.Prior to that, she held the position of Executive Vice President, External Affairs and Chief Legal Officer since November 2018. She originally assumed the position of Executive Vice President, Chief Legal Officer and Corporate Secretary in December 2012, and then assumed the responsibilities for External Affairs in February 2016. |
| Brian D. Savoy | | 45 | | | Senior Vice President, Chief Transformation and Administrative Officer. Mr. YohoSavoy 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 2011.2019. Prior to that, he served as Senior Vice President, Business Transformation and Technology since May 2016; Senior Vice President, Controller and Chief Accounting Officer from September 2013 to May 2016; Director, Forecasting and Analysis from 2009 to September 2013; and Vice President and Controller of the Commercial Operations since March 2002.Power segment from 2006 to 2009. |
Julia S. JansonHarry K. Sideris | | 5350 |
| | ExecutiveSenior Vice President, External Affairs, Chief Legal OfficerCustomer Experience and Corporate Secretary. Ms. JansonServices. Mr. Sideris assumed herhis current position in December 2012 and, in May 2017, assumed the responsibilities for the External Affairs and Strategic Policy organization.October 2019. Prior to that, she had held the position of President of Duke Energy Ohio and Duke Energy Kentucky since 2008.
|
Melissa H. Anderson | | 53 |
| | 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, shehe served as Senior Vice President of Human Resources at Domtar Inc.and Chief Distribution Officer since 2010.
|
William E. Currens Jr. | | 48 |
| | June 2018; State President, Florida from January 2017 to June 2018; Senior Vice President Chief Accounting Officerof Environmental Health and Controller. Mr. Currens assumed his current position in May 2016. PriorSafety from August 2014 to that, he had held the position ofJanuary 2017; and Vice President Investor Relations since 2009.of Power Generations for the Company's Fossil/Hydro Operations in the western portions of North Carolina and South Carolina from July 2012 to August 2014. |
(a) The ages of the officers provided are as of DecemberJanuary 31, 2017.2021.
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.
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),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.
•The National Environmental Policy Act, which requires federal agencies to consider potential environmental impacts in their permitting and licensing decisions, including siting approvals.
•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),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 54 and 9 to the Consolidated Financial Statements, “Commitments and Contingencies – Environmental” and "Asset Retirement Obligations," respectively, and the “Other Matters” section of MD&A.Management's Discussion and Analysis. 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 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&AManagement's Discussion and Analysis includes an estimate of future capital expenditures required to comply withmore information on certain environmental regulations and a discussion of Global Climate Change including the potential impact of current and future legislation related to greenhouse gas (GHG)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 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 2.52.7 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 32 to the Consolidated Financial Statements, “Business Segments.”
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 32 to the Consolidated Financial Statements, “Business Segments.”
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 32,00029,000 square miles and supplies electric service to approximately 1.51.6 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 32 to the Consolidated Financial Statements, “Business Segments.”
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 1.81.9 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 32 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).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, PHMSA and FERC.
Duke Energy Ohio’s service area covers approximately 3,000 square miles and supplies electric service to approximately 850,000880,000 residential, commercial and industrial customers and provides transmission and distribution services for natural gas to approximately 529,000545,000 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 saleare regulated and 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 32 to the Consolidated Financial Statements, “Business Segments.”
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 820,000850,000 residential, commercial and industrial customers. SeeFor information about Duke Energy Indiana's generating facilities, see Item 2, “Properties” for further discussion of Duke Energy Indiana’s generating facilities, transmission and distribution.“Properties.” 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 32 to the Consolidated Financial Statements, “Business Segments.”
Piedmont is a regulated public utility primarily engaged in the distribution of natural gas to over 11.1 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. For information about Piedmont's natural gas distribution facilities, see Item 2, "Properties." Piedmont is subject to the regulatory provisions of the NCUC, PSCSC, TPUC, PHMSA 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 32 to the Consolidated Financial Statements, “Business Segments.”
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 RisksBUSINESS 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, includingwhich includes transforming the customer experience, modernizing the energy grid, generating cleaner energy, expansion of natural gas infrastructure,achieving net-zero carbon emissions by 2050, modernizing the regulatory construct and engaging employees and stakeholders to accomplish these priorities,digital transformation, is subject to business, regulatory, economic and competitive uncertainties and contingencies, and required advancements in technology to achieve net-zero carbon emissions by 2050, 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
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,Commissions, which may decrease the Duke Energy Registrants’ future earnings. Additionally, if regulatory bodies do not allow recovery of costs incurred in providing service, or do not do so 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 efficiencyEE 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 efficiencyEE 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 and rate stabilization in South Carolina and uncollectible natural gas cost recovery in all states.Carolina. 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 conditionposition and cash flows. In addition, regulatory authorities also review whether natural gas costs are prudentprudently incurred 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 liquiditycash flows 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, or by any court on appeal of a rate case proceeding, could have a material adverse effect on the Duke Energy Registrants’ results of operations, financial position or liquiditycash flows 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, financial position 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 competitionIf the retail jurisdictions served by the Duke Energy Registrants become subject to deregulation, the impairment of assets, loss of retail customers, lower profit margins or increased costs of capital, and the unbundlingrecovery of regulated electric servicestranded costs could have a significant adverse financial impact on the Duke Energy Registrants. Stranded costs primarily include the generation assets of the Duke Energy Registrants duewhose value in a competitive marketplace may be less than their current book value, as well as above-market purchased power commitments from QFs from whom the Duke Energy Registrants are legally obligated to purchase energy at an impairment of assets, a loss of retail customers, lower profit margins or increased costs of capital.avoided cost rate under PURPA. The Duke Energy Registrants cannot predict the 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, financial position 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.
The Duke Energy isRegistrants are 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 regulationincluding 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 courseThere can be no assurance that laws, regulations and policies will not be changed in ways that result in material modifications of regulatory changes or the ultimate effect those changes will have on their businesses. However, changes in regulation can cause delays inbusiness models and objectives or affect business planningreturns on investment by restricting activities and transactions and can substantially increase the Duke Energy Registrants’ costs.products, subjecting them to escalating costs, causing delays, or prohibiting them outright.
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, orfinancial position and 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. New state legislation, including the North Carolina Clean Energy Plan, could impose carbon reduction goals that are more aggressive than the company's plans. 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, and increasing activism, both nationally and internationally, about climate change. The EPA and state regulators may adopt and implement regulations to restrict emissions of GHGs.GHGs to address global climate change. Increased regulation of GHG emissions could impose significant additional costs on the Duke Energy Registrants' electric and natural gas 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. Atgeneration, and could also affect demand for energy conservation and renewable products, which could impact our electric and natural gas businesses.
OPERATIONAL RISKS
The Duke Energy Registrants’ operations have been and may be affected by COVID-19 in ways listed below and in ways the registrants cannot predict at this time,time.
The COVID-19 pandemic has impacted the effect that climate change regulation may have in the future on Duke Energy'sEnergy Registrants' business financial condition orstrategy, results of operations, isfinancial position and cash flows, albeit not ablematerially as of this filing date, from specific activities listed below:
•Decreased demand for electricity and natural gas;
•Delays in rate cases and other legal proceedings;
•An inability to be predicted.obtain labor or equipment necessary for the construction of generation projects or pipeline expansion;
•The health and availability of our critical personnel and their ability to perform business functions; and
•Actions of state utility commissions or federal or state governments to allow customers to suspend or delay payment of bills related to the provision of electric or natural gas services.
Furthermore, due to the unpredictability of the COVID-19 pandemic’s ongoing impact on global health and economic stability, the Duke Energy Registrants expect that the activities listed below could negatively impact their business strategy, results of operations, financial position and cash flows:
•An inability to procure satisfactory levels of fuels or other necessary equipment to continue production of electricity and delivery of natural gas;
•An inability to maintain information technology systems and protections from cyberattack;
•An inability to obtain financing in volatile financial markets;
•Additional federal regulation tied to stimulus and other aid packages; and
•Impairment charges, which could include real estate as options for working remotely are evaluated and goodwill.
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.
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, Californiaforest fires, earthquakes, hurricanes or natural gas transmission pipeline failure)explosions) could have direct significantor indirect impacts onto the Duke Energy Registrants as well as onor to key contractors and suppliers. Further, the generation of electricity and the transportation and storage of natural gas involve inherent operating risks that may result in accidents involving serious injury or loss of life, environmental damage or property damage. 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, financial position and cash flows. In addition, if a serious operational accident were to occur, existing insurance policies may not cover all of the potential exposures or the actual amount of loss incurred. Any losses not covered by insurance, or any increases in the cost of applicable insurance as a result of such accident, could have a material adverse effect on the results of operations, financial position, cash flows and reputation of the Duke Energy Registrants.
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 anotherA 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-relatedoperational incident could have a material adverse impact on the reputation and results of operations, financial conditionposition and cash flows 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 and, new and existing surface impoundments, structural fills and CCR piles, and establishesestablish 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.future, such as the settlement reached with the NCDEQ to excavate seven of the nine remaining coal ash basins in North Carolina, and partially excavate the remaining two. These federal and state laws, regulations and other legal requirements may require or result in additional expenditures, including increased operating and maintenance costs, and/or result in closure of certain power generating facilities, which could affect the financial position, results of operations, financial position and cash flows of the Duke Energy Registrants. The Duke Energy Registrants intendwill continue 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 and amount of 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 obligationsAROs 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. Duke Energy has completed excavation of coal ash at three of the four high priority sites. 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 thecosts, and 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.activities have commenced. 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, financial position 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 ofseveral factors outside the control of the Duke Energy Registrants, such as mandated energy efficiencyEE 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 efficiencyEE in end-use electric devices or other improvements in or applications of technology could lead to declines in per capita energy consumption.
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, financial position and cash flows.
Furthermore, the Duke Energy Registrants currently have energy efficiencyEE riders in place to recover the cost of energy efficiencyEE 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 future results may be impacted by changing customer expectations and demands including heightened emphasis on environmental, social and governance concerns.
Duke Energy’s outcomes are influenced by the expectations of our customers and stakeholders. Those expectations are based on the corefundamentals of reliability and affordability but are also increasingly focused on our ability to meet rapidly changing demands for new and varied products, services and offerings. Additionally, the risks of global climate change continues to shape our customers’ sustainability goals and energy needs. Failure to meet those expectations or to adequately address the risks and external pressures from regulators, investors and other stakeholders may impact favorable outcomes in future rate cases and the results of operations for the Duke Energy Registrants.
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 hurricanes, droughts, 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, flooding, 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-shoreoffshore pipelines, interstate pipelines and storage, cannot be built at a pace that meets demand, then growth opportunities could be limited and earnings negatively impacted.limited.
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, financial position 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, bankruptcies, 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 market-based calculation of financial exposure of the derivative position.positions. Fluctuations in commodity prices that lead to the return of collateral received and/or the posting of collateral with counterparties could negatively impact liquidity. Downgrades in the Duke 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 securityCybersecurity risks have generally increased in recent years as a result of the proliferation of new technologies and the increased sophistication, magnitude and frequency of cyberattacks and data security breaches. The utility industry requiresDuke Energy relies on the continued operation of sophisticated digital 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 modernization and other operational excellence 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.cyberattack from foreign or domestic sources and have been subject, and will likely continue to be subject, to attempts to gain unauthorized access to information and/or information systems or to disrupt utility operations through computer viruses and phishing attempts either directly or indirectly through its material vendors or related third parties. In the event of such an attack,a significant cybersecurity breach on either the Duke Energy Registrants or with one of our material vendors or related third parties, the Duke Energy Registrants could (i) have business operations disrupted, property damaged,including the disruption of the operation of our assets and the power grid, theft of confidential company, employee, retiree, shareholder, vendor or customer information, stolen and other privategeneral business systems and process interruption or compromise, including preventing the Duke Energy Registrants from servicing customers, collecting revenues or the recording, processing and/or reporting financial information accessed,correctly, (ii) experience substantial loss of revenues, repair and restoration costs, penalties and costs for lack of compliance with relevant regulations, 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.
While Duke Energy maintains insurance relating to cybersecurity events, such insurance is subject to a number of exclusions and may be insufficient to offset any losses, costs or damage experienced. Also, the market for cybersecurity insurance is relatively new and coverage available for cybersecurity events is evolving as the industry matures.
Failure to attract and retain an appropriately qualified workforce could unfavorably impact theThe Duke Energy Registrants’ resultsRegistrants are subject to standards enacted by the North American Electric Reliability Corporation and enforced by FERC regarding protection of operations.
Certain events, such as an aging workforce, mismatchthe physical and cyber security 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 timecritical infrastructure assets required for skill development. In this case, costs, including costsoperating North America's bulk electric system. The Duke Energy Registrants are also subject to regulations set by the Nuclear Regulatory Commission regarding the protection of digital computer and communication systems and networks required for contractors to replace employees, productivity costs and safety costs, may increase. Failure to hire and adequately train replacement employees, including the transferoperation 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. Ifplants. While the Duke Energy Registrants believe they are unable to successfully attractin compliance with such standards and retain an appropriately qualified workforce, their financial position, results of operations or cash flows could be negatively affected.
The costs of retiringregulations, the Duke Energy Florida’s Crystal River Unit 3 could proveRegistrants have from time to time been, and may in the future be, found to be more extensive than is currently identified.
Costs to retirein violation of such standards and decommissionregulations. In addition, compliance with or changes in the plant could exceed estimatesapplicable standards and if not recoverable throughregulations may subject 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.Registrants to higher operating costs and/or increased capital expenditures as well as substantial fines for non-compliance.
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 conditionposition 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 the results of operations, financial position and cash flows of 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 partythird-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.
Nuclear Generation RisksThe Duke Energy Registrants are subject to risks associated with their ability to obtain adequate insurance at acceptable costs.
The financial condition of some insurance companies, actual or threatened physical or cyberattacks, and natural disasters, among other things, could have disruptive effects on insurance markets. The availability of insurance covering risks that the Duke Energy Registrants and their respective competitors typically insure against may decrease, and the insurance that the Duke Energy Registrants are able to obtain may have higher deductibles, higher premiums, and more restrictive policy terms. Further, the insurance policies may not cover all of the potential exposures or the actual amount of loss incurred. Any losses not covered by insurance, or any increases in the cost of applicable insurance, could adversely affect the results of operations, financial position or cash flows of the affected Duke Energy Registrant.
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 interestinterests 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,position, cash flows and reputation of the Duke Energy Registrants.
Liquidity, Capital Requirements and Common Stock RisksLIQUIDITY, 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, orfinancial position and 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, financial position and cash flows could be negatively affected.
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, orfinancial position and 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.
The failure of Duke Energy information technology systems, or the failure to enhance existing information technology systems and implement new technology, could adversely affect the Duke Energy Registrants’ businesses.
Duke Energy’s operations are dependent upon the proper functioning of its internal systems, including the information technology systems that support our underlying business processes. Any significant failure or malfunction of such information technology systems may result in disruptions of our operations. In the ordinary course of business, we rely on information technology systems, including the internet and third-party hosted services, to support a variety of business processes and activities and to store sensitive data, including (i) intellectual property, (ii) proprietary business information, (iii) personally identifiable information of our customers, employees, retirees and shareholders and (iv) data with respect to invoicing and the collection of payments, accounting, procurement, and supply chain activities. Our information technology systems are dependent upon global communications and cloud service providers, as well as their respective vendors, many of whom have at some point experienced significant system failures and outages in the past and may experience such failures and outages in the future. These providers’ systems are susceptible to cybersecurity and data breaches, outages from fire, floods, power loss, telecommunications failures, break-ins and similar events. Failure to prevent or mitigate data loss from system failures or outages could materially affect the results of operations, financial position and cash flows of the Duke Energy Registrants.
In addition to maintaining our current information technology systems, Duke Energy believes the digital transformation of its business is key to driving internal efficiencies as well as providing additional capabilities to customers. Duke Energy’s information technology systems are critical to cost-effective, reliable daily operations and our ability to effectively serve our customers. We expect our customers to continue to demand more sophisticated technology-driven solutions and we must enhance or replace our information technology systems in response. This involves significant development and implementation costs to keep pace with changing technologies and customer demand. If we fail to successfully implement critical technology, or if it does not provide the anticipated benefits or meet customer demands, such failure could materially adversely affect our business strategy as well as impact the results of operations, financial position and cash flows of the Duke Energy Registrants.
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 that could have a material adverse effect on Duke Energy Registrants' 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.
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 results of operations, financial position and cash flows could be negatively affected.
| | | | | |
| UNRESOLVED STAFF COMMENTS | |
ITEM 1B. UNRESOLVED STAFF COMMENTS None.
ELECTRIC UTILITIES AND INFRASTRUCTURE
The following table provides information related to the Electric Utilities and Infrastructure's generation stations as of December 31, 2017.2020. The MW displayed in the table below are based on summer capacity. Ownership interest in all facilities is 100 percent100% unless otherwise indicated.
| | | | | | | | | | | | | | | | |
| | | | | Owned MW | |
| Facility | Plant Type | Primary Fuel | Location | | Capacity | |
| Duke Energy Carolinas | | | | | | |
| Oconee | Nuclear | Uranium | SC | | 2,554 | | |
| McGuire | Nuclear | Uranium | NC | | 2,316 | | |
Catawba(a) | Nuclear | Uranium | SC | | 445 | | |
| Belews Creek | Fossil | Coal/Gas | NC | | 2,220 | | |
| Marshall | Fossil | Coal/Gas | NC | | 2,058 | | |
| J.E. Rogers | Fossil | Coal/Gas | NC | | 1,388 | | |
| Lincoln Combustion Turbine (CT) | Fossil | Gas/Oil | NC | | 1,193 | | |
| Allen | Fossil | Coal | NC | | 1,098 | | |
| Rockingham CT | Fossil | Gas/Oil | NC | | 825 | | |
W.S. Lee Combined Cycle (CC)(b) | Fossil | Gas | SC | | 686 | | |
| Buck CC | Fossil | Gas | NC | | 668 | | |
| Dan River CC | Fossil | Gas | NC | | 662 | | |
| Mill Creek CT | Fossil | Gas/Oil | SC | | 563 | | |
| W.S. Lee | Fossil | Gas | SC | | 170 | | |
| W.S. Lee CT | Fossil | Gas/Oil | SC | | 84 | | |
| Clemson CHP | Fossil | Gas | SC | | 13 | | |
| Bad Creek | Hydro | Water | SC | | 1,440 | | |
| Jocassee | Hydro | Water | SC | | 780 | | |
| Cowans Ford | Hydro | Water | NC | | 324 | | |
| Keowee | Hydro | Water | SC | | 152 | | |
| Other small facilities (19 plants) | Hydro | Water | NC/SC | | 603 | | |
| Distributed generation | Renewable | Solar | NC | | 38 | | |
| Total Duke Energy Carolinas | | | | | 20,280 | | |
| | | | | | | | | | | | | | | | |
| | | | | Owned MW | |
| Facility | Plant Type | Primary Fuel | Location | | Capacity | |
| Duke Energy Progress | | | | | | |
| Brunswick | Nuclear | Uranium | NC | | 1,870 | | |
| Harris | Nuclear | Uranium | NC | | 964 | | |
| Robinson | Nuclear | Uranium | SC | | 759 | | |
| Roxboro | Fossil | Coal | NC | | 2,439 | | |
| Smith CC | Fossil | Gas/Oil | NC | | 1,085 | | |
| H.F. Lee CC | Fossil | Gas/Oil | NC | | 888 | | |
| Wayne County CT | Fossil | Gas/Oil | NC | | 857 | | |
| Smith CT | Fossil | Gas/Oil | NC | | 772 | | |
| Mayo | Fossil | Coal | NC | | 727 | | |
| L.V. Sutton CC | Fossil | Gas/Oil | NC | | 607 | | |
| | | | | |
| | | | Owned MW |
|
FacilityAsheville CC | Plant TypeFossil | Primary FuelGas/Oil | LocationNC | Capacity |
|
Duke Energy Carolinas474 | | | | |
Oconee | Nuclear | Uranium | SC | 2,554 |
|
McGuire | Nuclear | Uranium | NC | 2,316 |
|
Catawba(a)
| Nuclear | Uranium | SC | 445 |
|
Belews Creek | Fossil | Coal | NC | 2,220 |
|
Marshall | Fossil | Coal | NC | 2,058 |
|
J.E. Rogers | Fossil | Coal | NC | 1,388 |
|
Lincoln Combustion Turbine (CT) | Fossil | Gas/Oil | NC | 1,193 |
|
Allen | Fossil | Coal | NC | 1,098 |
|
Rockingham CT | Fossil | Gas/Oil | NC | 825 |
|
Buck Combined Cycle (CC) | Fossil | Gas | NC | 668 |
|
Dan River CC | Fossil | Gas | NC | 662 |
|
Mill Creek CT | Fossil | Gas/Oil | SC | 563 |
|
W.S. Lee | Fossil | Gas | SC | 170 |
|
W.S. Lee CT | Fossil | Gas/Oil | SC | 84 |
|
Bad Creek | Hydro | Water | SC | 1,360 |
|
Jocassee | Hydro | Water | SC | 780 |
|
Cowans Ford | Hydro | Water | NC | 324 |
|
Keowee | Hydro | Water | SC | 152 |
|
Other small facilities (25 plants) | Hydro | Water | NC/SC | 669 |
|
Distributed generation | Renewable | Solar | NC | 39 |
|
Total Duke Energy Carolinas | | | | 19,568 |
|
|
| | | | | |
| | | | Owned MW |
|
FacilityAsheville CT | Plant TypeFossil | Primary FuelGas/Oil | LocationNC | Capacity |
320 | | |
Duke Energy ProgressDarlington CT | Fossil | Gas/Oil | SC | | 234 | | |
BrunswickWeatherspoon CT | NuclearFossil | UraniumGas/Oil | NC | 1,870 |
124 | | |
Harris | Nuclear | Uranium | NC | 928 |
|
Robinson | Nuclear | Uranium | SC | 741 |
|
Roxboro | Fossil | Coal | NC | 2,439 |
|
Smith CC | Fossil | Gas/Oil | NC | 1,073 |
|
H.F. Lee CC | Fossil | Gas/Oil | NC | 888 |
|
Wayne County CT | Fossil | Gas/Oil | NC | 857 |
|
Smith CT | Fossil | Gas/Oil | NC | 772 |
|
Darlington CT | Fossil | Gas/Oil | SC | 664 |
|
Mayo | Fossil | Coal | NC | 727 |
|
L.V. Sutton CC | Fossil | Gas/Oil | NC | 607 |
|
Asheville | Fossil | Coal | NC | 378 |
|
Asheville CT | Fossil | Gas/Oil | NC | 320 |
|
Weatherspoon CT | Fossil | Gas/Oil | NC | 124 |
|
| L.V. Sutton CT (Black Start) | Fossil | Gas/Oil | NC | 80 |
78 | | |
| Blewett CT | Fossil | Oil | NC | 52 |
52 | | |
| Walters | Hydro | Water | NC | 112 |
112 | | |
Other small facilities (three plants)(3) | Hydro | Water | NC | 115 |
115 | | |
| Distributed generation | Renewable | Solar | NC | 62 |
49 | | |
| Asheville – Rock Hill Battery | Renewable | Storage | NC | | 7 | | |
| Total Duke Energy Progress | | | | 12,809 |
12,533 | | |
| | | | | | | | | | | | | | | | |
| | | | | Owned MW | |
| Facility | Plant Type | Primary Fuel | Location | | Capacity | |
| Duke Energy Florida | | | | | | |
| Hines CC | Fossil | Gas/Oil | FL | | 2,054 | | |
| Citrus County CC | Fossil | Gas | FL | | 1,610 | | |
| Crystal River | Fossil | Coal | FL | | 1,422 | | |
| Bartow CC | Fossil | Gas/Oil | FL | | 1,169 | | |
| Anclote | Fossil | Gas | FL | | 1,013 | | |
| Intercession City CT | Fossil | Gas/Oil | FL | | 951 | | |
| Osprey CC | Fossil | Gas/Oil | FL | | 583 | | |
| DeBary CT | Fossil | Gas/Oil | FL | | 559 | | |
| Tiger Bay CC | Fossil | Gas/Oil | FL | | 200 | | |
| Bayboro CT | Fossil | Oil | FL | | 171 | | |
| Bartow CT | Fossil | Gas/Oil | FL | | 168 | | |
| Suwannee River CT | Fossil | Gas | FL | | 149 | | |
| | | | | |
| | | | Owned MW |
|
Facility | Plant Type | Primary Fuel | Location | Capacity |
|
Duke Energy Florida | | | | |
Crystal River | Fossil | Coal | FL | 2,188 |
|
Hines CC | Fossil | Gas/Oil | FL | 2,032 |
|
Bartow CC | Fossil | Gas/Oil | FL | 1,080 |
|
Anclote | Fossil | Gas | FL | 1,013 |
|
Intercession City CT | Fossil | Gas/Oil | FL | 951 |
|
Osprey CC | Fossil | Gas/Oil | FL | 582 |
|
DeBary CT | Fossil | Gas/Oil | FL | 561 |
|
Tiger Bay CC | Fossil | Gas/Oil | FL | 200 |
|
Bartow CT | Fossil | Gas/Oil | FL | 168 |
|
Bayboro CT | Fossil | Oil | FL | 171 |
|
Suwannee River CT | Fossil | Gas | FL | 149 |
|
Higgins CT | Fossil | Gas/Oil | FL | 107 |
|
Avon Park CT | Fossil | Gas/Oil | FL | 48 |
|
University of Florida CoGen CT | Fossil | Gas | FL | 47 |
|
Distributed generation | Renewable | Solar | FL | 8 |
|
Total Duke Energy Florida | | | | 9,305 |
|
|
| | | | | |
| | | | Owned MW |
|
FacilityUniversity of Florida CoGen CT | Plant TypeFossil | Primary FuelGas | LocationFL | Capacity |
43 | | |
Duke Energy OhioDistributed generation | Renewable | Solar | FL | |
East Bend | Fossil195 | Coal | KY | 600 |
|
Woodsdale CT | Fossil | Gas/Propane | OH | 476 |
|
Beckjord Battery Storage | Renewable | Storage | OH | 4 |
|
Total Duke Energy Ohio | | | | 1,080 |
|
|
| | | | | |
| | | | Owned MW |
|
Facility | Plant Type | Primary Fuel | Location | Capacity |
|
Duke Energy Indiana | | | | |
Gibson(b)
| Fossil | Coal | IN | 2,822 |
|
Cayuga(c)
| Fossil | Coal/Oil | IN | 1,005 |
|
Edwardsport | Fossil | Coal | IN | 595 |
|
Madison CT | Fossil | Gas | OH | 566 |
|
Vermillion CT(d)
| Fossil | Gas | IN | 360 |
|
Wheatland CT | Fossil | Gas | IN | 450 |
|
Noblesville CC | Fossil | Gas/Oil | IN | 264 |
|
Gallagher | Fossil | Coal | IN | 280 |
|
Henry County CT | Fossil | Gas/Oil | IN | 129 |
|
Cayuga CT | Fossil | Gas/Oil | IN | 80 |
|
Connersville CT | Fossil | Oil | IN | 74 |
|
Miami Wabash CT | Fossil | Oil | IN | 64 |
|
Markland | Hydro | Water | IN | 45 |
|
Distributed generation | Renewable | Solar | IN | 10 |
|
Total Duke Energy IndianaFlorida | | | | 6,744 |
10,287 | | |
| | | | | | | | | | | | | | | | |
| | | | | Owned MW | |
| Facility | Plant Type | Primary Fuel | Location | | Capacity | |
| Duke Energy Ohio | | | | | | |
| East Bend | Fossil | Coal | KY | | 600 | | |
| Woodsdale CT | Fossil | Gas/Propane | OH | | 476 | | |
| | | | | | |
| Total Duke Energy Ohio | | | | | 1,076 | | |
| | | | | | | | | | | | | | | | |
| | | | | Owned MW |
|
Totals byFacility | Plant Type | Primary Fuel | Location | | Capacity |
|
Total Electric UtilitiesDuke Energy Indiana | | | | 49,506 |
|
Totals By Plant Type | | | | |
Nuclear | | | | 8,854 |
|
Fossil | | | | 36,972 |
|
Hydro | | | | 3,557 |
|
Renewable | | | | 123 |
|
Total Electric Utilities | | | | 49,506 |
|
| |
(a)Gibson(c) | 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.Fossil |
| Coal | IN | | 2,822 | | |
(b)Cayuga(d) | Fossil | Coal/Oil | IN | | 1,005 | | |
| Edwardsport | Fossil | Coal | IN | | 595 | | |
| Madison CT | Fossil | Gas | OH | | 566 | | |
| Wheatland CT | Fossil | Gas | IN | | 450 | | |
Vermillion CT(e) | Fossil | Gas | IN | | 360 | | |
| Gallagher | Fossil | Coal | IN | | 280 | | |
| Noblesville CC | Fossil | Gas/Oil | IN | | 264 | | |
| Henry County CT | Fossil | Gas/Oil | IN | | 129 | | |
| Cayuga CT | Fossil | Gas/Oil | IN | | 86 | | |
| | | | | | |
| | | | | | |
| Markland | Hydro | Water | IN | | 51 | | |
| Distributed generation | Renewable | Solar | IN | | 11 | | |
| Camp Atterbury Battery | Renewable | Storage | IN | | 4 | | |
| Nabb Battery | Renewable | Storage | IN | | 4 | | |
| | | | | | |
| Crane Battery | Renewable | Storage | IN | | 4 | | |
| | | | | | |
Total 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. | | | | | 6,631 | | |
| | | | | | | | | | | | | | |
| | | | | Owned MW | |
| Totals by Type | | | | | Capacity | |
| Total Electric Utilities | | | | | 50,807 | | |
| Totals by Plant Type | | | | | | |
| Nuclear | | | | | 8,908 | | |
| Fossil | | | | | 38,010 | | |
| Hydro | | | | | 3,577 | | |
| Renewable | | | | | 312 | | |
| Total Electric Utilities | | | | | 50,807 | | |
(a)Jointly owned with North Carolina Municipal Power Agency Number 1, NCEMC and PMPA. Duke Energy Carolinas' ownership is 19.25% of the facility.
(b)Jointly owned with NCEMC. Duke Energy Carolinas' ownership is 87.27% of the facility.
(c)Duke Energy Indiana owns and operates Gibson Station Units 1 through 4 and is a joint owner of unit 5 with WVPA and IMPA. Duke Energy Indiana operates unit 5 and owns 50.05%.
(d)Includes Cayuga Internal Combustion.
(d) (e)Jointly owned with WVPA. Duke Energy Indiana's ownership is 62.5 percent62.5% of the facility.
The following table provides information related to Electric Utilities and Infrastructure's electric transmission and distribution properties as of December 31, 2017.2020. | | | | | Duke |
| Duke |
| Duke |
| Duke |
| Duke |
| | Duke |
| | Duke |
| Energy |
| Energy |
| Energy |
| Energy |
| Energy |
| | Duke | Energy |
| | Energy |
| Carolinas |
| Progress |
| Florida |
| Ohio |
| Indiana |
| | Energy | Carolinas | Progress | Florida | Ohio | Indiana |
| Electric Transmission Lines | | Electric Transmission Lines | |
| Miles of 500 to 525 kilovolt (kV) | 1,100 |
| 600 |
| 300 |
| 200 |
| — |
| — |
| Miles of 500 to 525 kilovolt (kV) | 1,100 | | 600 | | 300 | | 200 | | — | | — | |
| Miles of 345 kV | 1,700 |
| — |
| — |
| — |
| 1,000 |
| 700 |
| Miles of 345 kV | 1,100 | | — | | — | | — | | 400 | | 700 | |
| Miles of 230 kV | 8,400 |
| 2,700 |
| 3,400 |
| 1,600 |
| — |
| 700 |
| Miles of 230 kV | 8,400 | | 2,700 | | 3,400 | | 1,600 | | — | | 700 | |
| Miles of 100 to 161 kV | 12,300 |
| 6,800 |
| 2,500 |
| 900 |
| 700 |
| 1,400 |
| Miles of 100 to 161 kV | 12,400 | | 6,800 | | 2,600 | | 900 | | 700 | | 1,400 | |
| Miles of 13 to 69 kV | 8,400 |
| 3,000 |
| — |
| 2,200 |
| 700 |
| 2,500 |
| Miles of 13 to 69 kV | 8,300 | | 3,000 | | — | | 2,200 | | 600 | | 2,500 | |
| Total conductor miles of electric transmission lines | 31,900 |
| 13,100 |
| 6,200 |
| 4,900 |
| 2,400 |
| 5,300 |
| Total conductor miles of electric transmission lines | 31,300 | | 13,100 | | 6,300 | | 4,900 | | 1,700 | | 5,300 | |
| Electric Distribution Lines | | Electric Distribution Lines | |
| Miles of overhead lines | 174,300 |
| 66,600 |
| 46,400 |
| 25,200 |
| 13,700 |
| 22,400 |
| Miles of overhead lines | 173,500 | | 66,600 | | 46,400 | | 25,100 | | 13,300 | | 22,100 | |
| Miles of underground line | 102,800 |
| 37,800 |
| 29,400 |
| 20,800 |
| 5,900 |
| 8,900 |
| Miles of underground line | 108,900 | | 40,400 | | 31,800 | | 21,100 | | 6,200 | | 9,400 | |
| Total conductor miles of electric distribution lines | 277,100 |
| 104,400 |
| 75,800 |
| 46,000 |
| 19,600 |
| 31,300 |
| Total conductor miles of electric distribution lines | 282,400 | | 107,000 | | 78,200 | | 46,200 | | 19,500 | | 31,500 | |
| Number of electric transmission and distribution substations | 3,300 |
| 1,500 |
| 500 |
| 500 |
| 300 |
| 500 |
| Number of electric transmission and distribution substations | 3,200 | | 1,400 | | 500 | | 500 | | 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. | | | | | Duke |
| | | Duke | |
| | Duke |
| Energy |
| | | Duke | Energy | |
| | Energy |
| Ohio |
| Piedmont |
| | Energy | Ohio | Piedmont |
| Miles of natural gas distribution and transmission pipelines | 33,100 |
| 7,200 |
| 25,900 |
| Miles of natural gas distribution and transmission pipelines | 34,200 | | 7,400 | | 26,800 | |
| Miles of natural gas service lines | 27,400 |
| 6,900 |
| 20,500 |
| Miles of natural gas service lines | 27,200 | | 6,300 | | 20,900 | |
COMMERCIAL RENEWABLES
The following table provides information related to Commercial Renewables' electric generation facilities as of December 31, 2017.2020. The MW displayed in the table below are based on nameplate capacity. Ownership interest in all facilities is 100 percent unless otherwise indicated.
| | | | | | | | | | | | | | | | | | |
| | | | | Owned MW | Ownership |
| Facility | Plant Type | Primary Fuel | Location | | Capacity | Interest (%) |
| Commercial Renewables – Wind | | | | | | |
| Los Vientos (five sites) | Renewable | Wind | TX | | 465 | | 51 | % |
Mesteno(a) | Renewable | Wind | TX | | 202 | | 100 | % |
| Sweetwater IV | Renewable | Wind | TX | | 113 | | 47 | % |
| Frontier | Renewable | Wind | OK | | 103 | | 51 | % |
| Top of the World | Renewable | Wind | WY | | 102 | | 51 | % |
| Notrees | Renewable | Wind | TX | | 78 | | 51 | % |
| Mesquite Creek | Renewable | Wind | TX | | 54 | | 26 | % |
| Campbell Hill | Renewable | Wind | WY | | 50 | | 51 | % |
| Ironwood | Renewable | Wind | KS | | 44 | | 26 | % |
| Sweetwater V | Renewable | Wind | TX | | 38 | | 47 | % |
| North Allegheny | Renewable | Wind | PA | | 36 | | 51 | % |
| Laurel Hill | Renewable | Wind | PA | | 35 | | 51 | % |
| Cimarron II | Renewable | Wind | KS | | 34 | | 26 | % |
| | | | | | |
| Kit Carson | Renewable | Wind | CO | | 26 | | 51 | % |
| Silver Sage | Renewable | Wind | WY | | 21 | | 51 | % |
| Happy Jack | Renewable | Wind | WY | | 15 | | 51 | % |
| Shirley | Renewable | Wind | WI | | 10 | | 51 | % |
| Total Renewables – Wind | | | | | 1,426 | | |
| | | | | | | | | | | | | | | | | | |
| | | | | Owned MW | Ownership |
| Facility | Plant Type | Primary Fuel | Location | | Capacity | Interest (%) |
| Commercial Renewables – Solar | | | | | | |
Holstein(a) | Renewable | Solar | TX | | 200 | | 100 | % |
Rambler(a) | Renewable | Solar | TX | | 200 | | 100 | % |
North Rosamond(a) | Renewable | Solar | CA | | 150 | | 100 | % |
Lapetus(a) | Renewable | Solar | TX | | 100 | | 100 | % |
| Conetoe II | Renewable | Solar | NC | | 80 | | 100 | % |
Palmer(a) | Renewable | Solar | CO | | 60 | | 100 | % |
| Seville I & II | Renewable | Solar | CA | | 34 | | 67 | % |
| Rio Bravo I & II | Renewable | Solar | CA | | 27 | | 67 | % |
| Wildwood I & II | Renewable | Solar | CA | | 23 | | 67 | % |
| Kelford | Renewable | Solar | NC | | 22 | | 100 | % |
| Dogwood | Renewable | Solar | NC | | 20 | | 100 | % |
| Halifax Airport | Renewable | Solar | NC | | 20 | | 100 | % |
| Pasquotank | Renewable | Solar | NC | | 20 | | 100 | % |
| Shawboro | Renewable | Solar | NC | | 20 | | 100 | % |
| Caprock | Renewable | Solar | NM | | 17 | | 67 | % |
| Creswell Alligood | Renewable | Solar | NC | | 14 | | 100 | % |
| Pumpjack | Renewable | Solar | CA | | 13 | | 67 | % |
| Longboat | Renewable | Solar | CA | | 13 | | 67 | % |
Shoreham(a) | Renewable | Solar | NY | | 13 | | 51 | % |
| Washington White Post | Renewable | Solar | NC | | 12 | | 100 | % |
| Whitakers | Renewable | Solar | NC | | 12 | | 100 | % |
| Highlander I & II | Renewable | Solar | CA | | 11 | | 51 | % |
Other small solar(a) | Renewable | Solar | Various | | 193 | | Various |
| Total Renewables – Solar | | | | | 1,274 | | |
| | | | | | | | | | | | | | | | | | |
| | | | | Owned MW | Ownership |
| Facility | Plant Type | Primary Fuel | Location | | Capacity | Interest (%) |
Commercial Renewables – Fuel Cells(a) | Renewable | Fuel Cell | Various | | 43 | | 100 | % |
| Total Renewables – Fuel Cells | | | | | 43 | | |
| | | | | | | | | | | | | | | | | | |
| | | | | Owned MW | Ownership |
| Facility | Plant Type | Primary Fuel | Location | | Capacity | Interest (%) |
| Commercial Renewables – Energy Storage | | | | | | |
| Notrees Battery Storage | Renewable | Storage | TX | | 18 | | 51 | % |
| Beckjord Battery Storage | Renewable | Storage | OH | | 2 | | 100 | % |
| Total Renewables – Energy Storage | | | | | 20 | | |
| | | Owned MW |
| | | | | | | | | | |
Facility | Plant Type | Primary Fuel | Location | Capacity |
Owned MW | |
Commercial Renewables – WindTotals by Type | | | | | Capacity | |
Los Vientos Windpower (five sites)Wind | Renewable | Wind | TX | 912 |
1,426 | | |
Top of the WorldSolar | Renewable | Wind | WY | 200 |
1,274 | | |
FrontierFuel Cells | Renewable | Wind | OK | 200 |
43 | | |
NotreesEnergy Storage | Renewable | Wind | TX | 153 |
|
Campbell Hill20 | Renewable | Wind | WY | 99 |
|
North Allegheny | Renewable | Wind | PA | 70 |
|
Laurel Hill Wind Energy | Renewable | Wind | PA | 69 |
|
Ocotillo | Renewable | Wind | TX | 59 |
|
Kit Carson | Renewable | Wind | CO | 51 |
|
Silver Sage | Renewable | Wind | WY | 42 |
|
Happy Jack | Renewable | Wind | WY | 29 |
|
Shirley | Renewable | Wind | WI | 20 |
|
Sweetwater IV(a)
| Renewable | Wind | TX | 113 |
|
Sweetwater V(a)
| Renewable | Wind | TX | 38 |
|
Ironwood(a)
| Renewable | Wind | KS | 84 |
|
Cimarron II(a)
| Renewable | Wind | KS | 66 |
|
Mesquite Creek(a)
| Renewable | Wind | TX | 106 |
|
Total Renewables – Wind | | | | 2,311 |
|
Commercial Renewables – Solar | | | | |
Conetoe II | Renewable | Solar | NC | 80 |
|
Seville I & II | Renewable | Solar | CA | 50 |
|
Rio Bravo I & II | Renewable | Solar | CA | 40 |
|
Wildwood I & II | Renewable | Solar | CA | 35 |
|
Caprock | Renewable | Solar | NM | 25 |
|
Kelford | Renewable | Solar | NC | 22 |
|
Highlander | Renewable | Solar | CA | 21 |
|
Dogwood | Renewable | Solar | NC | 20 |
|
Halifax Airport | Renewable | Solar | NC | 20 |
|
Pasquotank | Renewable | Solar | NC | 20 |
|
Pumpjack | Renewable | Solar | CA | 20 |
|
Shawboro | Renewable | Solar | NC | 20 |
|
Longboat | Renewable | Solar | CA | 20 |
|
Bagdad | Renewable | Solar | AZ | 15 |
|
TX Solar | Renewable | Solar | TX | 14 |
|
Creswell Alligood | Renewable | Solar | NC | 14 |
|
Victory | Renewable | Solar | CO | 13 |
|
Washington White Post | Renewable | Solar | NC | 12 |
|
Whitakers | Renewable | Solar | NC | 12 |
|
Other small solar | Renewable | Solar | Various | 123 |
|
Total Renewables – Solar | | | | 596 |
|
| Total Commercial Renewables(b) | | | | 2,907 |
2,763 | | |
(a) Commercial Renewables owns 47 percentCertain projects, including projects within Other small solar, are in tax-equity structures where investors have differing interests in the project's economic attributes. 100% of Sweetwater IV and V and 50 percentthe tax-equity project's capacity is included in the table above.
(b) Net proportion of Ironwood, Cimarron II and Mesquite Creek.MW capacity in operation is 3,937, which represents the amount managed or owned by Duke Energy.
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.
PART I
| | | | | |
| LEGAL PROCEEDINGS AND MINE SAFETY DISCLOSURES | |
ITEM 3. LEGAL PROCEEDINGS For information regarding legal proceedings, including regulatory and environmental matters, see Note 4,3, “Regulatory Matters,” and Note 5,4, “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 December15, 2017, the state of Maryland filed a lawsuitsuit in Baltimore City Circuit Court against Duke Energy Merchants and other defendants alleging contamination of its water suppliesstate waters by MTBE leaking from MTBE. Discoverygasoline storage tanks. MTBE is underway.a gasoline additive intended to increase the oxygen levels in gasoline and make it burn cleaner. The case was removed from Baltimore City Circuit Court to federal District Court. Initial motions to dismiss filed by the defendants were denied by the court on September 4, 2019, and the matter is now in discovery. On December 18, 2020, the plaintiff and defendants selected 50 focus sites, none of which have any ties to Duke Energy Merchants, and discovery is likely to be specific to those sites. 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.
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)NYSE (ticker symbol DUK). As of January 31, 2018,2021, there were 166,271136,857 Duke Energy common stockholders of record. For information on dividends, see the "Dividend Payments" section of Management's Discussion and Analysis.
There is no market for the common stockequity securities of the Subsidiary Registrants, all of which isare directly or indirectly 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.
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 41, "Summary of Significant Accounting Policies," to the Consolidated Financial Statements “Regulatory Matters” for further information regarding these restrictions.on the 2021 sale of a minority interest in Duke Energy Indiana.
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 ThereThere were no repurchases of equityequity securities during the fourth quarter of 2017.2020.
The following performance graph compares the cumulative total shareholder returnTSR 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, 2012,2015, 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.
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, 2017.2020.
ITEM 6. SELECTED FINANCIAL DATA The following table provides selected financial dataThis is not applicable for any of the years of 2013 through 2017. See also Item 7.Duke Energy Registrants.
|
| | | | | | | | | | | | | | | | | | | |
| (in millions, except per share amounts) | 2017 |
| | 2016 |
| | 2015 |
| | 2014 |
| | 2013 |
|
Statement of Operations(a) | | | | | | | | | |
| Total operating revenues | $ | 23,565 |
| | $ | 22,743 |
| | $ | 22,371 |
| | $ | 22,509 |
| | $ | 21,211 |
|
| Operating income | 5,781 |
| | 5,341 |
| | 5,078 |
| | 4,842 |
| | 4,305 |
|
| Income from continuing operations | 3,070 |
| | 2,578 |
| | 2,654 |
| | 2,538 |
| | 2,278 |
|
| (Loss) Income from discontinued operations, net of tax | (6 | ) | | (408 | ) | | 177 |
| | (649 | ) | | 398 |
|
| Net income | 3,064 |
| | 2,170 |
| | 2,831 |
| | 1,889 |
| | 2,676 |
|
| Net income attributable to Duke Energy Corporation | 3,059 |
| | 2,152 |
| | 2,816 |
| | 1,883 |
| | 2,665 |
|
| Common Stock Data | | | | | | | | | |
| Income from continuing operations attributable to Duke Energy Corporation common stockholders | | | | | | | | | |
| Basic | $ | 4.37 |
| | $ | 3.71 |
| | $ | 3.80 |
| | $ | 3.58 |
| | $ | 3.21 |
|
| Diluted | 4.37 |
| | 3.71 |
| | 3.80 |
| | 3.58 |
| | 3.21 |
|
| (Loss) Income from discontinued operations attributable to Duke Energy Corporation common stockholders | | | | | | | | | |
| Basic | $ | (0.01 | ) | | $ | (0.60 | ) | | $ | 0.25 |
| | $ | (0.92 | ) | | $ | 0.56 |
|
| Diluted | (0.01 | ) | | (0.60 | ) | | 0.25 |
| | (0.92 | ) | | 0.55 |
|
| Net income attributable to Duke Energy Corporation common stockholders | | | | | | | | | |
| Basic | $ | 4.36 |
| | $ | 3.11 |
| | $ | 4.05 |
| | $ | 2.66 |
| | $ | 3.77 |
|
| Diluted | 4.36 |
| | 3.11 |
| | 4.05 |
| | 2.66 |
| | 3.76 |
|
| Dividends declared per share of common stock | 3.49 |
| | 3.36 |
| | 3.24 |
| | 3.15 |
| | 3.09 |
|
| Balance Sheet | | | | | | | | | |
| Total assets | $ | 137,914 |
| | $ | 132,761 |
| | $ | 121,156 |
| | $ | 120,557 |
| | $ | 114,779 |
|
| Long-term debt including capital leases, less current maturities | 49,035 |
| | 45,576 |
| | 36,842 |
| | 36,075 |
| | 37,065 |
|
| | | | | |
(a)MD&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.DUKE ENERGY |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis includes financial information prepared in accordance with generally accepted accounting principles (GAAP)GAAP in the United States (U.S.)U.S., as well as certain non-GAAP financial measures such as adjusted earnings and adjusted earnings per shareEPS 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 subsidiariessubsidiaries. 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
Management’s Discussion and Analysis should be read in conjunction with the Consolidated Financial Statements "Acquisitions and Dispositions,Notes for the years ended December 31, 2020, 2019 and 2018.
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in Duke Energy's Annual Report on Form 10-K for additional information regarding the acquisition.year ended December 31, 2019, filed with the SEC on February 20, 2020, for a discussion of variance drivers for the year ended December 31, 2019, as compared to December 31, 2018.
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
WithAt Duke Energy the fundamentals of our multiyearbusiness are strong and allow us to deliver growth in earnings and dividends in a low-risk, predictable and transparent way. In 2020, we met our near-term financial commitments and continued to provide safe and reliable service while managing the impacts of the COVID-19 pandemic.
In early 2021, we continued to position the company for sustainable long-term growth, executing an important coal ash settlement agreement in North Carolina and announcing the $2 billion sale of a minority interest in Duke Energy Indiana, providing a source of efficient capital at an attractive valuation. We remain focused on a business 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 tothat will deliver a reliable and growing dividend with 4 to 6 percent earnings per share (EPS) growth during our five2020 representing the 94th consecutive year planning horizon. We have made progress advancingDuke Energy paid a cash dividend on its common stock. With these recent announcements, we also increased our long-term strategyadjusted EPS growth rate to invest5% to 7% through 2025. This growth is supported by our $59 billion capital plan from 2021 to 2025, clean energy investments that benefit our customers, timely cost-recovery mechanisms in most jurisdictions and our growth drivers of cleaner energy, grid modernization and natural gas infrastructure, while also improving customer satisfaction.ability to effectively manage our cost structure.
Financial Results
| | | | | |
(a)MD&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 |
(a)See Results of Operations below for Duke Energy’s definition of adjusted earnings and adjusted EPS as well as a reconciliation of this non-GAAP financial measure to net income available to Duke Energy and net income available to Duke Energy per basic share.
Duke Energy's 2017 GAAP reported earnings2020 Net Income Available to Duke Energy Corporation (GAAP Reported Earnings) were impacted by unfavorable weatherby: regulatory settlements related to coal ash cost recovery in Electric Utilities and Infrastructure; the absencecancellation of International Energy partially offset bythe ACP pipeline in Gas Utilities and Infrastructure; and growth in the electric and gas businesses, including the addition of a full year's earnings contribution from Piedmont and ongoing cost management efforts.project investments in Commercial Renewables. See “Results of Operations” below for a detailed discussion of the consolidated results of operations as well asand a detailed discussion of financial results for each of Duke Energy’s reportable business segments, as well as Other.
20172020 Areas of Focus and Accomplishments
DukeClean Energy advancedTransformation. Our industry has been undergoing an incredible transformation and 2020 was a number of important strategic initiativesmilestone year for our company where we articulated a clear vision for the future and outlined investments to achieve a clean energy future for our customers. We continue to transform itsthe customer experience by generating cleaner energy, futuremodernizing the energy grid, and expanding natural gas infrastructure.
Generating Cleaner Energy
In October 2020, we held our first-ever Environmental, Social, and Governance (ESG) Day for investors, successfully outlining our climate strategy and highlighting our strong progress to date in reducing carbon (a greater than 40% reduction from 2005) and our commitment to do more (at least 50% reduction by 2030 and net-zero by 2050). In the Carolinas, we participated in extensive stakeholder processes focused on carbon reduction and regulatory reform and filed comprehensive IRP consistent with a focus on customers, employees, operationsthat strategy. Our planned coal retirements and growth. The company has respondedtransition to cleaner energy sources in the Carolinas are some of the largest in the industry. We also committed to an environmentall-electric light-duty fleet and 50% of changing customer demandsall medium- and heavy-duty vehicles by 2030 – a pledge that also leads our industry. Our commitment for 2030 includes retiring plants, operating our existing carbon-free resources and investing in electricrenewables, our energy delivery system, and natural gas infrastructure thatinfrastructure. As we look beyond 2030, we will need additional tools to continue our progress. We will work actively to advocate for research and development of carbon-free, dispatchable resources. That includes longer-duration energy storage, advanced nuclear technologies, carbon capture and zero-carbon fuels.
Modernizing the Power Grid
Our grid improvement programs continue to be a key component of our growth strategy. Modernization of the electric grid, including smart meters, storm hardening, self-healing and targeted undergrounding, helps to ensure the system is better prepared for severe weather, improves the system's reliability and flexibility, and provides better information and services for customers. In 2020, 98% of our jurisdictions were equipped with smart meters and we remain on track to be fully deployed across all regions by the end of this year. We continue to expand our self-optimizing grid capabilities, and in 2020, smart, self-healing technologies helped to avoid more than 800,000 extended customer outages across our six-state electric service area, saving customers value and that provide an opportunity for sustainable growth.
Portfolio Transition. On October 3, 2016,more than 1.8 million hours of lost outage time. Duke Energy completedalso has a demonstrated track record of driving efficiencies and productivity into the acquisitionbusiness and we continue to leverage new technology, digital tools and data analytics across the business in response to a transforming landscape.
Expanding Natural Gas Infrastructure
In July 2020, Duke Energy and Dominion announced the cancellation of Piedmont,the ACP pipeline. Litigation risks and delays presented too much uncertainty on our ability to economically complete the project on schedule to meet our customers’ needs. Additionally, Dominion reached a decision to exit their natural gas transmission business, further impeding our ability to consider ongoing investment in the project. The Company remains committed to pursuing natural gas infrastructure investments and continues to explore additional resources in eastern North Carolina corporation primarily engaged in regulatedfor the Piedmont system and securing more transport capacity to support power generation. Construction is expected to be completed this year on a liquefied natural gas distribution to residential, commercial, industrial and power generation customersfacility in portions ofRobeson County, North Carolina, South Carolinaon property Piedmont owns. This investment will help Piedmont provide a reliable gas supply to customers during peak usage periods and Tennessee.protect customers from price volatility when there is a higher-than-normal demand for natural gas. In December 2016, Duke Energy completed the salefall of its Latin American generation businesses in two separate transactions. See Note 2 to2020, recognizing 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 growingcontinued importance of natural gas to the futureour plans, we announced a net-zero methane emission goal by 2030 related to our gas distribution business, as well as our commitment to lead on reduction of the energy infrastructure within the company's service territory and throughout the U.S. and establishes a strategic platform for future growth inupstream methane emissions through work with our 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.supply chain.
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 and Legislative Outcomes. One of our long-term strategic goals is to achieve modernized regulatory constructs in all of our jurisdictions within 10 years.jurisdictions. Modernized constructs provide a number of benefits, includingwhich include improved earnings and cash flows through more timely recovery of investments, as well as stable pricing for customers. We filed several base
In 2020, we conducted the bulk of proceedings related to our North Carolina rate cases during 2017for both Duke Energy Carolinas and Duke Energy Progress and achieved a partial settlement with the North Carolina Public Staff and ten other intervening parties. In January 2021, Duke Energy Carolinas and Duke Energy Progress reached an important settlement agreement, which subject to recover a range of strategic investments, such as customer service technologies,NCUC approval, resolves historical coal ash costsprudence and cost recovery issues and provides clarity on coal ash cost recovery for the next decade. In 2020, we also achieved constructive rate case outcomes in Indiana (our first rate base request in 15 years) and Kentucky (electric). We have a multiyear rate plan in Florida and in January 2021 reached a constructive settlement agreement with key consumer groups, subject to FPSC approval, to bring additional certainty to rates through 2024, In addition, grid investment riders in the Carolinas, smart meters,Midwest enable more timely cost recovery and earnings growth.
Customer Satisfaction. Duke Energy continues to transform the customer experience through our use of customer data to better inform operational priorities and performance levels. This data-driven approach allows us to identify the investments that are the most important to the customer experience. Our work has been recognized by our customers with external measures showing Duke Energy is improving customer satisfaction at a rate greater than the utility industry. Additionally, in 2020, we surpassed our internal target that measures customer satisfaction by approximately 14%.
Operational Excellence, Safety and Reliability. The reliable and safe operation of our power plants, electric distribution system and natural gas infrastructure in our communities is foundational to our customers, our financial results and solar generation.our credibility with stakeholders. Our regulated generation fleet and nuclear sites had strong performance throughout the year and our electric distribution system performed well. The safety of our workforce is a core value. Our employees delivered strong safety results in 2020, and we are at or near the top of our industry. Additionally, the 2020 Atlantic hurricane season was incredibly active and marked the fifth consecutive year of above-average damaging storms. Our ability to effectively handle all facets of the 2020 storm response efforts, including navigating COVID-19 protocols, is a testament to our team’s extensive preparation and coordination, applying lessons learned from previous storms, and to on-the-ground management throughout the restoration efforts.
Leading Through COVID-19. COVID-19 impacted all that we accomplished in 2020 and demonstrated our resiliency and agility:
•As the pandemic spread, stay-at-home orders coupled with recessionary economic conditions caused overall retail electric sales to decline by approximately 2%. To offset this challenge, as well as mild weather and other COVID-related costs, we successfully achieved the high end of our goal of $400 million to $450 million of broad-based O&M reductions and other mitigating actions. The Company’s results were within its adjusted EPS guidance range and we expect to sustain approximately $200 million of the 2020 O&M cost mitigation into 2021 forward.
•Duke Energy kept electricity and gas flowing while voluntarily making significant accommodations for our customers. We continueled the way in our sector nationally, suspending all nonpay disconnects in all jurisdictions and waiving late payment fees and other fees until the national state of emergency was lifted. In the fall, we began returning to pursue additional legislative and regulatory outcomes, both in Washington and across our service territories, that make sense fornormal business practices, ensuring diligent communication with our customers and investors.providing flexible payment arrangements.
Cost•We ensured the physical safety of our workers and provided support for our employees. As cases spiked nationally, we deployed COVID-19 safety protocols for our front-line essential workers and moved 18,000 colleagues to remote work. Our COVID-19 Case Management Team managed exposures of our workforce and Efficiencies. Duke Energy has a demonstrated track record of driving efficienciesIT ensured our networks could handle the remote work while strengthening cyber protection. Under our COVID-19 protocols, our front-line employees completed 150 fossil and productivity, including merger integrationnuclear outages, executed large major projects, restored service from storms 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 Piedmonthurricanes, and Midwest natural gasmanaged high-water events. Overall, our operations continued, 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.our team completed their work with excellence.
Duke Energy Objectives – 20182021 and Beyond
Duke Energy will continue to deliver exceptional value to customers, be an integral part of the communities in which it doeswe do business and provide attractive returns to investors. Duke EnergyWe have an achievable, long-term strategy in place, and it is committed to leadproducing tangible results, yet 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, controlindustry in which we operate is becoming more and choicemore dynamic. We are adjusting, where necessary, and accelerating our focus in energy supply and usage.
Modernization of the electric grid, including smart meters, storm hardening, self-healing and targeted undergroundingkey areas to ensure the systemcompany is better preparedwell positioned to be successful for severe weathermany decades into the future. As we look ahead to 2021, our plans include:
•Continuing to place the customer at the center of all that we do, which includes providing customized products and to improvesolutions
•Strengthening our relationships with all our vast stakeholders in the system's reliabilitycommunities in which we operate and flexibility, as well as to provide better information and services for customers.invest
Generation of•Generating cleaner energy through an increased amount ofand working to achieve net-zero carbon emissions by 2050 and net zero methane emissions by 2030
•Modernizing and strengthening a green-enabled energy grid
•Expanding our natural gas renewables generationinfrastructure
•Maintaining the safety of our communities and employees
•Deploying digital tools across our business
Matters Impacting Future Results
The matters discussed herein could materially impact the future operating results, financial condition and cash flows of the Duke Energy Registrants and Business Segments.
Regulatory Matters
Coal Ash Costs
As a result of the NCDEQ settlement on December 31, 2019, Duke Energy Carolinas and Duke Energy Progress agreed to excavate seven of the nine remaining coal ash basins in North Carolina with ash moved to on-site lined landfills. At the two remaining basins, uncapped basin ash will be excavated and moved to lined landfills. The majority of spend is expected to occur over the next 15-20 years. In January 2021, Duke Energy Carolinas and Duke Energy Progress reached a settlement agreement on recovery of coal ash costs as outlined in Note 3, "Regulatory Matters," which is subject to review and approval of the NCUC. The company agreed not to seek recovery of approximately $1 billion of deferred coal ash expenditures and Duke Energy Carolinas and Duke Energy Progress took a charge of approximately $500 million each.
In 2019, Duke Energy Carolinas and Duke Energy Progress received orders from the PSCSC denying recovery of certain coal ash costs. Duke Energy Carolinas and Duke Energy Progress have appealed these decisions to the South Carolina Supreme Court and those appeals are pending. An order from regulatory or judicial authorities that rejects our proposed settlement or disallows recovery of costs related to closure of these ash basins could have an adverse impact on future results.
Duke Energy Indiana has interpreted the CCR 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. In 2020, the Hoosier Environmental Council filed a petition challenging the Indiana Department of Environmental Management's partial approval of Duke Energy Indiana’s ash pond closure plans. Interpretation of the requirements of the CCR rule is subject to further legal challenges and 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.
Storm Costs
Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida’s service territories were impacted by several named storms in 2018. Hurricane Florence, Hurricane Michael and Winter Storm Diego caused flooding, extensive damage and widespread power outages to the service territories of Duke Energy Carolinas and Duke Energy Progress. Duke Energy Florida’s service territory was also impacted by Hurricane Michael, a Category 5 hurricane and the continued safemost powerful storm to hit the Florida Panhandle in recorded history. In September 2019, Hurricane Dorian impacted Duke Energy Progress and reliable operationDuke Energy Florida's service territories. In 2020, Duke Energy Carolinas and Duke Energy Progress reached partial settlements in the 2019 North Carolina rates cases by filing a petition to securitize deferred storm costs, which is subject to review and approval of nuclear plants.the NCUC. In January 2021, Duke Energy Florida filed a settlement agreement with the FPSC, which if approved, allows recovery of the remaining storm cost balance for hurricanes Michael and Dorian. An order from regulatory authorities disallowing the deferral and future recovery of storm restoration costs could have an adverse impact.
ExpansionGrid Improvement Costs
Duke Energy Carolinas received an order from the NCUC in 2018, which denied the Grid Rider Stipulation and deferral treatment of grid improvement costs. Duke Energy Carolinas and Duke Energy Progress have petitioned for deferral of future grid improvement costs in their 2019 rate cases. Partial settlements filed with the NCUC in July 2020 included the allowance for deferral for certain grid projects placed in service from June 2020 through December 2022. There could be adverse impacts if grid improvement costs are not ultimately approved for recovery and/or deferral treatment.
Rate Cases
In 2019, Duke Energy Carolinas and Duke Energy Progress filed general rate cases with the NCUC. Several partial settlement agreements have been filed with the NCUC and are awaiting approval. The outcome of these rate cases could have a material impact.
MGP
The PUCO has issued an order authorizing recovery of MGP costs at certain sites in Ohio with a deadline to complete the MGP environmental investigation and remediation work prior to December 31, 2016. This deadline was subsequently extended to December 31, 2019. Duke Energy Ohio has filed for a request for extension of the deadline. A hearing on that request has not been scheduled. Disallowance of costs incurred, failure to complete the work by the deadline or failure to obtain an extension from the PUCO could result in an adverse impact.
For additional information, see Note 3 to the Consolidated Financial Statements, “Regulatory Matters.”
Sale of Minority Interest in Duke Energy Indiana
In January 2021, Duke Energy entered into a definitive agreement providing for the sale of a 19.9% minority interest in Duke Energy Indiana with an affiliate of GIC, Singapore's sovereign wealth fund. The sale is subject to the satisfaction of certain customary conditions described in the investment agreement, including receipt of the approval of the FERC and completion of review by the Committee on Foreign Investments in the United States. Failure to obtain related approvals or satisfy the conditions in the investment agreement could result in the termination of the transaction and could result in an adverse impact. For additional information, see Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies.”
Commercial Renewables
Duke Energy continues to monitor recoverability of renewable merchant plants located in the Electric Reliability Council of Texas West market and PJM, due to declining market pricing and declining long-term forecasted energy prices, primarily driven by lower forecasted natural gas infrastructure, from midstream gas pipelines to local distribution systems.
Operational excellence through engagement with employees and being an industry leaderprices. Based on the most recent recoverability test, the carrying value approximated the aggregate estimated future undiscounted cash flows for the assets under review. A continued decline 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 investmentsenergy market pricing would likely result in a timely manner while maintaining affordable rates.future impairment. Impairment of these assets could result in adverse impacts. For additional information, see Note 10 to the Consolidated Financial Statements, "Property, Plant and Equipment."
Engagement with regulatory commissionsIn February 2021, a severe winter storm impacted certain Commercial Renewables assets in Texas. Extreme weather conditions limited the ability for these solar and wind facilities to determinegenerate and sell electricity into the regulatory treatmentElectric Reliability Council of Texas market. Both lost revenues and higher than expected purchased power costs are expected to negatively impact the operating results of these generating units. The estimated financial impact of the Tax Act.
Primary objectives toward the implementation of this strategy include:
Growth Initiatives. Growth in the Electric Utilities and Infrastructure businessstorm is expected to be supported byhave a material impact on the investment of significant capital inCommercial Renewables segment's 2021 operating results. See Note 25 to 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.Consolidated Financial Statements, "Subsequent Events."
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.
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◦MD&A | 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.DUKE ENERGY |
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◦ | 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. |
COVID-19
Duke Energy expectscannot predict the extent to invest around $7 billion growingwhich the COVID-19 pandemic will impact its Gas Utilitiesresults of operations, financial position 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 investmentscash flows in the natural gas Local Distribution Company (LDC) system, will help maintain system integrity and expand natural gas distribution to new customers.
future. Duke Energy will continue to grow its midstream pipelineactively monitor the impacts of COVID-19 including the economic slowdown caused by business underpinnedclosures or by investmentsreduced operations of businesses and governmental agencies. The pandemic and resultant economic slowdown continues to cause an increase in certain costs, such as bad debt, and a reduction 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.demand for energy. Duke Energy has a demonstrated track recordmitigation plans in place to partially offset these impacts, and the ability to execute these plans is critical to preserving future financial results.The Company is in the process of driving efficiencies and productivity intoreviewing the business, leveraging its scale through competitive procurement initiatives, deploying digital transformation and continuing to identify sustainable cost savings as an essential element in responselong-term real estate strategy due to a transforming industry.potential change of in-office work policies after the COVID-19 pandemic. The plan may result in a reduction of physical work space which could create accounting impacts starting in 2021. Accounting impacts may include reassessments of lease terms and lease modifications which could result in termination penalties, as well as, asset impairments on property, plant and equipment. See Item 1A. Risk Factors for discussion of risks associated with COVID-19 and Liquidity and Capital Resources within this section for a discussion of liquidity impacts of COVID-19.
Execute
Within this Item 7, see Liquidity and Capital Resources for a discussion on Coal Ash Management Strategy. Duke Energy will continue the company's compliance strategyrisks associated with the North Carolina Coal Ash Management Act of 2014 (Coal Ash Act) and Resource Conservation and RecoveryTax 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.
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 attributableavailable to Duke Energy common stockholders in dollar and per-share amounts, adjusted for the dollar and per shareper-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 (GAAPGAAP Reported Earnings)Earnings and Diluted EPS AttributableAvailable 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•Gas Pipeline Investments 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 chargescosts related to the Levy nuclear project in Floridacancellation of the ACP pipeline and the Mayo Zero Liquid Discharge and Sutton combustion turbine projects in North Carolina. The 2015 amountadditional exit costs related to Constitution.
•Regulatory Settlements 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 businessDuke Energy Carolinas' and Duke Energy Retail Sales (collectively, the Midwest Generation Disposal Group)Progress' CCR Settlement Agreement and the International Disposal Group,partial settlements in the 2019 North Carolina rate cases.
•Severance represents the reversal of 2018 costs, which have been classifiedwere deferred as discontinued operations. Management believes inclusiona result of a partial settlement in the operating resultsDuke Energy Carolinas and the Duke Energy Progress 2019 North Carolina rate cases.
•Impairment Charges represents a reduction of a prior year impairment at Citrus County CC and an OTTI on the Disposal Groups within adjusted earnings and adjusted diluted EPS resultsremaining investment in a better reflection of Duke Energy's financial performance during the period.Constitution.
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| 2020 | | 2019 | | |
| (in millions, except per share amounts) | Earnings | | EPS | | Earnings | | EPS | | | | |
| GAAP Reported Earnings/EPS | $ | 1,270 | | | $ | 1.72 | | | $ | 3,707 | | | $ | 5.06 | | | | | |
| Adjustments to Reported: | | | | | | | | | | | |
Gas Pipeline Investments(a) | 1,711 | | | 2.32 | | | — | | | — | | | | | |
Regulatory Settlements(b) | 872 | | | 1.19 | | | — | | | — | | | | | |
Severance(c) | (75) | | | (0.10) | | | — | | | — | | | | | |
| | | | | | | | | | | |
Impairment Charges(d) | — | | | — | | | (8) | | | (0.01) | | | | | |
| | | | | | | | | | | |
| Discontinued Operations | (7) | | | (0.01) | | | 7 | | | 0.01 | | | | | |
| Adjusted Earnings/Adjusted EPS | $ | 3,771 | | | $ | 5.12 | | | $ | 3,706 | | | $ | 5.06 | | | | | |
(a) Net of tax benefit of $399 million.
(b) Net of tax benefit of $263 million.
(c) Net of tax expense of $23 million.
(d) Net of tax expense of $3 million.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| (in millions, except per share amounts) | Earnings | | EPS | | Earnings | | EPS | | Earnings | | EPS |
| GAAP Reported Earnings/EPS | $ | 3,059 |
| | $ | 4.36 |
| | $ | 2,152 |
| | $ | 3.11 |
| | $ | 2,816 |
| | $ | 4.05 |
|
| Adjustments to Reported: | | | | | | | | | | | |
| Costs to Achieve Mergers | 64 |
| | 0.09 |
| | 329 |
| | 0.48 |
| | 60 |
| | 0.09 |
|
| Regulatory Settlements | 98 |
| | 0.14 |
| | — |
| | — |
| | 58 |
| | 0.08 |
|
| Commercial Renewables Impairments | 74 |
| | 0.11 |
| | 45 |
| | 0.07 |
| | — |
| | — |
|
Impacts of the Tax Act(c) | (102 | ) | | (0.14 | ) | | — |
| | — |
| | — |
| | — |
|
| Cost Savings Initiatives | — |
| | — |
| | 57 |
| | 0.08 |
| | 88 |
| | 0.13 |
|
| Ash Basin Settlement and Penalties | — |
| | — |
| | — |
| | — |
| | 11 |
| | 0.02 |
|
Discontinued Operations(a)(b) | 6 |
| | 0.01 |
| | 661 |
| | 0.95 |
| | 119 |
| | 0.17 |
|
| Adjusted Earnings/Adjusted Diluted EPS | $ | 3,199 |
| | $ | 4.57 |
| | $ | 3,244 |
| | $ | 4.69 |
| | $ | 3,152 |
| | $ | 4.54 |
|
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(a)MD&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.DUKE ENERGY |
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(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. |
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(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. |
Year Ended December 31, 2017,2020, as compared to 20162019
Duke Energy’s full-year 2017 GAAPGAAP Reported EPS was $4.36$1.72 for the year ended December 31, 2020, compared to $3.11$5.06 for full-year 2016. In addition to the adjusted diluted EPS drivers discussed below,year ended December 31, 2019. The decrease in GAAP Reported Earnings/EPS in 2017 was higher primarily due to a $0.14 benefit per share related to the Tax Act in 2017, lower costs to achievecancellation of the Piedmont mergerACP pipeline and a loss on sale and impairments associatedthe CCR Settlement Agreement filed 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.NCUC.
As discussed and shown in the table above, management also evaluates financial performance based on adjusted earnings.EPS. Duke Energy’s full-year 2017 adjusted diluted EPS was $4.57$5.12 for the year ended December 31, 2020, compared to $4.69$5.06 for full-year 2016.the year ended December 31, 2019. The decreaseincrease in adjusted dilutedAdjusted Earnings/Adjusted 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, basepositive rate adjustments in Florida and energy efficiency rider revenues in North Carolina, as well ascase contributions, 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 andwholesale, 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 subsequentexpense in response to the acquisitionpandemic and growth in October 2016.Commercial Renewables, partially offset by higher depreciation expense from a growing asset base, impacts of the pandemic, mild weather and the loss of ACP earnings.
Partially offset by:
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 ResultsSEGMENT 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.interests and preferred stock dividends. 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 32 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. The following table shows the expense (benefit) recorded on Duke Energy's Consolidated Statement of Operations for the year ended December 31, 2017. |
| | | |
| | Impacts of |
| (in millions) | the Tax Act(a)(b) |
Electric Utilities and Infrastructure(c) | $ | (231 | ) |
Gas Utilities and Infrastructure(d)(e) | (26 | ) |
| Commercial Renewables | (442 | ) |
Other(f) | 597 |
|
Total impact of the Tax Act(d) | $ | (102 | ) |
| |
(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) | Includes a $16 million expense recorded within Equity in earnings (losses) of unconsolidated affiliates on the Consolidated Statement of Operations. |
| |
(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. |
Electric Utilities and Infrastructure | | | | Years Ended December 31, | | Years Ended December 31, |
| | | | | | Variance |
| | | | Variance |
| |
| | | | | | 2017 vs. |
| | | | 2016 vs. |
| |
| (in millions) | 2017 |
| | 2016 |
| | 2016 |
| | 2015 |
| | 2015 |
| (in millions) | 2020 | | 2019 | | Variance | | |
| Operating Revenues | $ | 21,331 |
| | $ | 21,366 |
| | $ | (35 | ) | | $ | 21,521 |
| | $ | (155 | ) | Operating Revenues | $ | 21,720 | | | $ | 22,831 | | | $ | (1,111) | | | |
| Operating Expenses | | | | |
|
| | | |
|
| Operating Expenses | | |
| Fuel used in electric generation and purchased power | 6,379 |
| | 6,595 |
| | (216 | ) | | 7,308 |
| | (713 | ) | Fuel used in electric generation and purchased power | 6,128 | | | 6,904 | | | (776) | | | |
| Operations, maintenance and other | 5,196 |
| | 5,292 |
| | (96 | ) | | 5,138 |
| | 154 |
| Operations, maintenance and other | 5,391 | | | 5,497 | | | (106) | | | |
| Depreciation and amortization | 3,010 |
| | 2,897 |
| | 113 |
| | 2,735 |
| | 162 |
| Depreciation and amortization | 4,068 | | | 3,951 | | | 117 | | | |
| Property and other taxes | 1,079 |
| | 1,021 |
| | 58 |
| | 1,013 |
| | 8 |
| Property and other taxes | 1,188 | | | 1,175 | | | 13 | | | |
| Impairment charges | 176 |
| | 16 |
| | 160 |
| | 101 |
| | (85 | ) | Impairment charges | 971 | | | (8) | | | 979 | | | |
| Total operating expenses | 15,840 |
| | 15,821 |
| | 19 |
| | 16,295 |
| | (474 | ) | Total operating expenses | 17,746 | | | 17,519 | | | 227 | | | |
| Gains on Sales of Other Assets and Other, net | 6 |
| | — |
| | 6 |
| | 5 |
| | (5 | ) | Gains on Sales of Other Assets and Other, net | 11 | | | 1 | | | 10 | | | |
| Operating Income | 5,497 |
| | 5,545 |
| | (48 | ) | | 5,231 |
| | 314 |
| Operating Income | 3,985 | | | 5,313 | | | (1,328) | | | |
| Other Income and Expenses | 308 |
| | 303 |
| | 5 |
| | 264 |
| | 39 |
| |
| Other Income and Expenses, net | | Other Income and Expenses, net | 344 | | | 353 | | | (9) | | | |
| Interest Expense | 1,240 |
| | 1,136 |
| | 104 |
| | 1,074 |
| | 62 |
| Interest Expense | 1,320 | | | 1,345 | | | (25) | | | |
| Income Before Income Taxes | 4,565 |
| | 4,712 |
| | (147 | ) | | 4,421 |
| | 291 |
| Income Before Income Taxes | 3,009 | | | 4,321 | | | (1,312) | | | |
| Income Tax Expense | 1,355 |
| | 1,672 |
| | (317 | ) | | 1,602 |
| | 70 |
| Income Tax Expense | 340 | | | 785 | | | (445) | | | |
| | Segment Income | $ | 3,210 |
| | $ | 3,040 |
| | $ | 170 |
| | $ | 2,819 |
| | $ | 221 |
| Segment Income | $ | 2,669 | | | $ | 3,536 | | | $ | (867) | | | |
| | | | | | | | | | | | |
| Duke Energy Carolinas Gigawatt-Hours (GWh) sales | 87,305 |
| | 88,545 |
| | (1,240 | ) | | 86,950 |
| | 1,595 |
| |
| Duke Energy Carolinas GWh sales | | Duke Energy Carolinas GWh sales | 84,574 | | | 89,920 | | | (5,346) | | | |
| Duke Energy Progress GWh sales | 66,822 |
| | 69,049 |
| | (2,227 | ) | | 64,881 |
| | 4,168 |
| Duke Energy Progress GWh sales | 65,240 | | | 68,356 | | | (3,116) | | | |
| Duke Energy Florida GWh sales | 40,591 |
| | 40,404 |
| | 187 |
| | 40,053 |
| | 351 |
| Duke Energy Florida GWh sales | 42,490 | | | 42,173 | | | 317 | | | |
| Duke Energy Ohio GWh sales | 24,639 |
| | 25,163 |
| | (524 | ) | | 25,439 |
| | (276 | ) | Duke Energy Ohio GWh sales | 23,484 | | | 24,729 | | | (1,245) | | | |
| Duke Energy Indiana GWh sales | 33,145 |
| | 34,368 |
| | (1,223 | ) | | 33,518 |
| | 850 |
| Duke Energy Indiana GWh sales | 30,528 | | | 31,886 | | | (1,358) | | | |
| Total Electric Utilities and Infrastructure GWh sales | 252,502 |
| | 257,529 |
| | (5,027 | ) | | 250,841 |
| | 6,688 |
| Total Electric Utilities and Infrastructure GWh sales | 246,316 | | | 257,064 | | | (10,748) | | | |
| Net proportional MW capacity in operation | 48,828 |
| | 49,295 |
| | (467 | ) | | 50,170 |
| | (875 | ) | Net proportional MW capacity in operation | 50,419 | | | 50,070 | | | 349 | | | |
Year Ended December 31, 2017,2020, as Comparedcompared to 20162019
Electric Utilities and Infrastructure's results were impactedInfrastructure’s variance is primarily due to impairment charges and revenue reductions related to the CCR settlement agreement filed with the NCUC to resolve coal ash cost recovery issues, unfavorable weather and lower volumes driven by impacts from the Tax Act, growth from investments, lower operations and maintenance expense and higher weather-normal retail sales volumes,COVID-19 pandemic, 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.base rate adjustments in various jurisdictions. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues.The variance was driven primarily by:
•an $826 million decrease in fuel revenues driven by lower sales volumes as well as an accelerated refund of fuel costs at Duke Energy Florida in response to the COVID-19 pandemic;
•a $292$237 million decrease in wholesale revenue primarily driven by the CCR Settlement Agreement filed with the NCUC in January 2021 and decreased volumes;
| | | | | |
| MD&A | SEGMENT RESULTS - ELECTRIC UTILITIES AND INFRASTRUCTURE |
•a $207 million decrease in retail sales, net of fuel revenues, due to unfavorable weather;
•a $130 million decrease in rider revenues from EE programs;
•a $44 million decrease in nuclear cost recovery rider revenue due to less favorable weatherrecovery of the Crystal River 3 uprate regulatory asset in the current year;2019 at Duke Energy Florida; and
•a $235$17 million decrease in fuel revenuesweather-normal retail sale volumes driven by lower retail sales volumes, lower fuel prices included in rates and changes innonresidential customer demand due to impacts from the generation mix.COVID-19 pandemic.
Partially offset by:
•a $364$214 million increase indue to higher pricing from the Indiana retail rate case, net of 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 anrevenues;
•a $92 million increase in retail pricing due to Duke Energy Florida's base rate adjustments for Duke Energy Florida’s Osprey acquisition and Hines Chillersrelated to annual increases from the 2017 Settlement Agreement and the Duke Energy ProgressSolar Base Rate Adjustment; and
•a $32 million increase due to higher pricing from South Carolina retail rate case;cases, net of a return of EDIT to customers.
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.
Operating Expenses.The variance was driven primarily by:
•a $160$979 million increase in impairment charges primarily due todriven by 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:
a $216 million decrease in fuel expense (including purchased power) primarily due to lower retail sales and changes in the generation mix; and
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.
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.
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 associatedCCR Settlement Agreement filed with the 2015 Edwardsport IGCC settlement and an increaseNCUC 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 January 2021;
•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;
a $101 million increase in retail sales, net of fuel revenue, due to 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.
Partially offset by:
a $162$117 million increase in depreciation and amortization expense primarily due to additional plant in service includingand new depreciation rates from the additional ownership interest in generating assets acquired from NCEMPA, as well as the expiration of the North Carolina cost of removal decrement rider;Indiana retail rate cases; and
•a $154$13 million increase in operationsproperty and maintenance expenseother taxes primarily due to higher environmentalprior year property tax reassessments.
Partially offset by:
•a $776 million decrease in fuel used in electric generation and operational costs that are recoverable in rates, increased employee benefit costs, and higher storm restoration costs, partially offset by lower costspurchased power primarily due to effectivelower generation demand and lower fuel and natural gas costs; and
•a $106 million decrease in operation, maintenance and other expense primarily driven by cost controlmitigation efforts.
Other Income and Expenses.Interest Expense. The variance was primarily driven by higher AFUDC equity.
Interest Expense. The variance was due to higher debtlower interest rates on outstanding in the current year.debt.
Income Tax Expense. The varianceETRs for the years ended December 31, 2020, and 2019, were 11.3% and 18.2%, respectively. The decrease in the ETR 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 recoveryamortization 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 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) 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.
excess deferred taxes.
| | | | | |
| MD&A | SEGMENT RESULTS - GAS UTILITIES AND INFRASTRUCTURE |
Gas Utilities and Infrastructure
|
| | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | | | | | Variance |
| | | | Variance |
|
| | | | | | 2017 vs. |
| | | | 2016 vs. |
|
| (in millions) | 2017 |
| | 2016 |
| | 2016 |
| | 2015 |
| | 2015 |
|
| Operating Revenues | $ | 1,836 |
| | $ | 901 |
| | $ | 935 |
| | $ | 541 |
| | $ | 360 |
|
| Operating Expenses | | | | |
|
| | | |
|
|
| Cost of natural gas | 632 |
| | 265 |
| | 367 |
| | 141 |
| | 124 |
|
| Operation, maintenance and other | 393 |
| | 186 |
| | 207 |
| | 126 |
| | 60 |
|
| Depreciation and amortization | 231 |
| | 115 |
| | 116 |
| | 79 |
| | 36 |
|
| Property and other taxes | 106 |
| | 70 |
| | 36 |
| | 62 |
| | 8 |
|
| Total operating expenses | 1,362 |
|
| 636 |
| | 726 |
| | 408 |
| | 228 |
|
| (Loss) Gains on Sales of Other Assets and Other, net | — |
| | (1 | ) | | 1 |
| | 6 |
| | (7 | ) |
| Operating Income | 474 |
| | 264 |
| | 210 |
| | 139 |
| | 125 |
|
| Other Income and Expenses | 66 |
| | 24 |
| | 42 |
| | 3 |
| | 21 |
|
| Interest Expense | 105 |
| | 46 |
| | 59 |
| | 25 |
| | 21 |
|
| Income Before Income Taxes | 435 |
| | 242 |
| | 193 |
| | 117 |
| | 125 |
|
| Income Tax Expense | 116 |
| | 90 |
| | 26 |
| | 44 |
| | 46 |
|
| Segment Income | $ | 319 |
| | $ | 152 |
| | $ | 167 |
| | $ | 73 |
| | $ | 79 |
|
| | | | | | | | | | |
Piedmont LDC throughput (dekatherms)(a) | 468,259,777 |
| | 120,908,508 |
| | 347,351,269 |
| | — |
| | 120,908,508 |
|
| Duke Energy Midwest LDC throughput (MCF) | 80,934,836 |
| | 81,870,489 |
| | (935,653 | ) | | 84,523,814 |
| | (2,653,325 | ) |
| |
(a) | Includes throughput subsequent to Duke Energy's acquisition of Piedmont on October 3, 2016. |
Year Ended December 31, 2017, as Compared to 2016
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.
Operating Revenues. The variance was driven primarily by:
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.
Partially offset by:
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 higher equity earnings from pipeline investments.
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 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.
| | | | Years Ended December 31, | | Years Ended December 31, |
| | | | | | Variance |
| | | | Variance |
| |
| | | | | | 2017 vs. |
| | | | 2016 vs. |
| |
| (in millions) | 2017 |
| | 2016 |
| | 2016 |
| | 2015 |
| | 2015 |
| (in millions) | 2020 | | 2019 | | Variance | |
| Operating Revenues | $ | 460 |
| | $ | 484 |
| | $ | (24 | ) | | $ | 286 |
| | $ | 198 |
| Operating Revenues | $ | 1,748 | | | $ | 1,866 | | | $ | (118) | | |
| Operating Expenses | | | | |
|
| | | |
|
| Operating Expenses | | |
| Cost of natural gas | | Cost of natural gas | 460 | | | 627 | | | (167) | | |
| Operation, maintenance and other | 267 |
| | 337 |
| | (70 | ) | | 197 |
| | 140 |
| Operation, maintenance and other | 430 | | | 446 | | | (16) | | |
| Depreciation and amortization | 155 |
| | 130 |
| | 25 |
| | 104 |
| | 26 |
| Depreciation and amortization | 258 | | | 256 | | | 2 | | |
| Property and other taxes | 33 |
| | 25 |
| | 8 |
| | 18 |
| | 7 |
| Property and other taxes | 112 | | | 106 | | | 6 | | |
| Impairment charges | 99 |
| | — |
| | 99 |
| | 3 |
| | (3 | ) | Impairment charges | 7 | | | — | | | 7 | | |
| Total operating expenses | 554 |
| | 492 |
| | 62 |
| | 322 |
| | 170 |
| Total operating expenses | 1,267 | | | 1,435 | | | (168) | | |
| Gains on Sales of Other Assets and Other, net | 1 |
| | 5 |
| | (4 | ) | | 1 |
| | 4 |
| |
| Operating Loss | (93 | ) | | (3 | ) | | (90 | ) | | (35 | ) | | 32 |
| |
| | Operating Income | | Operating Income | 481 | | | 431 | | | 50 | | |
| Other Income and Expenses | (12 | ) | | (83 | ) | | 71 |
| | 2 |
| | (85 | ) | Other Income and Expenses | | |
| Equity in (losses) earnings of unconsolidated affiliates | | Equity in (losses) earnings of unconsolidated affiliates | (2,017) | | | 114 | | | (2,131) | | |
| Other Income and Expenses, net | | Other Income and Expenses, net | 56 | | | 26 | | | 30 | | |
| Total other income and expenses | | Total other income and expenses | (1,961) | | | 140 | | | (2,101) | | |
| Interest Expense | 87 |
| | 53 |
| | 34 |
| | 44 |
| | 9 |
| Interest Expense | 135 | | | 117 | | | 18 | | |
| Loss Before Income Taxes | (192 | ) | | (139 | ) | | (53 | ) | | (77 | ) | | (62 | ) | |
| Income Tax Benefit | (628 | ) | | (160 | ) | | (468 | ) | | (128 | ) | | (32 | ) | |
| Less: Loss Attributable to Noncontrolling Interests | (5 | ) | | (2 | ) | | (3 | ) | | (1 | ) | | (1 | ) | |
| Segment Income | $ | 441 |
| | $ | 23 |
| | $ | 418 |
| | $ | 52 |
| | $ | (29 | ) | |
| (Loss) Income Before Income Taxes | | (Loss) Income Before Income Taxes | (1,615) | | | 454 | | | (2,069) | | |
| Income Tax (Benefit) Expense | | Income Tax (Benefit) Expense | (349) | | | 22 | | | (371) | | |
| | | | | | | | | | | |
| Renewable plant production, GWh | 8,260 |
| | 7,446 |
| | 814 |
| | 5,577 |
| | 1,869 |
| |
| Net proportional MW capacity in operation | 2,907 |
| | 2,892 |
| | 15 |
| | 1,943 |
| | 949 |
| |
| Segment (Loss) Income | | Segment (Loss) Income | $ | (1,266) | | | $ | 432 | | | $ | (1,698) | | |
| | Piedmont Local Distribution Company (LDC) throughput (Dth) | | Piedmont Local Distribution Company (LDC) throughput (Dth) | 490,071,039 | | | 511,243,774 | | | (21,172,735) | | |
| Duke Energy Midwest LDC throughput (MCF) | | Duke Energy Midwest LDC throughput (MCF) | 84,160,162 | | | 89,025,972 | | | (4,865,810) | | |
Year Ended December 31, 2017,2020, as Comparedcompared to 20162019
Commercial Renewables' higher earningsGas Utilities and Infrastructure’s results were impacted primarily due toby the Tax Act, partially offset by pretax impairment charges.cancellation of the ACP pipeline. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues.The decreasevariance was driven primarily by:
•a $167 million decrease due to lower engineering, procurementnatural gas costs passed through to customers, lower volumes, and construction revenues from REC Solar, decreased off-system sales natural gas costs; and
•a California-based provider of solar installations acquired by Duke Energy in 2015.
Operating Expenses. The increase was primarily$47 million decrease due to $99 million in pretax impairment charges in the current year relatedreturn of EDIT to a wholly owned non-contracted wind project and other investments and higher expenses associated with new wind and solar projects, partiallycustomers.
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.by:
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$87 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.North Carolina base rate case increases.
Operating Expenses.The variance was driven primarily by:
•a $167 million decrease in cost of natural gas due to a $130 million increaselower natural gas prices, lower volumes and decreased off-system sales natural gas costs.
Equity in operating expenses due to growth(losses) earnings of REC Solar and a $36 million increase in operating expenses due to new wind and solar generation placed in service.unconsolidated affiliates. The variance was driven primarily by the cancellation of the ACP pipeline.
Other Income and Expenses.Expenses, net.The variance was due to a $71 million pretax impairment chargedriven primarily by AFUDC equity and other income related to certain equity method investments in wind projects. See Note 12 to the Consolidated Financial Statements, "Investments in Unconsolidated Affiliates," for additional information.Belews Creek and Marshall Power Generation contracts.
Income Tax Benefit.(Benefit) Expense.The varianceincrease in tax benefit was primarily due to a decrease in pretax income anddriven by the impact of PTCsthe cancellation of the ACP pipeline. The ETRs for the renewables portfolio.years ended December 31, 2020, and 2019, were 21.6% and 4.8%, respectively. The increase in the ETR was primarily due to an adjustment, recorded in the first quarter of 2019, related to the income tax recognition for equity method investments. The equity method investment adjustment was immaterial and relates to prior years.
PART II
| | | | | |
| MD&A | SEGMENT RESULTS - COMMERCIAL RENEWABLES |
Matters Impacting Future Commercial Renewables Results
Changes or variability | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | | | | | | | | |
| | | | | | | | | |
| (in millions) | 2020 | | 2019 | | Variance | | | | |
| Operating Revenues | $ | 502 | | | $ | 487 | | | $ | 15 | | | | | |
| Operating Expenses | | | | | | | | | |
| Operation, maintenance and other | 285 | | | 297 | | | (12) | | | | | |
| Depreciation and amortization | 199 | | | 168 | | | 31 | | | | | |
| Property and other taxes | 27 | | | 23 | | | 4 | | | | | |
| Impairment charges | 6 | | | — | | | 6 | | | | | |
| Total operating expenses | 517 | | | 488 | | | 29 | | | | | |
| Losses on Sales of Other Assets and Other, net | (1) | | | (3) | | | 2 | | | | | |
| Operating Loss | (16) | | | (4) | | | (12) | | | | | |
| Other Income and Expenses, net | 7 | | | 5 | | | 2 | | | | | |
| Interest Expense | 66 | | | 95 | | | (29) | | | | | |
| Loss Before Income Taxes | (75) | | | (94) | | | 19 | | | | | |
| Income Tax Benefit | (65) | | | (115) | | | 50 | | | | | |
| Add: Loss Attributable to Noncontrolling Interests | 296 | | | 177 | | | 119 | | | | | |
| Segment Income | $ | 286 | | | $ | 198 | | | $ | 88 | | | | | |
| | | | | | | | | |
| Renewable plant production, GWh | 10,204 | | | 8,574 | | | 1,630 | | | | | |
Net proportional MW capacity in operation(a) | 3,937 | | | 3,485 | | | 452 | | | | | |
(a) Certain projects are included in assumptions usedtax-equity structures where investors have differing interests in calculating the fair valueproject's economic attributes. Amounts shown represent 100% 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.tax-equity project's capacity.
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.
|
| | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | | | | | Variance |
| | | | Variance |
|
| | | | | | 2017 vs. |
| | | | 2016 vs. |
|
| (in millions) | 2017 |
| | 2016 |
| | 2016 |
| | 2015 |
| | 2015 |
|
| Operating Revenues | $ | 138 |
| | $ | 117 |
| | $ | 21 |
| | $ | 135 |
| | $ | (18 | ) |
| Operating Expenses | | | | |
|
| | | |
|
|
| Fuel used in electric generation and purchased power | 58 |
| | 51 |
| | 7 |
| | 48 |
| | 3 |
|
| Operation, maintenance and other | 44 |
| | 371 |
| | (327 | ) | | 188 |
| | 183 |
|
| Depreciation and amortization | 131 |
| | 152 |
| | (21 | ) | | 135 |
| | 17 |
|
| Property and other taxes | 14 |
| | 28 |
| | (14 | ) | | 35 |
| | (7 | ) |
| Impairment charges | 7 |
| | 2 |
| | 5 |
| | 3 |
| | (1 | ) |
| Total operating expenses | 254 |
| | 604 |
| | (350 | ) | | 409 |
| | 195 |
|
| Gains on Sales of Other Assets and Other, net | 21 |
| | 23 |
| | (2 | ) | | 18 |
| | 5 |
|
| Operating Loss | (95 | ) | | (464 | ) | | 369 |
| | (256 | ) | | (208 | ) |
| Other Income and Expenses | 127 |
| | 75 |
| | 52 |
| | 98 |
| | (23 | ) |
| Interest Expense | 574 |
| | 693 |
| | (119 | ) | | 393 |
| | 300 |
|
| Loss Before Income Taxes | (542 | ) | | (1,082 | ) | | 540 |
| | (551 | ) | | (531 | ) |
| Income Tax Expense (Benefit) | 353 |
| | (446 | ) | | 799 |
| | (262 | ) | | (184 | ) |
| Less: Income attributable to Noncontrolling Interests | 10 |
| | 9 |
| | 1 |
| | 10 |
| | (1 | ) |
| Net Expense | $ | (905 | ) | | $ | (645 | ) | | $ | (260 | ) | | $ | (299 | ) | | $ | (346 | ) |
Year Ended December 31, 2017,2020, as Comparedcompared to 20162019
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 relatedCommercial Renewables' results were favorable primarily due to the Piedmont acquisition, decreased severance expenses, prior year donations to the Duke Energy Foundation and insurance proceeds resulting from settlementgrowth of the shareholder litigation related to the Progress Energy merger. new project investments. Since December 31, 2019, Commercial Renewables has placed in service approximately 500 MW of capacity.
The following is a detailed discussion of the variance drivers by line item.
Operating Revenues.Revenues. The increasevariance was primarily driven by a $39 million increase associated with the growth of new projects placed in service, partially offset by a $24 million decrease primarily within the distributed energy portfolios for lower engineering and construction activities related to delays from COVID-19.
Operating Expenses. The variance was primarily driven by a $52 million increase in operating expenses due to higher OVEC (Ohio Valley Electric Corporation) revenuesthe growth of new projects placed in service. This was partially offset by a $24 million decrease in operating expenses within the distributed energy portfolios for lower engineering and prior year customer creditsconstruction costs related to Piedmont merger commitments. See Note 2 to the Consolidated Financial Statements, "Acquisitions and Dispositions," for additional information.delays from COVID-19.
Operating Expenses.Interest Expense. The decrease was primarily due todriven by non-qualifying hedge activity in the prior year, higher capitalized interest in the current year for solar and wind projects in development and lower transaction and integration costsoutstanding debt balances.
Income Tax Benefit. The decrease in the tax benefit was primarily driven by an increase in taxes associated with tax equity investments and a decrease in PTCs generated.
Loss Attributable to Noncontrolling Interests. The increase was driven primarily by the Piedmont acquisition, prior yeargrowth of new projects financed by tax equity.
| | | | | |
| MD&A | SEGMENT RESULTS - OTHER |
Other
| | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | | | | | | | | |
| | | | | | | | | |
| (in millions) | 2020 | | 2019 | | Variance | | | | |
| Operating Revenues | $ | 97 | | | $ | 95 | | | $ | 2 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Operating Expenses | 12 | | | 117 | | | (105) | | | | | |
| Losses on Sales of Other Assets and Other, net | — | | | (2) | | | 2 | | | | | |
| Operating Income (Loss) | 85 | | | (24) | | | 109 | | | | | |
| Other Income and Expenses, net | 92 | | | 145 | | | (53) | | | | | |
| Interest Expense | 657 | | | 705 | | | (48) | | | | | |
| Loss Before Income Taxes | (480) | | | (584) | | | 104 | | | | | |
| Income Tax Benefit | (162) | | | (173) | | | 11 | | | | | |
| Less: Net Income Attributable to Noncontrolling Interests | 1 | | | — | | | 1 | | | | | |
| Less: Preferred Dividends | 107 | | | 41 | | 66 | | | | | |
| Net Loss | $ | (426) | | | $ | (452) | | | $ | 26 | | | | | |
Year Ended December 31, 2020, as compared to 2019
The variance was primarily driven by a reversal of corporate allocated severance expenses related to cost savings initiatives, donationscosts, obligations to the Duke Energy Foundation in 2016 as well as prior year depreciation2019, and lower state income tax expense, and other integration costs related to the Progress Energy merger. The Duke Energy Foundation is a nonprofit organization fundedpartially offset 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 increasedlower returns on investments, that fund certain employee benefit obligations.
Interest Expense. The decrease was primarily due to prior year losses on forward-starting interest rate swapshigher loss experience related to Piedmont pre-acquisition financing, partially offset by higher interest costs on $3.75 billioncaptive insurance claims, the declaration of debt issued in August 2016 to fund the acquisition. For additional information see Notes 2, 6preferred stock dividends, 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 informationlower earnings 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.NMC investment. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. Expenses. The decrease was primarily due to customer credits recorded related to Piedmont merger commitments. See Note 2the deferral of 2018 corporate allocated severance costs due to the Consolidated Financial Statements, "AcquisitionsDuke Energy Carolinas and Dispositions," for additional information.
Operating Expenses. The increase was primarily due to transactionDuke Energy Progress partial settlements in the 2019 North Carolina retail rate case and integration costs associated with the Piedmont acquisition and increased donationsobligations to the Duke Energy Foundation in 2019, partially offset by a decrease in severance accruals.higher loss experience related to captive insurance claims and higher franchise tax expense.
Other Income and Expenses. Expenses, net. The variance was primarily due to lower earnings from NMC, partially offset by higher returns on investments that supportfund certain employee benefit obligations.obligations and lower earnings on the NMC investment primarily due to lower pricing.
Interest Expense.The increasevariance was primarily due to Piedmont acquisition financing, including bridge facility costslower outstanding short-term debt and losses on forward-startinglower interest rate swaps. For additional information see Notes 2 and 14 to the Consolidated Financial Statements, "Acquisitions and Dispositions" and "Derivatives and Hedging," respectively.rates.
Income Tax Benefit.The variancedecrease in the tax benefit was primarily driven by a decrease in pretax losses, partially offset by an increase in state income tax benefits. The ETRs for the years ended December 31, 2020, and 2019, were 33.8% and 29.6%, respectively. The increase in the ETR was primarily due to an increase in state income tax benefits in 2020, in relation to 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.losses.
Matters Impacting Future Other Results
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 |
| | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | | | | | Variance |
| | | | Variance |
|
| | | | | | 2017 vs. |
| | | | 2016 vs. |
|
| (in millions) | 2017 |
| | 2016 |
| | 2016 |
| | 2015 |
| | 2015 |
|
| (Loss) Income From Discontinued Operations, net of tax | $ | (6 | ) | | $ | (408 | ) | | $ | 402 |
| | $ | 177 |
| | $ | (585 | ) |
Year Ended December 31, 2017, as Compared to 2016
Preferred Dividends.The variance was primarily driven by the prior year lossdeclaration of preferred stock dividends on the disposal of Duke Energy's Latin American generation business and an impairment charge related to certain assetspreferred stock issued 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.late 2019.
Year Ended December 31, 2016, as Compared to 2015
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.
PART II
| | | | | |
| MD&A | DUKE ENERGY CAROLINAS |
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. 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. |
| | | | | | | | | |
| | | | Effective Tax Rate |
| | Impacts of | | Years Ended December 31, | |
| (in millions) | the Tax Act(a)(b) | | 2017 |
| | 2016 |
|
| Duke Energy Carolinas | $ | 15 |
| | 34.9 | % | | 35.2 | % |
| Progress Energy | (246 | ) | (c) | 17.2 | % | | 33.7 | % |
| Duke Energy Progress | (40 | ) | (d) | 29.0 | % | (h) | 33.4 | % |
| Duke Energy Florida | (226 | ) | (c) | 6.1 | % | | 36.9 | % |
| Duke Energy Ohio | (23 | ) | (e) | 23.4 | % | | 28.9 | % |
| Duke Energy Indiana | 55 |
| (f) | 46.0 | % | | 37.1 | % |
| Piedmont | (2 | ) | (d)(g) | 30.8 | % | | 38.3 | % |
| |
(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) | Includes a $16 million expense recorded within Equity in earnings (losses) of unconsolidated affiliates on the Consolidated Statement of Operations and Comprehensive Income. |
| |
(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. |
DUKE ENERGY CAROLINAS
Introduction
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 Carolinasthe Subsidiary Registrants is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K.
DUKE ENERGY CAROLINAS
| | | | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | Variance |
| (in millions) | 2020 | | 2019 | | Variance |
| Operating Revenues | $ | 7,302 |
| | $ | 7,322 |
| | $ | (20 | ) | Operating Revenues | $ | 7,015 | | | $ | 7,395 | | | $ | (380) | |
| Operating Expenses | | | | |
|
| Operating Expenses | |
| Fuel used in electric generation and purchased power | 1,822 |
| | 1,797 |
| | 25 |
| Fuel used in electric generation and purchased power | 1,682 | | | 1,804 | | | (122) | |
| Operation, maintenance and other | 1,961 |
| | 2,106 |
| | (145 | ) | Operation, maintenance and other | 1,743 | | | 1,868 | | | (125) | |
| Depreciation and amortization | 1,090 |
| | 1,075 |
| | 15 |
| Depreciation and amortization | 1,462 | | | 1,388 | | | 74 | |
| Property and other taxes | 281 |
| | 276 |
| | 5 |
| Property and other taxes | 299 | | | 292 | | | 7 | |
| Impairment charges | — |
| | 1 |
| | (1 | ) | Impairment charges | 476 | | | 17 | | | 459 | |
| Total operating expenses | 5,154 |
| | 5,255 |
| | (101 | ) | Total operating expenses | 5,662 | | | 5,369 | | | 293 | |
| Gain (Loss) on Sales of Other Assets and Other, net | 1 |
| | (5 | ) | | 6 |
| |
| Gains on Sales of Other Assets and Other, net | | Gains on Sales of Other Assets and Other, net | 1 | | | — | | | 1 | |
| Operating Income | 2,149 |
| | 2,062 |
| | 87 |
| Operating Income | 1,354 | | | 2,026 | | | (672) | |
| Other Income and Expenses, net | 139 |
| | 162 |
| | (23 | ) | Other Income and Expenses, net | 177 | | | 151 | | | 26 | |
| Interest Expense | 422 |
| | 424 |
| | (2 | ) | Interest Expense | 487 | | | 463 | | | 24 | |
| Income Before Income Taxes | 1,866 |
| | 1,800 |
| | 66 |
| Income Before Income Taxes | 1,044 | | | 1,714 | | | (670) | |
| Income Tax Expense | 652 |
| | 634 |
| | 18 |
| Income Tax Expense | 88 | | | 311 | | | (223) | |
| Net Income | $ | 1,214 |
| | $ | 1,166 |
| | $ | 48 |
| Net Income | $ | 956 | | | $ | 1,403 | | | $ | (447) | |
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 | 2017 | | 2016 | Increase (Decrease) over prior year | 2020 | | 2019 |
| Residential sales | (4.8 | )% | | 0.1 | % | Residential sales | (3.1) | % | | (2.9) | % |
| General service sales | (1.8 | )% | | 0.7 | % | General service sales | (6.7) | % | | (0.1) | % |
| Industrial sales | (0.8 | )% | | (0.9 | )% | Industrial sales | (8.0) | % | | (1.9) | % |
| Wholesale power sales | 6.3 | % | | 9.8 | % | Wholesale power sales | (2.0) | % | | (13.6) | % |
| Joint dispatch sales | 18.2 | % | | (2.3 | )% | Joint dispatch sales | (46.0) | % | | 4.7 | % |
| Total sales | (1.4 | )% | | 1.8 | % | Total sales | (5.9) | % | | (2.6) | % |
| Average number of customers | 1.5 | % | | 1.4 | % | Average number of customers | 1.9 | % | | 2.1 | % |
Year Ended December 31, 2017,2020, as Comparedcompared to 20162019
Operating Revenues.The variance was driven primarily by:
•a $179$151 million decrease in fuel revenues due to lower prices and retail sales volumes;
•a $149 million decrease in retail sales net of fuel revenues, due to less favorableunfavorable weather in the current year.year;
•a $73 million decrease in rider revenues primarily due to EE programs; and
•a $50 million decrease in wholesale revenue primarily driven by the CCR Settlement Agreement filed with the NCUC in January 2021.
Partially offset by:
•a $74$25 million increase in rider revenuesdue to higher pricing from the South Carolina retail rate case, net of a return of EDIT to customers; and retail pricing primarily related to energy efficiency programs;
•a $41$22 million increase in weather-normal retail 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.
volumes.
PART II
| | | | | |
| MD&A | DUKE ENERGY CAROLINAS |
Operating Expenses.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$459 million increase in fuel expense (including purchased power)impairment charges primarily due to changesdriven by the CCR Settlement Agreement filed with the NCUC in generation mix, partially offset by lower retail sales;January 2021; and
•a $15$74 million increase in depreciation and amortization expense primarily due to additional plant in service partiallyand new depreciation rates associated with the South Carolina rate case.
Partially offset by:
•a $125 million decrease in operation, maintenance and other expense primarily driven by the deferral of 2018 severance costs due to the partial settlement agreement between Duke Energy Carolinas and the Public Staff of the NCUC related to the 2019 North Carolina retail rate case, and cost mitigation efforts, partially offset by higher storm restoration costs; and
•a $122 million decrease in fuel used in electric generation and purchased power primarily due to lower amortizationretail sales volumes, net of certain regulatory assets.a prior period true up.
Other Income and Expenses.Expenses, net.The variance was primarily due to higher AFUDC equity in the current year.
Interest Expense. The variance was primarily due to higher debt outstanding in the current year.
Income Tax Expense. The decrease in tax expense 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 topretax income and an increase in pretax income and the impactamortization 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.excess deferred taxes.
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.
PROGRESS ENERGY
Introduction
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 Progress Energy is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K.
| | | | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | Variance |
| (in millions) | 2020 | | 2019 | | Variance |
| Operating Revenues | $ | 9,783 |
| | $ | 9,853 |
| | $ | (70 | ) | Operating Revenues | $ | 10,627 | | | $ | 11,202 | | | $ | (575) | |
| Operating Expenses | | | | | | Operating Expenses | |
| Fuel used in electric generation and purchased power | 3,417 |
| | 3,644 |
| | (227 | ) | Fuel used in electric generation and purchased power | 3,479 | | | 4,024 | | | (545) | |
| Operation, maintenance and other | 2,220 |
| | 2,386 |
| | (166 | ) | Operation, maintenance and other | 2,479 | | | 2,495 | | | (16) | |
| Depreciation and amortization | 1,285 |
| | 1,213 |
| | 72 |
| Depreciation and amortization | 1,818 | | | 1,845 | | | (27) | |
| Property and other taxes | 503 |
| | 487 |
| | 16 |
| Property and other taxes | 545 | | | 561 | | | (16) | |
| Impairment charges | 156 |
| | 7 |
| | 149 |
| Impairment charges | 495 | | | (24) | | | 519 | |
| Total operating expenses | 7,581 |
| | 7,737 |
| | (156 | ) | Total operating expenses | 8,816 | | | 8,901 | | | (85) | |
| Gains on Sales of Other Assets and Other, net | 26 |
| | 25 |
| | 1 |
| Gains on Sales of Other Assets and Other, net | 9 | | | — | | | 9 | |
| Operating Income | 2,228 |
| | 2,141 |
| | 87 |
| Operating Income | 1,820 | | | 2,301 | | | (481) | |
| Other Income and Expenses, net | 128 |
| | 114 |
| | 14 |
| Other Income and Expenses, net | 129 | | | 141 | | | (12) | |
| Interest Expense | 824 |
| | 689 |
| | 135 |
| Interest Expense | 790 | | | 862 | | | (72) | |
| Income From Continuing Operations Before Income Taxes | 1,532 |
| | 1,566 |
| | (34 | ) | |
| Income Tax Expense From Continuing Operations | 264 |
| | 527 |
| | (263 | ) | |
| Income from Continuing Operations | 1,268 |
| | 1,039 |
| | 229 |
| |
| Income from Discontinued Operations, net of tax | — |
| | 2 |
| | (2 | ) | |
| Income Before Income Taxes | | Income Before Income Taxes | 1,159 | | | 1,580 | | | (421) | |
| Income Tax Expense | | Income Tax Expense | 113 | | | 253 | | | (140) | |
| | Net Income | 1,268 |
| | 1,041 |
| | 227 |
| Net Income | 1,046 | | | 1,327 | | | (281) | |
| Less: Net Income Attributable to Noncontrolling Interests | 10 |
| | 10 |
| | — |
| Less: Net Income Attributable to Noncontrolling Interests | 1 | | | — | | | 1 | |
| Net Income Attributable to Parent | $ | 1,258 |
| | $ | 1,031 |
| | $ | 227 |
| Net Income Attributable to Parent | $ | 1,045 | | | $ | 1,327 | | | $ | (282) | |
Year Ended December 31, 2017,2020, as Comparedcompared to 20162019
Operating Revenues. The variance was driven primarily by:
•a $231$567 million decrease in fuel revenues primarily duedriven by lower sales volumes as well as an accelerated refund of fuel costs in response to the COVID-19 pandemic at Duke Energy Florida and lower retailfuel prices, volumes and native load transfer sales and changes in generation mixthe current year at Duke Energy Progress;
•a $169 million decrease in wholesale revenue primarily driven by the Duke Energy Progress' CCR Settlement Agreement filed with the NCUC in January 2021 and decreased volumes at Duke Energy Progress, partially offset by increased demand at Duke Energy Florida;
•a $55 million decrease in rider revenues primarily due to the Crystal River 3 uprate regulatory asset being fully recovered in 2019 at Duke Energy Florida;
an $87•a $31 million decrease in retail sales, net of fuel revenues, due to lessunfavorable weather at Duke Energy Progress, partially offset by favorable weather in the current year. at Duke Energy Florida; and
•a $17 million decrease in weather-normal retail sales volumes.
Partially offset by:
•a $108$147 million increase in storm revenues due to Hurricane Dorian collections at Duke Energy Florida;
•a $92 million increase in retail pricing primarily due to Duke Energy Florida’s base rate adjustment foradjustments related to annual increases from the Osprey Acquisition2017 Settlement Agreement 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 2017Solar Base Rate Adjustment at Duke Energy Florida; and
•a $51$16 million increase in weather-normal sales volumesdue to higher pricing from the South Carolina retail customers.rate case, net of a return of EDIT to customers at Duke Energy Progress.
Operating Expenses.The variance was driven primarily by:
•a $227$545 million decrease in fuel expenseused in electric generation and purchased power primarily due to lower retail salesdemand and changes in generation mix at Duke Energy Progress;Progress and lower demand and fuel costs at Duke Energy Florida;
•a $166$27 million decrease in operations,depreciation and amortization expense primarily driven by a decrease in coal ash amortization, partially offset by a higher depreciable base and impacts from North Carolina and the South Carolina rate cases at Duke Energy Progress;
•a $16 million decrease in operation, maintenance and other expense at Duke Energy Progress primarily driven by the deferral of 2018 severance costs due to the partial settlement agreement between Duke Energy Progress and the Public Staff of the NCUC related to the 2019 North Carolina retail rate case, reduced outage costs and other cost mitigation efforts, partially offset by storm cost amortizations at Duke Energy Florida; and
•a $16 million decrease in property and other taxes driven primarily by lower plant outage, storm restoration and labor costs.
gross receipts taxes due to decreased fuel revenues at Duke Energy Florida.
Partially offset by:
•a $149$519 million increase in impairment charges primarily duedriven by the Duke Energy Progress' CCR Settlement Agreement filed with the NCUC in January 2021, and the prior year's impairment reduction related to the write-off of remaining unrecovered Levy Nuclear Project costs in the current yearCitrus County CC at Duke Energy FloridaFlorida.
Interest Expense. The variance was driven primarily by lower interest rates on outstanding debt at Duke Energy Progress.
Income Tax Expense. The decrease in tax expense was primarily due to a decrease in pretax income and the disallowance from rate base of certain projects at the Mayo and Sutton plantsan increase in the current yearamortization of excess deferred taxes at Duke Energy Progress, related to the partial settlementpartially offset by an increase in pretax income and a decrease 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 amortizationof excess deferred taxes 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 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.
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. 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.
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 PROGRESS
Introduction
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 Progress is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K.
Results of Operations
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | Variance |
| Operating Revenues | $ | 5,422 | | | $ | 5,957 | | | $ | (535) | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 1,743 | | | 2,012 | | | (269) | |
| Operation, maintenance and other | 1,332 | | | 1,446 | | | (114) | |
| Depreciation and amortization | 1,116 | | | 1,143 | | | (27) | |
| Property and other taxes | 167 | | | 176 | | | (9) | |
| Impairment charges | 499 | | | 12 | | | 487 | |
| Total operating expenses | 4,857 | | | 4,789 | | | 68 | |
| Gains on Sales of Other Assets and Other, net | 8 | | | — | | | 8 | |
| Operating Income | 573 | | | 1,168 | | | (595) | |
| Other Income and Expenses, net | 75 | | | 100 | | | (25) | |
| Interest Expense | 269 | | | 306 | | | (37) | |
| Income Before Income Taxes | 379 | | | 962 | | | (583) | |
| Income Tax (Benefit) Expense | (36) | | | 157 | | | (193) | |
| Net Income | $ | 415 | | | $ | 805 | | | $ | (390) | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | Variance |
|
| Operating Revenues | $ | 5,129 |
| | $ | 5,277 |
| | $ | (148 | ) |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 1,609 |
| | 1,830 |
| | (221 | ) |
| Operation, maintenance and other | 1,389 |
| | 1,504 |
| | (115 | ) |
| Depreciation and amortization | 725 |
| | 703 |
| | 22 |
|
| Property and other taxes | 156 |
| | 156 |
| | — |
|
| Impairment charges | 19 |
| | 1 |
| | 18 |
|
| Total operating expenses | 3,898 |
| | 4,194 |
| | (296 | ) |
| Gains on Sales of Other Asset and Other, net | 4 |
| | 3 |
| | 1 |
|
| Operating Income | 1,235 |
| | 1,086 |
| | 149 |
|
| Other Income and Expenses, net | 65 |
| | 71 |
| | (6 | ) |
| Interest Expense | 293 |
| | 257 |
| | 36 |
|
| Income Before Income Taxes | 1,007 |
| | 900 |
| | 107 |
|
| Income Tax Expense | 292 |
| | 301 |
| | (9 | ) |
| Net Income | $ | 715 |
| | $ | 599 |
| | $ | 116 |
|
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 | 2017 |
| | 2016 |
| Increase (Decrease) over prior year | 2020 | | 2019 |
| Residential sales | (2.6 | )% | | (1.5 | )% | Residential sales | (3.2) | % | | (4.0) | % |
| General service sales | (1.3 | )% | | 0.2 | % | General service sales | (7.4) | % | | (1.6) | % |
| Industrial sales | 1.1 | % | | (0.1 | )% | Industrial sales | (3.9) | % | | 0.6 | % |
| Wholesale power sales | (2.9 | )% | | 18.4 | % | Wholesale power sales | (9.1) | % | | (1.5) | % |
| Joint dispatch sales | (17.1 | )% | | 17.7 | % | Joint dispatch sales | 9.9 | % | | (0.8) | % |
| Total sales | (3.2 | )% | | 6.4 | % | Total sales | (4.6) | % | | (1.4) | % |
| Average number of customers | 1.4 | % | | 1.3 | % | Average number of customers | 1.8 | % | | 1.3 | % |
Year Ended December 31, 2017,2020, as Comparedcompared to 20162019
Operating Revenues.The variance was driven primarily by:
•a $238$272 million decrease in fuel revenues due tocost recovery driven by lower retailfuel prices and volumes as well as less native load transfer sales in the current year;
•a $180 million decrease in wholesale revenue primarily driven by the CCR Settlement Agreement filed with the NCUC in January 2021, and changes in generation mix; anddecreased volumes, partially offset by increased capacity rates;
•a $37$77 million decrease in retail sales net of fuel revenues, due to less favorable weatherunfavorable weather; and
•a $10 million decrease in the current year, partially offset by lower lost revenues related to hurricanes in the current year.weather-normal retail sales volumes.
Partially offsetOffset by:
•a $40$16 million increase in rider revenues primarily due to energy efficiency programs;
a $38 million increase in retail sales due tohigher pricing from the South Carolina retail rate case; and
a $31 million increase in wholesale power revenues,case, net of fuel, primarily duea return of EDIT to higher peak demand.customers.
Operating Expenses.The variance was driven primarily by:
•a $221$487 million increase in impairment charges primarily driven by the CCR Settlement Agreement filed with the NCUC in January 2021.
Partially Offset by:
•a $269 million decrease in fuel used in electric generation and purchased power primarily due to lower retail salesdemand and changes in generation mix; and
•a $115$114 million decrease in operation, maintenance and other expense primarily driven by the deferral of 2018 severance costs due to lower nuclearthe partial settlement agreement between Duke Energy Progress and the Public Staff of the NCUC related to the 2019 North Carolina retail rate case, reduced outage costs and lower storm restoration costs.other costs mitigation efforts; and
Partially offset by:
•a $22$27 million increasedecrease in depreciation and amortization expense primarily due to additional plantdriven by a decrease in service;coal ash amortization, partially offset by a higher depreciable base and
an $18 million increase in impairment charges primarily due to impacts from 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 NorthSouth Carolina rate case.cases.
Interest Expense. The variance was due to higher debt outstanding, as well as interest charges on North Carolina fuel overcollections.
Other Income Tax Expense.and Expenses, net. The variance was primarily due to lower AFUDC equity in the impact of thecurrent year.
Interest Expense. The variance was driven primarily by lower interest rates on outstanding debt.
Income Tax Act(Benefit) Expense. The decrease in tax expense was primarily due to a decrease in pretax income 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 recoveryamortization of costs related to closure of ash impoundments could have an adverse impact on Duke Energy 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.
excess deferred taxes.
DUKE ENERGY FLORIDA
Introduction
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 Florida is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K.
| | | | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | Variance |
| (in millions) | 2020 | | 2019 | | Variance |
| Operating Revenues | $ | 4,646 |
| | $ | 4,568 |
| | $ | 78 |
| Operating Revenues | $ | 5,188 | | | $ | 5,231 | | | $ | (43) | |
| Operating Expenses | | | | | | Operating Expenses | |
| Fuel used in electric generation and purchased power | 1,808 |
| | 1,814 |
| | (6 | ) | Fuel used in electric generation and purchased power | 1,737 | | | 2,012 | | | (275) | |
| Operation, maintenance and other | 818 |
| | 865 |
| | (47 | ) | Operation, maintenance and other | 1,131 | | | 1,034 | | | 97 | |
| Depreciation and amortization | 560 |
| | 509 |
| | 51 |
| Depreciation and amortization | 702 | | | 702 | | | — | |
| Property and other taxes | 347 |
| | 333 |
| | 14 |
| Property and other taxes | 381 | | | 392 | | | (11) | |
| Impairment charges | 138 |
| | 6 |
| | 132 |
| Impairment charges | (4) | | | (36) | | | 32 | |
| Total operating expenses | 3,671 |
| | 3,527 |
| | 144 |
| Total operating expenses | 3,947 | | | 4,104 | | | (157) | |
| Gains on Sales of Other Asset and Other, net | 1 |
| | — |
| | 1 |
| |
| Gains on Sales of Other Assets and Other, net | | Gains on Sales of Other Assets and Other, net | 1 | | | — | | | 1 | |
| Operating Income | 976 |
| | 1,041 |
| | (65 | ) | Operating Income | 1,242 | | | 1,127 | | | 115 | |
| Other Income and Expenses, net | 61 |
| | 44 |
| | 17 |
| Other Income and Expenses, net | 53 | | | 48 | | | 5 | |
| Interest Expense | 279 |
| | 212 |
| | 67 |
| Interest Expense | 326 | | | 328 | | | (2) | |
| Income Before Income Taxes | 758 |
| | 873 |
| | (115 | ) | Income Before Income Taxes | 969 | | | 847 | | | 122 | |
| Income Tax Expense | 46 |
| | 322 |
| | (276 | ) | Income Tax Expense | 198 | | | 155 | | | 43 | |
| Net Income | $ | 712 |
| | $ | 551 |
| | $ | 161 |
| Net Income | $ | 771 | | | $ | 692 | | | $ | 79 | |
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 | 2017 |
| | 2016 |
| Increase (Decrease) over prior year | 2020 | | 2019 |
| Residential sales | (2.3 | )% | | 1.7 | % | Residential sales | 3.3 | % | | 0.7 | % |
| General service sales | (1.3 | )% | | (0.1 | )% | General service sales | (5.3) | % | | 0.3 | % |
| Industrial sales | (2.4 | )% | | (2.9 | )% | Industrial sales | 6.2 | % | | (4.6) | % |
| Wholesale power sales | 20.1 | % | | 35.2 | % | Wholesale power sales | (1.7) | % | | 28.8 | % |
| Total sales | 0.5 | % | | 0.9 | % | Total sales | 0.8 | % | | 1.5 | % |
| Average number of customers | 1.6 | % | | 1.5 | % | Average number of customers | 1.8 | % | | 1.6 | % |
Year Ended December 31, 2017,2020, as Comparedcompared to 20162019
Operating Revenues. The variance was driven primarily by:
•a $70$295 million increasedecrease in retail pricing primarily duefuel revenues driven by lower sales volumes as well as an accelerated refund of fuel costs to customers in response to the base rate adjustment for the Osprey acquisition and the completion of the Hines Energy Complex Chiller Uprate Project;COVID-19 pandemic;
•a $45$55 million increase in weather-normal sales volumes to retail customers in the current year; and
a $36 million increasedecrease in rider revenues primarily due to nuclearfull recovery of the Crystal River 3 uprate regulatory asset securitization beginning in July 20162019; and extended power uprate project revenues beginning
•a $7 million decrease in 2017.weather-normal retail sales volumes.
Partially offset by:
•a $50$147 million decreaseincrease in storm revenues due to recovery of Hurricane Dorian costs;
•a $92 million increase in retail pricing due to base rate adjustments related to annual increases from the 2017 Settlement Agreement and the Solar Base Rate Adjustment;
•a $46 million increase in retail sales, net of fuel revenues, due to less favorable weather in the current year, including lostyear;
•an $18 million increase in other revenues relatedprimarily due to Hurricane Irma;increased transmission revenues and lighting equipment rentals, partially offset by lower late payment and service charge revenues due to a moratorium during the COVID-19 pandemic; and
a $34•an $11 million decreaseincrease in wholesale power revenues, net of fuel, primarily due to contracts that expired in the prior year.increased capacity charges.
Operating Expenses.The variance was driven primarily by:
•a $132$275 million decrease in fuel used in electric generation and purchased power primarily due to lower fuel costs; and
•an $11 million decrease in property and other taxes driven by lower gross receipts taxes due to decreased fuel revenues.
Partially offset by:
•a $97 million increase in operation, maintenance and other expense primarily due to storm cost amortizations; and
•a $32 million increase in impairment charges primarily due to the write-off of remaining unrecovered Levy Nuclear Project costs in the current year; andprior year's impairment reduction related to Citrus County CC.
a $51 millionIncome Tax Expense. The increase in depreciation and amortizationtax 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.
Interest Expense. The variance was primarily due to higher debt outstandingan increase in pretax income and lower debt returns driven bya decrease in the Crystal River Unit 3 regulatory asset debt return ending in June 2016 upon securitization.amortization of excess deferred taxes.
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
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 Ohio is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K.
| | | | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 |
| 2016 |
| Variance |
| (in millions) | 2020 | 2019 | Variance |
| Operating Revenues | | |
|
| Operating Revenues | |
| Regulated electric | $ | 1,373 |
| $ | 1,410 |
| $ | (37 | ) | Regulated electric | $ | 1,405 | | $ | 1,456 | | $ | (51) | |
| Nonregulated electric and other | 42 |
| 31 |
| 11 |
| |
| Regulated natural gas | 508 |
| 503 |
| 5 |
| Regulated natural gas | 453 | | 484 | | (31) | |
| | Total operating revenues | 1,923 |
| 1,944 |
| (21 | ) | Total operating revenues | 1,858 | | 1,940 | | (82) | |
| Operating Expenses | | Operating Expenses | |
| Fuel used in electric generation and purchased power – regulated | 369 |
| 442 |
| (73 | ) | Fuel used in electric generation and purchased power – regulated | 339 | | 388 | | (49) | |
| Fuel used in electric generation and purchased power – nonregulated | 58 |
| 51 |
| 7 |
| |
| | Cost of natural gas | 107 |
| 103 |
| 4 |
| Cost of natural gas | 73 | | 95 | | (22) | |
| Operation, maintenance and other | 524 |
| 512 |
| 12 |
| Operation, maintenance and other | 463 | | 520 | | (57) | |
| Depreciation and amortization | 261 |
| 233 |
| 28 |
| Depreciation and amortization | 278 | | 265 | | 13 | |
| Property and other taxes | 278 |
| 258 |
| 20 |
| Property and other taxes | 324 | | 308 | | 16 | |
| Impairment charges | 1 |
| — |
| 1 |
| |
| | Total operating expenses | 1,598 |
| 1,599 |
| (1 | ) | Total operating expenses | 1,477 | | 1,576 | | (99) | |
| Gains on Sales of Other Assets and Other, net | 1 |
| 2 |
| (1 | ) | |
| | Operating Income | 326 |
| 347 |
| (21 | ) | Operating Income | 381 | | 364 | | 17 | |
| Other Income and Expenses, net | 17 |
| 9 |
| 8 |
| Other Income and Expenses, net | 16 | | 24 | | (8) | |
| Interest Expense | 91 |
| 86 |
| 5 |
| Interest Expense | 102 | | 109 | | (7) | |
| Income from Continuing Operations Before Income Taxes | 252 |
| 270 |
| (18 | ) | Income from Continuing Operations Before Income Taxes | 295 | | 279 | | 16 | |
| Income Tax Expense from Continuing Operations | 59 |
| 78 |
| (19 | ) | Income Tax Expense from Continuing Operations | 43 | | 40 | | 3 | |
| Income from Continuing Operations | 193 |
| 192 |
| 1 |
| Income from Continuing Operations | 252 | | 239 | | 13 | |
| (Loss) Income from Discontinued Operations, net of tax | (1 | ) | 36 |
| (37 | ) | |
| Loss from Discontinued Operations, net of tax | | Loss from Discontinued Operations, net of tax | — | | (1) | | 1 | |
| Net Income | $ | 192 |
| $ | 228 |
| $ | (36 | ) | Net Income | $ | 252 | | $ | 238 | | $ | 14 | |
The following table shows the percent changes in GWh sales of electricity, dekathermsMCF 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. | | | | Electric | | Natural Gas | | Electric | | Natural Gas |
| Increase (Decrease) over prior year | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| Increase (Decrease) over prior year | 2020 | | 2019 | | 2020 | | 2019 |
| Residential sales | (4.0 | )% | | 0.7 | % | | (2.6 | )% | | (7.8 | )% | Residential sales | (1.9) | % | | (3.9) | % | | (5.7) | % | | (3.7) | % |
| General service sales | (3.1 | )% | | 1.3 | % | | 0.7 | % | | (3.6 | )% | General service sales | (7.7) | % | | (1.9) | % | | (8.4) | % | | (1.2) | % |
| Industrial sales | (2.7 | )% | | (0.7 | )% | | (2.8 | )% | | (5.1 | )% | Industrial sales | (6.6) | % | | (2.1) | % | | (4.1) | % | | (0.4) | % |
| Wholesale electric power sales | 65.7 | % | | (53.9 | )% | | n/a |
| | n/a |
| Wholesale electric power sales | (21.3) | % | | (4.9) | % | | n/a | | n/a |
| Other natural gas sales | n/a |
| | n/a |
| | (0.3 | )% | | 6.2 | % | Other natural gas sales | n/a | | n/a | | (2.2) | % | | 0.7 | % |
| Total sales | (2.1 | )% | | (1.1 | )% | | (1.1 | )% | | (3.1 | )% | Total sales | (5.0) | % | | (2.4) | % | | (5.5) | % | | (1.7) | % |
| Average number of customers | 0.8 | % | | 0.8 | % | | 0.7 | % | | 0.5 | % | Average number of customers | 1.3 | % | | 0.7 | % | | 1.1 | % | | 0.7 | % |
Year Ended December 31, 2017,2020, as Comparedcompared to 20162019
Operating Revenues. The variance was driven primarily by:
•a $69$61 million decrease in fuel related revenues primarily due to lower electric fuel costsprices and decreased volumes;
•a decrease in electric and natural gas sales volumes; and
a $16$22 million decrease in electric retail sales, netrevenue riders, primarily due to lower EE program revenues, volume impacts of fuelthe Distribution Decoupling rider, suspension of the MGP rider and higher taxes returned to customers via the Tax Cuts and Job Acts rider, partially offset by an increase in the Distribution Capital Investment rider due to increased capital investment;
•a $15 million decrease in revenues due to less favorableunfavorable weather in the current year.year;
•an $11 million decrease in other revenues due to lower OVEC sales into PJM;
•a $5 million decrease in bulk power marketing sales, and
•a $4 million decrease in weather-normal sales volumes.
Partially offset by:
•a $38$23 million increase in rider revenuesretail pricing primarily due to growthrate case impacts in energy efficiency programsKentucky; 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•an $18 million increase in PJM Interconnection, LLC (PJM) transmission revenues;revenues as a result of increased capital spend.
a $9 million increase in other revenues related to OVEC; and
a $6 million increase in non-native sales for resale.
Operating Expenses. Expenses. The variance was driven primarily by:
•a $66$71 million decrease in fuel expense, primarily due todriven by lower salesfuel prices, decreased volumes and lower electric fuel costs.OVEC costs; and
Partially offset by:
•a $28$57 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 increasedecrease in operations, maintenance and other expense primarily due to a new customer program and other deferrals, the timing of EE programs and outage costs, lower employee benefit expenses and lower vegetation and pole maintenance costs.
Partially offset by:
•a $16 million increase in property and other taxes primarily due to higher energy efficiency program costs and higher transmission and distribution operations costs;property taxes due to increased plant in service, partially offset by lower fossil/hydro operations costs due to timing of outage schedules.franchise and other taxes; and
Income Tax Expense. The variance was•a $13 million increase in depreciation and amortization primarily driven by an increase in distribution plant, partially offset by lower amortization due to the impactsuspension of the Tax Act. See the Subsidiary Registrants section above for additional information on the Tax ActMGP rider in Ohio and the impact on the effective tax rate.
Income from Discontinued Operations, Netenvironmental surcharge mechanism amortization 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 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.pond ARO.
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.
DUKE ENERGY INDIANA
Introduction
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.
Results of Operations | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | 2019 | Variance |
| Operating Revenues | $ | 2,795 | | $ | 3,004 | | $ | (209) | |
| Operating Expenses | | | |
| Fuel used in electric generation and purchased power | 767 | | 935 | | (168) | |
| Operation, maintenance and other | 762 | | 790 | | (28) | |
| Depreciation and amortization | 569 | | 525 | | 44 | |
| Property and other taxes | 81 | | 69 | | 12 | |
| | | |
| Total operating expenses | 2,179 | | 2,319 | | (140) | |
| | | |
| Operating Income | 616 | | 685 | | (69) | |
| Other Income and Expenses, net | 37 | | 41 | | (4) | |
| Interest Expense | 161 | | 156 | | 5 | |
| Income Before Income Taxes | 492 | | 570 | | (78) | |
| Income Tax Expense | 84 | | 134 | | (50) | |
| Net Income | $ | 408 | | $ | 436 | | $ | (28) | |
|
| | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2017 |
| 2016 |
| Variance |
|
| Operating Revenues | $ | 3,047 |
| $ | 2,958 |
| $ | 89 |
|
| Operating Expenses | | | |
| Fuel used in electric generation and purchased power | 966 |
| 909 |
| 57 |
|
| Operation, maintenance and other | 733 |
| 723 |
| 10 |
|
| Depreciation and amortization | 458 |
| 496 |
| (38 | ) |
| Property and other taxes | 76 |
| 58 |
| 18 |
|
| Impairment charges | 18 |
| 8 |
| 10 |
|
| Total operating expenses | 2,251 |
| 2,194 |
| 57 |
|
| Gains on Sales of Other Assets and Other, net | — |
| 1 |
| (1 | ) |
| Operating Income | 796 |
| 765 |
| 31 |
|
| Other Income and Expenses, net | 37 |
| 22 |
| 15 |
|
| Interest Expense | 178 |
| 181 |
| (3 | ) |
| Income Before Income Taxes | 655 |
| 606 |
| 49 |
|
| Income Tax Expense | 301 |
| 225 |
| 76 |
|
| Net Income | $ | 354 |
| $ | 381 |
| $ | (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 | 2017 |
| | 2016 |
| Increase (Decrease) over prior year | 2020 | | 2019 |
| Residential sales | (3.8 | )% | | (0.4 | )% | Residential sales | (2.7) | % | | (3.9) | % |
| General service sales | (2.4 | )% | | 0.7 | % | General service sales | (7.0) | % | | (2.2) | % |
| Industrial sales | 0.3 | % | | 0.4 | % | Industrial sales | (7.6) | % | | (2.6) | % |
| Wholesale power sales | (10.5 | )% | | 10.8 | % | Wholesale power sales | 3.8 | % | | (27.7) | % |
| Total sales | (3.6 | )% | | 2.5 | % | Total sales | (4.3) | % | | (6.8) | % |
| Average number of customers | 0.8 | % | | 1.1 | % | Average number of customers | 1.4 | % | | 1.2 | % |
Year Ended December 31, 2017,2020, as Comparedcompared to 20162019
Operating Revenues.The variance was driven primarily by:
•a $67$193 million increasedecrease in rate rider revenues primarily relateddue to the Edwardsport IGCC plant, the Transmission, Distributionlower sales volumes and Storage System Improvement Charge (TDSIC) and energy efficiency programs; andcredit adjustment rider refunds;
•a $48$179 million increasedecrease in fuel revenues primarily due to higher purchased power costs passed through to customerslower fuel cost recovery driven by customer demand and higher financial transmission rights (FTR) revenues.fuel prices;
Partially offset by:•a $20 million decrease in weather-normal retail sales volumes driven by lower nonresidential customer demand;
•a $13$16 million decrease in retail sales due to less favorableunfavorable weather in the current year; and
•a $13$10 million decrease in wholesale power revenues netprimarily related to the true up of fuel,wholesale transmission revenues and lower rates in the current year.
Partially offset by:
•a $214 million increase primarily due to a decrease in demand rates and contracts that expired inhigher pricing from the current year.Indiana retail rate case, net of certain rider revenues.
Operating Expenses.The variance was driven primarily by:
•a $57$168 million increasedecrease in fuel used in electric generation and purchased power expenses,expense primarily due to higherlower purchased power volumes, partiallyexpense, lower amortization of deferred fuel costs and lower coal and natural gas costs; and
•a $28 million decrease in operation, maintenance and other primarily due to lower storm restoration costs, training costs, employee related costs and a new customer program deferral.
Partially offset by favorable fuel prices;by:
an $18•a $44 million increase in depreciation and amortization primarily due to a change in depreciation rates from the Indiana retail rate case and additional plant in service; and
•a $12 million increase in property and other taxes primarily due to higher franchise taxes;
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.service and property tax true ups for prior periods.
Other Income and Expense. The variance was driven primarily by higher AFUDC equity.
Income Tax Expense. The variancedecrease in income tax expense 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.
Matters Impacting Future Results
On April 17, 2015, the EPA published in the Federal Register a rule to regulate the disposalamortization 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 ruleexcess deferred taxes 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 resultdecrease 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.pretax income.
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 | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | Variance |
| | | | | |
| | | | | |
| | | | | |
| Operating Revenues | $ | 1,297 | | | $ | 1,381 | | | $ | (84) | |
| Operating Expenses | | | | | |
| Cost of natural gas | 386 | | | 532 | | | (146) | |
| Operation, maintenance and other | 322 | | | 328 | | | (6) | |
| Depreciation and amortization | 180 | | | 172 | | | 8 | |
| Property and other taxes | 53 | | | 45 | | | 8 | |
| Impairment charges | 7 | | | — | | | 7 | |
| Total operating expenses | 948 | | | 1,077 | | | (129) | |
| | | | | |
| Operating Income | 349 | | | 304 | | | 45 | |
| Equity in earnings of unconsolidated affiliates | 9 | | | 8 | | | 1 | |
| | | | | |
| Other income and expenses, net | 51 | | | 20 | | | 31 | |
| Total other income and expenses | 60 | | | 28 | | | 32 | |
| Interest Expense | 118 | | | 87 | | | 31 | |
| Income Before Income Taxes | 291 | | | 245 | | | 46 | |
| Income Tax Expense | 18 | | | 43 | | | (25) | |
| Net Income | $ | 273 | | | $ | 202 | | | $ | 71 | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | Variance |
|
| Operating Revenues | | | | | |
| Regulated natural gas | $ | 1,319 |
| | $ | 1,201 |
| | $ | 118 |
|
| Nonregulated natural gas and other | 9 |
| | 10 |
| | (1 | ) |
| Total operating revenues | 1,328 |
| | 1,211 |
| | 117 |
|
| Operating Expenses | | | | | |
| Cost of natural gas | 524 |
| | 451 |
| | 73 |
|
| Operation, maintenance and other | 315 |
| | 353 |
| | (38 | ) |
| Depreciation and amortization | 148 |
| | 138 |
| | 10 |
|
| Property and other taxes | 48 |
| | 43 |
| | 5 |
|
| Impairment charges | 7 |
| | — |
| | 7 |
|
| Total operating expenses | 1,042 |
| | 985 |
| | 57 |
|
| Operating Income | 286 |
| | 226 |
| | 60 |
|
| Equity in (losses) earnings of unconsolidated affiliates | (6 | ) | | 26 |
| | (32 | ) |
| Gain on sale of unconsolidated affiliates | — |
| | 132 |
| | (132 | ) |
| Other income and expenses, net | — |
| | 1 |
| | (1 | ) |
| Total other income and expenses | (6 | ) | | 159 |
| | (165 | ) |
| Interest Expense | 79 |
| | 69 |
| | 10 |
|
| Income Before Income Taxes | 201 |
| | 316 |
| | (115 | ) |
| Income Tax Expense | 62 |
| | 121 |
| | (59 | ) |
| Net Income | $ | 139 |
| | $ | 195 |
| | $ | (56 | ) |
The following table shows the percent changes in dekathermsDth 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 | 2017 |
| 2016 |
| Increase (Decrease) over prior year | 2020 | 2019 |
| Residential deliveries | (8.1 | )% | (0.8 | )% | Residential deliveries | (3.5) | % | (8.0) | % |
| Commercial deliveries | (4.3 | )% | 1.6 | % | Commercial deliveries | (9.1) | % | (4.6) | % |
| Industrial deliveries | (2.2 | )% | 0.5 | % | Industrial deliveries | (2.9) | % | 1.7 | % |
| Power generation deliveries | (5.8 | )% | 10.7 | % | Power generation deliveries | (3.7) | % | (11.8) | % |
| For resale | (20.9 | )% | 1.3 | % | For resale | (9.7) | % | 4.8 | % |
| Total throughput deliveries | (5.4 | )% | 6.3 | % | Total throughput deliveries | (4.1) | % | (8.2) | % |
| Secondary market volumes | (4.2 | )% | 120.6 | % | Secondary market volumes | (9.1) | % | (0.5) | % |
| Average number of customers | 1.7 | % | 1.6 | % | Average number of customers | 2.3 | % | 1.4 | % |
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 WNAweather normalization adjustment 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, 2017,2020, as Comparedcompared to 20162019
Operating Revenues.The variance was driven primarily by:
•a $74$146 million increasedecrease due to higherlower natural gas costs passed through to customers, primarilylower volumes, and decreased off-system sales natural gas costs;
•a $47 million decrease due to higher natural gas prices;return of EDIT to customers; and
•a $34$7 million decrease due to NCUC approval related to tax reform accounting from fixed-rate contracts in the prior year.
Partially offset by:
•an $87 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)North Carolina base rate adjustments and customer growth. Increase is alsocase increases;
•a $20 million increase due to new power generation customers,North Carolina IMR increases; and is partially offset by wholesale marketing revenue; and
a $10•an $18 million increase in revenues due to merger-related bill credits applied to customer bills in 2016.addition of Belews Creek and Marshall Power Generation capacity contracts.
Operating Expenses.The variance was driven primarily by:
•a $73$146 million increasedecrease in costscost of natural gas primarily due to higherlower natural gas costs passed through to customers due to the higher price per dekatherm ofprices, lower volumes, and decreased off-system sales natural gas;gas costs.
Partially offset by:
a $15•an $8 million increase in depreciation expenseand property and franchise taxesamortization due to additional plant in service;service and
higher depreciation rates, partially offset by Belews Creek and Marshall Power Generation contracts and amortization of EDIT interest expense; anda $7•an $8 million increase in property and other taxes 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.property tax true ups.
Other Income and Expense. Expenses, net.The variance was driven by:primarily by AFUDC equity and other income related to Belews Creek and Marshall Power Generation contracts.
a $132 million decrease in gainInterest Expense.The variance was driven primarily by interest on sale of unconsolidated affiliates recorded in the prior year duetax reform related deferrals being returned to Piedmont’s sale of its 15 percent ownership interest in SouthStar Energy Services, LLC (SouthStar) on October 3, 2016;customers and
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 higher debt outstanding in the current year.
Income Tax Expense.The variancedecrease in income tax expense was primarily due to a decreasean increase in the amortization of excess deferred taxes and an increase in AFUDC Equity, partially offset by an increase 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.income.
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.Committee. 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 as:
•applicable regulatory environment changes, changes;
•historical regulatory treatment for similar costs in Duke Energy’s jurisdictions, jurisdictions;
•litigation of rate orders, orders;
•recent rate orders to other regulated entities, entities;
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| MD&A | CRITICAL ACCOUNTING POLICIES AND ESTIMATES |
•levels of actual return on equity compared to approved rates of return on equityequity; 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 performsperformed its annual goodwill impairment testtests for all reporting units as of August 31.
Application31, 2020. Additionally, Duke Energy monitors all relevant events and circumstances during the year to determine if an interim impairment test is required. Such events and circumstances include an adverse regulatory outcome, declining financial performance and deterioration of industry or market conditions. As of August 31, 2020, all of the goodwill impairment test requires management's judgment, including determining thereporting units' estimated fair value of equity substantially exceeded the carrying value of equity. The fair values of the reporting unit, which management estimatesunits were calculated 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.
Estimated future cash flows under the income approach are based on Duke Energy’s internal business plan. Significant assumptions used in these fair value analyses include discount andare 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.rates. Management determines the appropriate discount rate for each of its reporting units based on the weighted average cost of capital (WACC)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 20172020 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, 2017,2020, for each of Duke Energy’s reporting units ranged from 5.3 percent5.2% to 6.7 percent.5.7%. 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."
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,equipment at 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. During 2020, Duke Energy Florida, assumesclosed an agreement for the accelerated decommissioning of the Crystal River Unit 3 will be placed into a safe storage configuration until eventual dismantlement is completed by 2074.nuclear power station after receiving approval from the NRC and FPSC. The retirement obligations for the decommissioning of Crystal River Unit 3 nuclear power station are measured based on accelerated decommissioning from 2020 continuing through 2027. 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)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 weightingsplans. During 2020, the Hoosier Environmental Council filed a Petition for Administrative Review with the Indiana Office of Environmental Adjudication challenging the potentialIndiana Department of Environmental Management's partial approval of Duke Energy Indiana's ash pond closure methods ifplan. Due to these challenges, in 2020, Duke Energy Indiana remeasured and increased the closure plans are under development and multiple closure options are being considered and evaluated on a site-by-site basis.estimates for certain coal ash impoundments.
For further information, see NoteNotes 3, 4 and 9 to the Consolidated Financial Statements, "Regulatory Matters," "Commitments and Contingencies" and "Asset Retirement Obligations."
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| MD&A | CRITICAL ACCOUNTING POLICIES AND ESTIMATES |
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.
During 2020, Duke Energy evaluated recoverability of certain renewable merchant plants due to declining market pricing and declining long-term forecasted energy prices, primarily driven by lower forecasted natural gas prices, capital cost of new renewables and increase renewable penetration. It was determined the assets were all recoverable as the carrying value of the assets approximated or exceeded the aggregate estimated future cash flows.
For further information, see Notes 2, 10 and 12 to the Consolidated Financial Statements, "Business Segments," "Property, Plant and Equipment" and "Investments in Unconsolidated Affiliates."
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.
Duke Energy elects to amortize net actuarial gain or loss amounts that are in excess of 10% 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.
As of December 31, 2020, Duke Energy assumes pension and other post-retirement plan assets will generate a long-term rate of return of 6.50%. 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. Real assets, return-seeking fixed income, hedge funds 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.
Duke Energy discounted its future U.S. pension and other post-retirement obligations using a rate of 2.60% as of December 31, 2020. 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, 2020, 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.
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| MD&A | CRITICAL ACCOUNTING POLICIES AND ESTIMATES |
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 2020 pretax pension expense, pretax other post-retirement expense, pension obligation and other post-retirement benefit obligation if a 0.25% change in rates were to occur.
| | | | | | | | | | | | | | | | | | | | | | | |
| Qualified and Non- | | Other Post-Retirement |
| | Qualified Pension Plans | | Plans |
| (in millions) | 0.25 | % | | (0.25) | % | | 0.25 | % | | (0.25) | % |
| Effect on 2020 pretax pension and other post-retirement expense: | | | | | | | |
| Expected long-term rate of return | $ | (21) | | | $ | 21 | | | $ | (1) | | | $ | 1 | |
| Discount rate | (9) | | | 9 | | | — | | | (1) | |
| Effect on pension and other post-retirement benefit obligation at December 31, 2020: | | | | | | | |
| Discount rate | (208) | | | 213 | | | (13) | | | 14 | |
Duke Energy’s other post-retirement plan uses a health care cost trend rate covering both pre- and post-age 65 retired plan participants, which is comprised of a medical care cost trend rate, which reflects the near- and long-term expectation of increases in medical costs, and a prescription drug cost trend rate, which reflects the near- and long-term expectation of increases in prescription drug costs. As of December 31, 2020, the health care cost trend rate was 6.25%, trending down to 4.75% by 2028. These plans are closed to new employees.
For further information, see Note 22 to the Consolidated Financial Statements, “Employee Benefit Plans.”
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.
Among other provisions, the Tax Act lowered the corporate federal income tax rate from 35% to 21% and eliminated bonus depreciation for regulated utilities. For Duke Energy’s regulated operations, the reduction in federal income taxes will result in lower regulated customer rates. However, due to its existing NOL position and other tax credits, Duke Energy does not expect to be a significant federal cash taxpayer through at least 2029. 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. Impacts of the Tax Act to Duke Energy’s cash flows and credit metrics are subject to the regulatory actions of its state commissions and the FERC. See Note 3 to the Consolidated Financial Statements, “Regulatory Matters,” for additional information.
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 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.
During March 2020, in response to market volatility and the ongoing economic uncertainty related to COVID-19, Duke Energy took several actions to enhance the company's liquidity position including:
•Duke Energy drew down the remaining $500 million of availability under the existing $1 billion Three-Year Revolving Credit Facility. That additional borrowing was subsequently repaid during the second quarter of 2020; and
•Duke Energy entered into and borrowed the full amount under a $1.5 billion, 364-day Term Loan Credit Agreement. The Term Loan Credit Agreement contained a provision for additional borrowing capacity of $500 million. Duke Energy exercised the provision and borrowed an additional $188 million, for a total borrowing of approximately $1.7 billion. By November 2020, Duke Energy repaid the entire borrowing under the 364-day Term Loan.
Following March 2020, access to credit and equity markets has normalized. In addition to the March 2020 financings to address the company's liquidity position, for the year ended December 31, 2020, Duke Energy issued approximately $5.6 billion in debt and raised approximately $2.9 billion of common equity through equity forward agreements and the company's dividend reinvestment and ATM programs. A portion of the proceeds from the equity forward settlements will be used to fully repay Duke Energy's portion of the ACP construction loan of approximately $860 million. Despite the recovery in capital markets, Duke Energy continues to monitor access to credit and equity markets amid the ongoing economic uncertainty related to COVID-19.
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| MD&A | LIQUIDITY AND CAPITAL RESOURCES |
In addition to actions taken by the company, the CARES Act, enacted in March 2020, as an emergency economic stimulus package in response to the COVID-19 pandemic, included provisions providing relief to entities with remaining AMT credit refund allowances. Through the CARES Act, Duke Energy accelerated remaining AMT credit refund allowances and claimed a refund in full for any AMT credit carryforwards. As a result, in the third quarter of 2020, Duke Energy received $572 million related to AMT credit carryforwards and $19 million of interest income. See Note 23 to the Consolidated Financial Statements, "Income Taxes," for additional information.
As of December 31, 2020, Duke Energy had approximately $259 million of cash on hand, $5.6 billion available under its $8 billion Master Credit Facility and $500 million available under the $1 billion Three-Year Revolving Credit Facility. Duke Energy expects to have sufficient liquidity in the form of cash on hand, cash from operations and available credit capacity to support its funding needs. Refer to Notes 6 and 19 to the Consolidated Financial Statements, "Debt and Credit Facilities" and "Stockholders' Equity," respectively, for information regarding Duke Energy's debt and equity issuances, debt maturities and available credit facilities including the Master Credit Facility.
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, including AFUDC debt and capitalized interest, for the next three fiscal years are included in the table below.
| | | | | | | | | | | |
| (in millions) | 2021 | 2022 | 2023 |
| New generation | $ | 60 | | $ | 20 | | $ | 85 | |
| Regulated renewables | 665 | | 710 | | 755 | |
| Environmental | 795 | | 820 | | 600 | |
| Nuclear fuel | 425 | | 400 | | 380 | |
| Major nuclear | 280 | | 270 | | 205 | |
| Customer additions | 565 | | 555 | | 560 | |
| Grid modernization and other transmission and distribution projects | 3,460 | | 5,025 | | 4,840 | |
| Maintenance and other | 2,200 | | 2,650 | | 2,750 | |
| Total Electric Utilities and Infrastructure | 8,450 | | 10,450 | | 10,175 | |
| Gas Utilities and Infrastructure | 1,250 | | 1,275 | | 1,150 | |
| Commercial Renewables and Other | 775 | | 1,075 | | 750 | |
| | | |
| | | |
| Total projected capital and investment expenditures | $ | 10,475 | | $ | 12,800 | | $ | 12,075 | |
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 2020, Duke Energy paid quarterly cash dividends for the 94th 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 65% and 75%, based upon adjusted EPS, and expects this trend to continue through 2025. Duke Energy increased the dividend by approximately 2% annually in both 2020 and 2019, and the company remains committed to continued growth of the dividend.
Dividend and Other Funding Restrictions of Duke Energy Subsidiaries
As discussed in Note 3 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 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, 2020, 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 does not exceed a material amount 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.
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| MD&A | LIQUIDITY AND CAPITAL RESOURCES |
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.
As part of Duke Energy’s continued effort to improve its cash flows from operations and liquidity, Duke Energy works with vendors to improve terms and conditions, including the extension of payment terms. To support this effort, Duke Energy established a supply chain finance program (the “program”) in 2020, under which suppliers, at their sole discretion, may sell their receivables from Duke Energy to the participating financial institution. The financial institution administers the program. Duke Energy does not issue any guarantees with respect to the program and does not participate in negotiations between suppliers and the financial institution. Duke Energy does not have an economic interest in the supplier’s decision to participate in the program and receives no interest, fees or other benefit from the financial institution based on supplier participation in the program. Suppliers’ decisions on which invoices are sold do not impact Duke Energy’s payment terms, which are based on commercial terms negotiated between Duke Energy and the supplier regardless of program participation. A significant deterioration in the credit quality of Duke Energy, economic downturn or changes in the financial markets could limit the financial institutions willingness to participate in the program. Duke Energy does not believe such risk would have a material impact on our cash flows from operations or liquidity, as substantially all our payments are made outside the program.
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).
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.
In 2021, Duke Energy anticipates issuing additional securities of $8 billion through debt capital markets. Additionally, Duke Energy may utilize other instruments, including equity-content securities, such as preferred stock. Proceeds will primarily be for the purpose of funding capital expenditures and debt maturities. See to Note 6 to the Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding significant debt issuances in 2020.
Duke Energy’s capitalization is balanced between debt and equity as shown in the table below.
| | | | | | | | | | | | | | | | | |
| | Projected 2021 | | Actual 2020 | | Actual 2019 |
| Equity | 44 | % | | 44 | % | | 44 | % |
| Debt | 56 | % | | 56 | % | | 56 | % |
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% for each borrower, excluding Piedmont, and 70% 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, 2020, 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.
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| MD&A | LIQUIDITY AND CAPITAL RESOURCES |
Credit Ratings
Moody’s Investors Service, Inc. and S&P provide credit ratings for various Duke Energy Registrants. During January 2021, S&P downgraded the issuer credit rating for Duke Energy (Parent) and all of its subsidiaries senior unsecured debt, excluding Progress Energy, from A- to BBB+. Additionally, S&P downgraded the credit rating for Duke Energy (Parent) and Progress Energy senior unsecured debt from BBB+ to BBB. As part of the credit rating report, S&P affirmed their credit rating on senior secured debt for Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana, while also affirming the short-term and commercial paper credit ratings. These actions followed a December 2020, report by S&P to revise the credit rating outlook from stable to negative for Duke Energy and all its subsidiaries. As a result of the downgrade, credit rating outlooks returned to stable. Additionally, during October 2020, Moody's revised their credit rating outlook for Duke Energy (Parent), Duke Energy Carolinas and Duke Energy Progress from stable to negative and in February 2021, revised the credit rating outlook for these same registrants to review for downgrade. The following table includes Duke Energy and certain subsidiaries’ credit ratings and ratings outlook as of February 2021.
| | | | | | | | | | | | | | |
| Moody's | | S&P | |
| Duke Energy Corporation | Review for Downgrade | | Stable | |
| Issuer Credit Rating | Baa1 | | BBB+ | |
| Senior Unsecured Debt | Baa1 | | BBB | |
| Commercial Paper | P-2 | | A-2 | |
| Duke Energy Carolinas | Review for Downgrade | | Stable | |
| Senior Secured Debt | Aa2 | | A | |
| Senior Unsecured Debt | A1 | | BBB+ | |
| Progress Energy | Stable | | Stable | |
| Senior Unsecured Debt | Baa1 | | BBB | |
| Duke Energy Progress | Review for Downgrade | | Stable | |
| Senior Secured Debt | Aa3 | | A | |
| Senior Unsecured Debt | A2 | | BBB+ | |
| Duke Energy Florida | Stable | | Stable | |
| Senior Secured Debt | A1 | | A | |
| Senior Unsecured Debt | A3 | | BBB+ | |
| Duke Energy Ohio | Stable | | Stable | |
| Senior Secured Debt | A2 | | A | |
| Senior Unsecured Debt | Baa1 | | BBB+ | |
| Duke Energy Indiana | Stable | | Stable | |
| Senior Secured Debt | Aa3 | | A | |
| Senior Unsecured Debt | A2 | | BBB+ | |
| Duke Energy Kentucky | Stable | | Stable | |
| Senior Unsecured Debt | Baa1 | | BBB+ | |
| Piedmont Natural Gas | Stable | | Stable | |
| Senior Unsecured | A3 | | BBB+ | |
| | | | |
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.
Cash Flow Information
The following table summarizes Duke Energy’s cash flows for the two most recently completed fiscal years.
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | | | | | | | | |
| | | | | | | | | |
| (in millions) | 2020 | | 2019 | | | | | | |
| Cash flows provided by (used in): | | | | | | | | | |
| Operating activities | $ | 8,856 | | | $ | 8,209 | | | | | | | |
| Investing activities | (10,604) | | | (11,957) | | | | | | | |
| Financing activities | 1,731 | | | 3,730 | | | | | | | |
| | | | | | | | | |
| Net decrease in cash, cash equivalents and restricted cash | (17) | | | (18) | | | | | | | |
| Cash, cash equivalents and restricted cash at beginning of period | 573 | | | 591 | | | | | | | |
| Cash, cash equivalents and restricted cash at end of period | $ | 556 | | | $ | 573 | | | | | | | |
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| MD&A | LIQUIDITY AND CAPITAL RESOURCES |
OPERATING CASH FLOWS
The following table summarizes key components of Duke Energy’s operating cash flows for the two most recently completed fiscal years.
| | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | | | | | | | | | |
| | | | | | | | | | |
| (in millions) | 2020 | | 2019 | | Variance | | | | | |
| Net income | $ | 1,082 | | | $ | 3,571 | | | $ | (2,489) | | | | | | |
| Non-cash adjustments to net income | 8,343 | | | 5,737 | | | 2,606 | | | | | | |
| | | | | | | | | | |
| Payments for AROs | (610) | | | (746) | | | 136 | | | | | | |
| | | | | | | | | | |
| Refund of AMT credit carryforwards | 572 | | | 573 | | | (1) | | | | | | |
| Working capital | (531) | | | (926) | | | 395 | | | | | | |
| Net cash provided by operating activities | $ | 8,856 | | | $ | 8,209 | | | $ | 647 | | | | | | |
The variance was driven primarily by:
•a $117 million increase in net income after adjustment for non-cash items primarily due to increases in current year non-cash adjustments, partially offset by decreases in revenues due to lower sales volumes, accelerated refund of fuel costs at Duke Energy Florida in response to the COVID-19 pandemic and lower wholesale revenue driven by the CCR Settlement Agreement;
•a $395 million decrease in cash outflows from working capital primarily due to fluctuations in inventory levels, accounts payable levels and lower income taxes paid in the current year; and
•a $136 million decrease in payments for AROs.
INVESTING CASH FLOWS
The following table summarizes key components of Duke Energy’s investing cash flows for the two most recently completed fiscal years.
| | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | | | |
| | | | | | | | | |
| | | | | | | | | |
| (in millions) | 2020 | | 2019 | | Variance | | | | |
| Capital, investment and acquisition expenditures, net of return of investment capital | $ | (10,144) | | | $ | (11,435) | | | $ | 1,291 | | | | | |
| Debt and equity securities, net | (62) | | | (5) | | | (57) | | | | | |
| | | | | | | | | |
| Other investing items | (398) | | | (517) | | | 119 | | | | | |
| Net cash used in investing activities | $ | (10,604) | | | $ | (11,957) | | | $ | 1,353 | | | | | |
The primary use of cash related to investing activities is capital, investment and acquisition expenditures, net of return of investment capital detailed by reportable business segment in the following table. The decrease relates primarily to decreases in capital expenditures due to lower overall investments in the Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables segments.
| | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | | | | | | |
| | | | | | | |
| (in millions) | 2020 | | 2019 | | Variance | | |
| Electric Utilities and Infrastructure | $ | 7,629 | | | $ | 8,258 | | | $ | (629) | | | |
| Gas Utilities and Infrastructure | 1,309 | | | 1,533 | | | (224) | | | |
| Commercial Renewables | 1,075 | | | 1,423 | | | (348) | | | |
| Other | 264 | | | 221 | | | 43 | | | |
| Total capital, investment and acquisition expenditures, net of return of investment capital | $ | 10,277 | | | $ | 11,435 | | | $ | (1,158) | | | |
FINANCING CASH FLOWS
The following table summarizes key components of Duke Energy’s financing cash flows for the two most recently completed fiscal years.
| | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | | | | | | | | |
| | | | | | | | | |
| (in millions) | 2020 | | 2019 | | Variance | | | | |
| Issuance of common stock | $ | 2,745 | | | $ | 384 | | | $ | 2,361 | | | | | |
| Issuance of preferred stock | — | | | 1,962 | | | (1,962) | | | | | |
| Issuances of long-term debt, net | 1,824 | | | 3,615 | | | (1,791) | | | | | |
| Notes payable and commercial paper | (319) | | | (380) | | | 61 | | | | | |
| Dividends paid | (2,812) | | | (2,668) | | | (144) | | | | | |
| Contributions from noncontrolling interests | 426 | | | 843 | | | (417) | | | | | |
| Other financing items | (133) | | | (26) | | | (107) | | | | | |
| Net cash provided by financing activities | $ | 1,731 | | | $ | 3,730 | | | $ | (1,999) | | | | | |
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| MD&A | LIQUIDITY AND CAPITAL RESOURCES |
The variance was driven primarily by:
•a $1,962 million decrease in proceeds from the issuance of preferred stock;
•a $1,791 million net decrease in proceeds from issuances of long-term debt primarily due to timing of issuances and redemptions of long-term debt; and
•a $417 million decrease in contributions from noncontrolling interests, primarily due to $415 million related to the sale of a noncontrolling interest in the Commercial Renewables segment in 2019.
Partially offset by:
•a $2,361 million increase in proceeds from the issuance of common stock, primarily from the settlement of equity forwards.
Off-Balance Sheet Arrangements
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, standby letters of credit, debt guarantees, surety bonds and indemnifications.
Most of the guarantee arrangements entered into by Duke Energy enhance 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 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.
Duke Energy performs ongoing assessments of its respective guarantee obligations to determine whether any liabilities have been incurred as a result of potential increased nonperformance risk by third parties for which Duke Energy has issued guarantees. See Note 7 to the Consolidated Financial Statements, “Guarantees and Indemnifications,” for further details of the guarantee arrangements. 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 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 Note 17 to the Consolidated Financial Statements, "Variable Interest Entities."
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, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due By Period |
| | | | | | | | | More than |
| | | Less than | | 2-3 years | | 4-5 years | | 5 years |
| | | 1 year | | (2022 & | | (2024 & | | (2026 & |
| (in millions) | Total | | (2021) | | 2023) | | 2025) | | beyond) |
Long-term debt(a) | $ | 58,134 | | | $ | 4,110 | | | $ | 8,011 | | | $ | 4,408 | | | $ | 41,605 | |
Interest payments on long-term debt(b) | 33,858 | | | 2,099 | | | 3,898 | | | 3,577 | | | 24,284 | |
Finance leases(c) | 1,465 | | | 186 | | | 347 | | | 170 | | | 762 | |
Operating leases(c) | 1,861 | | | 229 | | | 414 | | | 348 | | | 870 | |
Purchase obligations:(d) | | | | | | | | | |
Fuel and purchased power(e)(f) | 16,591 | | | 3,489 | | | 4,248 | | | 2,998 | | | 5,856 | |
Other purchase obligations(g) | 9,916 | | | 8,850 | | | 974 | | | 52 | | | 40 | |
Nuclear decommissioning trust annual funding(h) | 363 | | | 20 | | | 40 | | | 40 | | | 263 | |
Land easements(i) | 400 | | | 12 | | | 24 | | | 24 | | | 340 | |
Total contractual cash obligations(j)(k) | $ | 122,588 | | | $ | 18,995 | | | $ | 17,956 | | | $ | 11,617 | | | $ | 74,020 | |
(a)See Note 6 to the Consolidated Financial Statements, “Debt and Credit Facilities.”
(b)Interest payments on variable rate debt instruments were calculated using December 31, 2020, interest rates and holding them constant for the life of the instruments.
(c)See Note 5 to the Consolidated Financial Statements, “Leases.” Amounts in the table above include the interest component of finance leases based on the interest rates stated in the lease 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.
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| MD&A | OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS |
(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 NPNS. For contracts where the price paid is based on an index, the amount is based on market prices at December 31, 2020, 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 PPA. See Note 17 to the Consolidated Financial Statements, "Variable Interest Entities," for additional information.
(g)Includes contracts for software, telephone, data and consulting or advisory services. Amount also includes contractual obligations for EPC 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)Related to Commercial Renewables wind facilities.
(j)Unrecognized tax benefits of $125 million are not reflected in this table as Duke Energy cannot predict when open income tax years will close with completed examinations. See Note 23 to the Consolidated Financial Statements, "Income Taxes."
(k)The table above excludes reserves for litigation, environmental remediation, asbestos-related injuries and damages claims and self-insurance claims (see Note 4 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 4 to the Consolidated Financial Statements, “Commitments and Contingencies”), funding of pension and other post-retirement benefit plans (see Note 22 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 3 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
Risk Management Policies
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. See 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 primarily 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. Within Duke Energy’s Commercial Renewables segment, the company has limited exposure to market price fluctuations in prices of energy-related products as a result of its ownership of renewable assets.
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, market conditions, 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.”
Hedging Strategies
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. Additionally, Duke Energy’s Commercial Renewables business may enter into short-term or long-term hedge agreements to manage price risk associated with project output.
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| MD&A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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 nonregulated 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 and Infrastructure 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 or anticipated 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.”
Duke Energy had $7.6 billion of unhedged long- and short-term floating interest rate exposure at December 31, 2020. The impact of a 100-basis point change in interest rates on pretax income is approximately $76 million at December 31, 2020. 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, 2020.
Certain Duke Energy Registrants have variable-rate debt and manage interest rate risk by entering into financial contracts including interest rate swaps. See Notes 6 and 14 to the Consolidated Financial Statements, "Debt and Credit Facilities" and "Derivatives and Hedging." Such financial arrangements generally are indexed based upon LIBOR, which is expected to be phased out by the end of 2021. The Secured Overnight Financing Rate (SOFR) has been identified by regulators and industry participants as the preferred successor rate for U.S. dollar-based LIBOR at that time. Impacted financial arrangements extending beyond 2021 may require contractual amendment or termination and renegotiation to fully adapt to a post-LIBOR environment, and there may be uncertainty regarding the effectiveness of any such alternative index methodologies. Alternative index provisions are being assessed and incorporated into new financial arrangements that extend beyond 2021. Additionally, the progress of the phaseout is being monitored, including proposed transition relief from the FASB.
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 failure to post collateral when required is sufficient cause to terminate transactions and liquidate all positions.
The Duke Energy Registrants also obtain cash, letters of credit, or surety bonds 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.
The Duke Energy Registrants’ principal counterparties for its electric and natural gas businesses are RTOs, distribution companies, municipalities, electric cooperatives and utilities located throughout the U.S. Exposure to these entities consists primarily of amounts due to Duke Energy Registrants for delivered electricity. Additionally, there may be potential risks associated with remarketing of energy and capacity in the event of default by wholesale power customers. The Duke Energy Registrants have concentrations of receivables from certain of such entities that may affect the Duke Energy Registrants’ credit risk.
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| MD&A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Duke Energy Registrants are also subject to credit risk from transactions with their suppliers that involve prepayments or milestone payments 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 nonperformance. 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 tariff 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, payment patterns and the impact of current economic conditions on customers' ability to pay their outstanding balance to ensure the adequacy of bad debt reserves.
In response to the COVID-19 pandemic, in March 2020, the Duke Energy Registrants announced a suspension of disconnections for nonpayment to be effective throughout the national emergency. While disconnections have resumed, the company continues to offer flexible options to customers struggling with the pandemic and the economic fallout, including extended payment arrangements to satisfy delinquent balances. In addition, the Duke Energy Registrants are monitoring the effects of the resultant economic slowdown on counterparties’ abilities to perform under their contractual obligations. The Duke Energy Registrants have observed a significant increase in utility account arrears, which were roughly double historical levels as of December 31, 2020. There is an expectation of an increase in charge-offs in the future. See Notes 1, 3 and 18 to the Consolidated Financial Statements, "Summary of Significant Accounting Policies," "Regulatory Matters" and "Revenue," respectively, for more information. Duke Energy Ohio and Duke Energy Indiana sell certain of their accounts receivable and related collections through CRC, a Duke Energy consolidated VIE. 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.”
The Duke Energy Registrants provide certain non-tariff services, primarily to large commercial and industrial customers in which incurred costs, including invested capital, are intended to be recovered from the individual customer and therefore are not subject to rate recovery in the event of customer default. Customer creditworthiness is assessed prior to entering into these transactions. Credit concentration related to these transactions exists for certain of these customers.
Duke Energy’s Commercial Renewables segment enters into long-term agreements with certain creditworthy buyers that may not include the right to call for collateral in the event of a credit rating downgrade. Credit concentration exists to certain counterparties on these agreements, including entities that could be subject to wildfire liability. Additionally, Commercial Renewables may invest in projects for which buyers are below investment grade, although such buyers are required to post negotiated amounts of credit support. Also, power sales agreements and/or hedges of project output are generally for an initial term that does not cover the entire life of the asset. As a result, Commercial Renewables is exposed to market price risk and credit risk related to these agreements.
Duke Energy Carolinas has third-party insurance to cover certain losses related to asbestos-related injuries and damages above an aggregate self-insured retention. See Note 4 to the Consolidated Financial Statements, "Commitments and Contingencies" for information on asbestos-related injuries and damages claims.
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 nonperformance by any counterparty.
Marketable Securities Price Risk
As described further in Note 15 to the Consolidated Financial Statements, “Investments in Unconsolidated Affiliates,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 22 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.
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| MD&A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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, 2020, 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 funds 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
Environmental Regulations
The Duke Energy Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal, coal ash and other environmental matters. These regulations can be changed from time to time and result in new obligations of the Duke Energy Registrants.
On May 14, 2020, the five-year probation period following the Dan River coal ash spill ended. The court-appointed monitor confirmed in U.S. District Court for the Eastern District of North Carolina that Duke Energy met or exceeded every obligation throughout the process. Separately, in a final report to the EPA, it was noted that the company made significant enhancements to its Ethics and Compliance Program and its environmental compliance programs.
The following sections outline various proposed and recently enacted legislation and regulations that may impact the Duke Energy Registrants. Refer to Note 3 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 located at stations generating electricity (regardless of fuel source), which were no longer receiving CCR but contained liquids as of the effective date of the rule. 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.
On July 17, 2018, EPA issued a final rule (Phase 1, Part 1) revising certain closure deadlines and groundwater protection standards in the CCR rule. The rule does not change the primary requirements for groundwater monitoring, corrective action, inspections and maintenance, and closure, and thus does not materially affect Duke Energy’s coal ash basin closure plans or compliance obligations under the CCR rule. On October 22, 2018, a coalition of environmental groups filed a petition for review in the U.S. Court of Appeals for the District of Columbia (D.C. Circuit Court) challenging EPA's final Phase 1, Part 1 revisions to the CCR rule. On March 13, 2019, the D.C. Circuit Court issued an order in the Phase 1, Part 1 litigation granting EPA’s motion to remand the rule without vacatur. To date, EPA has finalized two notice-and-comment rulemakings to implement the court’s decision on remand. The “Part A” rule, which was promulgated on August 28, 2020, establishes an April 11, 2021 deadline to cease placement of CCR and non-CCR waste streams into unlined ash basins and initiate closure, and the “Part B” rule, which was promulgated on November 12, 2020, establishes procedures to allow facilities to request approval to operate an existing CCR surface impoundment with an alternate liner. A future rulemaking is expected to address legacy impoundments. Duke Energy does not expect these rulemakings to have a material impact in light of its progress in closing CCR units across the enterprise.
In addition to the requirements of the federal CCR rule, CCR landfills and surface impoundments will continue to be regulated by the 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 Notes 3 and 9 to the Consolidated Financial Statements, "Regulatory Matters" and "Asset Retirement Obligations," respectively.
Coal Ash Management Act of 2014
AROs recorded on the Duke Energy Carolinas and Duke Energy Progress Consolidated Balance Sheets at December 31, 2020, and December 31, 2019, 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 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 previously submitted comprehensive site assessments and groundwater corrective plans to NCDEQ. In addition, on December 31, 2019, Duke Energy submitted updated groundwater corrective action plans and site-specific coal ash impoundment closure plans to NCDEQ.
On April 1, 2019, NCDEQ issued a closure determination requiring Duke Energy Carolinas and Duke Energy Progress to excavate all remaining coal ash impoundments at the Allen, Belews Creek, Rogers, Marshall, Mayo and Roxboro facilities in North Carolina. On April 26, 2019, Duke Energy Carolinas and Duke Energy Progress filed Petitions for Contested Case Hearings in the Office of Administrative Hearings to challenge NCDEQ's April 1 Order. On December 31, 2019, Duke Energy Carolinas and Duke Energy Progress entered into a settlement agreement with NCDEQ and certain community groups under which Duke Energy Carolinas and Duke Energy Progress agreed to excavate seven of the nine remaining coal ash basins at these sites with ash moved to on-site lined landfills, including two at Allen, one at Belews Creek, one at Mayo, one at Roxboro, and two at Rogers. At the two remaining basins at Marshall and Roxboro, uncapped basin ash will be excavated and moved to lined landfills. Those portions of the basins at Marshall and Roxboro, which were previously filled with ash and on which permitted facilities were constructed, will not be disturbed and will be closed pursuant to other state regulations.
Following NCDEQ's April 1 Order, Duke Energy estimated the incremental undiscounted cost to close the nine remaining impoundments by excavation would be approximately $4 billion to $5 billion, potentially increasing the total estimated costs to permanently close all ash basins in North Carolina and South Carolina to $9.5 billion to $10.5 billion. The settlement lowers the estimated total undiscounted cost to close the nine remaining basins by excavation by approximately $1.5 billion as compared to Duke Energy’s original estimate that followed the order. As a result, the estimated total cost to permanently close all ash basins in North Carolina and South Carolina is approximately $8 billion to $9 billion of which approximately $2.8 billion has been spent through 2020. The majority of the remaining spend is expected to occur over the next 15 to 20 years.
Duke Energy has completed excavation of all coal ash at the Riverbend, Dan River and Sutton plants
For further information on ash basins and recovery, see Notes 3 and 9 to the Consolidated Financial Statements, "Regulatory Matters" and “Asset Retirement Obligations,” respectively.
Other Environmental Regulations
The Duke Energy Registrants are also subject to various federal, state and local laws regarding air and water quality, hazardous and solid waste disposal and other environmental matters, including the following:
•CWA
•Steam Effluent Limitation Guidelines
•Cross-State Air Pollution Rule
Duke Energy continues to comply with enacted environmental statutes and regulations even as certain of these regulations are in various stages of clarification, revision or legal challenge. The Duke Energy Registrants cannot predict the outcome of these matters.
Section 126 Petitions
On November 16, 2016, the state of Maryland filed a petition with EPA under Section 126 of the Clean Air Act alleging that 19 power plants, including two plants (three units) that Duke Energy Registrants own and operate, contribute to violations of EPA’s National Ambient Air Quality Standards (NAAQS) for ozone in the state of Maryland. On March 12, 2018, the state of New York filed a petition with EPA, also under Section 126 of the Clean Air Act, alleging that over 60 power plants, including five that Duke Energy Registrants own and operate, contribute to violations of EPA’s ozone NAAQS in the state of New York. Both Maryland and New York sought EPA orders requiring the states in which the named power plants operate impose more stringent nitrogen oxide emission limitations on the plants. On October 5, 2018, EPA denied the Maryland petition. That same day, Maryland appealed EPA's denial. On October 18, 2019, EPA denied the New York petition, and New York appealed that decision on October 29, 2019. On May 19, 2020, the U.S. Court of Appeals for the D.C. Circuit issued its decision, finding, with one exception, that EPA reasonably denied the Maryland petition. The court remanded one issue to EPA regarding target sources lacking catalytic controls. All of the Duke Energy units targeted have selective catalytic reduction, so the decision is favorable for these units.
A different panel of the same court heard oral argument in New York’s appeal of EPA’s denial of its Section 126 Petition on May 7, 2020, and on July 14, 2020, the panel issued its decision remanding the Petition to EPA for further review. The Duke Energy Registrants cannot predict the outcome of this matter.
North Carolina Clean Energy Plan (NCCEP)
On October 29, 2018, Governor Roy Cooper signed an executive order calling for a 40% reduction in statewide greenhouse gas emissions by 2025. The order tasked the NCDEQ with developing a clean energy plan for North Carolina. In October 2019, the NCDEQ published its plan, which includes the reduction of electric power sector greenhouse gas emissions by 70% below 2005 levels by 2030 and attainment of carbon neutrality by 2050, fostering long-term energy affordability and price stability for North Carolina’s residents and businesses by modernizing regulatory and planning processes, and acceleration of clean energy innovation to create economic opportunities for both rural and urban areas. Duke Energy Carolinas and Duke Energy Progress are significant stakeholders in this process. The magnitude and timing of investment in response to the NCCEP will depend on the speed of adoption and consensus developed by other stakeholders on how best to successfully transition to this clean energy future while establishing a regulatory model that incentivizes business decisions that benefit both the utilities and the public. The Duke Energy Registrants cannot predict the outcome of this matter.
Global Climate Change
On September 17, 2019, Duke Energy announced an updated climate strategy with new goals of at least 50% reduction in carbon emissions from electric generation by 2030 and net-zero carbon emissions from electric generation by 2050. On October 9, 2020, Duke Energy announced a new goal to achieve net-zero methane emissions from its natural gas distribution system by 2030. Timelines and initiatives, as well as implementation of new technologies, will vary in each state in which the company operates and will involve collaboration with regulators, customers and other stakeholders.
The Duke Energy Registrants’ GHG emissions consist primarily of CO2 and result primarily from operating a fleet of coal-fired and natural gas-fired power plants. Future levels of CO2 emissions will be influenced by variables that include economic conditions that affect electricity demand, fuel prices, market prices, compliance with new or existing regulations and the technologies deployed to generate the electricity necessary to meet 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 51 coal-fired electric generating units with a combined generating capacity of 6,539 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 EE offerings and ensure continued operations of its zero-CO2 emissions hydropower and nuclear plants. These efforts have diversified its system and significantly reduced CO2 emissions. Between 2005 and 2020, the Duke Energy Registrants have collectively lowered the CO2 emissions from their electricity generation by more than 40%, which potentially 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 EE, wind, solar, storage, carbon capture, utilization and sequestration, the use of hydrogen and other low-carbon fuels and advanced nuclear. Duke Energy will adjust to evolving and innovative technologies in a way that balances the reliability and affordability that meet regulatory requirements and customer demands. 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 that scientists 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 with any certainty any potential future financial risk to the Duke Energy Registrants’ operations difficult.
The Duke Energy Registrants annually, biennially or triennially prepare lengthy, forward-looking IRPs. These detailed, highly technical plans are based on the company’s thorough analysis of 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 stakeholder input as well as forecasts of future electricity demand, fuel prices, transmission improvements, new generating capacity, integration of renewables, energy storage, EE 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 IRPs 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 transmission and distribution systems and natural gas facilities. The steps include modernizing the electric grid through smart meters, storm hardening, self-healing and targeted undergrounding and applying lessons learned from previous storms to restoration efforts. The Duke Energy Registrants’ electric generating facilities and natural gas facilities are designed to withstand extreme weather events without significant damage. The Duke Energy Registrants maintain inventories of coal, oil and liquified natural gas 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 and/or natural gas.
State Legislation
In 2017, the North Carolina General Assembly passed House Bill 589, and it was subsequently signed into law by the governor. The law includes, among other things, overall reform of the application of PURPA for new solar projects in the state, a requirement for the utility to procure renewable energy through a competitive bidding process administered by an independent third party and recovery of costs related to the competitive bidding process through a competitive procurement rider. The process used was approved by the NCUC to select projects that would deliver the lowest cost of renewable energy for customers.
In accordance with the provisions of House Bill 589, Duke Energy estimates the total competitive procurement will be approximately 1,185 to 1,385 MW. Duke Energy will own or purchase at least 1,185 MW of energy from renewable energy projects under the North Carolina’s CPRE program. Two tranches of the CPRE process have been completed with contracts executed for winning proposals. Five Duke Energy projects, totaling about 190 MW, were selected during the first tranche and none were selected during the second tranche. Two of the Duke Energy winning projects achieved commercial operation in December 2020 and the remaining three will be online by the third quarter 2021. The need for a third tranche of CPRE will be determined prior to November 2021.
In various states, legislation is being considered to allow third-party sales of electricity. Deregulation or restructuring in the electric industry may result in increased competition and unrecovered costs. The Duke Energy Registrants cannot predict the outcome of these initiatives.
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.”
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | | | | | |
| 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 | |
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| 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 | |
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| 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 | |
| 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 | |
| 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 Ohio | |
| 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 Indiana | |
| 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 | |
| |
| Piedmont | |
| 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 | |
| | | | | |
| |
| Combined Notes to Consolidated Financial Statements | |
| Note 1 – Summary of Significant Accounting Policies | |
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| Note 2 – Business Segments | |
| Note 3 – Regulatory Matters | |
| Note 4 – Commitments and Contingencies | |
| Note 5 – Leases | |
| 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 – Revenue | |
| Note 19 – Stockholders' Equity | |
| Note 20 – Severance | |
| Note 21 – Stock-Based Compensation | |
| Note 22 – Employee Benefit Plans | |
| Note 23 – Income Taxes | |
| Note 24 – Other Income and Expenses, Net | |
| Note 25 – Subsequent Events | |
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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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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, 2020, 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 25, 2021, 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to regulation by federal and state utility regulatory agencies (the “Commissions”), which have jurisdiction with respect to the rates of the Company’s electric and natural gas distribution companies. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $14 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1947.
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions, except per share amounts) | 2020 | | 2019 | | 2018 |
| Operating Revenues | | | | | |
| Regulated electric | $ | 21,461 | | | $ | 22,615 | | | $ | 22,097 | |
| Regulated natural gas | 1,642 | | | 1,759 | | | 1,773 | |
| Nonregulated electric and other | 765 | | | 705 | | | 651 | |
| Total operating revenues | 23,868 | | | 25,079 | | | 24,521 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 6,051 | | | 6,826 | | | 6,831 | |
| Cost of natural gas | 460 | | | 627 | | | 697 | |
| Operation, maintenance and other | 5,788 | | | 6,066 | | | 6,463 | |
| Depreciation and amortization | 4,705 | | | 4,548 | | | 4,074 | |
| Property and other taxes | 1,337 | | | 1,307 | | | 1,280 | |
| Impairment charges | 984 | | | (8) | | | 402 | |
| Total operating expenses | 19,325 | | | 19,366 | | | 19,747 | |
| Gains (Losses) on Sales of Other Assets and Other, net | 10 | | | (4) | | | (89) | |
| Operating Income | 4,553 | | | 5,709 | | | 4,685 | |
| Other Income and Expenses | | | | | |
| Equity in (losses) earnings of unconsolidated affiliates | (2,005) | | | 162 | | | 83 | |
| | | | | |
| Other income and expenses, net | 453 | | | 430 | | | 399 | |
| Total other income and expenses | (1,552) | | | 592 | | | 482 | |
| Interest Expense | 2,162 | | | 2,204 | | | 2,094 | |
| Income From Continuing Operations Before Income Taxes | 839 | | | 4,097 | | | 3,073 | |
| Income Tax (Benefit) Expense From Continuing Operations | (236) | | | 519 | | | 448 | |
| Income From Continuing Operations | 1,075 | | | 3,578 | | | 2,625 | |
| Income (Loss) From Discontinued Operations, net of tax | 7 | | | (7) | | | 19 | |
| Net Income | 1,082 | | | 3,571 | | | 2,644 | |
| Add: Net Loss Attributable to Noncontrolling Interests | 295 | | | 177 | | | 22 | |
| Net Income Attributable to Duke Energy Corporation | 1,377 | | | 3,748 | | | 2,666 | |
| Less: Preferred Dividends | 107 | | | 41 | | | — | |
| Net Income Available to Duke Energy Corporation Common Stockholders | $ | 1,270 | | | $ | 3,707 | | | $ | 2,666 | |
| | | | | |
Earnings Per Share – Basic and Diluted | | | | | |
| Income from continuing operations available to Duke Energy Corporation common stockholders | | | | | |
| Basic and Diluted | $ | 1.71 | | | $ | 5.07 | | | $ | 3.73 | |
| | | | | |
| Income (Loss) from discontinued operations attributable to Duke Energy Corporation common stockholders | | | | | |
| Basic and Diluted | $ | 0.01 | | | $ | (0.01) | | | $ | 0.03 | |
| | | | | |
| Net income available to Duke Energy Corporation common stockholders | | | | | |
| Basic and Diluted | $ | 1.72 | | | $ | 5.06 | | | $ | 3.76 | |
| | | | | |
| Weighted average shares outstanding | | | | | |
| Basic | 737 | | | 729 | | | 708 | |
| Diluted | 738 | | | 729 | | | 708 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Net Income | $ | 1,082 | | | $ | 3,571 | | | $ | 2,644 | |
Other Comprehensive (Loss) Income, net of tax(a) | | | | | |
| | | | | |
| Pension and OPEB adjustments | 6 | | | 9 | | | (6) | |
| Net unrealized losses on cash flow hedges | (138) | | | (47) | | | (10) | |
| Reclassification into earnings from cash flow hedges | 11 | | | 6 | | | 6 | |
| Unrealized gains (losses) on available-for-sale securities | 3 | | | 8 | | | (3) | |
| | | | | |
| Other Comprehensive Loss, net of tax | (118) | | | (24) | | | (13) | |
| Comprehensive Income | 964 | | | 3,547 | | | 2,631 | |
| Add: Comprehensive Loss Attributable to Noncontrolling Interests | 306 | | | 177 | | | 22 | |
| Comprehensive Income Attributable to Duke Energy Corporation | 1,270 | | | 3,724 | | | 2,653 | |
| Less: Preferred Dividends | 107 | | | 41 | | | — | |
| Comprehensive Income Available to Duke Energy Corporation Common Stockholders | $ | 1,163 | | | $ | 3,683 | | | $ | 2,653 | |
(a) Net of income tax impacts of approximately $35 million for the year ended December 31, 2020. Tax impacts are immaterial for other periods presented.
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 259 | | | $ | 311 | |
| | | |
| Receivables (net of allowance for doubtful accounts of $29 at 2020 and $22 at 2019) | 1,009 | | | 1,066 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $117 at 2020 and $54 at 2019) | 2,144 | | | 1,994 | |
| Inventory | 3,167 | | | 3,232 | |
| | | |
| Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 1,641 | | | 1,796 | |
| Other (includes $296 at 2020 and $242 at 2019 related to VIEs) | 462 | | | 764 | |
| Total current assets | 8,682 | | | 9,163 | |
| Property, Plant and Equipment | | | |
| Cost | 155,580 | | | 147,654 | |
| Accumulated depreciation and amortization | (48,827) | | | (45,773) | |
| Generation facilities to be retired, net | 29 | | | 246 | |
| Net property, plant and equipment | 106,782 | | | 102,127 | |
| Other Noncurrent Assets | | | |
| Goodwill | 19,303 | | | 19,303 | |
| Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 12,421 | | | 13,222 | |
| Nuclear decommissioning trust funds | 9,114 | | | 8,140 | |
| Operating lease right-of-use assets, net | 1,524 | | | 1,658 | |
| Investments in equity method unconsolidated affiliates | 961 | | | 1,936 | |
| | | |
| Other (includes $81 at 2020 and $110 at 2019 related to VIEs) | 3,601 | | | 3,289 | |
| Total other noncurrent assets | 46,924 | | | 47,548 | |
| Total Assets | $ | 162,388 | | | $ | 158,838 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 3,144 | | | $ | 3,487 | |
| Notes payable and commercial paper | 2,873 | | | 3,135 | |
| Taxes accrued | 482 | | | 392 | |
| Interest accrued | 537 | | | 565 | |
| Current maturities of long-term debt (includes $472 at 2020 and $216 at 2019 related to VIEs) | 4,238 | | | 3,141 | |
| | | |
| Asset retirement obligations | 718 | | | 881 | |
| Regulatory liabilities | 1,377 | | | 784 | |
| Other | 2,936 | | | 2,367 | |
| Total current liabilities | 16,305 | | | 14,752 | |
| Long-Term Debt (includes $3,535 at 2020 and $3,997 at 2019 related to VIEs) | 55,625 | | | 54,985 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 9,244 | | | 8,878 | |
| Asset retirement obligations | 12,286 | | | 12,437 | |
| Regulatory liabilities | 15,029 | | | 15,264 | |
| Operating lease liabilities | 1,340 | | | 1,432 | |
| Accrued pension and other post-retirement benefit costs | 969 | | | 934 | |
| Investment tax credits | 687 | | | 624 | |
| | | |
| Other (includes $316 at 2020 and $228 at 2019 related to VIEs) | 1,719 | | | 1,581 | |
| Total other noncurrent liabilities | 41,274 | | | 41,150 | |
| Commitments and Contingencies | 0 | | 0 |
| | | |
| Equity | | | |
| Preferred stock, Series A, $0.001 par value, 40 million depositary shares authorized and outstanding at 2020 and 2019 | 973 | | | 973 | |
| Preferred stock, Series B, $0.001 par value, 1 million shares authorized and outstanding at 2020 and 2019 | 989 | | | 989 | |
| Common stock, $0.001 par value, 2 billion shares authorized; 769 million shares outstanding at 2020 and 733 million shares outstanding at 2019 | 1 | | | 1 | |
| Additional paid-in capital | 43,767 | | | 40,881 | |
| Retained earnings | 2,471 | | | 4,108 | |
| Accumulated other comprehensive loss | (237) | | | (130) | |
| Total Duke Energy Corporation stockholders' equity | 47,964 | | | 46,822 | |
| Noncontrolling interests | 1,220 | | | 1,129 | |
| Total equity | 49,184 | | | 47,951 | |
| Total Liabilities and Equity | $ | 162,388 | | | $ | 158,838 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 1,082 | | | $ | 3,571 | | | $ | 2,644 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization and accretion (including amortization of nuclear fuel) | 5,486 | | | 5,176 | | | 4,696 | |
| Equity in losses (earnings) of unconsolidated affiliates | 2,005 | | | (162) | | | (83) | |
| Equity component of AFUDC | (154) | | | (139) | | | (221) | |
| | | | | |
| | | | | |
| | | | | |
| (Gains) Losses on sales of other assets | (10) | | | 4 | | | 88 | |
| Impairment charges | 984 | | | (8) | | | 402 | |
| Deferred income taxes | 54 | | | 806 | | | 1,079 | |
| | | | | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (610) | | | (746) | | | (533) | |
| Payment for the disposal of other assets | — | | | — | | | (105) | |
| | | | | |
| Provision for rate refunds | (22) | | | 60 | | | 425 | |
| Refund of AMT credit carryforwards | 572 | | | 573 | | | — | |
| (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | 63 | | | (48) | | | 22 | |
| Receivables | (56) | | | 78 | | | (345) | |
| Inventory | 66 | | | (122) | | | 156 | |
| Other current assets | 205 | | | 10 | | | (721) | |
| Increase (decrease) in | | | | | |
| Accounts payable | (21) | | | (164) | | | 479 | |
| Taxes accrued | 117 | | | (224) | | | 23 | |
| Other current liabilities | (65) | | | 172 | | | 270 | |
| Other assets | (398) | | | (559) | | | (1,062) | |
| Other liabilities | (442) | | | (69) | | | (28) | |
| Net cash provided by operating activities | 8,856 | | | 8,209 | | | 7,186 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (9,907) | | | (11,122) | | | (9,389) | |
| Contributions to equity method investments | (370) | | | (324) | | | (416) | |
| | | | | |
| Return of investment capital | 133 | | | 11 | | | 137 | |
| Purchases of debt and equity securities | (8,011) | | | (3,348) | | | (3,762) | |
| Proceeds from sales and maturities of debt and equity securities | 7,949 | | | 3,343 | | | 3,747 | |
| | | | | |
| | | | | |
| Other | (398) | | | (517) | | | (377) | |
| Net cash used in investing activities | (10,604) | | | (11,957) | | | (10,060) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the: | | | | | |
| Issuance of long-term debt | 6,330 | | | 7,091 | | | 5,299 | |
| Issuance of preferred stock | — | | | 1,962 | | | — | |
| Issuance of common stock | 2,745 | | | 384 | | | 1,838 | |
| | | | | |
| Payments for the redemption of long-term debt | (4,506) | | | (3,476) | | | (2,906) | |
| Proceeds from the issuance of short-term debt with original maturities greater than 90 days | 3,009 | | | 397 | | | 472 | |
| Payments for the redemption of short-term debt with original maturities greater than 90 days | (2,147) | | | (479) | | | (282) | |
| Notes payable and commercial paper | (1,181) | | | (298) | | | 981 | |
| | | | | |
| Contributions from noncontrolling interests | 426 | | | 843 | | | 41 | |
| Dividends paid | (2,812) | | | (2,668) | | | (2,471) | |
| | | | | |
| Other | (133) | | | (26) | | | (12) | |
| Net cash provided by financing activities | 1,731 | | | 3,730 | | | 2,960 | |
| | | | | |
| Net (decrease) increase in cash, cash equivalents, and restricted cash | (17) | | | (18) | | | 86 | |
| Cash, cash equivalents, and restricted cash at beginning of period | 573 | | | 591 | | | 505 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 556 | | | $ | 573 | | | $ | 591 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 2,186 | | | $ | 2,195 | | | $ | 2,086 | |
| Cash received from income taxes | (585) | | | (651) | | | (266) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 1,116 | | | 1,356 | | | 1,112 | |
| Non-cash dividends | 110 | | | 108 | | | 107 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Duke Energy Corporation Stockholders'
Accumulated Other Comprehensive
Income (Loss) | | | | | | |
| | | | | | | | | | | | | | Net Unrealized | | | | Total | | | | |
| | | | | | | | | | | | Net | | Gains (Losses) | | | | Duke Energy | | | | |
| | Common | | | | Additional | | | | | | Losses on | | on Available- | | Pension and | | Corporation | | | | |
| Preferred | Stock | | Common | | Paid-in | | Retained | | | | Cash Flow | | for-Sale- | | OPEB | | Stockholders' | | Noncontrolling | | Total |
| (in millions) | Stock | Shares | | Stock | | Capital | | Earnings | | | | Hedges | | Securities | | Adjustments | | Equity | | Interests | | Equity |
| Balance at December 31, 2017 | $ | — | | 700 | | | $ | 1 | | | $ | 38,792 | | | $ | 3,013 | | | | | $ | (10) | | | $ | 12 | | | $ | (69) | | | $ | 41,739 | | | $ | (2) | | | $ | 41,737 | |
| Net income | — | | — | | | — | | | — | | | 2,666 | | | | | — | | | — | | | — | | | 2,666 | | | (22) | | | 2,644 | |
| Other comprehensive loss | — | | — | | | — | | | — | | | — | | | | | (4) | | | (3) | | | (6) | | | (13) | | | — | | | (13) | |
| Common stock issuances, including dividend reinvestment and employee benefits | — | | 27 | | | — | | | 2,003 | | | — | | | | | — | | | — | | | — | | | 2,003 | | | — | | | 2,003 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock dividends | — | | — | | | — | | | — | | | (2,578) | | | | | — | | | — | | | — | | | (2,578) | | | — | | | (2,578) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Distributions to noncontrolling interest in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
Other(a) | — | | — | | | — | | | — | | | 12 | | | | | — | | | (12) | | | — | | | — | | | 42 | | | 42 | |
| Balance at December 31, 2018 | $ | — | | 727 | | | $ | 1 | | | $ | 40,795 | | | $ | 3,113 | | | | | $ | (14) | | | $ | (3) | | | $ | (75) | | | $ | 43,817 | | | $ | 17 | | | $ | 43,834 | |
| Net income | — | | — | | | — | | | — | | | 3,707 | | | | | — | | | — | | | — | | | 3,707 | | | (177) | | | 3,530 | |
| Other comprehensive (loss) Income | — | | — | | | — | | | — | | | — | | | | | (41) | | | 8 | | | 9 | | | (24) | | | — | | | (24) | |
Preferred stock, Series A, issuances, net of issuance costs(b) | 973 | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 973 | | | — | | | 973 | |
Preferred stock, Series B, issuances, net of issuance costs(b) | 989 | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 989 | | | — | | | 989 | |
| Common stock issuances, including dividend reinvestment and employee benefits | — | | 6 | | | — | | | 552 | | | — | | | | | — | | | — | | | — | | | 552 | | | — | | | 552 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock dividends | — | | — | | | — | | | — | | | (2,735) | | | | | — | | | — | | | — | | | (2,735) | | | — | | | (2,735) | |
Sale of noncontrolling interest(c) | — | | — | | | — | | | (466) | | | — | | | | | 10 | | | — | | | — | | | (456) | | | 863 | | | 407 | |
Contribution from noncontrolling interest (f) | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | 428 | | | 428 | |
| Distributions to noncontrolling interest in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (4) | | | (4) | |
Other(d) | — | | — | | | — | | | — | | | 23 | | | | | (6) | | | (2) | | | (16) | | | (1) | | | 2 | | | 1 | |
| Balance at December 31, 2019 | $ | 1,962 | | 733 | | | $ | 1 | | | $ | 40,881 | | | $ | 4,108 | | | | | $ | (51) | | | $ | 3 | | | $ | (82) | | | $ | 46,822 | | | $ | 1,129 | | | $ | 47,951 | |
| Net income | — | | — | | | — | | | — | | | 1,270 | | | | | — | | | — | | | — | | | 1,270 | | | (295) | | | 975 | |
| Other comprehensive (loss) income | — | | — | | | — | | | — | | | — | | | | | (116) | | | 3 | | | 6 | | | (107) | | | (11) | | | (118) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock issuances, including dividend reinvestment and employee benefits | — | | 36 | | | — | | | 2,902 | | | — | | | | | — | | | — | | | — | | | 2,902 | | | — | | | 2,902 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock dividends | — | | — | | | — | | | — | | | (2,815) | | | | | — | | | — | | | — | | | (2,815) | | | — | | | (2,815) | |
| | | | | | | | | | | | | | | | | | | | | | |
Contribution from noncontrolling interest, net of transaction costs(f) | — | | — | | | — | | | (17) | | | — | | | | | — | | | — | | | — | | | (17) | | | 426 | | | 409 | |
| Distributions to noncontrolling interests in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (30) | | | (30) | |
Other(e) | — | | — | | | — | | | 1 | | | (92) | | | | | — | | | — | | | — | | | (91) | | | 1 | | | (90) | |
| Balance at December 31, 2020 | $ | 1,962 | | 769 | | | $ | 1 | | | $ | 43,767 | | | $ | 2,471 | | | | | $ | (167) | | | $ | 6 | | | $ | (76) | | | $ | 47,964 | | | $ | 1,220 | | | $ | 49,184 | |
(a) Amounts in Retained Earnings and AOCI represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information. Amount in Noncontrolling Interests primarily relates to tax equity financing activity in the Commercial Renewables segment.
(b) Duke Energy issued 40 million depositary shares of preferred stock, Series A, in the first quarter of 2019 and 1 million shares of preferred stock, Series B, in the third quarter of 2019.
(c) See Note 1 for additional discussion of the transaction.
(d) Amounts in Retained Earnings and AOCI primarily represent impacts to accumulated other comprehensive income due to implementation of a new accounting standard related to Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
(e) Amounts in Retained earnings primarily represent impacts due to implementation of a new accounting standard related to Current Estimated Credit Losses. See Note 1 for additional discussion.
(f) Relates to tax equity financing activity in the Commercial Renewables segment.
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission and by the South Carolina Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $3.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1947.
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 7,015 | | | $ | 7,395 | | | $ | 7,300 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 1,682 | | | 1,804 | | | 1,821 | |
| Operation, maintenance and other | 1,743 | | | 1,868 | | | 2,130 | |
| Depreciation and amortization | 1,462 | | | 1,388 | | | 1,201 | |
| Property and other taxes | 299 | | | 292 | | | 295 | |
| Impairment charges | 476 | | | 17 | | | 192 | |
| Total operating expenses | 5,662 | | | 5,369 | | | 5,639 | |
| Gains (Losses) on Sales of Other Assets and Other, net | 1 | | | — | | | (1) | |
| Operating Income | 1,354 | | | 2,026 | | | 1,660 | |
| Other Income and Expenses, net | 177 | | | 151 | | | 153 | |
| Interest Expense | 487 | | | 463 | | | 439 | |
| Income Before Income Taxes | 1,044 | | | 1,714 | | | 1,374 | |
| Income Tax Expense | 88 | | | 311 | | | 303 | |
| Net Income | $ | 956 | | | $ | 1,403 | | | $ | 1,071 | |
| Other Comprehensive Income, net of tax | | | | | |
| Reclassification into earnings from cash flow hedges | — | | | — | | | 1 | |
| | | | | |
| Other Comprehensive Income, net of tax | — | | | — | | | 1 | |
| Comprehensive Income | $ | 956 | | | $ | 1,403 | | | $ | 1,072 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | | | |
| | | December 31, |
| (in millions) | | 2020 | | 2019 |
| ASSETS | | | | |
| Current Assets | | | | |
| Cash and cash equivalents | | $ | 21 | | | $ | 18 | |
| Receivables (net of allowance for doubtful accounts of $1 at 2020 and $3 at 2019) | | 247 | | | 324 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $22 at 2020 and $7 at 2019) | | 696 | | | 642 | |
| Receivables from affiliated companies | | 124 | | | 114 | |
| | | | |
| Inventory | | 1,010 | | | 996 | |
| Regulatory assets | | 473 | | | 550 | |
| Other | | 20 | | | 21 | |
| Total current assets | | 2,591 | | | 2,665 | |
| Property, Plant and Equipment | | | | |
| Cost | | 50,640 | | | 48,922 | |
| Accumulated depreciation and amortization | | (17,453) | | | (16,525) | |
| | | | |
| Net property, plant and equipment | | 33,187 | | | 32,397 | |
| Other Noncurrent Assets | | | | |
| | | | |
| Regulatory assets | | 2,996 | | | 3,360 | |
| Nuclear decommissioning trust funds | | 4,977 | | | 4,359 | |
| Operating lease right-of-use assets, net | | 110 | | | 123 | |
| Other | | 1,187 | | | 1,149 | |
| Total other noncurrent assets | | 9,270 | | | 8,991 | |
| Total Assets | | $ | 45,048 | | | $ | 44,053 | |
| LIABILITIES AND EQUITY | | | | |
| Current Liabilities | | | | |
| Accounts payable | | $ | 1,000 | | | $ | 954 | |
| Accounts payable to affiliated companies | | 199 | | | 210 | |
| Notes payable to affiliated companies | | 506 | | | 29 | |
| Taxes accrued | | 76 | | | 46 | |
| Interest accrued | | 117 | | | 115 | |
| Current maturities of long-term debt | | 506 | | | 458 | |
| Asset retirement obligations | | 264 | | | 206 | |
| Regulatory liabilities | | 473 | | | 255 | |
| Other | | 546 | | | 611 | |
| Total current liabilities | | 3,687 | | | 2,884 | |
| Long-Term Debt | | 11,412 | | | 11,142 | |
| Long-Term Debt Payable to Affiliated Companies | | 300 | | | 300 | |
| Other Noncurrent Liabilities | | | | |
| Deferred income taxes | | 3,842 | | | 3,921 | |
| Asset retirement obligations | | 5,086 | | | 5,528 | |
| Regulatory liabilities | | 6,535 | | | 6,423 | |
| Operating lease liabilities | | 97 | | | 102 | |
| Accrued pension and other post-retirement benefit costs | | 73 | | | 84 | |
| Investment tax credits | | 236 | | | 231 | |
| Other | | 626 | | | 627 | |
| Total other noncurrent liabilities | | 16,495 | | | 16,916 | |
| Commitments and Contingencies | | 0 | | 0 |
| Equity | | | | |
| Member's equity | | 13,161 | | | 12,818 | |
| Accumulated other comprehensive loss | | (7) | | | (7) | |
| Total equity | | 13,154 | | | 12,811 | |
| Total Liabilities and Equity | | $ | 45,048 | | | $ | 44,053 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 956 | | | $ | 1,403 | | | $ | 1,071 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization (including amortization of nuclear fuel) | 1,731 | | | 1,671 | | | 1,487 | |
| Equity component of AFUDC | (62) | | | (42) | | | (73) | |
| | | | | |
| | | | | |
| | | | | |
| (Gains) Losses on sales of other assets | (1) | | | — | | | 1 | |
| Impairment charges | 476 | | | 17 | | | 192 | |
| Deferred income taxes | (260) | | | 133 | | | 305 | |
| | | | | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (162) | | | (278) | | | (230) | |
| Provision for rate refunds | (5) | | | 36 | | | 182 | |
| (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | (4) | | | (8) | | | 2 | |
| Receivables | 52 | | | (21) | | | (86) | |
| Receivables from affiliated companies | (10) | | | 68 | | | (87) | |
| Inventory | (14) | | | (48) | | | 25 | |
| Other current assets | 209 | | | (73) | | | (161) | |
| Increase (decrease) in | | | | | |
| Accounts payable | 55 | | | (50) | | | 168 | |
| Accounts payable to affiliated companies | (11) | | | (20) | | | 21 | |
| Taxes accrued | 30 | | | (127) | | | (65) | |
| Other current liabilities | (56) | | | 127 | | | 89 | |
| Other assets | (101) | | | (42) | | | (221) | |
| Other liabilities | (47) | | | (37) | | | (90) | |
| Net cash provided by operating activities | 2,776 | | | 2,709 | | | 2,530 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (2,669) | | | (2,714) | | | (2,706) | |
| Purchases of debt and equity securities | (1,602) | | | (1,658) | | | (1,810) | |
| Proceeds from sales and maturities of debt and equity securities | 1,602 | | | 1,658 | | | 1,810 | |
| | | | | |
| | | | | |
| Other | (164) | | | (204) | | | (147) | |
| Net cash used in investing activities | (2,833) | | | (2,918) | | | (2,853) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 998 | | | 886 | | | 1,983 | |
| Payments for the redemption of long-term debt | (813) | | | (6) | | | (1,205) | |
| Notes payable to affiliated companies | 477 | | | (410) | | | 335 | |
| Distributions to parent | (600) | | | (275) | | | (750) | |
| Other | (2) | | | (1) | | | (23) | |
| Net cash provided by financing activities | 60 | | | 194 | | | 340 | |
| Net increase (decrease) in cash and cash equivalents | 3 | | | (15) | | | 17 | |
| Cash and cash equivalents at beginning of period | 18 | | | 33 | | | 16 | |
| Cash and cash equivalents at end of period | $ | 21 | | | $ | 18 | | | $ | 33 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 481 | | | $ | 433 | | | $ | 452 | |
| Cash paid for income taxes | 321 | | | 122 | | | 89 | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 365 | | | 347 | | | 302 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | |
| | | Accumulated Other | | |
| | | | Comprehensive | | |
| | | Loss | | | | |
| | | Net Gains | | | | |
| | | (Losses) on | | | | |
| Member's | | Cash Flow | | | | Total |
| (in millions) | Equity | | Hedges | | | | Equity |
| Balance at December 31, 2017 | $ | 11,368 | | | $ | (7) | | | | | $ | 11,361 | |
| Net income | 1,071 | | | — | | | | | 1,071 | |
| Other comprehensive income | — | | | 1 | | | | | 1 | |
| Distributions to parent | (750) | | | — | | | | | (750) | |
| | | | | | | |
| Balance at December 31, 2018 | $ | 11,689 | | | $ | (6) | | | | | $ | 11,683 | |
| Net income | 1,403 | | | — | | | | | 1,403 | |
| | | | | | | |
| Distributions to parent | (275) | | | — | | | | | (275) | |
| Other | 1 | | | (1) | | | | | 0 | |
| Balance at December 31, 2019 | $ | 12,818 | | | $ | (7) | | | | | $ | 12,811 | |
| Net income | 956 | | | — | | | | | 956 | |
| | | | | | | |
| Distributions to parent | (600) | | | — | | | | | (600) | |
Other(a) | (13) | | | — | | | | | (13) | |
| Balance at December 31, 2020 | $ | 13,161 | | | $ | (7) | | | | | $ | 13,154 | |
(a) Amounts primarily represent impacts due to implementation of a new accounting standard related to Credit Losses. See Note 1 for additional discussion.
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission, South Carolina Public Service Commission and Florida Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $6.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1930.
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 10,627 | | | $ | 11,202 | | | $ | 10,728 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 3,479 | | | 4,024 | | | 3,976 | |
| Operation, maintenance and other | 2,479 | | | 2,495 | | | 2,613 | |
| Depreciation and amortization | 1,818 | | | 1,845 | | | 1,619 | |
| Property and other taxes | 545 | | | 561 | | | 529 | |
| Impairment charges | 495 | | | (24) | | | 87 | |
| Total operating expenses | 8,816 | | | 8,901 | | | 8,824 | |
| Gains on Sales of Other Assets and Other, net | 9 | | | — | | | 24 | |
| Operating Income | 1,820 | | | 2,301 | | | 1,928 | |
| Other Income and Expenses, net | 129 | | | 141 | | | 165 | |
| Interest Expense | 790 | | | 862 | | | 842 | |
| Income Before Income Taxes | 1,159 | | | 1,580 | | | 1,251 | |
| Income Tax Expense | 113 | | | 253 | | | 218 | |
| | | | | |
| | | | | |
| Net Income | 1,046 | | | 1,327 | | | 1,033 | |
| Less: Net Income Attributable to Noncontrolling Interests | 1 | | | — | | | 6 | |
| Net Income Attributable to Parent | $ | 1,045 | | | $ | 1,327 | | | $ | 1,027 | |
| | | | | |
| Net Income | $ | 1,046 | | | $ | 1,327 | | | $ | 1,033 | |
| Other Comprehensive Income, net of tax | | | | | |
| Pension and OPEB adjustments | (1) | | | 2 | | | 5 | |
| Net unrealized gain on cash flow hedges | 5 | | | 5 | | | 6 | |
| | | | | |
| | | | | |
| Unrealized (losses) gains on available-for-sale securities | (1) | | | 1 | | | (1) | |
| | | | | |
| Other Comprehensive Income, net of tax | 3 | | | 8 | | | 10 | |
| Comprehensive Income | 1,049 | | | 1,335 | | | 1,043 | |
| Less: Comprehensive Income Attributable to Noncontrolling Interests | 1 | | | — | | | 6 | |
| Comprehensive Income Attributable to Parent | $ | 1,048 | | | $ | 1,335 | | | $ | 1,037 | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 59 | | | $ | 48 | |
| Receivables (net of allowance for doubtful accounts of $8 at 2020 and $7 at 2019) | 228 | | | 220 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $29 at 2020 and $9 at 2019) | 901 | | | 830 | |
| Receivables from affiliated companies | 157 | | | 76 | |
| Notes receivable from affiliated companies | — | | | 164 | |
| Inventory | 1,375 | | | 1,423 | |
| Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 758 | | | 946 | |
| Other (includes $39 at 2020 and 2019 related to VIEs) | 109 | | | 210 | |
| Total current assets | 3,587 | | | 3,917 | |
| Property, Plant and Equipment | | | |
| Cost | 57,892 | | | 55,070 | |
| Accumulated depreciation and amortization | (18,368) | | | (17,159) | |
| Generation facilities to be retired, net | 29 | | | 246 | |
| Net property, plant and equipment | 39,553 | | | 38,157 | |
| Other Noncurrent Assets | | | |
| Goodwill | 3,655 | | | 3,655 | |
| Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 5,775 | | | 6,346 | |
| Nuclear decommissioning trust funds | 4,137 | | | 3,782 | |
| Operating lease right-of-use assets, net | 690 | | | 788 | |
| Other | 1,227 | | | 1,049 | |
| Total other noncurrent assets | 15,484 | | | 15,620 | |
| Total Assets | $ | 58,624 | | | $ | 57,694 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 919 | | | $ | 1,104 | |
| Accounts payable to affiliated companies | 289 | | | 310 | |
| Notes payable to affiliated companies | 2,969 | | | 1,821 | |
| Taxes accrued | 121 | | | 46 | |
| Interest accrued | 202 | | | 228 | |
| Current maturities of long-term debt (includes $305 at 2020 and $54 at 2019 related to VIEs) | 1,426 | | | 1,577 | |
| Asset retirement obligations | 283 | | | 485 | |
| Regulatory liabilities | 640 | | | 330 | |
| Other | 793 | | | 902 | |
| Total current liabilities | 7,642 | | | 6,803 | |
| Long-Term Debt (includes $1,252 at 2020 and $1,632 at 2019 related to VIEs) | 17,688 | | | 17,907 | |
| Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 4,396 | | | 4,462 | |
| Asset retirement obligations | 5,866 | | | 5,986 | |
| Regulatory liabilities | 5,051 | | | 5,225 | |
| Operating lease liabilities | 623 | | | 697 | |
| Accrued pension and other post-retirement benefit costs | 505 | | | 488 | |
| Other | 462 | | | 383 | |
| Total other noncurrent liabilities | 16,903 | | | 17,241 | |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | |
| Common stock, $0.01 par value, 100 shares authorized and outstanding at 2020 and 2019 | — | | | — | |
| Additional paid-in capital | 9,143 | | | 9,143 | |
| Retained earnings | 7,109 | | | 6,465 | |
| Accumulated other comprehensive loss | (15) | | | (18) | |
| Total Progress Energy, Inc. stockholder's equity | 16,237 | | | 15,590 | |
| Noncontrolling interests | 4 | | | 3 | |
| Total equity | 16,241 | | | 15,593 | |
| Total Liabilities and Equity | $ | 58,624 | | | $ | 57,694 | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 1,046 | | | $ | 1,327 | | | $ | 1,033 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization and accretion (including amortization of nuclear fuel) | 2,327 | | | 2,207 | | | 1,987 | |
| Equity component of AFUDC | (42) | | | (66) | | | (104) | |
| | | | | |
| | | | | |
| | | | | |
| Gains on sales of other assets | (9) | | | — | | | (24) | |
| Impairment charges | 495 | | | (24) | | | 87 | |
| Deferred income taxes | (197) | | | 433 | | | 358 | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (384) | | | (412) | | | (230) | |
| | | | | |
| Provision for rate refunds | 2 | | | 15 | | | 122 | |
| (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | (9) | | | (34) | | | 18 | |
| Receivables | (69) | | | 47 | | | (207) | |
| Receivables from affiliated companies | (81) | | | 81 | | | (137) | |
| Inventory | 49 | | | 62 | | | 121 | |
| Other current assets | 223 | | | 184 | | | (12) | |
| Increase (decrease) in | | | | | |
| Accounts payable | (62) | | | (4) | | | 217 | |
| Accounts payable to affiliated companies | (21) | | | (50) | | | 109 | |
| Taxes accrued | 75 | | | (74) | | | 8 | |
| Other current liabilities | 139 | | | 25 | | | 129 | |
| Other assets | (128) | | | (341) | | | (896) | |
| Other liabilities | (177) | | | (167) | | | (35) | |
| Net cash provided by operating activities | 3,177 | | | 3,209 | | | 2,544 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (3,488) | | | (3,952) | | | (3,854) | |
| | | | | |
| Purchases of debt and equity securities | (5,998) | | | (1,511) | | | (1,753) | |
| Proceeds from sales and maturities of debt and equity securities | 6,010 | | | 1,504 | | | 1,769 | |
| | | | | |
| | | | | |
| | | | | |
| Notes receivable from affiliated companies | 164 | | | (164) | | | 240 | |
| | | | | |
| Other | (160) | | | (190) | | | (162) | |
| Net cash used in investing activities | (3,472) | | | (4,313) | | | (3,760) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 1,791 | | | 2,187 | | | 1,833 | |
| Payments for the redemption of long-term debt | (2,157) | | | (1,667) | | | (771) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Notes payable to affiliated companies | 1,148 | | | 586 | | | 430 | |
| | | | | |
| | | | | |
| | | | | |
| Dividends to parent | (400) | | | — | | | (250) | |
| Other | (13) | | | 12 | | | (1) | |
| Net cash provided by financing activities | 369 | | | 1,118 | | | 1,241 | |
| Net increase in cash, cash equivalents, and restricted cash | 74 | | | 14 | | | 25 | |
| Cash, cash equivalents, and restricted cash at beginning of period | 126 | | | 112 | | | 87 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 200 | | | $ | 126 | | | $ | 112 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 819 | | | $ | 892 | | | $ | 798 | |
| Cash paid for (received from) income taxes | 149 | | | (79) | | | (348) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 363 | | | 447 | | | 478 | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Accumulated Other Comprehensive Income (Loss) | | | | | | |
| | | | | | | Net Gains | | Net Unrealized | | | | Total Progress | | | | |
| | | Additional | | | | (Losses) on | | Gains (Losses) | | Pension and | | Energy, Inc. | | | | |
| | | Paid-in | | Retained | | Cash Flow | | on Available-for- | | OPEB | | Stockholder's | | Noncontrolling | | Total |
| (in millions) | | | Capital | | Earnings | | Hedges | | Sale Securities | | Adjustments | | Equity | | Interests | | Equity |
| Balance at December 31, 2017 | | | $ | 9,143 | | | $ | 4,350 | | | $ | (18) | | | $ | 5 | | | $ | (12) | | | $ | 13,468 | | | $ | (3) | | | $ | 13,465 | |
| Net income | | | — | | | 1,027 | | | — | | | — | | | — | | | 1,027 | | | 6 | | | 1,033 | |
| Other comprehensive income (loss) | | | — | | | — | | | 6 | | | (1) | | | 5 | | | 10 | | | — | | | 10 | |
| | | | | | | | | | | | | | | | | |
| Distributions to noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
| | | | | | | | | | | | | | | | | |
| Dividends to parent | | | — | | | (250) | | | — | | | — | | | — | | | (250) | | | — | | | (250) | |
| | | | | | | | | | | | | | | | | |
Other(a) | | | — | | | 4 | | | — | | | (5) | | | — | | | (1) | | | 1 | | | 0 | |
| Balance at December 31, 2018 | | | $ | 9,143 | | | $ | 5,131 | | | $ | (12) | | | $ | (1) | | | $ | (7) | | | $ | 14,254 | | | $ | 3 | | | $ | 14,257 | |
| Net income | | | — | | | 1,327 | | | — | | | — | | | — | | | 1,327 | | | — | | | 1,327 | |
| Other comprehensive income | | | — | | | — | | | 5 | | | 1 | | | 2 | | | 8 | | | — | | | 8 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Other(b) | | | — | | | 7 | | | (3) | | | (1) | | | (2) | | | 1 | | | — | | | 1 | |
| Balance at December 31, 2019 | | | $ | 9,143 | | | $ | 6,465 | | | $ | (10) | | | $ | (1) | | | $ | (7) | | | $ | 15,590 | | | $ | 3 | | | $ | 15,593 | |
| Net income | | | — | | | 1,045 | | | — | | | — | | | — | | | 1,045 | | | 1 | | | 1,046 | |
| Other comprehensive income (loss) | | | — | | | — | | | 5 | | | (1) | | | (1) | | | 3 | | | — | | | 3 | |
| | | | | | | | | | | | | | | | | |
| Dividends to parent | | | — | | | (400) | | | — | | | — | | | — | | | (400) | | | — | | | (400) | |
| | | | | | | | | | | | | | | | | |
| Other | | | — | | | (1) | | | — | | | — | | | — | | | (1) | | | — | | | (1) | |
| Balance at December 31, 2020 | | | $ | 9,143 | | | $ | 7,109 | | | $ | (5) | | | $ | (2) | | | $ | (8) | | | $ | 16,237 | | | $ | 4 | | | $ | 16,241 | |
(a) Amounts in Retained Earnings and AOCI represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information.
(b) Amounts in Retained Earnings and AOCI primarily represent impacts to accumulated other comprehensive income due to implementation of a new accounting standard related to Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission and by the South Carolina Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $4.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1930.
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 5,422 | | | $ | 5,957 | | | $ | 5,699 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 1,743 | | | 2,012 | | | 1,892 | |
| Operation, maintenance and other | 1,332 | | | 1,446 | | | 1,578 | |
| Depreciation and amortization | 1,116 | | | 1,143 | | | 991 | |
| Property and other taxes | 167 | | | 176 | | | 155 | |
| Impairment charges | 499 | | | 12 | | | 33 | |
| Total operating expenses | 4,857 | | | 4,789 | | | 4,649 | |
| Gains on Sales of Other Assets and Other, net | 8 | | | — | | | 9 | |
| Operating Income | 573 | | | 1,168 | | | 1,059 | |
| Other Income and Expenses, net | 75 | | | 100 | | | 87 | |
| Interest Expense | 269 | | | 306 | | | 319 | |
| Income Before Income Taxes | 379 | | | 962 | | | 827 | |
| Income Tax (Benefit) Expense | (36) | | | 157 | | | 160 | |
| Net Income and Comprehensive Income | $ | 415 | | | $ | 805 | | | $ | 667 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 39 | | | $ | 22 | |
| Receivables (net of allowance for doubtful accounts of $4 at 2020 and $3 at 2019) | 132 | | | 123 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $19 at 2020 and $5 at 2019) | 500 | | | 489 | |
| Receivables from affiliated companies | 50 | | | 52 | |
| | | |
| Inventory | 911 | | | 934 | |
| Regulatory assets | 492 | | | 526 | |
| Other | 60 | | | 60 | |
| Total current assets | 2,184 | | | 2,206 | |
| Property, Plant and Equipment | | | |
| Cost | 35,759 | | | 34,603 | |
| Accumulated depreciation and amortization | (12,801) | | | (11,915) | |
| Generation facilities to be retired, net | 29 | | | 246 | |
| Net property, plant and equipment | 22,987 | | | 22,934 | |
| Other Noncurrent Assets | | | |
| Regulatory assets | 3,976 | | | 4,152 | |
| Nuclear decommissioning trust funds | 3,500 | | | 3,047 | |
| Operating lease right-of-use assets, net | 346 | | | 387 | |
| Other | 740 | | | 651 | |
| Total other noncurrent assets | 8,562 | | | 8,237 | |
| Total Assets | $ | 33,733 | | | $ | 33,377 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 454 | | | $ | 629 | |
| Accounts payable to affiliated companies | 215 | | | 203 | |
| Notes payable to affiliated companies | 295 | | | 66 | |
| Taxes accrued | 85 | | | 17 | |
| Interest accrued | 99 | | | 110 | |
| Current maturities of long-term debt | 603 | | | 1,006 | |
| Asset retirement obligations | 283 | | | 485 | |
| Regulatory liabilities | 530 | | | 236 | |
| Other | 411 | | | 478 | |
| Total current liabilities | 2,975 | | | 3,230 | |
| Long-Term Debt | 8,505 | | | 7,902 | |
| Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 2,298 | | | 2,388 | |
| Asset retirement obligations | 5,352 | | | 5,408 | |
| Regulatory liabilities | 4,394 | | | 4,232 | |
| Operating lease liabilities | 323 | | | 354 | |
| Accrued pension and other post-retirement benefit costs | 242 | | | 238 | |
| Investment tax credits | 132 | | | 137 | |
| Other | 102 | | | 92 | |
| Total other noncurrent liabilities | 12,843 | | | 12,849 | |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | |
| Member's Equity | 9,260 | | | 9,246 | |
| | | |
| | | |
| | | |
| Total Liabilities and Equity | $ | 33,733 | | | $ | 33,377 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 415 | | | $ | 805 | | | $ | 667 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization (including amortization of nuclear fuel) | 1,299 | | | 1,329 | | | 1,183 | |
| Equity component of AFUDC | (29) | | | (60) | | | (57) | |
| | | | | |
| | | | | |
| | | | | |
| Gains on sales of other assets | (8) | | | — | | | (9) | |
| Impairment charges | 499 | | | 12 | | | 33 | |
| Deferred income taxes | (234) | | | 197 | | | 236 | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (304) | | | (390) | | | (195) | |
| | | | | |
| Provisions for rate refunds | 2 | | | 12 | | | 122 | |
| (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | 1 | | | (6) | | | 5 | |
| Receivables | (4) | | | 21 | | | (107) | |
| Receivables from affiliated companies | 2 | | | (29) | | | (20) | |
| Inventory | 23 | | | 20 | | | 63 | |
| Other current assets | 98 | | | 101 | | | (201) | |
| Increase (decrease) in | | | | | |
| Accounts payable | (127) | | | 32 | | | 219 | |
| Accounts payable to affiliated companies | 12 | | | (75) | | | 99 | |
| Taxes accrued | 68 | | | (46) | | | (11) | |
| Other current liabilities | 157 | | | 68 | | | 46 | |
| Other assets | (207) | | | (205) | | | (465) | |
| Other liabilities | 3 | | | 37 | | | 20 | |
| Net cash provided by operating activities | 1,666 | | | 1,823 | | | 1,628 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (1,581) | | | (2,108) | | | (2,220) | |
| | | | | |
| Purchases of debt and equity securities | (1,555) | | | (842) | | | (1,236) | |
| Proceeds from sales and maturities of debt and equity securities | 1,516 | | | 810 | | | 1,206 | |
| | | | | |
| | | | | |
| | | | | |
| Other | (57) | | | (119) | | | (95) | |
| Net cash used in investing activities | (1,677) | | | (2,259) | | | (2,345) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 1,296 | | | 1,269 | | | 845 | |
| Payments for the redemption of long-term debt | (1,085) | | | (605) | | | (3) | |
| | | | | |
| Notes payable to affiliated companies | 229 | | | (228) | | | 54 | |
| | | | | |
| Distributions to parent | (400) | | | — | | | (175) | |
| | | | | |
| Other | (12) | | | (1) | | | (1) | |
| Net cash provided by financing activities | 28 | | | 435 | | | 720 | |
| Net increase (decrease) in cash and cash equivalents | 17 | | | (1) | | | 3 | |
| Cash and cash equivalents at beginning of period | 22 | | | 23 | | | 20 | |
| Cash and cash equivalents at end of period | $ | 39 | | | $ | 22 | | | $ | 23 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 301 | | | $ | 331 | | | $ | 303 | |
| Cash paid for (received from) income taxes | 123 | | | (30) | | | (112) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 149 | | | 175 | | | 220 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | |
| | | | | Member's | | | | |
| (in millions) | | | | | Equity | | | | |
| Balance at December 31, 2017 | | | | | $ | 7,949 | | | | | |
| Net income | | | | | 667 | | | | | |
| Distribution to parent | | | | | (175) | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2018 | | | | | $ | 8,441 | | | | | |
| Net income | | | | | 805 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2019 | | | | | $ | 9,246 | | | | | |
| Net income | | | | | 415 | | | | | |
| Distribution to parent | | | | | (400) | | | | | |
| | | | | | | | | |
| Other | | | | | (1) | | | | | |
| Balance at December 31, 2020 | | | | | $ | 9,260 | | | | | |
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Florida Public Service Commission (the “Commission”), which has jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $2.1 billion recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commission; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commission, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commission, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commission’s treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commission, including the settlement agreement filed with the Commission subsequent to December 31, 2020, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 2001.
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 5,188 | | | $ | 5,231 | | | $ | 5,021 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 1,737 | | | 2,012 | | | 2,085 | |
| Operation, maintenance and other | 1,131 | | | 1,034 | | | 1,025 | |
| Depreciation and amortization | 702 | | | 702 | | | 628 | |
| Property and other taxes | 381 | | | 392 | | | 374 | |
| Impairment charges | (4) | | | (36) | | | 54 | |
| Total operating expenses | 3,947 | | | 4,104 | | | 4,166 | |
| Gains on Sales of Other Assets and Other, net | 1 | | | — | | | 1 | |
| Operating Income | 1,242 | | | 1,127 | | | 856 | |
| Other Income and Expenses, net | 53 | | | 48 | | | 86 | |
| Interest Expense | 326 | | | 328 | | | 287 | |
| Income Before Income Taxes | 969 | | | 847 | | | 655 | |
| Income Tax Expense | 198 | | | 155 | | | 101 | |
| Net Income | $ | 771 | | | $ | 692 | | | $ | 554 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other Comprehensive Income (Loss), net of tax | | | | | |
| Unrealized (losses) gains on available-for-sale securities | (1) | | | 1 | | | (1) | |
| | | | | |
| | | | | |
| Other Comprehensive (Loss) Income, net of tax | (1) | | | 1 | | | (1) | |
| Comprehensive Income | $ | 770 | | | $ | 693 | | | $ | 553 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 11 | | | $ | 17 | |
| Receivables (net of allowance for doubtful accounts of $4 at 2020 and $3 at 2019) | 94 | | | 96 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $10 at 2020 and $4 at 2019) | 401 | | | 341 | |
| Receivables from affiliated companies | 3 | | | — | |
| Notes receivable from affiliated companies | — | | | 173 | |
| Inventory | 464 | | | 489 | |
| Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 265 | | | 419 | |
| Other (includes $39 at 2020 and 2019 related to VIEs) | 41 | | | 58 | |
| Total current assets | 1,279 | | | 1,593 | |
| Property, Plant and Equipment | | | |
| Cost | 22,123 | | | 20,457 | |
| Accumulated depreciation and amortization | (5,560) | | | (5,236) | |
| Net property, plant and equipment | 16,563 | | | 15,221 | |
| Other Noncurrent Assets | | | |
| | | |
| Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 1,799 | | | 2,194 | |
| Nuclear decommissioning trust funds | 637 | | | 734 | |
| Operating lease right-of-use assets, net | 344 | | | 401 | |
| Other | 335 | | | 311 | |
| Total other noncurrent assets | 3,115 | | | 3,640 | |
| Total Assets | $ | 20,957 | | | $ | 20,454 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 465 | | | $ | 474 | |
| Accounts payable to affiliated companies | 85 | | | 131 | |
| Notes payable to affiliated companies | 196 | | | — | |
| Taxes accrued | 82 | | | 43 | |
| Interest accrued | 69 | | | 75 | |
| Current maturities of long-term debt (includes $305 at 2020 and $54 at 2019 related to VIEs) | 823 | | | 571 | |
| | | |
| Regulatory liabilities | 110 | | | 94 | |
| Other | 374 | | | 415 | |
| Total current liabilities | 2,204 | | | 1,803 | |
| Long-Term Debt (includes $1,002 at 2020 and $1,307 at 2019 related to VIEs) | 7,092 | | | 7,416 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 2,191 | | | 2,179 | |
| | | |
| Asset retirement obligations | 514 | | | 578 | |
| Regulatory liabilities | 658 | | | 993 | |
| Operating lease liabilities | 300 | | | 343 | |
| Accrued pension and other post-retirement benefit costs | 231 | | | 218 | |
| | | |
| Other | 209 | | | 136 | |
| Total other noncurrent liabilities | 4,103 | | | 4,447 | |
| Commitments and Contingencies | 0 | | 0 |
| | | |
| Equity | | | |
| Member's equity | 7,560 | | | 6,789 | |
| | | |
| | | |
| Accumulated other comprehensive loss | (2) | | | (1) | |
| Total equity | 7,558 | | | 6,788 | |
| Total Liabilities and Equity | $ | 20,957 | | | $ | 20,454 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 771 | | | $ | 692 | | | $ | 554 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization and accretion | 1,019 | | | 869 | | | 793 | |
| Equity component of AFUDC | (12) | | | (6) | | | (47) | |
| | | | | |
| Gains on sales of other assets | (1) | | | — | | | (1) | |
| Impairment charges | (4) | | | (36) | | | 54 | |
| Deferred income taxes | 27 | | | 180 | | | 159 | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (80) | | | (22) | | | (35) | |
| (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | (14) | | | (33) | | | 7 | |
| Receivables | (64) | | | 26 | | | (100) | |
| Receivables from affiliated companies | (3) | | | 17 | | | (26) | |
| Inventory | 26 | | | 42 | | | 58 | |
| Other current assets | 40 | | | 156 | | | 59 | |
| Increase (decrease) in | | | | | |
| Accounts payable | 66 | | | (36) | | | (1) | |
| Accounts payable to affiliated companies | (46) | | | 40 | | | 17 | |
| Taxes accrued | 39 | | | (31) | | | 40 | |
| Other current liabilities | (7) | | | (36) | | | 82 | |
| Other assets | 85 | | | (131) | | | (429) | |
| Other liabilities | (181) | | | (213) | | | (75) | |
| Net cash provided by operating activities | 1,661 | | | 1,478 | | | 1,109 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (1,907) | | | (1,844) | | | (1,634) | |
| | | | | |
| Purchases of debt and equity securities | (4,443) | | | (669) | | | (517) | |
| Proceeds from sales and maturities of debt and equity securities | 4,495 | | | 695 | | | 563 | |
| | | | | |
| | | | | |
| Notes receivable from affiliated companies | 173 | | | (173) | | | 313 | |
| | | | | |
| Other | (103) | | | (67) | | | (65) | |
| Net cash used in investing activities | (1,785) | | | (2,058) | | | (1,340) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 495 | | | 918 | | | 988 | |
| Payments for the redemption of long-term debt | (572) | | | (262) | | | (769) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Notes payable to affiliated companies | 196 | | | (108) | | | 108 | |
| | | | | |
| Distribution to parent | — | | | — | | | (75) | |
| | | | | |
| Other | (1) | | | 13 | | | 1 | |
| Net cash provided by financing activities | 118 | | | 561 | | | 253 | |
| Net (decrease) increase in cash, cash equivalents, and restricted cash | (6) | | | (19) | | | 22 | |
| Cash, cash equivalents, and restricted cash at beginning of period | 56 | | | 75 | | | 53 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 50 | | | $ | 56 | | | $ | 75 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 321 | | | $ | 332 | | | $ | 270 | |
| Cash paid for (received from) income taxes | 138 | | | 1 | | | (120) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 214 | | | 272 | | | 258 | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Accumulated | | |
| | | | | | | Other | | |
| | | | | | | Comprehensive | | |
| | | | | | | Income (Loss) | | |
| | | | | | | Net Unrealized | | | | |
| | | | | | | Gains (Losses) on | | | | |
| | | | | | Member's | | Available-for- | | | | Total |
| (in millions) | | | | | Equity | | Sale Securities | | | | Equity |
| Balance at December 31, 2017 | | | | | $ | 5,614 | | | $ | 4 | | | | | $ | 5,618 | |
| Net income | | | | | 554 | | | — | | | | | 554 | |
| Other comprehensive loss | | | | | — | | | (1) | | | | | (1) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Distribution to parent | | | | | (75) | | | — | | | | | (75) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other(a) | | | | | 4 | | | (5) | | | | | (1) | |
| Balance at December 31, 2018 | | | | | $ | 6,097 | | | $ | (2) | | | | | $ | 6,095 | |
| Net income | | | | | 692 | | | — | | | | | 692 | |
| Other comprehensive income | | | | | — | | | 1 | | | | | 1 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balance at December 31, 2019 | | | | | $ | 6,789 | | | $ | (1) | | | | | $ | 6,788 | |
| Net income | | | | | 771 | | | — | | | | | 771 | |
| Other comprehensive loss | | | | | — | | | (1) | | | | | (1) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balance at December 31, 2020 | | | | | $ | 7,560 | | | $ | (2) | | | | | $ | 7,558 | |
(a) Amounts represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information.
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
CriticalAuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Public Utilities Commission of Ohio and by the Kentucky Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric and gas rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $650 million recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 2002.
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | | | | | |
| Regulated electric | $ | 1,405 | | | $ | 1,456 | | | $ | 1,450 | |
| Regulated natural gas | 453 | | | 484 | | | 506 | |
| Nonregulated electric and other | — | | | — | | | 1 | |
| Total operating revenues | 1,858 | | | 1,940 | | | 1,957 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power – regulated | 339 | | | 388 | | | 412 | |
| | | | | |
| Cost of natural gas | 73 | | | 95 | | | 113 | |
| Operation, maintenance and other | 463 | | | 520 | | | 480 | |
| Depreciation and amortization | 278 | | | 265 | | | 268 | |
| Property and other taxes | 324 | | | 308 | | | 290 | |
| | | | | |
| Total operating expenses | 1,477 | | | 1,576 | | | 1,563 | |
| Losses on Sales of Other Assets and Other, net | — | | | — | | | (106) | |
| Operating Income | 381 | | | 364 | | | 288 | |
| Other Income and Expenses, net | 16 | | | 24 | | | 23 | |
| Interest Expense | 102 | | | 109 | | | 92 | |
| Income From Continuing Operations Before Income Taxes | 295 | | | 279 | | | 219 | |
| Income Tax Expense From Continuing Operations | 43 | | | 40 | | | 43 | |
| Income From Continuing Operations | 252 | | | 239 | | | 176 | |
| Loss From Discontinued Operations, net of tax | — | | | (1) | | | — | |
| Net Income and Comprehensive Income | $ | 252 | | | $ | 238 | | | $ | 176 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 14 | | | $ | 17 | |
| Receivables (net of allowance for doubtful accounts of $4 at 2020 and $4 at 2019) | 98 | | | 84 | |
| Receivables from affiliated companies | 102 | | | 92 | |
| | | |
| Inventory | 110 | | | 135 | |
| | | |
| Regulatory assets | 39 | | | 49 | |
| Other | 31 | | | 21 | |
| Total current assets | 394 | | | 398 | |
| Property, Plant and Equipment | | | |
| Cost | 11,022 | | | 10,241 | |
| Accumulated depreciation and amortization | (3,013) | | | (2,843) | |
| | | |
| Net property, plant and equipment | 8,009 | | | 7,398 | |
| Other Noncurrent Assets | | | |
| Goodwill | 920 | | | 920 | |
| Regulatory assets | 610 | | | 549 | |
| Operating lease right-of-use assets, net | 20 | | | 21 | |
| | | |
| | | |
| | | |
| Other | 72 | | | 52 | |
| Total other noncurrent assets | 1,622 | | | 1,542 | |
| Total Assets | $ | 10,025 | | | $ | 9,338 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 279 | | | $ | 288 | |
| Accounts payable to affiliated companies | 68 | | | 68 | |
| Notes payable to affiliated companies | 169 | | | 312 | |
| Taxes accrued | 247 | | | 219 | |
| Interest accrued | 31 | | | 30 | |
| Current maturities of long-term debt | 50 | | | — | |
| | | |
| Asset retirement obligations | 3 | | | 1 | |
| Regulatory liabilities | 65 | | | 64 | |
| Other | 70 | | | 75 | |
| Total current liabilities | 982 | | | 1,057 | |
| Long-Term Debt | 3,014 | | | 2,594 | |
| Long-Term Debt Payable to Affiliated Companies | 25 | | | 25 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 981 | | | 922 | |
| Asset retirement obligations | 108 | | | 79 | |
| Regulatory liabilities | 748 | | | 763 | |
| Operating lease liabilities | 20 | | | 21 | |
| Accrued pension and other post-retirement benefit costs | 113 | | | 100 | |
| | | |
| | | |
| Other | 99 | | | 94 | |
| Total other noncurrent liabilities | 2,069 | | | 1,979 | |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | |
| Common stock, $8.50 par value, 120 million shares authorized; 90 million shares outstanding at 2020 and 2019 | 762 | | | 762 | |
| Additional paid-in capital | 2,776 | | | 2,776 | |
| Retained earnings | 397 | | | 145 | |
| | | |
| Total equity | 3,935 | | | 3,683 | |
| Total Liabilities and Equity | $ | 10,025 | | | $ | 9,338 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 252 | | | $ | 238 | | | $ | 176 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization and accretion | 283 | | | 269 | | | 271 | |
| Equity component of AFUDC | (7) | | | (13) | | | (11) | |
| Losses on sales of other assets | 0 | | | 0 | | | 106 | |
| | | | | |
| Deferred income taxes | 31 | | | 81 | | | 25 | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (2) | | | (8) | | | (3) | |
| Provision for rate refunds | 14 | | | 7 | | | 24 | |
| (Increase) decrease in | | | | | |
| | | | | |
| Receivables | (13) | | | 20 | | | (33) | |
| Receivables from affiliated companies | 9 | | | 22 | | | 19 | |
| Inventory | 25 | | | (9) | | | 7 | |
| Other current assets | (18) | | | (5) | | | 16 | |
| Increase (decrease) in | | | | | |
| Accounts payable | 2 | | | (17) | | | (19) | |
| Accounts payable to affiliated companies | 0 | | | (10) | | | 16 | |
| Taxes accrued | 30 | | | 17 | | | 12 | |
| Other current liabilities | 3 | | | 1 | | | 14 | |
| Other assets | (32) | | | (26) | | | (24) | |
| Other liabilities | (2) | | | (41) | | | (26) | |
| Net cash provided by operating activities | 575 | | | 526 | | | 570 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (834) | | | (952) | | | (827) | |
| | | | | |
| | | | | |
| Notes receivable from affiliated companies | (19) | | | — | | | 14 | |
| | | | | |
| Other | (48) | | | (68) | | | (89) | |
| Net cash used in investing activities | (901) | | | (1,020) | | | (902) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 467 | | | 1,003 | | | 99 | |
| Payments for the redemption of long-term debt | — | | | (551) | | | (3) | |
| Notes payable to affiliated companies | (144) | | | 38 | | | 245 | |
| | | | | |
| | | | | |
| Net cash provided by financing activities | 323 | | | 490 | | | 341 | |
| Net (decrease) increase in cash and cash equivalents | (3) | | | (4) | | | 9 | |
| Cash and cash equivalents at beginning of period | 17 | | | 21 | | | 12 | |
| Cash and cash equivalents at end of period | $ | 14 | | | $ | 17 | | | $ | 21 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 97 | | | $ | 97 | | | $ | 87 | |
| Cash received from income taxes | — | | | (37) | | | (6) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 104 | | | 109 | | | 95 | |
| Non-cash equity contribution from parent | — | | | — | | | 106 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | Additional | | Retained | | | | |
| Common | | Paid-in | | Earnings | | | | Total |
| (in millions) | Stock | | Capital | | (Deficit) | | | | Equity |
| Balance at December 31, 2017 | $ | 762 | | | $ | 2,670 | | | $ | (269) | | | | | $ | 3,163 | |
| Net income | — | | | — | | | 176 | | | | | 176 | |
| Contribution from parent | — | | | 106 | | | — | | | | | 106 | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2018 | $ | 762 | | | $ | 2,776 | | | $ | (93) | | | | | $ | 3,445 | |
| Net income | — | | | — | | | 238 | | | | | 238 | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2019 | $ | 762 | | | $ | 2,776 | | | $ | 145 | | | | | $ | 3,683 | |
| Net income | — | | | — | | | 252 | | | | | 252 | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2020 | $ | 762 | | | $ | 2,776 | | | $ | 397 | | | | | $ | 3,935 | |
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Indiana Utility Regulatory Commission (the “Commission”), which has jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $1.3 billion recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commission; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commission, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commission, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commission’s treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commission, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
Duke Energy Indiana Coal Ash Asset Retirement Obligations – Refer to Notes 3, 4, and 9 to the financial statements
Critical Audit Matter Description
Duke Energy Indiana has asset retirement obligations associated with coal ash impoundments at operating and retired coal generation facilities. These legal obligations are the result of Indiana state and federal regulations. There is significant judgment in determining the assumptions used in estimating the closure costs for each site since Duke Energy Indiana does not have approved closure plans for certain sites. Potential changes to the projected closure costs for each site as well as probability weightings for the cash flows associated with the different potential closure methods (“probability weightings”) creates estimation uncertainty. The liability for coal ash asset retirement obligations at Duke Energy Indiana was $1,140 million at December 31, 2020.
We identified the asset retirement obligations associated with coal ash impoundments at Duke Energy Indiana as a critical audit matter because of the significant management estimates and assumptions, including projected closure costs as well as the different potential closure methods. The audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to potential changes to the projected closure costs for each site as well as probability weightings for the cash flows associated with the different potential closure methods required a high degree of auditor judgment and an increased extent of effort, including the need to involve our environmental specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the underlying estimated closure costs for coal ash asset retirement obligations at Duke Energy Indiana included the following, among others:
•We tested the effectiveness of controls over management’s coal ash asset retirement obligation estimate, including those over management’s determination of the estimated closure costs and probability weightings.
•We evaluated management’s ability to accurately estimate future closure costs by comparing actual closure costs to management’s historical estimates.
•We tested the mathematical accuracy of management’s coal ash asset retirement obligation calculations, including the application of probability weightings.
•We made inquiries of internal and external legal counsel regarding the status of the legal matters associated with the probability weightings.
•We inspected the opinions from internal and external legal counsel supporting the probability weightings.
•We inspected the Company’s filings with and orders from the Indiana Department of Environmental Management, for evidence that might contradict management’s assertions regarding the estimated closure costs and probability weightings.
•With the assistance of our environmental specialists, we evaluated the reasonableness of management’s estimated closure costs by comparing the costs to actual costs incurred at comparable coal ash impoundments, underlying contracts, and publicly available industry cost data, as applicable.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 2002.
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 2,795 | | | $ | 3,004 | | | $ | 3,059 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 767 | | | 935 | | | 1,000 | |
| Operation, maintenance and other | 762 | | | 790 | | | 788 | |
| Depreciation and amortization | 569 | | | 525 | | | 520 | |
| Property and other taxes | 81 | | | 69 | | | 78 | |
| Impairment charges | — | | | — | | | 30 | |
| Total operating expenses | 2,179 | | | 2,319 | | | 2,416 | |
| | | | | |
| Operating Income | 616 | | | 685 | | | 643 | |
| Other Income and Expenses, net | 37 | | | 41 | | | 45 | |
| Interest Expense | 161 | | | 156 | | | 167 | |
| Income Before Income Taxes | 492 | | | 570 | | | 521 | |
| Income Tax Expense | 84 | | | 134 | | | 128 | |
| Net Income and Comprehensive Income | $ | 408 | | | $ | 436 | | | $ | 393 | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 7 | | | $ | 25 | |
| Receivables (net of allowance for doubtful accounts of $3 at 2020 and $3 at 2019) | 55 | | | 60 | |
| Receivables from affiliated companies | 112 | | | 79 | |
| | | |
| Inventory | 473 | | | 517 | |
| Regulatory assets | 125 | | | 90 | |
| Other | 37 | | | 60 | |
| Total current assets | 809 | | | 831 | |
| Property, Plant and Equipment | | | |
| Cost | 17,382 | | | 16,305 | |
| Accumulated depreciation and amortization | (5,661) | | | (5,233) | |
| | | |
| Net property, plant and equipment | 11,721 | | | 11,072 | |
| Other Noncurrent Assets | | | |
| Regulatory assets | 1,203 | | | 1,082 | |
| Operating lease right-of-use assets, net | 55 | | | 57 | |
| | | |
| Other | 253 | | | 234 | |
| Total other noncurrent assets | 1,511 | | | 1,373 | |
| Total Assets | $ | 14,041 | | | $ | 13,276 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 188 | | | $ | 201 | |
| Accounts payable to affiliated companies | 88 | | | 87 | |
| Notes payable to affiliated companies | 131 | | | 30 | |
| Taxes accrued | 62 | | | 49 | |
| Interest accrued | 51 | | | 58 | |
| Current maturities of long-term debt | 70 | | | 503 | |
| Asset retirement obligations | 168 | | | 189 | |
| Regulatory liabilities | 111 | | | 55 | |
| Other | 83 | | | 112 | |
| Total current liabilities | 952 | | | 1,284 | |
| Long-Term Debt | 3,871 | | | 3,404 | |
| Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 1,228 | | | 1,150 | |
| Asset retirement obligations | 1,008 | | | 643 | |
| Regulatory liabilities | 1,627 | | | 1,685 | |
| Operating lease liabilities | 53 | | | 55 | |
| Accrued pension and other post-retirement benefit costs | 171 | | | 148 | |
| Investment tax credits | 168 | | | 164 | |
| Other | 30 | | | 18 | |
| Total other noncurrent liabilities | 4,285 | | | 3,863 | |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | |
| Member's Equity | 4,783 | | | 4,575 | |
| | | |
| | | |
| Total Liabilities and Equity | $ | 14,041 | | | $ | 13,276 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 408 | | | $ | 436 | | | $ | 393 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization, and accretion | 572 | | | 531 | | | 524 | |
| Equity component of AFUDC | (23) | | | (18) | | | (32) | |
| | | | | |
| Impairment charges | — | | | — | | | 30 | |
| Deferred income taxes | 29 | | | 156 | | | 95 | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (63) | | | (48) | | | (69) | |
| Provision for rate refunds | — | | | — | | | 53 | |
| (Increase) decrease in | | | | | |
| | | | | |
| Receivables | 8 | | | (8) | | | 7 | |
| Receivables from affiliated companies | 0 | | | 41 | | | 3 | |
| Inventory | 44 | | | (95) | | | 28 | |
| Other current assets | (3) | | | 76 | | | (25) | |
| Increase (decrease) in | | | | | |
| Accounts payable | (12) | | | (10) | | | 37 | |
| Accounts payable to affiliated companies | 1 | | | 4 | | | 5 | |
| Taxes accrued | 13 | | | (25) | | | (52) | |
| Other current liabilities | 6 | | | 15 | | | 14 | |
| Other assets | (68) | | | (74) | | | 26 | |
| Other liabilities | 26 | | | 16 | | | (31) | |
| Net cash provided by operating activities | 938 | | | 997 | | | 1,006 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (888) | | | (876) | | | (832) | |
| Purchases of debt and equity securities | (37) | | | (26) | | | (48) | |
| Proceeds from sales and maturities of debt and equity securities | 22 | | | 20 | | | 44 | |
| | | | | |
| Notes receivable from affiliated companies | (33) | | | — | | | — | |
| | | | | |
| Other | 48 | | | (49) | | | 18 | |
| Net cash used in investing activities | (888) | | | (931) | | | (818) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 544 | | | 485 | | | — | |
| Payments for the redemption of long-term debt | (513) | | | (213) | | | (3) | |
| Notes payable to affiliated companies | 101 | | | (137) | | | 6 | |
| | | | | |
| Distributions to parent | (200) | | | (200) | | | (175) | |
| Other | — | | | — | | | (1) | |
| Net cash used in financing activities | (68) | | | (65) | | | (173) | |
| Net (decrease) increase in cash and cash equivalents | (18) | | | 1 | | | 15 | |
| Cash and cash equivalents at beginning of period | 25 | | | 24 | | | 9 | |
| Cash and cash equivalents at end of period | $ | 7 | | | $ | 25 | | | $ | 24 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 164 | | | $ | 150 | | | $ | 162 | |
| Cash paid for (received from) income taxes | 36 | | | (6) | | | 75 | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 101 | | | 102 | | | 88 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | Member's | | | | |
| (in millions) | | | | | | | Equity | | | | |
| Balance at December 31, 2017 | | | | | | | $ | 4,121 | | | | | |
| Net income | | | | | | | 393 | | | | | |
| | | | | | | | | | | |
| Distributions to parent | | | | | | | (175) | | | | | |
| | | | | | | | | | | |
| Balance at December 31, 2018 | | | | | | | $ | 4,339 | | | | | |
| Net income | | | | | | | 436 | | | | | |
| | | | | | | | | | | |
| Distributions to parent | | | | | | | (200) | | | | | |
| | | | | | | | | | | |
| Balance at December 31, 2019 | | | | | | | $ | 4,575 | | | | | |
| Net income | | | | | | | 408 | | | | | |
| Distributions to parent | | | | | | | (200) | | | | | |
| Balance at December 31, 2020 | | | | | | | $ | 4,783 | | | | | |
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission, the Public Service Commission of South Carolina, and the Tennessee Public Utility Commission (collectively the “Commissions”), which have jurisdiction with respect to the gas rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $450 million recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1951.
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | | | | | |
| Regulated natural gas | $ | 1,286 | | | $ | 1,369 | | | $ | 1,365 | |
| Nonregulated natural gas and other | 11 | | | 12 | | | 10 | |
| | | | | |
| Total operating revenues | 1,297 | | | 1,381 | | | 1,375 | |
| Operating Expenses | | | | | |
| Cost of natural gas | 386 | | | 532 | | | 584 | |
| Operation, maintenance and other | 322 | | | 328 | | | 357 | |
| Depreciation and amortization | 180 | | | 172 | | | 159 | |
| Property and other taxes | 53 | | | 45 | | | 49 | |
| Impairment charges | 7 | | | — | | | — | |
| Total operating expenses | 948 | | | 1,077 | | | 1,149 | |
| | | | | |
| Operating Income | 349 | | | 304 | | | 226 | |
| Equity in earnings of unconsolidated affiliates | 9 | | | 8 | | | 7 | |
| | | | | |
| Other income and expense, net | 51 | | | 20 | | | 14 | |
| Total other income and expenses | 60 | | | 28 | | | 21 | |
| Interest Expense | 118 | | | 87 | | | 81 | |
| Income Before Income Taxes | 291 | | | 245 | | | 166 | |
| Income Tax Expense | 18 | | | 43 | | | 37 | |
| Net Income and Comprehensive Income | $ | 273 | | | $ | 202 | | | $ | 129 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| | | |
| Receivables (net of allowance for doubtful accounts of $12 at 2020 and $6 at 2019) | $ | 250 | | | $ | 241 | |
| Receivables from affiliated companies | 10 | | | 10 | |
| Inventory | 68 | | | 72 | |
| Regulatory assets | 153 | | | 73 | |
| | | |
| Other | 20 | | | 28 | |
| Total current assets | 501 | | | 424 | |
| Property, Plant and Equipment | | | |
| Cost | 9,134 | | | 8,446 | |
| Accumulated depreciation and amortization | (1,749) | | | (1,681) | |
| Net property, plant and equipment | 7,385 | | | 6,765 | |
| Other Noncurrent Assets | | | |
| Goodwill | 49 | | | 49 | |
| Regulatory assets | 302 | | | 290 | |
| Operating lease right-of-use assets, net | 20 | | | 24 | |
| Investments in equity method unconsolidated affiliates | 88 | | | 83 | |
| Other | 270 | | | 121 | |
| Total other noncurrent assets | 729 | | | 567 | |
| Total Assets | $ | 8,615 | | | $ | 7,756 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 230 | | | $ | 215 | |
| Accounts payable to affiliated companies | 79 | | | 3 | |
| | | |
| Notes payable to affiliated companies | 530 | | | 476 | |
| Taxes accrued | 23 | | | 24 | |
| Interest accrued | 34 | | | 33 | |
| Current maturities of long-term debt | 160 | | | 0 | |
| Regulatory liabilities | 88 | | | 81 | |
| Other | 69 | | | 67 | |
| Total current liabilities | 1,213 | | | 899 | |
| Long-Term Debt | 2,620 | | | 2,384 | |
| | | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 821 | | | 708 | |
| Asset retirement obligations | 20 | | | 17 | |
| Regulatory liabilities | 1,044 | | | 1,131 | |
| Operating lease liabilities | 19 | | | 23 | |
| Accrued pension and other post-retirement benefit costs | 8 | | | 3 | |
| Other | 155 | | | 148 | |
| Total other noncurrent liabilities | 2,067 | | | 2,030 | |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | |
| Common stock, 0 par value: 100 shares authorized and outstanding at 2020 and 2019 | 1,310 | | | 1,310 | |
| | | |
| Retained earnings | 1,405 | | | 1,133 | |
| | | |
| Total equity | 2,715 | | | 2,443 | |
| Total Liabilities and Equity | $ | 8,615 | | | $ | 7,756 | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 273 | | | $ | 202 | | | $ | 129 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 182 | | | 174 | | | 161 | |
| Equity component of AFUDC | (19) | | | — | | | — | |
| | | | | |
| Impairment charges | 7 | | | — | | | — | |
| Deferred income taxes | 53 | | | 136 | | | (31) | |
| Equity in (earnings) losses from unconsolidated affiliates | (9) | | | (8) | | | (7) | |
| | | | | |
| | | | | |
| | | | | |
| Provision for rate refunds | (33) | | | 2 | | | 43 | |
| (Increase) decrease in | | | | | |
| | | | | |
| Receivables | 10 | | | 28 | | | 7 | |
| Receivables from affiliated companies | — | | | 12 | | | (15) | |
| Inventory | 3 | | | (2) | | | (4) | |
| Other current assets | (66) | | | (25) | | | 71 | |
| Increase (decrease) in | | | | | |
| Accounts payable | 16 | | | (7) | | | 15 | |
| Accounts payable to affiliated companies | 76 | | | (35) | | | 25 | |
| Taxes accrued | 3 | | | (60) | | | 65 | |
| Other current liabilities | (11) | | | 1 | | | 21 | |
| Other assets | (11) | | | 1 | | | 3 | |
| Other liabilities | 7 | | | (10) | | | (5) | |
| Net cash provided by operating activities | 481 | | | 409 | | | 478 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (901) | | | (1,053) | | | (721) | |
| Contributions to equity method investments | — | | | (16) | | | — | |
| | | | | |
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| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other | (28) | | | (14) | | | (10) | |
| Net cash used in investing activities | (929) | | | (1,083) | | | (731) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 394 | | | 596 | | | 100 | |
| | | | | |
| Payments for the redemption of long-term debt | — | | | (350) | | | — | |
| | | | | |
| | | | | |
| Notes payable to affiliated companies | 54 | | | 278 | | | (166) | |
| | | | | |
| | | | | |
| Capital contribution from parent | — | | | 150 | | | 300 | |
| | | | | |
| | | | | |
| | | | | |
| Net cash provided by financing activities | 448 | | | 674 | | | 234 | |
| Net decrease in cash and cash equivalents | — | | | — | | | (19) | |
| Cash and cash equivalents at beginning of period | — | | | — | | | 19 | |
| Cash and cash equivalents at end of period | $ | — | | | $ | — | | | $ | — | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 115 | | | $ | 84 | | | $ | 79 | |
| Cash received from income taxes | (36) | | | (31) | | | (16) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 106 | | | 109 | | | 96 | |
| | | | | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Common | | Retained | | | | Total |
| (in millions) | Stock | | Earnings | | | | Equity |
| Balance at December 31, 2017 | $ | 860 | | | $ | 802 | | | | | $ | 1,662 | |
| Net income | — | | | 129 | | | | | 129 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Contribution from parent | 300 | | | — | | | | | 300 | |
| | | | | | | |
| Balance at December 31, 2018 | $ | 1,160 | | | $ | 931 | | | | | $ | 2,091 | |
| Net income | — | | | 202 | | | | | 202 | |
| | | | | | | |
| Contribution from parent | 150 | | | — | | | | | 150 | |
| | | | | | | |
| Balance at December 31, 2019 | $ | 1,310 | | | $ | 1,133 | | | | | $ | 2,443 | |
| Net income | — | | | 273 | | | | | 273 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Other | — | | | (1) | | | | | (1) | |
| Balance at December 31, 2020 | $ | 1,310 | | | $ | 1,405 | | | | | $ | 2,715 | |
See Notes to Consolidated Financial Statements
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| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 | 1 | | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | 21 | 22 | 23 | 24 | 25 | |
| Duke Energy | • | | • | • | • | • | • | • | • | • | • | • | • | | • | • | • | • | • | • | • | • | • | • | • | • | |
| Duke Energy Carolinas | • | | • | • | • | • | • | | • | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Progress Energy | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Duke Energy Progress | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Duke Energy Florida | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Duke Energy Ohio | • | | • | • | • | • | • | | | • | • | • | | • | • | | • | • | • | | • | • | • | • | • | • | |
| Duke Energy Indiana | • | | • | • | • | • | • | | • | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Piedmont | • | | • | • | • | • | • | | | • | • | • | • | • | • | | • | | • | | • | • | • | • | • | • | |
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 is an energy company headquartered in Charlotte, North Carolina, subject to regulation by the FERC and other regulatory agencies listed below. Duke Energy operates in the U.S. primarily through its direct and indirect subsidiaries. Certain Duke Energy subsidiaries are also subsidiary registrants, including Duke Energy Carolinas; Progress Energy; 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 its separate Subsidiary Registrants, which along with Duke Energy, are collectively referred to as the Duke Energy Registrants.
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 or VIEs where the respective Duke Energy Registrants have control. See Note 17 for additional information on VIEs. These Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain jointly owned generation and transmission facilities. See Note 8 for additional information on joint ownership. Substantially all of the Subsidiary Registrants' operations qualify for regulatory accounting.
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 NCUC, PSCSC, NRC and FERC.
Progress Energy is a public utility holding company, which conducts operations through its wholly owned subsidiaries, Duke Energy Progress and Duke Energy Florida. Progress Energy is subject to regulation by FERC and other regulatory agencies listed below.
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 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. 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 PUCO, KPSC and FERC.
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 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, TPUC and FERC.
Certain prior year amounts have been reclassified to conform to the current year presentation.
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| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
COVID-19
The COVID-19 pandemic is having a significant impact on global health and economic environments. In March 2020, the World Health Organization declared COVID-19 a global pandemic, and the federal government proclaimed that the COVID-19 outbreak in the United States constitutes a national emergency. The Duke Energy Registrants are monitoring developments closely and responding appropriately. The company incurred approximately $112 million of incremental COVID-19 costs before deferral for the year ended December 31, 2020, included in Operation, maintenance and other on the Consolidated Statements of Operations. Further, the company waived approximately $64 million of late payment fees for the year ended December 31, 2020. The company has deferred approximately $76 million of the incremental costs, which were primarily bad debt expense, personal protective equipment and cleaning supplies, and a cost component of late payment fees. See Notes 3, 6, 17, 18 and 23 for additional information as well as steps taken to mitigate the impacts to our business and customers from the COVID-19 pandemic.
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% of total Current Assets or Current Liabilities on the Duke Energy Registrants' Consolidated Balance Sheets at either December 31, 2020, or 2019.
| | | | | | | | | | | | | | | | | |
| | | December 31, |
| (in millions) | Location | | 2020 | | 2019 |
| Duke Energy | | | | | |
| | | | | |
| Other accrued liabilities | Current Liabilities | | $ | 1,455 | | | $ | 604 | |
| Accrued compensation | Current Liabilities | | 662 | | | 862 | |
| Duke Energy Carolinas | | | | | |
| Accrued compensation | Current Liabilities | | $ | 213 | | | $ | 271 | |
| Other accrued liabilities | Current Liabilities | | 178 | | | 147 | |
| Progress Energy | | | | | |
| | | | | |
| Customer deposits | Current Liabilities | | $ | 347 | | | $ | 354 | |
| | | | | |
| | | | | |
| | | | | |
| Duke Energy Florida | | | | | |
| Customer deposits | Current Liabilities | | $ | 203 | | | $ | 209 | |
| | | | | |
| Duke Energy Ohio | | | | | |
| Gas Storage | Current Assets | | $ | 21 | | | $ | 0 | |
| | | | | |
| Duke Energy Indiana | | | | | |
| Income taxes receivable | Current Assets | | $ | 9 | | | $ | 44 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Discontinued 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. For the years ended December 31, 2020, 2019 and 2018, the Income (Loss) From Discontinued Operations, net of tax on Duke Energy's Consolidated Statements of Operations is entirely attributable to controlling interest.
Noncontrolling Interest
Duke Energy maintains a controlling financial interest in certain less than wholly owned nonregulated subsidiaries. As a result, Duke Energy consolidates these subsidiaries and presents the third-party investors' portion of Duke Energy's net income (loss), net assets and comprehensive income (loss) as noncontrolling interest. Noncontrolling interest is included as a component of equity on the Consolidated Balance Sheet.
Several operating agreements of Duke Energy's subsidiaries with noncontrolling interest are subject to allocations of tax attributes and cash flows in accordance with contractual agreements that vary throughout the lives of the subsidiaries. Therefore, Duke Energy and the other investors' (the owners) interests in the subsidiaries are not fixed, and the subsidiaries apply the HLBV method in allocating income or loss and other comprehensive income or loss (all measured on a pretax basis) to the owners. The HLBV method measures the amounts that each owner would hypothetically claim at each balance sheet reporting date, including tax benefits realized by the owners, most of which is over the IRS recapture period, upon a hypothetical liquidation of the subsidiary at the net book value of its underlying assets. The change in the amount that each owner would hypothetically receive at the reporting date compared to the amount it would have received on the previous reporting date represents the amount of income or loss allocated to each owner for the reporting period.
Other operating agreements of Duke Energy's subsidiaries with noncontrolling interest allocate profit and loss based on their pro rata shares of the ownership interest in the respective subsidiary. Therefore, Duke Energy allocates net income or loss and other comprehensive income or loss of these subsidiaries to the owners based on their pro rata shares.
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| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
During the third quarter of 2019, Duke Energy completed a sale of minority interest in a portion of certain renewable assets within the Commercial Renewables Segment for pretax proceeds to Duke Energy of $415 million. The portion of Duke Energy's commercial renewables energy portfolio sold includes 49% of 37 operating wind, solar and battery storage assets and 33% of 11 operating solar assets across the U.S. Duke Energy retained control of these assets, and, therefore, no gain or loss was recognized on the Consolidated Statements of Operations. The difference between the consideration received and the carrying value of the noncontrolling interest claim on net assets is $466 million, net of tax benefit of $8 million, and was recorded to equity.
The following table presents cash received for the sale of noncontrolling interest and allocated losses to noncontrolling interest for the years ended December 31, 2020, and 2019.
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2020 | | 2019 |
| Noncontrolling Interest Capital Contributions | | | |
| Cash received for the sale of noncontrolling interest to tax equity members | $ | 426 | | | $ | 428 | |
| Cash received for the sale of noncontrolling interest to pro rata share members | — | | | 415 | |
| Total Noncontrolling Interest Capital Contributions | $ | 426 | | | $ | 843 | |
| Noncontrolling Interest Allocation of Income | | | |
| Allocated losses to noncontrolling tax equity members utilizing the HLBV method | $ | 271 | | | $ | 165 | |
| Allocated losses to noncontrolling members based on pro rata shares of ownership | 24 | | | 12 | |
| Total Noncontrolling Interest Allocated Losses | $ | 295 | | | $ | 177 | |
2021 Sale of Minority Interest in Duke Energy Indiana
In January 2021, Duke Energy entered into a definitive agreement providing for the sale of a 19.9% minority interest in Duke Energy Indiana with an affiliate of GIC, Singapore's sovereign wealth fund and an experienced investor in U.S. infrastructure. To facilitate the transaction, Duke Energy will issue and sell membership interests in Duke Energy Indiana Holdco, LLC. a newly created holding company that will own 100% of the issued and outstanding membership interests in Duke Energy Indiana. The transaction will be completed following two closings for an aggregate purchase price of approximately $2 billion. The first closing is expected to be completed in the second quarter of 2021 and Duke Energy will issue and sell 11.1% of the membership interests in exchange for 50% of the purchase price. Under the terms of the agreement, Duke Energy has the discretion to determine the timing of the second closing, but it will occur no later than January 2023. At the second closing, Duke Energy will issue and sell additional membership interests such that GIC will own 19.9% of the membership interests for the remaining 50% of the purchase price. Duke Energy will continue to operate and retain control of Duke Energy Indiana and, therefore, no gain or loss is expected to be recognized in the Consolidated Statements of Operations. Additionally, the transaction will be reflected within Duke Energy Corporations' stockholders' equity as a sale of a noncontrolling interest.
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.
Significant Accounting Policies
Use of Estimates
In preparing financial statements that conform to GAAP, 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. Regulatory assets are reviewed for recoverability each reporting period. If a regulatory asset is no longer deemed probable of recovery, the deferred cost is charged to earnings. See Note 3 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. 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. These disallowances can require judgments on allowed future rate recovery.
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| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 charge for a disallowance of costs for regulated plants under construction, recently completed or abandoned is based on discounted cash flows.
The Duke Energy Registrants utilize cost-tracking mechanisms, commonly referred to as fuel adjustment clauses or PGA clauses. 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, Cash Equivalents and Restricted Cash
All highly liquid investments with maturities of three months or less at the date of acquisition are considered cash equivalents. Duke Energy, Progress Energy and Duke Energy Florida have restricted cash balances related primarily to collateral assets, escrow deposits and VIEs. See Note 17 for additional information. Restricted cash amounts are included in Other within Current Assets and Other Noncurrent Assets on the Consolidated Balance Sheets. The following table presents the components of cash, cash equivalents and restricted cash included in the Consolidated Balance Sheets.
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| December 31, 2020 | | December 31, 2019 |
| | | Duke | | | | Duke |
| Duke | Progress | Energy | | Duke | Progress | Energy |
| Energy | Energy | Florida | | Energy | Energy | Florida |
| Current Assets | | | | | | | |
| Cash and cash equivalents | $ | 259 | | $ | 59 | | $ | 11 | | | $ | 311 | | $ | 48 | | $ | 17 | |
| Other | 194 | | 39 | | 39 | | | 222 | | 39 | | 39 | |
| Other Noncurrent Assets | | | | | | | |
| Other | 103 | | 102 | | — | | | 40 | | 39 | | — | |
| Total cash, cash equivalents and restricted cash | $ | 556 | | $ | 200 | | $ | 50 | | | $ | 573 | | $ | 126 | | $ | 56 | |
| | | | | | | |
Inventory
Inventory related to regulated operations is valued at historical cost. Inventory related to nonregulated operations is valued at the lower of cost or market. Inventory is charged to expense or capitalized to property, plant and equipment when issued, primarily using the average cost method. Excess or obsolete inventory is written down to the lower of cost or net realizable 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, 2020, and 2019, respectively. The components of inventory are presented in the tables below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Materials and supplies | $ | 2,312 | | | $ | 785 | | | $ | 999 | | | $ | 673 | | | $ | 325 | | | $ | 78 | | | $ | 307 | | | $ | 12 | |
| Coal | 561 | | | 186 | | | 193 | | | 131 | | | 63 | | | 16 | | | 165 | | | — | |
| Natural gas, oil and other | 294 | | | 39 | | | 183 | | | 107 | | | 76 | | | 16 | | | 1 | | | 56 | |
| Total inventory | $ | 3,167 | | | $ | 1,010 | | | $ | 1,375 | | | $ | 911 | | | $ | 464 | | | $ | 110 | | | $ | 473 | | | $ | 68 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Materials and supplies | $ | 2,297 | | | $ | 768 | | | $ | 1,038 | | | $ | 686 | | | $ | 351 | | | $ | 79 | | | $ | 318 | | | $ | 5 | |
| Coal | 586 | | | 187 | | | 186 | | | 138 | | | 48 | | | 15 | | | 198 | | | — | |
| Natural gas, oil and other | 349 | | | 41 | | | 199 | | | 110 | | | 90 | | | 41 | | | 1 | | | 67 | |
| Total inventory | $ | 3,232 | | | $ | 996 | | | $ | 1,423 | | | $ | 934 | | | $ | 489 | | | $ | 135 | | | $ | 517 | | | $ | 72 | |
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| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Investments in Debt and Equity Securities
The Duke Energy Registrants classify investments in equity securities as FV-NI and investments in debt securities as AFS. Both categories are recorded at fair value on the Consolidated Balance Sheets. Realized and unrealized gains and losses on securities classified as FV-NI are reported through net income. Unrealized gains and losses for debt securities classified as AFS are included in AOCI until realized, unless it is determined the carrying value of an investment has a credit loss. For certain investments of regulated operations, such as substantially all of the NDTF, realized and unrealized gains and losses (including any credit losses) on debt securities are recorded as a regulatory asset or liability. 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
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 a business 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. See Note 11 for further information.
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.
RECs are used to measure compliance with renewable energy standards and are held primarily for consumption. See Note 11 for further information.
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.
Equity Method Investment Impairments
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 whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. If 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.
Impairment assessments use a discounted cash flow income approach and include consideration of the severity and duration of any decline in the fair value of the investments. The estimated cash flows may be based on alternative expected outcomes that are probability weighted. Key inputs that involve estimates and significant management judgment include cash flow projections, selection of a discount rate, probability weighting of potential outcomes, and whether any decline in value is considered temporary.
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| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 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.
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Duke Energy | 3.0 | % | | 3.1 | % | | 3.0 | % |
| Duke Energy Carolinas | 2.8 | % | | 2.8 | % | | 2.8 | % |
| Progress Energy | 3.2 | % | | 3.1 | % | | 2.9 | % |
| Duke Energy Progress | 3.1 | % | | 3.1 | % | | 2.9 | % |
| Duke Energy Florida | 3.3 | % | | 3.1 | % | | 3.0 | % |
| Duke Energy Ohio | 2.9 | % | | 2.6 | % | | 2.8 | % |
| Duke Energy Indiana | 3.5 | % | | 3.3 | % | | 3.3 | % |
| Piedmont | 2.3 | % | | 2.4 | % | | 2.5 | % |
In general, when the Duke Energy Registrants retire regulated property, plant and equipment, the original cost plus the cost of retirement, less salvage value and any depreciation already recognized, is charged to accumulated depreciation. However, when it becomes 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). 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 additional information.
Leases
Duke Energy determines if an arrangement is a lease at contract inception based on whether the arrangement involves the use of a physically distinct identified asset and whether Duke Energy has the right to obtain substantially all of the economic benefits from the use of the asset throughout the period as well as the right to direct the use of the asset. As a policy election, Duke Energy does not evaluate arrangements with initial contract terms of less than one year as leases.
Operating leases are included in Operating lease ROU assets, net, Other current liabilities and Operating lease liabilities on the Consolidated Balance Sheets. Finance leases are included in Property, plant and equipment, Current maturities of long-term debt and Long-Term Debt on the Consolidated Balance Sheets.
For lessee and lessor arrangements, Duke Energy has elected a policy to not separate lease and non-lease components for all asset classes. For lessor arrangements, lease and non-lease components are only combined under one arrangement and accounted for under the lease accounting framework if the non-lease components are not the predominant component of the arrangement and the lease component would be classified as an operating lease.
Nuclear Fuel
Nuclear fuel is classified as Property, Plant and Equipment on the Consolidated Balance Sheets.
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.
Allowance for Funds Used During Construction and Interest Capitalized
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.
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| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
AFUDC equity, a permanent difference for income taxes, reduces the ETR when capitalized and increases the ETR when depreciated or amortized. See Note 23 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.
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 probable of recovery.
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.
Accounts Payable
During 2020, Duke Energy established a supply chain finance program (the “program”) with a global financial institution. The program is voluntary and allows Duke Energy suppliers, at their sole discretion, to sell their receivables from Duke Energy to the financial institution at a rate that leverages Duke Energy’s credit rating and, which may result in favorable terms compared to the rate available to the supplier on their own credit rating. Suppliers participating in the program, determine at their sole discretion which invoices they will sell to the financial institution. Suppliers’ decisions on which invoices are sold do not impact Duke Energy’s payment terms, which are based on commercial terms negotiated between Duke Energy and the supplier regardless of program participation. The commercial terms negotiated between Duke Energy and its suppliers are consistent regardless of whether the supplier elects to participate in the program. Duke Energy does not issue any guarantees with respect to the program and does not participate in negotiations between suppliers and the financial institution. Duke Energy does not have an economic interest in the supplier’s decision to participate in the program and receives no interest, fees or other benefit from the financial institution based on supplier participation in the program.
At December 31, 2020, $15 million, $1 million and $14 million of the outstanding Accounts payable balance for Duke Energy, Duke Energy Ohio and Piedmont, respectively, was sold to the financial institution by our suppliers. Suppliers invoices sold to the financial institution under the program totaled $45 million, $9 million and $36 million for the year ended December 31, 2020, for Duke Energy, Duke Energy Ohio and Piedmont, respectively. All activity related to amounts due to suppliers who elected to participate in the program are included within Net cash provided by operating activities on the Consolidated Statements of Cash Flows.
Revenue RecognitionLIQUIDITY AND CAPITAL RESOURCES
RevenuesSources 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.
Among other provisions, the Tax Act lowered the corporate federal income tax rate from 35% to 21% and eliminated bonus depreciation for regulated utilities. For Duke Energy’s regulated operations, the reduction in federal income taxes will result in lower regulated customer rates. However, due to its existing NOL position and other tax credits, Duke Energy does not expect to be a significant federal cash taxpayer through at least 2029. 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. Impacts of the Tax Act to Duke Energy’s cash flows and credit metrics are subject to the regulatory actions of its state commissions and the FERC. See Note 3 to the Consolidated Financial Statements, “Regulatory Matters,” for additional information.
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 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.
During March 2020, in response to market volatility and the ongoing economic uncertainty related to COVID-19, Duke Energy took several actions to enhance the company's liquidity position including:
•Duke Energy drew down the remaining $500 million of availability under the existing $1 billion Three-Year Revolving Credit Facility. That additional borrowing was subsequently repaid during the second quarter of 2020; and
•Duke Energy entered into and borrowed the full amount under a $1.5 billion, 364-day Term Loan Credit Agreement. The Term Loan Credit Agreement contained a provision for additional borrowing capacity of $500 million. Duke Energy exercised the provision and borrowed an additional $188 million, for a total borrowing of approximately $1.7 billion. By November 2020, Duke Energy repaid the entire borrowing under the 364-day Term Loan.
Following March 2020, access to credit and equity markets has normalized. In addition to the March 2020 financings to address the company's liquidity position, for the year ended December 31, 2020, Duke Energy issued approximately $5.6 billion in debt and raised approximately $2.9 billion of common equity through equity forward agreements and the company's dividend reinvestment and ATM programs. A portion of the proceeds from the equity forward settlements will be used to fully repay Duke Energy's portion of the ACP construction loan of approximately $860 million. Despite the recovery in capital markets, Duke Energy continues to monitor access to credit and equity markets amid the ongoing economic uncertainty related to COVID-19.
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| MD&A | LIQUIDITY AND CAPITAL RESOURCES |
In addition to actions taken by the company, the CARES Act, enacted in March 2020, as an emergency economic stimulus package in response to the COVID-19 pandemic, included provisions providing relief to entities with remaining AMT credit refund allowances. Through the CARES Act, Duke Energy accelerated remaining AMT credit refund allowances and claimed a refund in full for any AMT credit carryforwards. As a result, in the third quarter of 2020, Duke Energy received $572 million related to AMT credit carryforwards and $19 million of interest income. See Note 23 to the Consolidated Financial Statements, "Income Taxes," for additional information.
As of December 31, 2020, Duke Energy had approximately $259 million of cash on hand, $5.6 billion available under its $8 billion Master Credit Facility and $500 million available under the $1 billion Three-Year Revolving Credit Facility. Duke Energy expects to have sufficient liquidity in the form of cash on hand, cash from operations and available credit capacity to support its funding needs. Refer to Notes 6 and 19 to the Consolidated Financial Statements, "Debt and Credit Facilities" and "Stockholders' Equity," respectively, for information regarding Duke Energy's debt and equity issuances, debt maturities and available credit facilities including the Master Credit Facility.
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, including AFUDC debt and capitalized interest, for the next three fiscal years are included in the table below.
| | | | | | | | | | | |
| (in millions) | 2021 | 2022 | 2023 |
| New generation | $ | 60 | | $ | 20 | | $ | 85 | |
| Regulated renewables | 665 | | 710 | | 755 | |
| Environmental | 795 | | 820 | | 600 | |
| Nuclear fuel | 425 | | 400 | | 380 | |
| Major nuclear | 280 | | 270 | | 205 | |
| Customer additions | 565 | | 555 | | 560 | |
| Grid modernization and other transmission and distribution projects | 3,460 | | 5,025 | | 4,840 | |
| Maintenance and other | 2,200 | | 2,650 | | 2,750 | |
| Total Electric Utilities and Infrastructure | 8,450 | | 10,450 | | 10,175 | |
| Gas Utilities and Infrastructure | 1,250 | | 1,275 | | 1,150 | |
| Commercial Renewables and Other | 775 | | 1,075 | | 750 | |
| | | |
| | | |
| Total projected capital and investment expenditures | $ | 10,475 | | $ | 12,800 | | $ | 12,075 | |
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 2020, Duke Energy paid quarterly cash dividends for the 94th 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 65% and 75%, based upon adjusted EPS, and expects this trend to continue through 2025. Duke Energy increased the dividend by approximately 2% annually in both 2020 and 2019, and the company remains committed to continued growth of the dividend.
Dividend and Other Funding Restrictions of Duke Energy Subsidiaries
As discussed in Note 3 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 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, 2020, 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 does not exceed a material amount 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.
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| MD&A | LIQUIDITY AND CAPITAL RESOURCES |
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 recognizedrelatively 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.
As part of Duke Energy’s continued effort to improve its cash flows from operations and liquidity, Duke Energy works with vendors to improve terms and conditions, including the extension of payment terms. To support this effort, Duke Energy established a supply chain finance program (the “program”) in 2020, under which suppliers, at their sole discretion, may sell their receivables from Duke Energy to the participating financial institution. The financial institution administers the program. Duke Energy does not issue any guarantees with respect to the program and does not participate in negotiations between suppliers and the financial institution. Duke Energy does not have an economic interest in the supplier’s decision to participate in the program and receives no interest, fees or other benefit from the financial institution based on supplier participation in the program. Suppliers’ decisions on which invoices are sold do not impact Duke Energy’s payment terms, which are based on commercial terms negotiated between Duke Energy and the supplier regardless of program participation. A significant deterioration in the credit quality of Duke Energy, economic downturn or changes in the financial markets could limit the financial institutions willingness to participate in the program. Duke Energy does not believe such risk would have a material impact on our cash flows from operations or liquidity, as substantially all our payments are made outside the program.
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).
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.
In 2021, Duke Energy anticipates issuing additional securities of $8 billion through debt capital markets. Additionally, Duke Energy may utilize other instruments, including equity-content securities, such as preferred stock. Proceeds will primarily be for the purpose of funding capital expenditures and debt maturities. See to Note 6 to the Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding significant debt issuances in 2020.
Duke Energy’s capitalization is balanced between debt and equity as shown in the table below.
| | | | | | | | | | | | | | | | | |
| | Projected 2021 | | Actual 2020 | | Actual 2019 |
| Equity | 44 | % | | 44 | % | | 44 | % |
| Debt | 56 | % | | 56 | % | | 56 | % |
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% for each borrower, excluding Piedmont, and 70% 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, 2020, 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.
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| MD&A | LIQUIDITY AND CAPITAL RESOURCES |
Credit Ratings
Moody’s Investors Service, Inc. and S&P provide credit ratings for various Duke Energy Registrants. During January 2021, S&P downgraded the issuer credit rating for Duke Energy (Parent) and all of its subsidiaries senior unsecured debt, excluding Progress Energy, from A- to BBB+. Additionally, S&P downgraded the credit rating for Duke Energy (Parent) and Progress Energy senior unsecured debt from BBB+ to BBB. As part of the credit rating report, S&P affirmed their credit rating on senior secured debt for Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana, while also affirming the short-term and commercial paper credit ratings. These actions followed a December 2020, report by S&P to revise the credit rating outlook from stable to negative for Duke Energy and all its subsidiaries. As a result of the downgrade, credit rating outlooks returned to stable. Additionally, during October 2020, Moody's revised their credit rating outlook for Duke Energy (Parent), Duke Energy Carolinas and Duke Energy Progress from stable to negative and in February 2021, revised the credit rating outlook for these same registrants to review for downgrade. The following table includes Duke Energy and certain subsidiaries’ credit ratings and ratings outlook as of February 2021.
| | | | | | | | | | | | | | |
| Moody's | | S&P | |
| Duke Energy Corporation | Review for Downgrade | | Stable | |
| Issuer Credit Rating | Baa1 | | BBB+ | |
| Senior Unsecured Debt | Baa1 | | BBB | |
| Commercial Paper | P-2 | | A-2 | |
| Duke Energy Carolinas | Review for Downgrade | | Stable | |
| Senior Secured Debt | Aa2 | | A | |
| Senior Unsecured Debt | A1 | | BBB+ | |
| Progress Energy | Stable | | Stable | |
| Senior Unsecured Debt | Baa1 | | BBB | |
| Duke Energy Progress | Review for Downgrade | | Stable | |
| Senior Secured Debt | Aa3 | | A | |
| Senior Unsecured Debt | A2 | | BBB+ | |
| Duke Energy Florida | Stable | | Stable | |
| Senior Secured Debt | A1 | | A | |
| Senior Unsecured Debt | A3 | | BBB+ | |
| Duke Energy Ohio | Stable | | Stable | |
| Senior Secured Debt | A2 | | A | |
| Senior Unsecured Debt | Baa1 | | BBB+ | |
| Duke Energy Indiana | Stable | | Stable | |
| Senior Secured Debt | Aa3 | | A | |
| Senior Unsecured Debt | A2 | | BBB+ | |
| Duke Energy Kentucky | Stable | | Stable | |
| Senior Unsecured Debt | Baa1 | | BBB+ | |
| Piedmont Natural Gas | Stable | | Stable | |
| Senior Unsecured | A3 | | BBB+ | |
| | | | |
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 servicethey 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.
Cash Flow Information
The following table summarizes Duke Energy’s cash flows for the two most recently completed fiscal years.
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | | | | | | | | |
| | | | | | | | | |
| (in millions) | 2020 | | 2019 | | | | | | |
| Cash flows provided by (used in): | | | | | | | | | |
| Operating activities | $ | 8,856 | | | $ | 8,209 | | | | | | | |
| Investing activities | (10,604) | | | (11,957) | | | | | | | |
| Financing activities | 1,731 | | | 3,730 | | | | | | | |
| | | | | | | | | |
| Net decrease in cash, cash equivalents and restricted cash | (17) | | | (18) | | | | | | | |
| Cash, cash equivalents and restricted cash at beginning of period | 573 | | | 591 | | | | | | | |
| Cash, cash equivalents and restricted cash at end of period | $ | 556 | | | $ | 573 | | | | | | | |
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| MD&A | LIQUIDITY AND CAPITAL RESOURCES |
OPERATING CASH FLOWS
The following table summarizes key components of Duke Energy’s operating cash flows for the two most recently completed fiscal years.
| | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | | | | | | | | | |
| | | | | | | | | | |
| (in millions) | 2020 | | 2019 | | Variance | | | | | |
| Net income | $ | 1,082 | | | $ | 3,571 | | | $ | (2,489) | | | | | | |
| Non-cash adjustments to net income | 8,343 | | | 5,737 | | | 2,606 | | | | | | |
| | | | | | | | | | |
| Payments for AROs | (610) | | | (746) | | | 136 | | | | | | |
| | | | | | | | | | |
| Refund of AMT credit carryforwards | 572 | | | 573 | | | (1) | | | | | | |
| Working capital | (531) | | | (926) | | | 395 | | | | | | |
| Net cash provided by operating activities | $ | 8,856 | | | $ | 8,209 | | | $ | 647 | | | | | | |
The variance was driven primarily by:
•a $117 million increase in net income after adjustment for non-cash items primarily due to increases in current year non-cash adjustments, partially offset by decreases in revenues due to lower sales volumes, accelerated refund of fuel costs at Duke Energy Florida in response to the COVID-19 pandemic and lower wholesale revenue driven by the CCR Settlement Agreement;
•a $395 million decrease in cash outflows from working capital primarily due to fluctuations in inventory levels, accounts payable levels and lower income taxes paid in the current year; and
•a $136 million decrease in payments for AROs.
INVESTING CASH FLOWS
The following table summarizes key components of Duke Energy’s investing cash flows for the two most recently completed fiscal years.
| | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | | | |
| | | | | | | | | |
| | | | | | | | | |
| (in millions) | 2020 | | 2019 | | Variance | | | | |
| Capital, investment and acquisition expenditures, net of return of investment capital | $ | (10,144) | | | $ | (11,435) | | | $ | 1,291 | | | | | |
| Debt and equity securities, net | (62) | | | (5) | | | (57) | | | | | |
| | | | | | | | | |
| Other investing items | (398) | | | (517) | | | 119 | | | | | |
| Net cash used in investing activities | $ | (10,604) | | | $ | (11,957) | | | $ | 1,353 | | | | | |
The primary use of cash related to investing activities is providedcapital, investment and acquisition expenditures, net of return of investment capital detailed by reportable business segment in the following table. The decrease relates primarily to decreases in capital expenditures due to lower overall investments in the Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables segments.
| | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | | | | | | |
| | | | | | | |
| (in millions) | 2020 | | 2019 | | Variance | | |
| Electric Utilities and Infrastructure | $ | 7,629 | | | $ | 8,258 | | | $ | (629) | | | |
| Gas Utilities and Infrastructure | 1,309 | | | 1,533 | | | (224) | | | |
| Commercial Renewables | 1,075 | | | 1,423 | | | (348) | | | |
| Other | 264 | | | 221 | | | 43 | | | |
| Total capital, investment and acquisition expenditures, net of return of investment capital | $ | 10,277 | | | $ | 11,435 | | | $ | (1,158) | | | |
FINANCING CASH FLOWS
The following table summarizes key components of Duke Energy’s financing cash flows for the two most recently completed fiscal years.
| | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | | | | | | | | |
| | | | | | | | | |
| (in millions) | 2020 | | 2019 | | Variance | | | | |
| Issuance of common stock | $ | 2,745 | | | $ | 384 | | | $ | 2,361 | | | | | |
| Issuance of preferred stock | — | | | 1,962 | | | (1,962) | | | | | |
| Issuances of long-term debt, net | 1,824 | | | 3,615 | | | (1,791) | | | | | |
| Notes payable and commercial paper | (319) | | | (380) | | | 61 | | | | | |
| Dividends paid | (2,812) | | | (2,668) | | | (144) | | | | | |
| Contributions from noncontrolling interests | 426 | | | 843 | | | (417) | | | | | |
| Other financing items | (133) | | | (26) | | | (107) | | | | | |
| Net cash provided by financing activities | $ | 1,731 | | | $ | 3,730 | | | $ | (1,999) | | | | | |
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| MD&A | LIQUIDITY AND CAPITAL RESOURCES |
The variance was driven primarily by:
•a $1,962 million decrease in proceeds from the issuance of preferred stock;
•a $1,791 million net decrease in proceeds from issuances of long-term debt primarily due to timing of issuances and redemptions of long-term debt; and
•a $417 million decrease in contributions from noncontrolling interests, primarily due to $415 million related to the sale of a noncontrolling interest in the Commercial Renewables segment in 2019.
Partially offset by:
•a $2,361 million increase in proceeds from the issuance of common stock, primarily from the settlement of equity forwards.
Off-Balance Sheet Arrangements
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, standby letters of credit, debt guarantees, surety bonds and indemnifications.
Most of the guarantee arrangements entered into by Duke Energy enhance 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 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 productoccurrence of certain future events.
Duke Energy performs ongoing assessments of its respective guarantee obligations to determine whether any liabilities have been incurred as a result of potential increased nonperformance risk by third parties for which Duke Energy has issued guarantees. See Note 7 to the Consolidated Financial Statements, “Guarantees and Indemnifications,” for further details of the guarantee arrangements. Issuance of these guarantee arrangements is delivered. As retail metersnot 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 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 Note 17 to the Consolidated Financial Statements, "Variable Interest Entities."
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, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due By Period |
| | | | | | | | | More than |
| | | Less than | | 2-3 years | | 4-5 years | | 5 years |
| | | 1 year | | (2022 & | | (2024 & | | (2026 & |
| (in millions) | Total | | (2021) | | 2023) | | 2025) | | beyond) |
Long-term debt(a) | $ | 58,134 | | | $ | 4,110 | | | $ | 8,011 | | | $ | 4,408 | | | $ | 41,605 | |
Interest payments on long-term debt(b) | 33,858 | | | 2,099 | | | 3,898 | | | 3,577 | | | 24,284 | |
Finance leases(c) | 1,465 | | | 186 | | | 347 | | | 170 | | | 762 | |
Operating leases(c) | 1,861 | | | 229 | | | 414 | | | 348 | | | 870 | |
Purchase obligations:(d) | | | | | | | | | |
Fuel and purchased power(e)(f) | 16,591 | | | 3,489 | | | 4,248 | | | 2,998 | | | 5,856 | |
Other purchase obligations(g) | 9,916 | | | 8,850 | | | 974 | | | 52 | | | 40 | |
Nuclear decommissioning trust annual funding(h) | 363 | | | 20 | | | 40 | | | 40 | | | 263 | |
Land easements(i) | 400 | | | 12 | | | 24 | | | 24 | | | 340 | |
Total contractual cash obligations(j)(k) | $ | 122,588 | | | $ | 18,995 | | | $ | 17,956 | | | $ | 11,617 | | | $ | 74,020 | |
(a)See Note 6 to the Consolidated Financial Statements, “Debt and Credit Facilities.”
(b)Interest payments on variable rate debt instruments were calculated using December 31, 2020, interest rates and holding them constant for the life of the instruments.
(c)See Note 5 to the Consolidated Financial Statements, “Leases.” Amounts in the table above include the interest component of finance leases based on the interest rates stated in the lease 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.
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| MD&A | OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS |
(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 NPNS. For contracts where the price paid is based on an index, the amount is based on market prices at December 31, 2020, 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 PPA. See Note 17 to the Consolidated Financial Statements, "Variable Interest Entities," for additional information.
(g)Includes contracts for software, telephone, data and consulting or advisory services. Amount also includes contractual obligations for EPC 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 read, invoicesprovided 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)Related to Commercial Renewables wind facilities.
(j)Unrecognized tax benefits of $125 million are preparednot reflected in this table as Duke Energy cannot predict when open income tax years will close with completed examinations. See Note 23 to the Consolidated Financial Statements, "Income Taxes."
(k)The table above excludes reserves for litigation, environmental remediation, asbestos-related injuries and damages claims and self-insurance claims (see Note 4 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 4 to the Consolidated Financial Statements, “Commitments and Contingencies”), funding of pension and other post-retirement benefit plans (see Note 22 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 3 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
Risk Management Policies
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 invoicedelegation 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. See 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 primarily 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. Within Duke Energy’s Commercial Renewables segment, the company has limited exposure to market price fluctuations in prices of energy-related products as a result of its ownership of renewable assets.
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, market conditions, 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.”
Hedging Strategies
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. Additionally, Duke Energy’s Commercial Renewables business may enter into short-term or long-term hedge agreements to manage price risk associated with project output.
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| MD&A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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 nonregulated 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 and Infrastructure 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 or anticipated 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.”
Duke Energy had $7.6 billion of unhedged long- and short-term floating interest rate exposure at December 31, 2020. The impact of a 100-basis point change in interest rates on pretax income is approximately $76 million at December 31, 2020. 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, 2020.
Certain Duke Energy Registrants have variable-rate debt and manage interest rate risk by entering into financial contracts including interest rate swaps. See Notes 6 and 14 to the Consolidated Financial Statements, "Debt and Credit Facilities" and "Derivatives and Hedging." Such financial arrangements generally are indexed based upon LIBOR, which is expected to be phased out by the end of 2021. The Secured Overnight Financing Rate (SOFR) has been identified by regulators and industry participants as the preferred successor rate for U.S. dollar-based LIBOR at that time. Impacted financial arrangements extending beyond 2021 may require contractual amendment or termination and renegotiation to fully adapt to a post-LIBOR environment, and there may be uncertainty regarding the effectiveness of any such alternative index methodologies. Alternative index provisions are being assessed and incorporated into new financial arrangements that extend beyond 2021. Additionally, the progress of the phaseout is being monitored, including proposed transition relief from the FASB.
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 recognized as "billed" revenue. Operating revenues also include "unbilled"provide that the failure to post collateral when required is sufficient cause to terminate transactions and liquidate all positions.
The Duke Energy Registrants also obtain cash, letters of credit, or surety bonds 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.
The Duke Energy Registrants’ principal counterparties for its electric and natural gas revenuesbusinesses are RTOs, distribution companies, municipalities, electric cooperatives and utilities located throughout the U.S. Exposure to these entities consists primarily of amounts due to Duke Energy Registrants for delivered electricity. Additionally, there may be potential risks associated with remarketing of energy and capacity in the amountevent of default by wholesale power customers. The Duke Energy Registrants have concentrations of receivables from certain of such entities that may affect the Duke Energy Registrants’ credit risk.
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| MD&A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Duke Energy Registrants are also subject to credit risk from transactions with their suppliers that involve prepayments or milestone payments 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 nonperformance. 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 providedto residential, commercial and industrial customers is generally limited to outstanding accounts receivable. The Duke Energy Registrants mitigate this credit risk by requiring tariff customers to provide a cash deposit, letter of credit or product delivered aftersurety bond until a satisfactory payment history is established, subject to the last meter readingrules 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, payment patterns and the impact of current economic conditions on customers' ability to pay their outstanding balance to ensure the adequacy of bad debt reserves.
In response to the COVID-19 pandemic, in March 2020, the Duke Energy Registrants announced a suspension of disconnections for nonpayment to be effective throughout the national emergency. While disconnections have resumed, the company continues to offer flexible options to customers struggling with the pandemic and the economic fallout, including extended payment arrangements to satisfy delinquent balances. In addition, the Duke Energy Registrants are monitoring the effects of the resultant economic slowdown on counterparties’ abilities to perform under their contractual obligations. The Duke Energy Registrants have observed a significant increase in utility account arrears, which were roughly double historical levels as of December 31, 2020. There is an expectation of an increase in charge-offs in the future. See Notes 1, 3 and 18 to the Consolidated Financial Statements, "Summary of Significant Accounting Policies," "Regulatory Matters" and "Revenue," respectively, for more information. Duke Energy Ohio and Duke Energy Indiana sell certain of their accounts receivable and related collections through CRC, a Duke Energy consolidated VIE. 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.”
The Duke Energy Registrants provide certain non-tariff services, primarily to large commercial and industrial customers in which incurred costs, including invested capital, are intended to be recovered from the individual customer and therefore are not subject to rate recovery in the event of customer default. Customer creditworthiness is assessed prior to entering into these transactions. Credit concentration related to these transactions exists for certain of these customers.
Duke Energy’s Commercial Renewables segment enters into long-term agreements with certain creditworthy buyers that may not include the endright to call for collateral in the event of a credit rating downgrade. Credit concentration exists to certain counterparties on these agreements, including entities that could be subject to wildfire liability. Additionally, Commercial Renewables may invest in projects for which buyers are below investment grade, although such buyers are required to post negotiated amounts of credit support. Also, power sales agreements and/or hedges of project output are generally for an initial term that does not cover the entire life of the accounting period. Unbilled retail revenues are estimated by applyingasset. As a result, Commercial Renewables is exposed to market price risk and credit risk related to these agreements.
Duke Energy Carolinas has third-party insurance to cover certain losses related to asbestos-related injuries and damages above an average revenue per kilowatt-hour (kWh), per thousand cubic feet (Mcf) or per dekatherm (dth) for all customer classesaggregate self-insured retention. See Note 4 to the numberConsolidated Financial Statements, "Commitments and Contingencies" for information on asbestos-related injuries and damages claims.
The Duke Energy Registrants also have credit risk exposure through issuance of estimated kWh, Mcf or dth delivered but not yet billed.
For wholesale customers,performance and financial guarantees, letters of credit and surety bonds on behalf of less than wholly owned entities and third parties. Where the invoice amountDuke Energy Registrants have issued these guarantees, it 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 includedpossible that they could be required to perform under these guarantee obligations in the reported amountevent 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 “unbilled” revenue.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.
The amountBased 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 unbilled revenues can vary significantly from period to periodoperations as a result of numerous factors that impactnonperformance by any counterparty.
Marketable Securities Price Risk
As described further in Note 15 to the changeConsolidated Financial Statements, “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 unbilled revenue receivable balance, including seasonality, weather, customer usage patterns, customer mix, timingNDTF and assets 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 netvarious 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.plans.
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.Pension Plan Assets
Duke Energy maintains andinvestments to facilitate funding the Subsidiary Registrants participate in, qualified,costs of providing 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 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)benefit plans. These investments are maintainedexposed to price fluctuations in the Duke Energy Master Retirement Trust (Master Trust). Duke Energy also invests other post-retirement assetsequity markets and changes in Voluntary Employees' Beneficiary Association trusts.interest rates. 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 assumesequity securities held in these 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 classesplans are diversified to achieve broad market participation and reduce the impact of individual managers on investments.
In 2013,any single investment, sector or geographic region. 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. Thehas established asset allocation targets for its pension plan holdings, which take into consideration the Master Trust is 63 percent fixed-income assetsinvestment objectives and 37 percent return-seeking assets. Duke Energy regularly reviews its actual asset allocation and periodically rebalances its investmentsthe risk profile with respect 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 attrust in 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. |
| | | | | | | | | | | | | | | |
| | Qualified and Non- | | Other Post-Retirement |
| | Qualified Pension Plans | | Plans |
| (in millions) | 0.25 | % | | (0.25 | )% | | 0.25 | % | | (0.25 | )% |
| Effect on 2017 pretax pension and other post-retirement expense | | | | | | | |
| Expected long-term rate of return | $ | (21 | ) | | $ | 21 |
| | $ | (1 | ) | | $ | 1 |
|
| Discount rate | (17 | ) | | 19 |
| | (1 | ) | | 1 |
|
| Effect on pension and other post-retirement benefit obligation at December 31, 2017 | |
| | |
| | |
| | |
|
| Discount rate | (223 | ) | | 229 |
| | (17 | ) | | 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 plansassets are closed to new hires. |
| | | | | | | |
| | Other Post-Retirement |
| | Plans |
| (in millions) | 1 | % | | (1 | )% |
| Effect on 2017 other post-retirement expense | $ | 5 |
| | $ | (4 | ) |
| Effect on other post-retirement benefit obligation at December 31, 2017 | 27 |
| | (24 | ) |
For further information, seeheld. See Note 2122 to the Consolidated Financial Statements, “Employee Benefit Plans.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.
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| MD&A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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, 2020, 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 funds 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
Environmental Regulations
The Duke Energy Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal, coal ash and other environmental matters. These regulations can be changed from time to time and result in new obligations of the Duke Energy Registrants.
On May 14, 2020, the five-year probation period following the Dan River coal ash spill ended. The court-appointed monitor confirmed in U.S. District Court for the Eastern District of North Carolina that Duke Energy met or exceeded every obligation throughout the process. Separately, in a final report to the EPA, it was noted that the company made significant enhancements to its Ethics and Compliance Program and its environmental compliance programs.
The following sections outline various proposed and recently enacted legislation and regulations that may impact the Duke Energy Registrants. Refer to Note 3 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 located at stations generating electricity (regardless of fuel source), which were no longer receiving CCR but contained liquids as of the effective date of the rule. 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.
On July 17, 2018, EPA issued a final rule (Phase 1, Part 1) revising certain closure deadlines and groundwater protection standards in the CCR rule. The rule does not change the primary requirements for groundwater monitoring, corrective action, inspections and maintenance, and closure, and thus does not materially affect Duke Energy’s coal ash basin closure plans or compliance obligations under the CCR rule. On October 22, 2018, a coalition of environmental groups filed a petition for review in the U.S. Court of Appeals for the District of Columbia (D.C. Circuit Court) challenging EPA's final Phase 1, Part 1 revisions to the CCR rule. On March 13, 2019, the D.C. Circuit Court issued an order in the Phase 1, Part 1 litigation granting EPA’s motion to remand the rule without vacatur. To date, EPA has finalized two notice-and-comment rulemakings to implement the court’s decision on remand. The “Part A” rule, which was promulgated on August 28, 2020, establishes an April 11, 2021 deadline to cease placement of CCR and non-CCR waste streams into unlined ash basins and initiate closure, and the “Part B” rule, which was promulgated on November 12, 2020, establishes procedures to allow facilities to request approval to operate an existing CCR surface impoundment with an alternate liner. A future rulemaking is expected to address legacy impoundments. Duke Energy does not expect these rulemakings to have a material impact in light of its progress in closing CCR units across the enterprise.
In addition to the requirements of the federal CCR rule, CCR landfills and surface impoundments will continue to be regulated by the 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 Notes 3 and 9 to the Consolidated Financial Statements, "Regulatory Matters" and "Asset Retirement Obligations," respectively.
Coal Ash Management Act of 2014
AROs recorded on the Duke Energy Carolinas and Duke Energy Progress Consolidated Balance Sheets at December 31, 2020, and December 31, 2019, 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 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 previously submitted comprehensive site assessments and groundwater corrective plans to NCDEQ. In addition, on December 31, 2019, Duke Energy submitted updated groundwater corrective action plans and site-specific coal ash impoundment closure plans to NCDEQ.
On April 1, 2019, NCDEQ issued a closure determination requiring Duke Energy Carolinas and Duke Energy Progress to excavate all remaining coal ash impoundments at the Allen, Belews Creek, Rogers, Marshall, Mayo and Roxboro facilities in North Carolina. On April 26, 2019, Duke Energy Carolinas and Duke Energy Progress filed Petitions for Contested Case Hearings in the Office of Administrative Hearings to challenge NCDEQ's April 1 Order. On December 31, 2019, Duke Energy Carolinas and Duke Energy Progress entered into a settlement agreement with NCDEQ and certain community groups under which Duke Energy Carolinas and Duke Energy Progress agreed to excavate seven of the nine remaining coal ash basins at these sites with ash moved to on-site lined landfills, including two at Allen, one at Belews Creek, one at Mayo, one at Roxboro, and two at Rogers. At the two remaining basins at Marshall and Roxboro, uncapped basin ash will be excavated and moved to lined landfills. Those portions of the basins at Marshall and Roxboro, which were previously filled with ash and on which permitted facilities were constructed, will not be disturbed and will be closed pursuant to other state regulations.
Following NCDEQ's April 1 Order, Duke Energy estimated the incremental undiscounted cost to close the nine remaining impoundments by excavation would be approximately $4 billion to $5 billion, potentially increasing the total estimated costs to permanently close all ash basins in North Carolina and South Carolina to $9.5 billion to $10.5 billion. The settlement lowers the estimated total undiscounted cost to close the nine remaining basins by excavation by approximately $1.5 billion as compared to Duke Energy’s original estimate that followed the order. As a result, the estimated total cost to permanently close all ash basins in North Carolina and South Carolina is approximately $8 billion to $9 billion of which approximately $2.8 billion has been spent through 2020. The majority of the remaining spend is expected to occur over the next 15 to 20 years.
Duke Energy has completed excavation of all coal ash at the Riverbend, Dan River and Sutton plants
For further information on ash basins and recovery, see Notes 3 and 9 to the Consolidated Financial Statements, "Regulatory Matters" and “Asset Retirement Obligations,” respectively.
Other Environmental Regulations
The Duke Energy Registrants are also subject to various federal, state and local laws regarding air and water quality, hazardous and solid waste disposal and other environmental matters, including the following:
•CWA
•Steam Effluent Limitation Guidelines
•Cross-State Air Pollution Rule
Duke Energy continues to comply with enacted environmental statutes and regulations even as certain of these regulations are in various stages of clarification, revision or legal challenge. The Duke Energy Registrants cannot predict the outcome of these matters.
Section 126 Petitions
On November 16, 2016, the state of Maryland filed a petition with EPA under Section 126 of the Clean Air Act alleging that 19 power plants, including two plants (three units) that Duke Energy Registrants own and operate, contribute to violations of EPA’s National Ambient Air Quality Standards (NAAQS) for ozone in the state of Maryland. On March 12, 2018, the state of New York filed a petition with EPA, also under Section 126 of the Clean Air Act, alleging that over 60 power plants, including five that Duke Energy Registrants own and operate, contribute to violations of EPA’s ozone NAAQS in the state of New York. Both Maryland and New York sought EPA orders requiring the states in which the named power plants operate impose more stringent nitrogen oxide emission limitations on the plants. On October 5, 2018, EPA denied the Maryland petition. That same day, Maryland appealed EPA's denial. On October 18, 2019, EPA denied the New York petition, and New York appealed that decision on October 29, 2019. On May 19, 2020, the U.S. Court of Appeals for the D.C. Circuit issued its decision, finding, with one exception, that EPA reasonably denied the Maryland petition. The court remanded one issue to EPA regarding target sources lacking catalytic controls. All of the Duke Energy units targeted have selective catalytic reduction, so the decision is favorable for these units.
A different panel of the same court heard oral argument in New York’s appeal of EPA’s denial of its Section 126 Petition on May 7, 2020, and on July 14, 2020, the panel issued its decision remanding the Petition to EPA for further review. The Duke Energy Registrants cannot predict the outcome of this matter.
North Carolina Clean Energy Plan (NCCEP)
On October 29, 2018, Governor Roy Cooper signed an executive order calling for a 40% reduction in statewide greenhouse gas emissions by 2025. The order tasked the NCDEQ with developing a clean energy plan for North Carolina. In October 2019, the NCDEQ published its plan, which includes the reduction of electric power sector greenhouse gas emissions by 70% below 2005 levels by 2030 and attainment of carbon neutrality by 2050, fostering long-term energy affordability and price stability for North Carolina’s residents and businesses by modernizing regulatory and planning processes, and acceleration of clean energy innovation to create economic opportunities for both rural and urban areas. Duke Energy Carolinas and Duke Energy Progress are significant stakeholders in this process. The magnitude and timing of investment in response to the NCCEP will depend on the speed of adoption and consensus developed by other stakeholders on how best to successfully transition to this clean energy future while establishing a regulatory model that incentivizes business decisions that benefit both the utilities and the public. The Duke Energy Registrants cannot predict the outcome of this matter.
Global Climate Change
On September 17, 2019, Duke Energy announced an updated climate strategy with new goals of at least 50% reduction in carbon emissions from electric generation by 2030 and net-zero carbon emissions from electric generation by 2050. On October 9, 2020, Duke Energy announced a new goal to achieve net-zero methane emissions from its natural gas distribution system by 2030. Timelines and initiatives, as well as implementation of new technologies, will vary in each state in which the company operates and will involve collaboration with regulators, customers and other stakeholders.
The Duke Energy Registrants’ GHG emissions consist primarily of CO2 and result primarily from operating a fleet of coal-fired and natural gas-fired power plants. Future levels of CO2 emissions will be influenced by variables that include economic conditions that affect electricity demand, fuel prices, market prices, compliance with new or existing regulations and the technologies deployed to generate the electricity necessary to meet 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 51 coal-fired electric generating units with a combined generating capacity of 6,539 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 EE offerings and ensure continued operations of its zero-CO2 emissions hydropower and nuclear plants. These efforts have diversified its system and significantly reduced CO2 emissions. Between 2005 and 2020, the Duke Energy Registrants have collectively lowered the CO2 emissions from their electricity generation by more than 40%, which potentially 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 EE, wind, solar, storage, carbon capture, utilization and sequestration, the use of hydrogen and other low-carbon fuels and advanced nuclear. Duke Energy will adjust to evolving and innovative technologies in a way that balances the reliability and affordability that meet regulatory requirements and customer demands. 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 that scientists 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 with any certainty any potential future financial risk to the Duke Energy Registrants’ operations difficult.
The Duke Energy Registrants annually, biennially or triennially prepare lengthy, forward-looking IRPs. These detailed, highly technical plans are based on the company’s thorough analysis of 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 stakeholder input as well as forecasts of future electricity demand, fuel prices, transmission improvements, new generating capacity, integration of renewables, energy storage, EE 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 IRPs 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 transmission and distribution systems and natural gas facilities. The steps include modernizing the electric grid through smart meters, storm hardening, self-healing and targeted undergrounding and applying lessons learned from previous storms to restoration efforts. The Duke Energy Registrants’ electric generating facilities and natural gas facilities are designed to withstand extreme weather events without significant damage. The Duke Energy Registrants maintain inventories of coal, oil and liquified natural gas 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 and/or natural gas.
State Legislation
In 2017, the North Carolina General Assembly passed House Bill 589, and it was subsequently signed into law by the governor. The law includes, among other things, overall reform of the application of PURPA for new solar projects in the state, a requirement for the utility to procure renewable energy through a competitive bidding process administered by an independent third party and recovery of costs related to the competitive bidding process through a competitive procurement rider. The process used was approved by the NCUC to select projects that would deliver the lowest cost of renewable energy for customers.
In accordance with the provisions of House Bill 589, Duke Energy estimates the total competitive procurement will be approximately 1,185 to 1,385 MW. Duke Energy will own or purchase at least 1,185 MW of energy from renewable energy projects under the North Carolina’s CPRE program. Two tranches of the CPRE process have been completed with contracts executed for winning proposals. Five Duke Energy projects, totaling about 190 MW, were selected during the first tranche and none were selected during the second tranche. Two of the Duke Energy winning projects achieved commercial operation in December 2020 and the remaining three will be online by the third quarter 2021. The need for a third tranche of CPRE will be determined prior to November 2021.
In various states, legislation is being considered to allow third-party sales of electricity. Deregulation or restructuring in the electric industry may result in increased competition and unrecovered costs. The Duke Energy Registrants cannot predict the outcome of these initiatives.
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.”
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | | | | | |
| 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 | |
| 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 | |
| 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 | |
| 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 | |
| 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 Ohio | |
| 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 Indiana | |
| 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 | |
| |
| Piedmont | |
| 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 | |
| | | | | |
| |
| Combined Notes to Consolidated Financial Statements | |
| Note 1 – Summary of Significant Accounting Policies | |
| |
| Note 2 – Business Segments | |
| Note 3 – Regulatory Matters | |
| Note 4 – Commitments and Contingencies | |
| Note 5 – Leases | |
| 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 – Revenue | |
| Note 19 – Stockholders' Equity | |
| Note 20 – Severance | |
| Note 21 – Stock-Based Compensation | |
| Note 22 – Employee Benefit Plans | |
| Note 23 – Income Taxes | |
| Note 24 – Other Income and Expenses, Net | |
| Note 25 – Subsequent Events | |
| |
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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, 2020, 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 25, 2021, 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to regulation by federal and state utility regulatory agencies (the “Commissions”), which have jurisdiction with respect to the rates of the Company’s electric and natural gas distribution companies. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $14 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1947.
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions, except per share amounts) | 2020 | | 2019 | | 2018 |
| Operating Revenues | | | | | |
| Regulated electric | $ | 21,461 | | | $ | 22,615 | | | $ | 22,097 | |
| Regulated natural gas | 1,642 | | | 1,759 | | | 1,773 | |
| Nonregulated electric and other | 765 | | | 705 | | | 651 | |
| Total operating revenues | 23,868 | | | 25,079 | | | 24,521 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 6,051 | | | 6,826 | | | 6,831 | |
| Cost of natural gas | 460 | | | 627 | | | 697 | |
| Operation, maintenance and other | 5,788 | | | 6,066 | | | 6,463 | |
| Depreciation and amortization | 4,705 | | | 4,548 | | | 4,074 | |
| Property and other taxes | 1,337 | | | 1,307 | | | 1,280 | |
| Impairment charges | 984 | | | (8) | | | 402 | |
| Total operating expenses | 19,325 | | | 19,366 | | | 19,747 | |
| Gains (Losses) on Sales of Other Assets and Other, net | 10 | | | (4) | | | (89) | |
| Operating Income | 4,553 | | | 5,709 | | | 4,685 | |
| Other Income and Expenses | | | | | |
| Equity in (losses) earnings of unconsolidated affiliates | (2,005) | | | 162 | | | 83 | |
| | | | | |
| Other income and expenses, net | 453 | | | 430 | | | 399 | |
| Total other income and expenses | (1,552) | | | 592 | | | 482 | |
| Interest Expense | 2,162 | | | 2,204 | | | 2,094 | |
| Income From Continuing Operations Before Income Taxes | 839 | | | 4,097 | | | 3,073 | |
| Income Tax (Benefit) Expense From Continuing Operations | (236) | | | 519 | | | 448 | |
| Income From Continuing Operations | 1,075 | | | 3,578 | | | 2,625 | |
| Income (Loss) From Discontinued Operations, net of tax | 7 | | | (7) | | | 19 | |
| Net Income | 1,082 | | | 3,571 | | | 2,644 | |
| Add: Net Loss Attributable to Noncontrolling Interests | 295 | | | 177 | | | 22 | |
| Net Income Attributable to Duke Energy Corporation | 1,377 | | | 3,748 | | | 2,666 | |
| Less: Preferred Dividends | 107 | | | 41 | | | — | |
| Net Income Available to Duke Energy Corporation Common Stockholders | $ | 1,270 | | | $ | 3,707 | | | $ | 2,666 | |
| | | | | |
Earnings Per Share – Basic and Diluted | | | | | |
| Income from continuing operations available to Duke Energy Corporation common stockholders | | | | | |
| Basic and Diluted | $ | 1.71 | | | $ | 5.07 | | | $ | 3.73 | |
| | | | | |
| Income (Loss) from discontinued operations attributable to Duke Energy Corporation common stockholders | | | | | |
| Basic and Diluted | $ | 0.01 | | | $ | (0.01) | | | $ | 0.03 | |
| | | | | |
| Net income available to Duke Energy Corporation common stockholders | | | | | |
| Basic and Diluted | $ | 1.72 | | | $ | 5.06 | | | $ | 3.76 | |
| | | | | |
| Weighted average shares outstanding | | | | | |
| Basic | 737 | | | 729 | | | 708 | |
| Diluted | 738 | | | 729 | | | 708 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Net Income | $ | 1,082 | | | $ | 3,571 | | | $ | 2,644 | |
Other Comprehensive (Loss) Income, net of tax(a) | | | | | |
| | | | | |
| Pension and OPEB adjustments | 6 | | | 9 | | | (6) | |
| Net unrealized losses on cash flow hedges | (138) | | | (47) | | | (10) | |
| Reclassification into earnings from cash flow hedges | 11 | | | 6 | | | 6 | |
| Unrealized gains (losses) on available-for-sale securities | 3 | | | 8 | | | (3) | |
| | | | | |
| Other Comprehensive Loss, net of tax | (118) | | | (24) | | | (13) | |
| Comprehensive Income | 964 | | | 3,547 | | | 2,631 | |
| Add: Comprehensive Loss Attributable to Noncontrolling Interests | 306 | | | 177 | | | 22 | |
| Comprehensive Income Attributable to Duke Energy Corporation | 1,270 | | | 3,724 | | | 2,653 | |
| Less: Preferred Dividends | 107 | | | 41 | | | — | |
| Comprehensive Income Available to Duke Energy Corporation Common Stockholders | $ | 1,163 | | | $ | 3,683 | | | $ | 2,653 | |
(a) Net of income tax impacts of approximately $35 million for the year ended December 31, 2020. Tax impacts are immaterial for other periods presented.
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 259 | | | $ | 311 | |
| | | |
| Receivables (net of allowance for doubtful accounts of $29 at 2020 and $22 at 2019) | 1,009 | | | 1,066 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $117 at 2020 and $54 at 2019) | 2,144 | | | 1,994 | |
| Inventory | 3,167 | | | 3,232 | |
| | | |
| Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 1,641 | | | 1,796 | |
| Other (includes $296 at 2020 and $242 at 2019 related to VIEs) | 462 | | | 764 | |
| Total current assets | 8,682 | | | 9,163 | |
| Property, Plant and Equipment | | | |
| Cost | 155,580 | | | 147,654 | |
| Accumulated depreciation and amortization | (48,827) | | | (45,773) | |
| Generation facilities to be retired, net | 29 | | | 246 | |
| Net property, plant and equipment | 106,782 | | | 102,127 | |
| Other Noncurrent Assets | | | |
| Goodwill | 19,303 | | | 19,303 | |
| Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 12,421 | | | 13,222 | |
| Nuclear decommissioning trust funds | 9,114 | | | 8,140 | |
| Operating lease right-of-use assets, net | 1,524 | | | 1,658 | |
| Investments in equity method unconsolidated affiliates | 961 | | | 1,936 | |
| | | |
| Other (includes $81 at 2020 and $110 at 2019 related to VIEs) | 3,601 | | | 3,289 | |
| Total other noncurrent assets | 46,924 | | | 47,548 | |
| Total Assets | $ | 162,388 | | | $ | 158,838 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 3,144 | | | $ | 3,487 | |
| Notes payable and commercial paper | 2,873 | | | 3,135 | |
| Taxes accrued | 482 | | | 392 | |
| Interest accrued | 537 | | | 565 | |
| Current maturities of long-term debt (includes $472 at 2020 and $216 at 2019 related to VIEs) | 4,238 | | | 3,141 | |
| | | |
| Asset retirement obligations | 718 | | | 881 | |
| Regulatory liabilities | 1,377 | | | 784 | |
| Other | 2,936 | | | 2,367 | |
| Total current liabilities | 16,305 | | | 14,752 | |
| Long-Term Debt (includes $3,535 at 2020 and $3,997 at 2019 related to VIEs) | 55,625 | | | 54,985 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 9,244 | | | 8,878 | |
| Asset retirement obligations | 12,286 | | | 12,437 | |
| Regulatory liabilities | 15,029 | | | 15,264 | |
| Operating lease liabilities | 1,340 | | | 1,432 | |
| Accrued pension and other post-retirement benefit costs | 969 | | | 934 | |
| Investment tax credits | 687 | | | 624 | |
| | | |
| Other (includes $316 at 2020 and $228 at 2019 related to VIEs) | 1,719 | | | 1,581 | |
| Total other noncurrent liabilities | 41,274 | | | 41,150 | |
| Commitments and Contingencies | 0 | | 0 |
| | | |
| Equity | | | |
| Preferred stock, Series A, $0.001 par value, 40 million depositary shares authorized and outstanding at 2020 and 2019 | 973 | | | 973 | |
| Preferred stock, Series B, $0.001 par value, 1 million shares authorized and outstanding at 2020 and 2019 | 989 | | | 989 | |
| Common stock, $0.001 par value, 2 billion shares authorized; 769 million shares outstanding at 2020 and 733 million shares outstanding at 2019 | 1 | | | 1 | |
| Additional paid-in capital | 43,767 | | | 40,881 | |
| Retained earnings | 2,471 | | | 4,108 | |
| Accumulated other comprehensive loss | (237) | | | (130) | |
| Total Duke Energy Corporation stockholders' equity | 47,964 | | | 46,822 | |
| Noncontrolling interests | 1,220 | | | 1,129 | |
| Total equity | 49,184 | | | 47,951 | |
| Total Liabilities and Equity | $ | 162,388 | | | $ | 158,838 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 1,082 | | | $ | 3,571 | | | $ | 2,644 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization and accretion (including amortization of nuclear fuel) | 5,486 | | | 5,176 | | | 4,696 | |
| Equity in losses (earnings) of unconsolidated affiliates | 2,005 | | | (162) | | | (83) | |
| Equity component of AFUDC | (154) | | | (139) | | | (221) | |
| | | | | |
| | | | | |
| | | | | |
| (Gains) Losses on sales of other assets | (10) | | | 4 | | | 88 | |
| Impairment charges | 984 | | | (8) | | | 402 | |
| Deferred income taxes | 54 | | | 806 | | | 1,079 | |
| | | | | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (610) | | | (746) | | | (533) | |
| Payment for the disposal of other assets | — | | | — | | | (105) | |
| | | | | |
| Provision for rate refunds | (22) | | | 60 | | | 425 | |
| Refund of AMT credit carryforwards | 572 | | | 573 | | | — | |
| (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | 63 | | | (48) | | | 22 | |
| Receivables | (56) | | | 78 | | | (345) | |
| Inventory | 66 | | | (122) | | | 156 | |
| Other current assets | 205 | | | 10 | | | (721) | |
| Increase (decrease) in | | | | | |
| Accounts payable | (21) | | | (164) | | | 479 | |
| Taxes accrued | 117 | | | (224) | | | 23 | |
| Other current liabilities | (65) | | | 172 | | | 270 | |
| Other assets | (398) | | | (559) | | | (1,062) | |
| Other liabilities | (442) | | | (69) | | | (28) | |
| Net cash provided by operating activities | 8,856 | | | 8,209 | | | 7,186 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (9,907) | | | (11,122) | | | (9,389) | |
| Contributions to equity method investments | (370) | | | (324) | | | (416) | |
| | | | | |
| Return of investment capital | 133 | | | 11 | | | 137 | |
| Purchases of debt and equity securities | (8,011) | | | (3,348) | | | (3,762) | |
| Proceeds from sales and maturities of debt and equity securities | 7,949 | | | 3,343 | | | 3,747 | |
| | | | | |
| | | | | |
| Other | (398) | | | (517) | | | (377) | |
| Net cash used in investing activities | (10,604) | | | (11,957) | | | (10,060) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the: | | | | | |
| Issuance of long-term debt | 6,330 | | | 7,091 | | | 5,299 | |
| Issuance of preferred stock | — | | | 1,962 | | | — | |
| Issuance of common stock | 2,745 | | | 384 | | | 1,838 | |
| | | | | |
| Payments for the redemption of long-term debt | (4,506) | | | (3,476) | | | (2,906) | |
| Proceeds from the issuance of short-term debt with original maturities greater than 90 days | 3,009 | | | 397 | | | 472 | |
| Payments for the redemption of short-term debt with original maturities greater than 90 days | (2,147) | | | (479) | | | (282) | |
| Notes payable and commercial paper | (1,181) | | | (298) | | | 981 | |
| | | | | |
| Contributions from noncontrolling interests | 426 | | | 843 | | | 41 | |
| Dividends paid | (2,812) | | | (2,668) | | | (2,471) | |
| | | | | |
| Other | (133) | | | (26) | | | (12) | |
| Net cash provided by financing activities | 1,731 | | | 3,730 | | | 2,960 | |
| | | | | |
| Net (decrease) increase in cash, cash equivalents, and restricted cash | (17) | | | (18) | | | 86 | |
| Cash, cash equivalents, and restricted cash at beginning of period | 573 | | | 591 | | | 505 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 556 | | | $ | 573 | | | $ | 591 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 2,186 | | | $ | 2,195 | | | $ | 2,086 | |
| Cash received from income taxes | (585) | | | (651) | | | (266) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 1,116 | | | 1,356 | | | 1,112 | |
| Non-cash dividends | 110 | | | 108 | | | 107 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Duke Energy Corporation Stockholders'
Accumulated Other Comprehensive
Income (Loss) | | | | | | |
| | | | | | | | | | | | | | Net Unrealized | | | | Total | | | | |
| | | | | | | | | | | | Net | | Gains (Losses) | | | | Duke Energy | | | | |
| | Common | | | | Additional | | | | | | Losses on | | on Available- | | Pension and | | Corporation | | | | |
| Preferred | Stock | | Common | | Paid-in | | Retained | | | | Cash Flow | | for-Sale- | | OPEB | | Stockholders' | | Noncontrolling | | Total |
| (in millions) | Stock | Shares | | Stock | | Capital | | Earnings | | | | Hedges | | Securities | | Adjustments | | Equity | | Interests | | Equity |
| Balance at December 31, 2017 | $ | — | | 700 | | | $ | 1 | | | $ | 38,792 | | | $ | 3,013 | | | | | $ | (10) | | | $ | 12 | | | $ | (69) | | | $ | 41,739 | | | $ | (2) | | | $ | 41,737 | |
| Net income | — | | — | | | — | | | — | | | 2,666 | | | | | — | | | — | | | — | | | 2,666 | | | (22) | | | 2,644 | |
| Other comprehensive loss | — | | — | | | — | | | — | | | — | | | | | (4) | | | (3) | | | (6) | | | (13) | | | — | | | (13) | |
| Common stock issuances, including dividend reinvestment and employee benefits | — | | 27 | | | — | | | 2,003 | | | — | | | | | — | | | — | | | — | | | 2,003 | | | — | | | 2,003 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock dividends | — | | — | | | — | | | — | | | (2,578) | | | | | — | | | — | | | — | | | (2,578) | | | — | | | (2,578) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Distributions to noncontrolling interest in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
Other(a) | — | | — | | | — | | | — | | | 12 | | | | | — | | | (12) | | | — | | | — | | | 42 | | | 42 | |
| Balance at December 31, 2018 | $ | — | | 727 | | | $ | 1 | | | $ | 40,795 | | | $ | 3,113 | | | | | $ | (14) | | | $ | (3) | | | $ | (75) | | | $ | 43,817 | | | $ | 17 | | | $ | 43,834 | |
| Net income | — | | — | | | — | | | — | | | 3,707 | | | | | — | | | — | | | — | | | 3,707 | | | (177) | | | 3,530 | |
| Other comprehensive (loss) Income | — | | — | | | — | | | — | | | — | | | | | (41) | | | 8 | | | 9 | | | (24) | | | — | | | (24) | |
Preferred stock, Series A, issuances, net of issuance costs(b) | 973 | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 973 | | | — | | | 973 | |
Preferred stock, Series B, issuances, net of issuance costs(b) | 989 | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 989 | | | — | | | 989 | |
| Common stock issuances, including dividend reinvestment and employee benefits | — | | 6 | | | — | | | 552 | | | — | | | | | — | | | — | | | — | | | 552 | | | — | | | 552 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock dividends | — | | — | | | — | | | — | | | (2,735) | | | | | — | | | — | | | — | | | (2,735) | | | — | | | (2,735) | |
Sale of noncontrolling interest(c) | — | | — | | | — | | | (466) | | | — | | | | | 10 | | | — | | | — | | | (456) | | | 863 | | | 407 | |
Contribution from noncontrolling interest (f) | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | 428 | | | 428 | |
| Distributions to noncontrolling interest in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (4) | | | (4) | |
Other(d) | — | | — | | | — | | | — | | | 23 | | | | | (6) | | | (2) | | | (16) | | | (1) | | | 2 | | | 1 | |
| Balance at December 31, 2019 | $ | 1,962 | | 733 | | | $ | 1 | | | $ | 40,881 | | | $ | 4,108 | | | | | $ | (51) | | | $ | 3 | | | $ | (82) | | | $ | 46,822 | | | $ | 1,129 | | | $ | 47,951 | |
| Net income | — | | — | | | — | | | — | | | 1,270 | | | | | — | | | — | | | — | | | 1,270 | | | (295) | | | 975 | |
| Other comprehensive (loss) income | — | | — | | | — | | | — | | | — | | | | | (116) | | | 3 | | | 6 | | | (107) | | | (11) | | | (118) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock issuances, including dividend reinvestment and employee benefits | — | | 36 | | | — | | | 2,902 | | | — | | | | | — | | | — | | | — | | | 2,902 | | | — | | | 2,902 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock dividends | — | | — | | | — | | | — | | | (2,815) | | | | | — | | | — | | | — | | | (2,815) | | | — | | | (2,815) | |
| | | | | | | | | | | | | | | | | | | | | | |
Contribution from noncontrolling interest, net of transaction costs(f) | — | | — | | | — | | | (17) | | | — | | | | | — | | | — | | | — | | | (17) | | | 426 | | | 409 | |
| Distributions to noncontrolling interests in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (30) | | | (30) | |
Other(e) | — | | — | | | — | | | 1 | | | (92) | | | | | — | | | — | | | — | | | (91) | | | 1 | | | (90) | |
| Balance at December 31, 2020 | $ | 1,962 | | 769 | | | $ | 1 | | | $ | 43,767 | | | $ | 2,471 | | | | | $ | (167) | | | $ | 6 | | | $ | (76) | | | $ | 47,964 | | | $ | 1,220 | | | $ | 49,184 | |
(a) Amounts in Retained Earnings and AOCI represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information. Amount in Noncontrolling Interests primarily relates to tax equity financing activity in the Commercial Renewables segment.
(b) Duke Energy issued 40 million depositary shares of preferred stock, Series A, in the first quarter of 2019 and 1 million shares of preferred stock, Series B, in the third quarter of 2019.
(c) See Note 1 for additional discussion of the transaction.
(d) Amounts in Retained Earnings and AOCI primarily represent impacts to accumulated other comprehensive income due to implementation of a new accounting standard related to Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
(e) Amounts in Retained earnings primarily represent impacts due to implementation of a new accounting standard related to Current Estimated Credit Losses. See Note 1 for additional discussion.
(f) Relates to tax equity financing activity in the Commercial Renewables segment.
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission and by the South Carolina Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $3.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1947.
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 7,015 | | | $ | 7,395 | | | $ | 7,300 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 1,682 | | | 1,804 | | | 1,821 | |
| Operation, maintenance and other | 1,743 | | | 1,868 | | | 2,130 | |
| Depreciation and amortization | 1,462 | | | 1,388 | | | 1,201 | |
| Property and other taxes | 299 | | | 292 | | | 295 | |
| Impairment charges | 476 | | | 17 | | | 192 | |
| Total operating expenses | 5,662 | | | 5,369 | | | 5,639 | |
| Gains (Losses) on Sales of Other Assets and Other, net | 1 | | | — | | | (1) | |
| Operating Income | 1,354 | | | 2,026 | | | 1,660 | |
| Other Income and Expenses, net | 177 | | | 151 | | | 153 | |
| Interest Expense | 487 | | | 463 | | | 439 | |
| Income Before Income Taxes | 1,044 | | | 1,714 | | | 1,374 | |
| Income Tax Expense | 88 | | | 311 | | | 303 | |
| Net Income | $ | 956 | | | $ | 1,403 | | | $ | 1,071 | |
| Other Comprehensive Income, net of tax | | | | | |
| Reclassification into earnings from cash flow hedges | — | | | — | | | 1 | |
| | | | | |
| Other Comprehensive Income, net of tax | — | | | — | | | 1 | |
| Comprehensive Income | $ | 956 | | | $ | 1,403 | | | $ | 1,072 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | | | |
| | | December 31, |
| (in millions) | | 2020 | | 2019 |
| ASSETS | | | | |
| Current Assets | | | | |
| Cash and cash equivalents | | $ | 21 | | | $ | 18 | |
| Receivables (net of allowance for doubtful accounts of $1 at 2020 and $3 at 2019) | | 247 | | | 324 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $22 at 2020 and $7 at 2019) | | 696 | | | 642 | |
| Receivables from affiliated companies | | 124 | | | 114 | |
| | | | |
| Inventory | | 1,010 | | | 996 | |
| Regulatory assets | | 473 | | | 550 | |
| Other | | 20 | | | 21 | |
| Total current assets | | 2,591 | | | 2,665 | |
| Property, Plant and Equipment | | | | |
| Cost | | 50,640 | | | 48,922 | |
| Accumulated depreciation and amortization | | (17,453) | | | (16,525) | |
| | | | |
| Net property, plant and equipment | | 33,187 | | | 32,397 | |
| Other Noncurrent Assets | | | | |
| | | | |
| Regulatory assets | | 2,996 | | | 3,360 | |
| Nuclear decommissioning trust funds | | 4,977 | | | 4,359 | |
| Operating lease right-of-use assets, net | | 110 | | | 123 | |
| Other | | 1,187 | | | 1,149 | |
| Total other noncurrent assets | | 9,270 | | | 8,991 | |
| Total Assets | | $ | 45,048 | | | $ | 44,053 | |
| LIABILITIES AND EQUITY | | | | |
| Current Liabilities | | | | |
| Accounts payable | | $ | 1,000 | | | $ | 954 | |
| Accounts payable to affiliated companies | | 199 | | | 210 | |
| Notes payable to affiliated companies | | 506 | | | 29 | |
| Taxes accrued | | 76 | | | 46 | |
| Interest accrued | | 117 | | | 115 | |
| Current maturities of long-term debt | | 506 | | | 458 | |
| Asset retirement obligations | | 264 | | | 206 | |
| Regulatory liabilities | | 473 | | | 255 | |
| Other | | 546 | | | 611 | |
| Total current liabilities | | 3,687 | | | 2,884 | |
| Long-Term Debt | | 11,412 | | | 11,142 | |
| Long-Term Debt Payable to Affiliated Companies | | 300 | | | 300 | |
| Other Noncurrent Liabilities | | | | |
| Deferred income taxes | | 3,842 | | | 3,921 | |
| Asset retirement obligations | | 5,086 | | | 5,528 | |
| Regulatory liabilities | | 6,535 | | | 6,423 | |
| Operating lease liabilities | | 97 | | | 102 | |
| Accrued pension and other post-retirement benefit costs | | 73 | | | 84 | |
| Investment tax credits | | 236 | | | 231 | |
| Other | | 626 | | | 627 | |
| Total other noncurrent liabilities | | 16,495 | | | 16,916 | |
| Commitments and Contingencies | | 0 | | 0 |
| Equity | | | | |
| Member's equity | | 13,161 | | | 12,818 | |
| Accumulated other comprehensive loss | | (7) | | | (7) | |
| Total equity | | 13,154 | | | 12,811 | |
| Total Liabilities and Equity | | $ | 45,048 | | | $ | 44,053 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 956 | | | $ | 1,403 | | | $ | 1,071 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization (including amortization of nuclear fuel) | 1,731 | | | 1,671 | | | 1,487 | |
| Equity component of AFUDC | (62) | | | (42) | | | (73) | |
| | | | | |
| | | | | |
| | | | | |
| (Gains) Losses on sales of other assets | (1) | | | — | | | 1 | |
| Impairment charges | 476 | | | 17 | | | 192 | |
| Deferred income taxes | (260) | | | 133 | | | 305 | |
| | | | | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (162) | | | (278) | | | (230) | |
| Provision for rate refunds | (5) | | | 36 | | | 182 | |
| (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | (4) | | | (8) | | | 2 | |
| Receivables | 52 | | | (21) | | | (86) | |
| Receivables from affiliated companies | (10) | | | 68 | | | (87) | |
| Inventory | (14) | | | (48) | | | 25 | |
| Other current assets | 209 | | | (73) | | | (161) | |
| Increase (decrease) in | | | | | |
| Accounts payable | 55 | | | (50) | | | 168 | |
| Accounts payable to affiliated companies | (11) | | | (20) | | | 21 | |
| Taxes accrued | 30 | | | (127) | | | (65) | |
| Other current liabilities | (56) | | | 127 | | | 89 | |
| Other assets | (101) | | | (42) | | | (221) | |
| Other liabilities | (47) | | | (37) | | | (90) | |
| Net cash provided by operating activities | 2,776 | | | 2,709 | | | 2,530 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (2,669) | | | (2,714) | | | (2,706) | |
| Purchases of debt and equity securities | (1,602) | | | (1,658) | | | (1,810) | |
| Proceeds from sales and maturities of debt and equity securities | 1,602 | | | 1,658 | | | 1,810 | |
| | | | | |
| | | | | |
| Other | (164) | | | (204) | | | (147) | |
| Net cash used in investing activities | (2,833) | | | (2,918) | | | (2,853) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 998 | | | 886 | | | 1,983 | |
| Payments for the redemption of long-term debt | (813) | | | (6) | | | (1,205) | |
| Notes payable to affiliated companies | 477 | | | (410) | | | 335 | |
| Distributions to parent | (600) | | | (275) | | | (750) | |
| Other | (2) | | | (1) | | | (23) | |
| Net cash provided by financing activities | 60 | | | 194 | | | 340 | |
| Net increase (decrease) in cash and cash equivalents | 3 | | | (15) | | | 17 | |
| Cash and cash equivalents at beginning of period | 18 | | | 33 | | | 16 | |
| Cash and cash equivalents at end of period | $ | 21 | | | $ | 18 | | | $ | 33 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 481 | | | $ | 433 | | | $ | 452 | |
| Cash paid for income taxes | 321 | | | 122 | | | 89 | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 365 | | | 347 | | | 302 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | |
| | | Accumulated Other | | |
| | | | Comprehensive | | |
| | | Loss | | | | |
| | | Net Gains | | | | |
| | | (Losses) on | | | | |
| Member's | | Cash Flow | | | | Total |
| (in millions) | Equity | | Hedges | | | | Equity |
| Balance at December 31, 2017 | $ | 11,368 | | | $ | (7) | | | | | $ | 11,361 | |
| Net income | 1,071 | | | — | | | | | 1,071 | |
| Other comprehensive income | — | | | 1 | | | | | 1 | |
| Distributions to parent | (750) | | | — | | | | | (750) | |
| | | | | | | |
| Balance at December 31, 2018 | $ | 11,689 | | | $ | (6) | | | | | $ | 11,683 | |
| Net income | 1,403 | | | — | | | | | 1,403 | |
| | | | | | | |
| Distributions to parent | (275) | | | — | | | | | (275) | |
| Other | 1 | | | (1) | | | | | 0 | |
| Balance at December 31, 2019 | $ | 12,818 | | | $ | (7) | | | | | $ | 12,811 | |
| Net income | 956 | | | — | | | | | 956 | |
| | | | | | | |
| Distributions to parent | (600) | | | — | | | | | (600) | |
Other(a) | (13) | | | — | | | | | (13) | |
| Balance at December 31, 2020 | $ | 13,161 | | | $ | (7) | | | | | $ | 13,154 | |
(a) Amounts primarily represent impacts due to implementation of a new accounting standard related to Credit Losses. See Note 1 for additional discussion.
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission, South Carolina Public Service Commission and Florida Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $6.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1930.
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 10,627 | | | $ | 11,202 | | | $ | 10,728 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 3,479 | | | 4,024 | | | 3,976 | |
| Operation, maintenance and other | 2,479 | | | 2,495 | | | 2,613 | |
| Depreciation and amortization | 1,818 | | | 1,845 | | | 1,619 | |
| Property and other taxes | 545 | | | 561 | | | 529 | |
| Impairment charges | 495 | | | (24) | | | 87 | |
| Total operating expenses | 8,816 | | | 8,901 | | | 8,824 | |
| Gains on Sales of Other Assets and Other, net | 9 | | | — | | | 24 | |
| Operating Income | 1,820 | | | 2,301 | | | 1,928 | |
| Other Income and Expenses, net | 129 | | | 141 | | | 165 | |
| Interest Expense | 790 | | | 862 | | | 842 | |
| Income Before Income Taxes | 1,159 | | | 1,580 | | | 1,251 | |
| Income Tax Expense | 113 | | | 253 | | | 218 | |
| | | | | |
| | | | | |
| Net Income | 1,046 | | | 1,327 | | | 1,033 | |
| Less: Net Income Attributable to Noncontrolling Interests | 1 | | | — | | | 6 | |
| Net Income Attributable to Parent | $ | 1,045 | | | $ | 1,327 | | | $ | 1,027 | |
| | | | | |
| Net Income | $ | 1,046 | | | $ | 1,327 | | | $ | 1,033 | |
| Other Comprehensive Income, net of tax | | | | | |
| Pension and OPEB adjustments | (1) | | | 2 | | | 5 | |
| Net unrealized gain on cash flow hedges | 5 | | | 5 | | | 6 | |
| | | | | |
| | | | | |
| Unrealized (losses) gains on available-for-sale securities | (1) | | | 1 | | | (1) | |
| | | | | |
| Other Comprehensive Income, net of tax | 3 | | | 8 | | | 10 | |
| Comprehensive Income | 1,049 | | | 1,335 | | | 1,043 | |
| Less: Comprehensive Income Attributable to Noncontrolling Interests | 1 | | | — | | | 6 | |
| Comprehensive Income Attributable to Parent | $ | 1,048 | | | $ | 1,335 | | | $ | 1,037 | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 59 | | | $ | 48 | |
| Receivables (net of allowance for doubtful accounts of $8 at 2020 and $7 at 2019) | 228 | | | 220 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $29 at 2020 and $9 at 2019) | 901 | | | 830 | |
| Receivables from affiliated companies | 157 | | | 76 | |
| Notes receivable from affiliated companies | — | | | 164 | |
| Inventory | 1,375 | | | 1,423 | |
| Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 758 | | | 946 | |
| Other (includes $39 at 2020 and 2019 related to VIEs) | 109 | | | 210 | |
| Total current assets | 3,587 | | | 3,917 | |
| Property, Plant and Equipment | | | |
| Cost | 57,892 | | | 55,070 | |
| Accumulated depreciation and amortization | (18,368) | | | (17,159) | |
| Generation facilities to be retired, net | 29 | | | 246 | |
| Net property, plant and equipment | 39,553 | | | 38,157 | |
| Other Noncurrent Assets | | | |
| Goodwill | 3,655 | | | 3,655 | |
| Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 5,775 | | | 6,346 | |
| Nuclear decommissioning trust funds | 4,137 | | | 3,782 | |
| Operating lease right-of-use assets, net | 690 | | | 788 | |
| Other | 1,227 | | | 1,049 | |
| Total other noncurrent assets | 15,484 | | | 15,620 | |
| Total Assets | $ | 58,624 | | | $ | 57,694 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 919 | | | $ | 1,104 | |
| Accounts payable to affiliated companies | 289 | | | 310 | |
| Notes payable to affiliated companies | 2,969 | | | 1,821 | |
| Taxes accrued | 121 | | | 46 | |
| Interest accrued | 202 | | | 228 | |
| Current maturities of long-term debt (includes $305 at 2020 and $54 at 2019 related to VIEs) | 1,426 | | | 1,577 | |
| Asset retirement obligations | 283 | | | 485 | |
| Regulatory liabilities | 640 | | | 330 | |
| Other | 793 | | | 902 | |
| Total current liabilities | 7,642 | | | 6,803 | |
| Long-Term Debt (includes $1,252 at 2020 and $1,632 at 2019 related to VIEs) | 17,688 | | | 17,907 | |
| Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 4,396 | | | 4,462 | |
| Asset retirement obligations | 5,866 | | | 5,986 | |
| Regulatory liabilities | 5,051 | | | 5,225 | |
| Operating lease liabilities | 623 | | | 697 | |
| Accrued pension and other post-retirement benefit costs | 505 | | | 488 | |
| Other | 462 | | | 383 | |
| Total other noncurrent liabilities | 16,903 | | | 17,241 | |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | |
| Common stock, $0.01 par value, 100 shares authorized and outstanding at 2020 and 2019 | — | | | — | |
| Additional paid-in capital | 9,143 | | | 9,143 | |
| Retained earnings | 7,109 | | | 6,465 | |
| Accumulated other comprehensive loss | (15) | | | (18) | |
| Total Progress Energy, Inc. stockholder's equity | 16,237 | | | 15,590 | |
| Noncontrolling interests | 4 | | | 3 | |
| Total equity | 16,241 | | | 15,593 | |
| Total Liabilities and Equity | $ | 58,624 | | | $ | 57,694 | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 1,046 | | | $ | 1,327 | | | $ | 1,033 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization and accretion (including amortization of nuclear fuel) | 2,327 | | | 2,207 | | | 1,987 | |
| Equity component of AFUDC | (42) | | | (66) | | | (104) | |
| | | | | |
| | | | | |
| | | | | |
| Gains on sales of other assets | (9) | | | — | | | (24) | |
| Impairment charges | 495 | | | (24) | | | 87 | |
| Deferred income taxes | (197) | | | 433 | | | 358 | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (384) | | | (412) | | | (230) | |
| | | | | |
| Provision for rate refunds | 2 | | | 15 | | | 122 | |
| (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | (9) | | | (34) | | | 18 | |
| Receivables | (69) | | | 47 | | | (207) | |
| Receivables from affiliated companies | (81) | | | 81 | | | (137) | |
| Inventory | 49 | | | 62 | | | 121 | |
| Other current assets | 223 | | | 184 | | | (12) | |
| Increase (decrease) in | | | | | |
| Accounts payable | (62) | | | (4) | | | 217 | |
| Accounts payable to affiliated companies | (21) | | | (50) | | | 109 | |
| Taxes accrued | 75 | | | (74) | | | 8 | |
| Other current liabilities | 139 | | | 25 | | | 129 | |
| Other assets | (128) | | | (341) | | | (896) | |
| Other liabilities | (177) | | | (167) | | | (35) | |
| Net cash provided by operating activities | 3,177 | | | 3,209 | | | 2,544 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (3,488) | | | (3,952) | | | (3,854) | |
| | | | | |
| Purchases of debt and equity securities | (5,998) | | | (1,511) | | | (1,753) | |
| Proceeds from sales and maturities of debt and equity securities | 6,010 | | | 1,504 | | | 1,769 | |
| | | | | |
| | | | | |
| | | | | |
| Notes receivable from affiliated companies | 164 | | | (164) | | | 240 | |
| | | | | |
| Other | (160) | | | (190) | | | (162) | |
| Net cash used in investing activities | (3,472) | | | (4,313) | | | (3,760) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 1,791 | | | 2,187 | | | 1,833 | |
| Payments for the redemption of long-term debt | (2,157) | | | (1,667) | | | (771) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Notes payable to affiliated companies | 1,148 | | | 586 | | | 430 | |
| | | | | |
| | | | | |
| | | | | |
| Dividends to parent | (400) | | | — | | | (250) | |
| Other | (13) | | | 12 | | | (1) | |
| Net cash provided by financing activities | 369 | | | 1,118 | | | 1,241 | |
| Net increase in cash, cash equivalents, and restricted cash | 74 | | | 14 | | | 25 | |
| Cash, cash equivalents, and restricted cash at beginning of period | 126 | | | 112 | | | 87 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 200 | | | $ | 126 | | | $ | 112 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 819 | | | $ | 892 | | | $ | 798 | |
| Cash paid for (received from) income taxes | 149 | | | (79) | | | (348) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 363 | | | 447 | | | 478 | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Accumulated Other Comprehensive Income (Loss) | | | | | | |
| | | | | | | Net Gains | | Net Unrealized | | | | Total Progress | | | | |
| | | Additional | | | | (Losses) on | | Gains (Losses) | | Pension and | | Energy, Inc. | | | | |
| | | Paid-in | | Retained | | Cash Flow | | on Available-for- | | OPEB | | Stockholder's | | Noncontrolling | | Total |
| (in millions) | | | Capital | | Earnings | | Hedges | | Sale Securities | | Adjustments | | Equity | | Interests | | Equity |
| Balance at December 31, 2017 | | | $ | 9,143 | | | $ | 4,350 | | | $ | (18) | | | $ | 5 | | | $ | (12) | | | $ | 13,468 | | | $ | (3) | | | $ | 13,465 | |
| Net income | | | — | | | 1,027 | | | — | | | — | | | — | | | 1,027 | | | 6 | | | 1,033 | |
| Other comprehensive income (loss) | | | — | | | — | | | 6 | | | (1) | | | 5 | | | 10 | | | — | | | 10 | |
| | | | | | | | | | | | | | | | | |
| Distributions to noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
| | | | | | | | | | | | | | | | | |
| Dividends to parent | | | — | | | (250) | | | — | | | — | | | — | | | (250) | | | — | | | (250) | |
| | | | | | | | | | | | | | | | | |
Other(a) | | | — | | | 4 | | | — | | | (5) | | | — | | | (1) | | | 1 | | | 0 | |
| Balance at December 31, 2018 | | | $ | 9,143 | | | $ | 5,131 | | | $ | (12) | | | $ | (1) | | | $ | (7) | | | $ | 14,254 | | | $ | 3 | | | $ | 14,257 | |
| Net income | | | — | | | 1,327 | | | — | | | — | | | — | | | 1,327 | | | — | | | 1,327 | |
| Other comprehensive income | | | — | | | — | | | 5 | | | 1 | | | 2 | | | 8 | | | — | | | 8 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Other(b) | | | — | | | 7 | | | (3) | | | (1) | | | (2) | | | 1 | | | — | | | 1 | |
| Balance at December 31, 2019 | | | $ | 9,143 | | | $ | 6,465 | | | $ | (10) | | | $ | (1) | | | $ | (7) | | | $ | 15,590 | | | $ | 3 | | | $ | 15,593 | |
| Net income | | | — | | | 1,045 | | | — | | | — | | | — | | | 1,045 | | | 1 | | | 1,046 | |
| Other comprehensive income (loss) | | | — | | | — | | | 5 | | | (1) | | | (1) | | | 3 | | | — | | | 3 | |
| | | | | | | | | | | | | | | | | |
| Dividends to parent | | | — | | | (400) | | | — | | | — | | | — | | | (400) | | | — | | | (400) | |
| | | | | | | | | | | | | | | | | |
| Other | | | — | | | (1) | | | — | | | — | | | — | | | (1) | | | — | | | (1) | |
| Balance at December 31, 2020 | | | $ | 9,143 | | | $ | 7,109 | | | $ | (5) | | | $ | (2) | | | $ | (8) | | | $ | 16,237 | | | $ | 4 | | | $ | 16,241 | |
(a) Amounts in Retained Earnings and AOCI represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information.
(b) Amounts in Retained Earnings and AOCI primarily represent impacts to accumulated other comprehensive income due to implementation of a new accounting standard related to Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission and by the South Carolina Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $4.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1930.
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 5,422 | | | $ | 5,957 | | | $ | 5,699 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 1,743 | | | 2,012 | | | 1,892 | |
| Operation, maintenance and other | 1,332 | | | 1,446 | | | 1,578 | |
| Depreciation and amortization | 1,116 | | | 1,143 | | | 991 | |
| Property and other taxes | 167 | | | 176 | | | 155 | |
| Impairment charges | 499 | | | 12 | | | 33 | |
| Total operating expenses | 4,857 | | | 4,789 | | | 4,649 | |
| Gains on Sales of Other Assets and Other, net | 8 | | | — | | | 9 | |
| Operating Income | 573 | | | 1,168 | | | 1,059 | |
| Other Income and Expenses, net | 75 | | | 100 | | | 87 | |
| Interest Expense | 269 | | | 306 | | | 319 | |
| Income Before Income Taxes | 379 | | | 962 | | | 827 | |
| Income Tax (Benefit) Expense | (36) | | | 157 | | | 160 | |
| Net Income and Comprehensive Income | $ | 415 | | | $ | 805 | | | $ | 667 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 39 | | | $ | 22 | |
| Receivables (net of allowance for doubtful accounts of $4 at 2020 and $3 at 2019) | 132 | | | 123 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $19 at 2020 and $5 at 2019) | 500 | | | 489 | |
| Receivables from affiliated companies | 50 | | | 52 | |
| | | |
| Inventory | 911 | | | 934 | |
| Regulatory assets | 492 | | | 526 | |
| Other | 60 | | | 60 | |
| Total current assets | 2,184 | | | 2,206 | |
| Property, Plant and Equipment | | | |
| Cost | 35,759 | | | 34,603 | |
| Accumulated depreciation and amortization | (12,801) | | | (11,915) | |
| Generation facilities to be retired, net | 29 | | | 246 | |
| Net property, plant and equipment | 22,987 | | | 22,934 | |
| Other Noncurrent Assets | | | |
| Regulatory assets | 3,976 | | | 4,152 | |
| Nuclear decommissioning trust funds | 3,500 | | | 3,047 | |
| Operating lease right-of-use assets, net | 346 | | | 387 | |
| Other | 740 | | | 651 | |
| Total other noncurrent assets | 8,562 | | | 8,237 | |
| Total Assets | $ | 33,733 | | | $ | 33,377 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 454 | | | $ | 629 | |
| Accounts payable to affiliated companies | 215 | | | 203 | |
| Notes payable to affiliated companies | 295 | | | 66 | |
| Taxes accrued | 85 | | | 17 | |
| Interest accrued | 99 | | | 110 | |
| Current maturities of long-term debt | 603 | | | 1,006 | |
| Asset retirement obligations | 283 | | | 485 | |
| Regulatory liabilities | 530 | | | 236 | |
| Other | 411 | | | 478 | |
| Total current liabilities | 2,975 | | | 3,230 | |
| Long-Term Debt | 8,505 | | | 7,902 | |
| Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 2,298 | | | 2,388 | |
| Asset retirement obligations | 5,352 | | | 5,408 | |
| Regulatory liabilities | 4,394 | | | 4,232 | |
| Operating lease liabilities | 323 | | | 354 | |
| Accrued pension and other post-retirement benefit costs | 242 | | | 238 | |
| Investment tax credits | 132 | | | 137 | |
| Other | 102 | | | 92 | |
| Total other noncurrent liabilities | 12,843 | | | 12,849 | |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | |
| Member's Equity | 9,260 | | | 9,246 | |
| | | |
| | | |
| | | |
| Total Liabilities and Equity | $ | 33,733 | | | $ | 33,377 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 415 | | | $ | 805 | | | $ | 667 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization (including amortization of nuclear fuel) | 1,299 | | | 1,329 | | | 1,183 | |
| Equity component of AFUDC | (29) | | | (60) | | | (57) | |
| | | | | |
| | | | | |
| | | | | |
| Gains on sales of other assets | (8) | | | — | | | (9) | |
| Impairment charges | 499 | | | 12 | | | 33 | |
| Deferred income taxes | (234) | | | 197 | | | 236 | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (304) | | | (390) | | | (195) | |
| | | | | |
| Provisions for rate refunds | 2 | | | 12 | | | 122 | |
| (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | 1 | | | (6) | | | 5 | |
| Receivables | (4) | | | 21 | | | (107) | |
| Receivables from affiliated companies | 2 | | | (29) | | | (20) | |
| Inventory | 23 | | | 20 | | | 63 | |
| Other current assets | 98 | | | 101 | | | (201) | |
| Increase (decrease) in | | | | | |
| Accounts payable | (127) | | | 32 | | | 219 | |
| Accounts payable to affiliated companies | 12 | | | (75) | | | 99 | |
| Taxes accrued | 68 | | | (46) | | | (11) | |
| Other current liabilities | 157 | | | 68 | | | 46 | |
| Other assets | (207) | | | (205) | | | (465) | |
| Other liabilities | 3 | | | 37 | | | 20 | |
| Net cash provided by operating activities | 1,666 | | | 1,823 | | | 1,628 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (1,581) | | | (2,108) | | | (2,220) | |
| | | | | |
| Purchases of debt and equity securities | (1,555) | | | (842) | | | (1,236) | |
| Proceeds from sales and maturities of debt and equity securities | 1,516 | | | 810 | | | 1,206 | |
| | | | | |
| | | | | |
| | | | | |
| Other | (57) | | | (119) | | | (95) | |
| Net cash used in investing activities | (1,677) | | | (2,259) | | | (2,345) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 1,296 | | | 1,269 | | | 845 | |
| Payments for the redemption of long-term debt | (1,085) | | | (605) | | | (3) | |
| | | | | |
| Notes payable to affiliated companies | 229 | | | (228) | | | 54 | |
| | | | | |
| Distributions to parent | (400) | | | — | | | (175) | |
| | | | | |
| Other | (12) | | | (1) | | | (1) | |
| Net cash provided by financing activities | 28 | | | 435 | | | 720 | |
| Net increase (decrease) in cash and cash equivalents | 17 | | | (1) | | | 3 | |
| Cash and cash equivalents at beginning of period | 22 | | | 23 | | | 20 | |
| Cash and cash equivalents at end of period | $ | 39 | | | $ | 22 | | | $ | 23 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 301 | | | $ | 331 | | | $ | 303 | |
| Cash paid for (received from) income taxes | 123 | | | (30) | | | (112) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 149 | | | 175 | | | 220 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | |
| | | | | Member's | | | | |
| (in millions) | | | | | Equity | | | | |
| Balance at December 31, 2017 | | | | | $ | 7,949 | | | | | |
| Net income | | | | | 667 | | | | | |
| Distribution to parent | | | | | (175) | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2018 | | | | | $ | 8,441 | | | | | |
| Net income | | | | | 805 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2019 | | | | | $ | 9,246 | | | | | |
| Net income | | | | | 415 | | | | | |
| Distribution to parent | | | | | (400) | | | | | |
| | | | | | | | | |
| Other | | | | | (1) | | | | | |
| Balance at December 31, 2020 | | | | | $ | 9,260 | | | | | |
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Florida Public Service Commission (the “Commission”), which has jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $2.1 billion recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commission; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commission, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commission, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commission’s treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commission, including the settlement agreement filed with the Commission subsequent to December 31, 2020, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 2001.
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 5,188 | | | $ | 5,231 | | | $ | 5,021 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 1,737 | | | 2,012 | | | 2,085 | |
| Operation, maintenance and other | 1,131 | | | 1,034 | | | 1,025 | |
| Depreciation and amortization | 702 | | | 702 | | | 628 | |
| Property and other taxes | 381 | | | 392 | | | 374 | |
| Impairment charges | (4) | | | (36) | | | 54 | |
| Total operating expenses | 3,947 | | | 4,104 | | | 4,166 | |
| Gains on Sales of Other Assets and Other, net | 1 | | | — | | | 1 | |
| Operating Income | 1,242 | | | 1,127 | | | 856 | |
| Other Income and Expenses, net | 53 | | | 48 | | | 86 | |
| Interest Expense | 326 | | | 328 | | | 287 | |
| Income Before Income Taxes | 969 | | | 847 | | | 655 | |
| Income Tax Expense | 198 | | | 155 | | | 101 | |
| Net Income | $ | 771 | | | $ | 692 | | | $ | 554 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other Comprehensive Income (Loss), net of tax | | | | | |
| Unrealized (losses) gains on available-for-sale securities | (1) | | | 1 | | | (1) | |
| | | | | |
| | | | | |
| Other Comprehensive (Loss) Income, net of tax | (1) | | | 1 | | | (1) | |
| Comprehensive Income | $ | 770 | | | $ | 693 | | | $ | 553 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 11 | | | $ | 17 | |
| Receivables (net of allowance for doubtful accounts of $4 at 2020 and $3 at 2019) | 94 | | | 96 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $10 at 2020 and $4 at 2019) | 401 | | | 341 | |
| Receivables from affiliated companies | 3 | | | — | |
| Notes receivable from affiliated companies | — | | | 173 | |
| Inventory | 464 | | | 489 | |
| Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 265 | | | 419 | |
| Other (includes $39 at 2020 and 2019 related to VIEs) | 41 | | | 58 | |
| Total current assets | 1,279 | | | 1,593 | |
| Property, Plant and Equipment | | | |
| Cost | 22,123 | | | 20,457 | |
| Accumulated depreciation and amortization | (5,560) | | | (5,236) | |
| Net property, plant and equipment | 16,563 | | | 15,221 | |
| Other Noncurrent Assets | | | |
| | | |
| Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 1,799 | | | 2,194 | |
| Nuclear decommissioning trust funds | 637 | | | 734 | |
| Operating lease right-of-use assets, net | 344 | | | 401 | |
| Other | 335 | | | 311 | |
| Total other noncurrent assets | 3,115 | | | 3,640 | |
| Total Assets | $ | 20,957 | | | $ | 20,454 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 465 | | | $ | 474 | |
| Accounts payable to affiliated companies | 85 | | | 131 | |
| Notes payable to affiliated companies | 196 | | | — | |
| Taxes accrued | 82 | | | 43 | |
| Interest accrued | 69 | | | 75 | |
| Current maturities of long-term debt (includes $305 at 2020 and $54 at 2019 related to VIEs) | 823 | | | 571 | |
| | | |
| Regulatory liabilities | 110 | | | 94 | |
| Other | 374 | | | 415 | |
| Total current liabilities | 2,204 | | | 1,803 | |
| Long-Term Debt (includes $1,002 at 2020 and $1,307 at 2019 related to VIEs) | 7,092 | | | 7,416 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 2,191 | | | 2,179 | |
| | | |
| Asset retirement obligations | 514 | | | 578 | |
| Regulatory liabilities | 658 | | | 993 | |
| Operating lease liabilities | 300 | | | 343 | |
| Accrued pension and other post-retirement benefit costs | 231 | | | 218 | |
| | | |
| Other | 209 | | | 136 | |
| Total other noncurrent liabilities | 4,103 | | | 4,447 | |
| Commitments and Contingencies | 0 | | 0 |
| | | |
| Equity | | | |
| Member's equity | 7,560 | | | 6,789 | |
| | | |
| | | |
| Accumulated other comprehensive loss | (2) | | | (1) | |
| Total equity | 7,558 | | | 6,788 | |
| Total Liabilities and Equity | $ | 20,957 | | | $ | 20,454 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 771 | | | $ | 692 | | | $ | 554 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization and accretion | 1,019 | | | 869 | | | 793 | |
| Equity component of AFUDC | (12) | | | (6) | | | (47) | |
| | | | | |
| Gains on sales of other assets | (1) | | | — | | | (1) | |
| Impairment charges | (4) | | | (36) | | | 54 | |
| Deferred income taxes | 27 | | | 180 | | | 159 | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (80) | | | (22) | | | (35) | |
| (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | (14) | | | (33) | | | 7 | |
| Receivables | (64) | | | 26 | | | (100) | |
| Receivables from affiliated companies | (3) | | | 17 | | | (26) | |
| Inventory | 26 | | | 42 | | | 58 | |
| Other current assets | 40 | | | 156 | | | 59 | |
| Increase (decrease) in | | | | | |
| Accounts payable | 66 | | | (36) | | | (1) | |
| Accounts payable to affiliated companies | (46) | | | 40 | | | 17 | |
| Taxes accrued | 39 | | | (31) | | | 40 | |
| Other current liabilities | (7) | | | (36) | | | 82 | |
| Other assets | 85 | | | (131) | | | (429) | |
| Other liabilities | (181) | | | (213) | | | (75) | |
| Net cash provided by operating activities | 1,661 | | | 1,478 | | | 1,109 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (1,907) | | | (1,844) | | | (1,634) | |
| | | | | |
| Purchases of debt and equity securities | (4,443) | | | (669) | | | (517) | |
| Proceeds from sales and maturities of debt and equity securities | 4,495 | | | 695 | | | 563 | |
| | | | | |
| | | | | |
| Notes receivable from affiliated companies | 173 | | | (173) | | | 313 | |
| | | | | |
| Other | (103) | | | (67) | | | (65) | |
| Net cash used in investing activities | (1,785) | | | (2,058) | | | (1,340) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 495 | | | 918 | | | 988 | |
| Payments for the redemption of long-term debt | (572) | | | (262) | | | (769) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Notes payable to affiliated companies | 196 | | | (108) | | | 108 | |
| | | | | |
| Distribution to parent | — | | | — | | | (75) | |
| | | | | |
| Other | (1) | | | 13 | | | 1 | |
| Net cash provided by financing activities | 118 | | | 561 | | | 253 | |
| Net (decrease) increase in cash, cash equivalents, and restricted cash | (6) | | | (19) | | | 22 | |
| Cash, cash equivalents, and restricted cash at beginning of period | 56 | | | 75 | | | 53 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 50 | | | $ | 56 | | | $ | 75 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 321 | | | $ | 332 | | | $ | 270 | |
| Cash paid for (received from) income taxes | 138 | | | 1 | | | (120) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 214 | | | 272 | | | 258 | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Accumulated | | |
| | | | | | | Other | | |
| | | | | | | Comprehensive | | |
| | | | | | | Income (Loss) | | |
| | | | | | | Net Unrealized | | | | |
| | | | | | | Gains (Losses) on | | | | |
| | | | | | Member's | | Available-for- | | | | Total |
| (in millions) | | | | | Equity | | Sale Securities | | | | Equity |
| Balance at December 31, 2017 | | | | | $ | 5,614 | | | $ | 4 | | | | | $ | 5,618 | |
| Net income | | | | | 554 | | | — | | | | | 554 | |
| Other comprehensive loss | | | | | — | | | (1) | | | | | (1) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Distribution to parent | | | | | (75) | | | — | | | | | (75) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other(a) | | | | | 4 | | | (5) | | | | | (1) | |
| Balance at December 31, 2018 | | | | | $ | 6,097 | | | $ | (2) | | | | | $ | 6,095 | |
| Net income | | | | | 692 | | | — | | | | | 692 | |
| Other comprehensive income | | | | | — | | | 1 | | | | | 1 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balance at December 31, 2019 | | | | | $ | 6,789 | | | $ | (1) | | | | | $ | 6,788 | |
| Net income | | | | | 771 | | | — | | | | | 771 | |
| Other comprehensive loss | | | | | — | | | (1) | | | | | (1) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balance at December 31, 2020 | | | | | $ | 7,560 | | | $ | (2) | | | | | $ | 7,558 | |
(a) Amounts represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information.
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
CriticalAuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Public Utilities Commission of Ohio and by the Kentucky Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric and gas rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $650 million recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 2002.
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | | | | | |
| Regulated electric | $ | 1,405 | | | $ | 1,456 | | | $ | 1,450 | |
| Regulated natural gas | 453 | | | 484 | | | 506 | |
| Nonregulated electric and other | — | | | — | | | 1 | |
| Total operating revenues | 1,858 | | | 1,940 | | | 1,957 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power – regulated | 339 | | | 388 | | | 412 | |
| | | | | |
| Cost of natural gas | 73 | | | 95 | | | 113 | |
| Operation, maintenance and other | 463 | | | 520 | | | 480 | |
| Depreciation and amortization | 278 | | | 265 | | | 268 | |
| Property and other taxes | 324 | | | 308 | | | 290 | |
| | | | | |
| Total operating expenses | 1,477 | | | 1,576 | | | 1,563 | |
| Losses on Sales of Other Assets and Other, net | — | | | — | | | (106) | |
| Operating Income | 381 | | | 364 | | | 288 | |
| Other Income and Expenses, net | 16 | | | 24 | | | 23 | |
| Interest Expense | 102 | | | 109 | | | 92 | |
| Income From Continuing Operations Before Income Taxes | 295 | | | 279 | | | 219 | |
| Income Tax Expense From Continuing Operations | 43 | | | 40 | | | 43 | |
| Income From Continuing Operations | 252 | | | 239 | | | 176 | |
| Loss From Discontinued Operations, net of tax | — | | | (1) | | | — | |
| Net Income and Comprehensive Income | $ | 252 | | | $ | 238 | | | $ | 176 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 14 | | | $ | 17 | |
| Receivables (net of allowance for doubtful accounts of $4 at 2020 and $4 at 2019) | 98 | | | 84 | |
| Receivables from affiliated companies | 102 | | | 92 | |
| | | |
| Inventory | 110 | | | 135 | |
| | | |
| Regulatory assets | 39 | | | 49 | |
| Other | 31 | | | 21 | |
| Total current assets | 394 | | | 398 | |
| Property, Plant and Equipment | | | |
| Cost | 11,022 | | | 10,241 | |
| Accumulated depreciation and amortization | (3,013) | | | (2,843) | |
| | | |
| Net property, plant and equipment | 8,009 | | | 7,398 | |
| Other Noncurrent Assets | | | |
| Goodwill | 920 | | | 920 | |
| Regulatory assets | 610 | | | 549 | |
| Operating lease right-of-use assets, net | 20 | | | 21 | |
| | | |
| | | |
| | | |
| Other | 72 | | | 52 | |
| Total other noncurrent assets | 1,622 | | | 1,542 | |
| Total Assets | $ | 10,025 | | | $ | 9,338 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 279 | | | $ | 288 | |
| Accounts payable to affiliated companies | 68 | | | 68 | |
| Notes payable to affiliated companies | 169 | | | 312 | |
| Taxes accrued | 247 | | | 219 | |
| Interest accrued | 31 | | | 30 | |
| Current maturities of long-term debt | 50 | | | — | |
| | | |
| Asset retirement obligations | 3 | | | 1 | |
| Regulatory liabilities | 65 | | | 64 | |
| Other | 70 | | | 75 | |
| Total current liabilities | 982 | | | 1,057 | |
| Long-Term Debt | 3,014 | | | 2,594 | |
| Long-Term Debt Payable to Affiliated Companies | 25 | | | 25 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 981 | | | 922 | |
| Asset retirement obligations | 108 | | | 79 | |
| Regulatory liabilities | 748 | | | 763 | |
| Operating lease liabilities | 20 | | | 21 | |
| Accrued pension and other post-retirement benefit costs | 113 | | | 100 | |
| | | |
| | | |
| Other | 99 | | | 94 | |
| Total other noncurrent liabilities | 2,069 | | | 1,979 | |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | |
| Common stock, $8.50 par value, 120 million shares authorized; 90 million shares outstanding at 2020 and 2019 | 762 | | | 762 | |
| Additional paid-in capital | 2,776 | | | 2,776 | |
| Retained earnings | 397 | | | 145 | |
| | | |
| Total equity | 3,935 | | | 3,683 | |
| Total Liabilities and Equity | $ | 10,025 | | | $ | 9,338 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 252 | | | $ | 238 | | | $ | 176 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization and accretion | 283 | | | 269 | | | 271 | |
| Equity component of AFUDC | (7) | | | (13) | | | (11) | |
| Losses on sales of other assets | 0 | | | 0 | | | 106 | |
| | | | | |
| Deferred income taxes | 31 | | | 81 | | | 25 | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (2) | | | (8) | | | (3) | |
| Provision for rate refunds | 14 | | | 7 | | | 24 | |
| (Increase) decrease in | | | | | |
| | | | | |
| Receivables | (13) | | | 20 | | | (33) | |
| Receivables from affiliated companies | 9 | | | 22 | | | 19 | |
| Inventory | 25 | | | (9) | | | 7 | |
| Other current assets | (18) | | | (5) | | | 16 | |
| Increase (decrease) in | | | | | |
| Accounts payable | 2 | | | (17) | | | (19) | |
| Accounts payable to affiliated companies | 0 | | | (10) | | | 16 | |
| Taxes accrued | 30 | | | 17 | | | 12 | |
| Other current liabilities | 3 | | | 1 | | | 14 | |
| Other assets | (32) | | | (26) | | | (24) | |
| Other liabilities | (2) | | | (41) | | | (26) | |
| Net cash provided by operating activities | 575 | | | 526 | | | 570 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (834) | | | (952) | | | (827) | |
| | | | | |
| | | | | |
| Notes receivable from affiliated companies | (19) | | | — | | | 14 | |
| | | | | |
| Other | (48) | | | (68) | | | (89) | |
| Net cash used in investing activities | (901) | | | (1,020) | | | (902) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 467 | | | 1,003 | | | 99 | |
| Payments for the redemption of long-term debt | — | | | (551) | | | (3) | |
| Notes payable to affiliated companies | (144) | | | 38 | | | 245 | |
| | | | | |
| | | | | |
| Net cash provided by financing activities | 323 | | | 490 | | | 341 | |
| Net (decrease) increase in cash and cash equivalents | (3) | | | (4) | | | 9 | |
| Cash and cash equivalents at beginning of period | 17 | | | 21 | | | 12 | |
| Cash and cash equivalents at end of period | $ | 14 | | | $ | 17 | | | $ | 21 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 97 | | | $ | 97 | | | $ | 87 | |
| Cash received from income taxes | — | | | (37) | | | (6) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 104 | | | 109 | | | 95 | |
| Non-cash equity contribution from parent | — | | | — | | | 106 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | Additional | | Retained | | | | |
| Common | | Paid-in | | Earnings | | | | Total |
| (in millions) | Stock | | Capital | | (Deficit) | | | | Equity |
| Balance at December 31, 2017 | $ | 762 | | | $ | 2,670 | | | $ | (269) | | | | | $ | 3,163 | |
| Net income | — | | | — | | | 176 | | | | | 176 | |
| Contribution from parent | — | | | 106 | | | — | | | | | 106 | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2018 | $ | 762 | | | $ | 2,776 | | | $ | (93) | | | | | $ | 3,445 | |
| Net income | — | | | — | | | 238 | | | | | 238 | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2019 | $ | 762 | | | $ | 2,776 | | | $ | 145 | | | | | $ | 3,683 | |
| Net income | — | | | — | | | 252 | | | | | 252 | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2020 | $ | 762 | | | $ | 2,776 | | | $ | 397 | | | | | $ | 3,935 | |
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Indiana Utility Regulatory Commission (the “Commission”), which has jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $1.3 billion recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commission; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commission, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commission, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commission’s treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commission, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
Duke Energy Indiana Coal Ash Asset Retirement Obligations – Refer to Notes 3, 4, and 9 to the financial statements
Critical Audit Matter Description
Duke Energy Indiana has asset retirement obligations associated with coal ash impoundments at operating and retired coal generation facilities. These legal obligations are the result of Indiana state and federal regulations. There is significant judgment in determining the assumptions used in estimating the closure costs for each site since Duke Energy Indiana does not have approved closure plans for certain sites. Potential changes to the projected closure costs for each site as well as probability weightings for the cash flows associated with the different potential closure methods (“probability weightings”) creates estimation uncertainty. The liability for coal ash asset retirement obligations at Duke Energy Indiana was $1,140 million at December 31, 2020.
We identified the asset retirement obligations associated with coal ash impoundments at Duke Energy Indiana as a critical audit matter because of the significant management estimates and assumptions, including projected closure costs as well as the different potential closure methods. The audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to potential changes to the projected closure costs for each site as well as probability weightings for the cash flows associated with the different potential closure methods required a high degree of auditor judgment and an increased extent of effort, including the need to involve our environmental specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the underlying estimated closure costs for coal ash asset retirement obligations at Duke Energy Indiana included the following, among others:
•We tested the effectiveness of controls over management’s coal ash asset retirement obligation estimate, including those over management’s determination of the estimated closure costs and probability weightings.
•We evaluated management’s ability to accurately estimate future closure costs by comparing actual closure costs to management’s historical estimates.
•We tested the mathematical accuracy of management’s coal ash asset retirement obligation calculations, including the application of probability weightings.
•We made inquiries of internal and external legal counsel regarding the status of the legal matters associated with the probability weightings.
•We inspected the opinions from internal and external legal counsel supporting the probability weightings.
•We inspected the Company’s filings with and orders from the Indiana Department of Environmental Management, for evidence that might contradict management’s assertions regarding the estimated closure costs and probability weightings.
•With the assistance of our environmental specialists, we evaluated the reasonableness of management’s estimated closure costs by comparing the costs to actual costs incurred at comparable coal ash impoundments, underlying contracts, and publicly available industry cost data, as applicable.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 2002.
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 2,795 | | | $ | 3,004 | | | $ | 3,059 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 767 | | | 935 | | | 1,000 | |
| Operation, maintenance and other | 762 | | | 790 | | | 788 | |
| Depreciation and amortization | 569 | | | 525 | | | 520 | |
| Property and other taxes | 81 | | | 69 | | | 78 | |
| Impairment charges | — | | | — | | | 30 | |
| Total operating expenses | 2,179 | | | 2,319 | | | 2,416 | |
| | | | | |
| Operating Income | 616 | | | 685 | | | 643 | |
| Other Income and Expenses, net | 37 | | | 41 | | | 45 | |
| Interest Expense | 161 | | | 156 | | | 167 | |
| Income Before Income Taxes | 492 | | | 570 | | | 521 | |
| Income Tax Expense | 84 | | | 134 | | | 128 | |
| Net Income and Comprehensive Income | $ | 408 | | | $ | 436 | | | $ | 393 | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 7 | | | $ | 25 | |
| Receivables (net of allowance for doubtful accounts of $3 at 2020 and $3 at 2019) | 55 | | | 60 | |
| Receivables from affiliated companies | 112 | | | 79 | |
| | | |
| Inventory | 473 | | | 517 | |
| Regulatory assets | 125 | | | 90 | |
| Other | 37 | | | 60 | |
| Total current assets | 809 | | | 831 | |
| Property, Plant and Equipment | | | |
| Cost | 17,382 | | | 16,305 | |
| Accumulated depreciation and amortization | (5,661) | | | (5,233) | |
| | | |
| Net property, plant and equipment | 11,721 | | | 11,072 | |
| Other Noncurrent Assets | | | |
| Regulatory assets | 1,203 | | | 1,082 | |
| Operating lease right-of-use assets, net | 55 | | | 57 | |
| | | |
| Other | 253 | | | 234 | |
| Total other noncurrent assets | 1,511 | | | 1,373 | |
| Total Assets | $ | 14,041 | | | $ | 13,276 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 188 | | | $ | 201 | |
| Accounts payable to affiliated companies | 88 | | | 87 | |
| Notes payable to affiliated companies | 131 | | | 30 | |
| Taxes accrued | 62 | | | 49 | |
| Interest accrued | 51 | | | 58 | |
| Current maturities of long-term debt | 70 | | | 503 | |
| Asset retirement obligations | 168 | | | 189 | |
| Regulatory liabilities | 111 | | | 55 | |
| Other | 83 | | | 112 | |
| Total current liabilities | 952 | | | 1,284 | |
| Long-Term Debt | 3,871 | | | 3,404 | |
| Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 1,228 | | | 1,150 | |
| Asset retirement obligations | 1,008 | | | 643 | |
| Regulatory liabilities | 1,627 | | | 1,685 | |
| Operating lease liabilities | 53 | | | 55 | |
| Accrued pension and other post-retirement benefit costs | 171 | | | 148 | |
| Investment tax credits | 168 | | | 164 | |
| Other | 30 | | | 18 | |
| Total other noncurrent liabilities | 4,285 | | | 3,863 | |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | |
| Member's Equity | 4,783 | | | 4,575 | |
| | | |
| | | |
| Total Liabilities and Equity | $ | 14,041 | | | $ | 13,276 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 408 | | | $ | 436 | | | $ | 393 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization, and accretion | 572 | | | 531 | | | 524 | |
| Equity component of AFUDC | (23) | | | (18) | | | (32) | |
| | | | | |
| Impairment charges | — | | | — | | | 30 | |
| Deferred income taxes | 29 | | | 156 | | | 95 | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (63) | | | (48) | | | (69) | |
| Provision for rate refunds | — | | | — | | | 53 | |
| (Increase) decrease in | | | | | |
| | | | | |
| Receivables | 8 | | | (8) | | | 7 | |
| Receivables from affiliated companies | 0 | | | 41 | | | 3 | |
| Inventory | 44 | | | (95) | | | 28 | |
| Other current assets | (3) | | | 76 | | | (25) | |
| Increase (decrease) in | | | | | |
| Accounts payable | (12) | | | (10) | | | 37 | |
| Accounts payable to affiliated companies | 1 | | | 4 | | | 5 | |
| Taxes accrued | 13 | | | (25) | | | (52) | |
| Other current liabilities | 6 | | | 15 | | | 14 | |
| Other assets | (68) | | | (74) | | | 26 | |
| Other liabilities | 26 | | | 16 | | | (31) | |
| Net cash provided by operating activities | 938 | | | 997 | | | 1,006 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (888) | | | (876) | | | (832) | |
| Purchases of debt and equity securities | (37) | | | (26) | | | (48) | |
| Proceeds from sales and maturities of debt and equity securities | 22 | | | 20 | | | 44 | |
| | | | | |
| Notes receivable from affiliated companies | (33) | | | — | | | — | |
| | | | | |
| Other | 48 | | | (49) | | | 18 | |
| Net cash used in investing activities | (888) | | | (931) | | | (818) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 544 | | | 485 | | | — | |
| Payments for the redemption of long-term debt | (513) | | | (213) | | | (3) | |
| Notes payable to affiliated companies | 101 | | | (137) | | | 6 | |
| | | | | |
| Distributions to parent | (200) | | | (200) | | | (175) | |
| Other | — | | | — | | | (1) | |
| Net cash used in financing activities | (68) | | | (65) | | | (173) | |
| Net (decrease) increase in cash and cash equivalents | (18) | | | 1 | | | 15 | |
| Cash and cash equivalents at beginning of period | 25 | | | 24 | | | 9 | |
| Cash and cash equivalents at end of period | $ | 7 | | | $ | 25 | | | $ | 24 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 164 | | | $ | 150 | | | $ | 162 | |
| Cash paid for (received from) income taxes | 36 | | | (6) | | | 75 | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 101 | | | 102 | | | 88 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | Member's | | | | |
| (in millions) | | | | | | | Equity | | | | |
| Balance at December 31, 2017 | | | | | | | $ | 4,121 | | | | | |
| Net income | | | | | | | 393 | | | | | |
| | | | | | | | | | | |
| Distributions to parent | | | | | | | (175) | | | | | |
| | | | | | | | | | | |
| Balance at December 31, 2018 | | | | | | | $ | 4,339 | | | | | |
| Net income | | | | | | | 436 | | | | | |
| | | | | | | | | | | |
| Distributions to parent | | | | | | | (200) | | | | | |
| | | | | | | | | | | |
| Balance at December 31, 2019 | | | | | | | $ | 4,575 | | | | | |
| Net income | | | | | | | 408 | | | | | |
| Distributions to parent | | | | | | | (200) | | | | | |
| Balance at December 31, 2020 | | | | | | | $ | 4,783 | | | | | |
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission, the Public Service Commission of South Carolina, and the Tennessee Public Utility Commission (collectively the “Commissions”), which have jurisdiction with respect to the gas rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $450 million recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1951.
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | | | | | |
| Regulated natural gas | $ | 1,286 | | | $ | 1,369 | | | $ | 1,365 | |
| Nonregulated natural gas and other | 11 | | | 12 | | | 10 | |
| | | | | |
| Total operating revenues | 1,297 | | | 1,381 | | | 1,375 | |
| Operating Expenses | | | | | |
| Cost of natural gas | 386 | | | 532 | | | 584 | |
| Operation, maintenance and other | 322 | | | 328 | | | 357 | |
| Depreciation and amortization | 180 | | | 172 | | | 159 | |
| Property and other taxes | 53 | | | 45 | | | 49 | |
| Impairment charges | 7 | | | — | | | — | |
| Total operating expenses | 948 | | | 1,077 | | | 1,149 | |
| | | | | |
| Operating Income | 349 | | | 304 | | | 226 | |
| Equity in earnings of unconsolidated affiliates | 9 | | | 8 | | | 7 | |
| | | | | |
| Other income and expense, net | 51 | | | 20 | | | 14 | |
| Total other income and expenses | 60 | | | 28 | | | 21 | |
| Interest Expense | 118 | | | 87 | | | 81 | |
| Income Before Income Taxes | 291 | | | 245 | | | 166 | |
| Income Tax Expense | 18 | | | 43 | | | 37 | |
| Net Income and Comprehensive Income | $ | 273 | | | $ | 202 | | | $ | 129 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| | | |
| Receivables (net of allowance for doubtful accounts of $12 at 2020 and $6 at 2019) | $ | 250 | | | $ | 241 | |
| Receivables from affiliated companies | 10 | | | 10 | |
| Inventory | 68 | | | 72 | |
| Regulatory assets | 153 | | | 73 | |
| | | |
| Other | 20 | | | 28 | |
| Total current assets | 501 | | | 424 | |
| Property, Plant and Equipment | | | |
| Cost | 9,134 | | | 8,446 | |
| Accumulated depreciation and amortization | (1,749) | | | (1,681) | |
| Net property, plant and equipment | 7,385 | | | 6,765 | |
| Other Noncurrent Assets | | | |
| Goodwill | 49 | | | 49 | |
| Regulatory assets | 302 | | | 290 | |
| Operating lease right-of-use assets, net | 20 | | | 24 | |
| Investments in equity method unconsolidated affiliates | 88 | | | 83 | |
| Other | 270 | | | 121 | |
| Total other noncurrent assets | 729 | | | 567 | |
| Total Assets | $ | 8,615 | | | $ | 7,756 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 230 | | | $ | 215 | |
| Accounts payable to affiliated companies | 79 | | | 3 | |
| | | |
| Notes payable to affiliated companies | 530 | | | 476 | |
| Taxes accrued | 23 | | | 24 | |
| Interest accrued | 34 | | | 33 | |
| Current maturities of long-term debt | 160 | | | 0 | |
| Regulatory liabilities | 88 | | | 81 | |
| Other | 69 | | | 67 | |
| Total current liabilities | 1,213 | | | 899 | |
| Long-Term Debt | 2,620 | | | 2,384 | |
| | | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 821 | | | 708 | |
| Asset retirement obligations | 20 | | | 17 | |
| Regulatory liabilities | 1,044 | | | 1,131 | |
| Operating lease liabilities | 19 | | | 23 | |
| Accrued pension and other post-retirement benefit costs | 8 | | | 3 | |
| Other | 155 | | | 148 | |
| Total other noncurrent liabilities | 2,067 | | | 2,030 | |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | |
| Common stock, 0 par value: 100 shares authorized and outstanding at 2020 and 2019 | 1,310 | | | 1,310 | |
| | | |
| Retained earnings | 1,405 | | | 1,133 | |
| | | |
| Total equity | 2,715 | | | 2,443 | |
| Total Liabilities and Equity | $ | 8,615 | | | $ | 7,756 | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 273 | | | $ | 202 | | | $ | 129 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 182 | | | 174 | | | 161 | |
| Equity component of AFUDC | (19) | | | — | | | — | |
| | | | | |
| Impairment charges | 7 | | | — | | | — | |
| Deferred income taxes | 53 | | | 136 | | | (31) | |
| Equity in (earnings) losses from unconsolidated affiliates | (9) | | | (8) | | | (7) | |
| | | | | |
| | | | | |
| | | | | |
| Provision for rate refunds | (33) | | | 2 | | | 43 | |
| (Increase) decrease in | | | | | |
| | | | | |
| Receivables | 10 | | | 28 | | | 7 | |
| Receivables from affiliated companies | — | | | 12 | | | (15) | |
| Inventory | 3 | | | (2) | | | (4) | |
| Other current assets | (66) | | | (25) | | | 71 | |
| Increase (decrease) in | | | | | |
| Accounts payable | 16 | | | (7) | | | 15 | |
| Accounts payable to affiliated companies | 76 | | | (35) | | | 25 | |
| Taxes accrued | 3 | | | (60) | | | 65 | |
| Other current liabilities | (11) | | | 1 | | | 21 | |
| Other assets | (11) | | | 1 | | | 3 | |
| Other liabilities | 7 | | | (10) | | | (5) | |
| Net cash provided by operating activities | 481 | | | 409 | | | 478 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (901) | | | (1,053) | | | (721) | |
| Contributions to equity method investments | — | | | (16) | | | — | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other | (28) | | | (14) | | | (10) | |
| Net cash used in investing activities | (929) | | | (1,083) | | | (731) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 394 | | | 596 | | | 100 | |
| | | | | |
| Payments for the redemption of long-term debt | — | | | (350) | | | — | |
| | | | | |
| | | | | |
| Notes payable to affiliated companies | 54 | | | 278 | | | (166) | |
| | | | | |
| | | | | |
| Capital contribution from parent | — | | | 150 | | | 300 | |
| | | | | |
| | | | | |
| | | | | |
| Net cash provided by financing activities | 448 | | | 674 | | | 234 | |
| Net decrease in cash and cash equivalents | — | | | — | | | (19) | |
| Cash and cash equivalents at beginning of period | — | | | — | | | 19 | |
| Cash and cash equivalents at end of period | $ | — | | | $ | — | | | $ | — | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 115 | | | $ | 84 | | | $ | 79 | |
| Cash received from income taxes | (36) | | | (31) | | | (16) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 106 | | | 109 | | | 96 | |
| | | | | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Common | | Retained | | | | Total |
| (in millions) | Stock | | Earnings | | | | Equity |
| Balance at December 31, 2017 | $ | 860 | | | $ | 802 | | | | | $ | 1,662 | |
| Net income | — | | | 129 | | | | | 129 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Contribution from parent | 300 | | | — | | | | | 300 | |
| | | | | | | |
| Balance at December 31, 2018 | $ | 1,160 | | | $ | 931 | | | | | $ | 2,091 | |
| Net income | — | | | 202 | | | | | 202 | |
| | | | | | | |
| Contribution from parent | 150 | | | — | | | | | 150 | |
| | | | | | | |
| Balance at December 31, 2019 | $ | 1,310 | | | $ | 1,133 | | | | | $ | 2,443 | |
| Net income | — | | | 273 | | | | | 273 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Other | — | | | (1) | | | | | (1) | |
| Balance at December 31, 2020 | $ | 1,310 | | | $ | 1,405 | | | | | $ | 2,715 | |
See Notes to Consolidated Financial Statements
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 | 1 | | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | 21 | 22 | 23 | 24 | 25 | |
| Duke Energy | • | | • | • | • | • | • | • | • | • | • | • | • | | • | • | • | • | • | • | • | • | • | • | • | • | |
| Duke Energy Carolinas | • | | • | • | • | • | • | | • | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Progress Energy | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Duke Energy Progress | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Duke Energy Florida | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Duke Energy Ohio | • | | • | • | • | • | • | | | • | • | • | | • | • | | • | • | • | | • | • | • | • | • | • | |
| Duke Energy Indiana | • | | • | • | • | • | • | | • | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Piedmont | • | | • | • | • | • | • | | | • | • | • | • | • | • | | • | | • | | • | • | • | • | • | • | |
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 is an energy company headquartered in Charlotte, North Carolina, subject to regulation by the FERC and other regulatory agencies listed below. Duke Energy operates in the U.S. primarily through its direct and indirect subsidiaries. Certain Duke Energy subsidiaries are also subsidiary registrants, including Duke Energy Carolinas; Progress Energy; 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 its separate Subsidiary Registrants, which along with Duke Energy, are collectively referred to as the Duke Energy Registrants.
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 or VIEs where the respective Duke Energy Registrants have control. See Note 17 for additional information on VIEs. These Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain jointly owned generation and transmission facilities. See Note 8 for additional information on joint ownership. Substantially all of the Subsidiary Registrants' operations qualify for regulatory accounting.
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 NCUC, PSCSC, NRC and FERC.
Progress Energy is a public utility holding company, which conducts operations through its wholly owned subsidiaries, Duke Energy Progress and Duke Energy Florida. Progress Energy is subject to regulation by FERC and other regulatory agencies listed below.
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 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. 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 PUCO, KPSC and FERC.
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 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, TPUC and FERC.
Certain prior year amounts have been reclassified to conform to the current year presentation.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
COVID-19
The COVID-19 pandemic is having a significant impact on global health and economic environments. In March 2020, the World Health Organization declared COVID-19 a global pandemic, and the federal government proclaimed that the COVID-19 outbreak in the United States constitutes a national emergency. The Duke Energy Registrants are monitoring developments closely and responding appropriately. The company incurred approximately $112 million of incremental COVID-19 costs before deferral for the year ended December 31, 2020, included in Operation, maintenance and other on the Consolidated Statements of Operations. Further, the company waived approximately $64 million of late payment fees for the year ended December 31, 2020. The company has deferred approximately $76 million of the incremental costs, which were primarily bad debt expense, personal protective equipment and cleaning supplies, and a cost component of late payment fees. See Notes 3, 6, 17, 18 and 23 for additional information as well as steps taken to mitigate the impacts to our business and customers from the COVID-19 pandemic.
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% of total Current Assets or Current Liabilities on the Duke Energy Registrants' Consolidated Balance Sheets at either December 31, 2020, or 2019.
| | | | | | | | | | | | | | | | | |
| | | December 31, |
| (in millions) | Location | | 2020 | | 2019 |
| Duke Energy | | | | | |
| | | | | |
| Other accrued liabilities | Current Liabilities | | $ | 1,455 | | | $ | 604 | |
| Accrued compensation | Current Liabilities | | 662 | | | 862 | |
| Duke Energy Carolinas | | | | | |
| Accrued compensation | Current Liabilities | | $ | 213 | | | $ | 271 | |
| Other accrued liabilities | Current Liabilities | | 178 | | | 147 | |
| Progress Energy | | | | | |
| | | | | |
| Customer deposits | Current Liabilities | | $ | 347 | | | $ | 354 | |
| | | | | |
| | | | | |
| | | | | |
| Duke Energy Florida | | | | | |
| Customer deposits | Current Liabilities | | $ | 203 | | | $ | 209 | |
| | | | | |
| Duke Energy Ohio | | | | | |
| Gas Storage | Current Assets | | $ | 21 | | | $ | 0 | |
| | | | | |
| Duke Energy Indiana | | | | | |
| Income taxes receivable | Current Assets | | $ | 9 | | | $ | 44 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Discontinued 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. For the years ended December 31, 2020, 2019 and 2018, the Income Taxes(Loss) From Discontinued Operations, net of tax on Duke Energy's Consolidated Statements of Operations is entirely attributable to controlling interest.
Noncontrolling Interest
Duke Energy maintains a controlling financial interest in certain less than wholly owned nonregulated subsidiaries. As a result, Duke Energy consolidates these subsidiaries and presents the third-party investors' portion of Duke Energy's net income (loss), net assets and comprehensive income (loss) as noncontrolling interest. Noncontrolling interest is included as a component of equity on the Consolidated Balance Sheet.
Several operating agreements of Duke Energy's subsidiaries with noncontrolling interest are subject to allocations of tax attributes and cash flows in accordance with contractual agreements that vary throughout the lives of the subsidiaries. Therefore, Duke Energy and the other investors' (the owners) interests in the subsidiaries are not fixed, and the subsidiaries apply the HLBV method in allocating income or loss and other comprehensive income or loss (all measured on a pretax basis) to the owners. The HLBV method measures the amounts that each owner would hypothetically claim at each balance sheet reporting date, including tax benefits realized by the owners, most of which is over the IRS recapture period, upon a hypothetical liquidation of the subsidiary at the net book value of its underlying assets. The change in the amount that each owner would hypothetically receive at the reporting date compared to the amount it would have received on the previous reporting date represents the amount of income or loss allocated to each owner for the reporting period.
Other operating agreements of Duke Energy's subsidiaries with noncontrolling interest allocate profit and loss based on their pro rata shares of the ownership interest in the respective subsidiary. Therefore, Duke Energy allocates net income or loss and other comprehensive income or loss of these subsidiaries to the owners based on their pro rata shares.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
During the third quarter of 2019, Duke Energy completed a sale of minority interest in a portion of certain renewable assets within the Commercial Renewables Segment for pretax proceeds to Duke Energy of $415 million. The portion of Duke Energy's commercial renewables energy portfolio sold includes 49% of 37 operating wind, solar and battery storage assets and 33% of 11 operating solar assets across the U.S. Duke Energy retained control of these assets, and, therefore, no gain or loss was recognized on the Consolidated Statements of Operations. The difference between the consideration received and the carrying value of the noncontrolling interest claim on net assets is $466 million, net of tax benefit of $8 million, and was recorded to equity.
The following table presents cash received for the sale of noncontrolling interest and allocated losses to noncontrolling interest for the years ended December 31, 2020, and 2019.
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2020 | | 2019 |
| Noncontrolling Interest Capital Contributions | | | |
| Cash received for the sale of noncontrolling interest to tax equity members | $ | 426 | | | $ | 428 | |
| Cash received for the sale of noncontrolling interest to pro rata share members | — | | | 415 | |
| Total Noncontrolling Interest Capital Contributions | $ | 426 | | | $ | 843 | |
| Noncontrolling Interest Allocation of Income | | | |
| Allocated losses to noncontrolling tax equity members utilizing the HLBV method | $ | 271 | | | $ | 165 | |
| Allocated losses to noncontrolling members based on pro rata shares of ownership | 24 | | | 12 | |
| Total Noncontrolling Interest Allocated Losses | $ | 295 | | | $ | 177 | |
2021 Sale of Minority Interest in Duke Energy Indiana
In January 2021, Duke Energy entered into a definitive agreement providing for the sale of a 19.9% minority interest in Duke Energy Indiana with an affiliate of GIC, Singapore's sovereign wealth fund and an experienced investor in U.S. infrastructure. To facilitate the transaction, Duke Energy will issue and sell membership interests in Duke Energy Indiana Holdco, LLC. a newly created holding company that will own 100% of the issued and outstanding membership interests in Duke Energy Indiana. The transaction will be completed following two closings for an aggregate purchase price of approximately $2 billion. The first closing is expected to be completed in the second quarter of 2021 and Duke Energy will issue and sell 11.1% of the membership interests in exchange for 50% of the purchase price. Under the terms of the agreement, Duke Energy has the discretion to determine the timing of the second closing, but it will occur no later than January 2023. At the second closing, Duke Energy will issue and sell additional membership interests such that GIC will own 19.9% of the membership interests for the remaining 50% of the purchase price. Duke Energy will continue to operate and retain control of Duke Energy Indiana and, therefore, no gain or loss is expected to be recognized in the Consolidated Statements of Operations. Additionally, the transaction will be reflected within Duke Energy Corporations' stockholders' equity as a sale of a noncontrolling interest.
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.
Significant Accounting Policies
Use of Estimates
In preparing financial statements that conform to GAAP, 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. Regulatory assets are reviewed for recoverability each reporting period. If a regulatory asset is no longer deemed probable of recovery, the deferred cost is charged to earnings. See Note 3 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. 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. These disallowances can require judgments on allowed future rate recovery.
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| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 charge for a disallowance of costs for regulated plants under construction, recently completed or abandoned is based on discounted cash flows.
The Duke Energy Registrants utilize cost-tracking mechanisms, commonly referred to as fuel adjustment clauses or PGA clauses. 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, Cash Equivalents and Restricted Cash
All highly liquid investments with maturities of three months or less at the date of acquisition are considered cash equivalents. Duke Energy, Progress Energy and Duke Energy Florida have restricted cash balances related primarily to collateral assets, escrow deposits and VIEs. See Note 17 for additional information. Restricted cash amounts are included in Other within Current Assets and Other Noncurrent Assets on the Consolidated Balance Sheets. The following table presents the components of cash, cash equivalents and restricted cash included in the Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| | | Duke | | | | Duke |
| Duke | Progress | Energy | | Duke | Progress | Energy |
| Energy | Energy | Florida | | Energy | Energy | Florida |
| Current Assets | | | | | | | |
| Cash and cash equivalents | $ | 259 | | $ | 59 | | $ | 11 | | | $ | 311 | | $ | 48 | | $ | 17 | |
| Other | 194 | | 39 | | 39 | | | 222 | | 39 | | 39 | |
| Other Noncurrent Assets | | | | | | | |
| Other | 103 | | 102 | | — | | | 40 | | 39 | | — | |
| Total cash, cash equivalents and restricted cash | $ | 556 | | $ | 200 | | $ | 50 | | | $ | 573 | | $ | 126 | | $ | 56 | |
| | | | | | | |
Inventory
Inventory related to regulated operations is valued at historical cost. Inventory related to nonregulated operations is valued at the lower of cost or market. Inventory is charged to expense or capitalized to property, plant and equipment when issued, primarily using the average cost method. Excess or obsolete inventory is written down to the lower of cost or net realizable 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, 2020, and 2019, respectively. The components of inventory are presented in the tables below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Materials and supplies | $ | 2,312 | | | $ | 785 | | | $ | 999 | | | $ | 673 | | | $ | 325 | | | $ | 78 | | | $ | 307 | | | $ | 12 | |
| Coal | 561 | | | 186 | | | 193 | | | 131 | | | 63 | | | 16 | | | 165 | | | — | |
| Natural gas, oil and other | 294 | | | 39 | | | 183 | | | 107 | | | 76 | | | 16 | | | 1 | | | 56 | |
| Total inventory | $ | 3,167 | | | $ | 1,010 | | | $ | 1,375 | | | $ | 911 | | | $ | 464 | | | $ | 110 | | | $ | 473 | | | $ | 68 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Materials and supplies | $ | 2,297 | | | $ | 768 | | | $ | 1,038 | | | $ | 686 | | | $ | 351 | | | $ | 79 | | | $ | 318 | | | $ | 5 | |
| Coal | 586 | | | 187 | | | 186 | | | 138 | | | 48 | | | 15 | | | 198 | | | — | |
| Natural gas, oil and other | 349 | | | 41 | | | 199 | | | 110 | | | 90 | | | 41 | | | 1 | | | 67 | |
| Total inventory | $ | 3,232 | | | $ | 996 | | | $ | 1,423 | | | $ | 934 | | | $ | 489 | | | $ | 135 | | | $ | 517 | | | $ | 72 | |
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Investments in Debt and Equity Securities
The Duke Energy Registrants classify investments in equity securities as FV-NI and investments in debt securities as AFS. Both categories are recorded at fair value on the Consolidated Balance Sheets. Realized and unrealized gains and losses on securities classified as FV-NI are reported through net income. Unrealized gains and losses for debt securities classified as AFS are included in AOCI until realized, unless it is determined the carrying value of an investment has a credit loss. For certain investments of regulated operations, such as substantially all of the NDTF, realized and unrealized gains and losses (including any credit losses) on debt securities are recorded as a regulatory asset or liability. 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
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 a business 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. See Note 11 for further information.
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.
RECs are used to measure compliance with renewable energy standards and are held primarily for consumption. See Note 11 for further information.
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.
Equity Method Investment Impairments
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 whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. If 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.
Impairment assessments use a discounted cash flow income approach and include consideration of the severity and duration of any decline in the fair value of the investments. The estimated cash flows may be based on alternative expected outcomes that are probability weighted. Key inputs that involve estimates and significant management judgment include cash flow projections, selection of a discount rate, probability weighting of potential outcomes, and whether any decline in value is considered temporary.
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| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 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.
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Duke Energy | 3.0 | % | | 3.1 | % | | 3.0 | % |
| Duke Energy Carolinas | 2.8 | % | | 2.8 | % | | 2.8 | % |
| Progress Energy | 3.2 | % | | 3.1 | % | | 2.9 | % |
| Duke Energy Progress | 3.1 | % | | 3.1 | % | | 2.9 | % |
| Duke Energy Florida | 3.3 | % | | 3.1 | % | | 3.0 | % |
| Duke Energy Ohio | 2.9 | % | | 2.6 | % | | 2.8 | % |
| Duke Energy Indiana | 3.5 | % | | 3.3 | % | | 3.3 | % |
| Piedmont | 2.3 | % | | 2.4 | % | | 2.5 | % |
In general, when the Duke Energy Registrants retire regulated property, plant and equipment, the original cost plus the cost of retirement, less salvage value and any depreciation already recognized, is charged to accumulated depreciation. However, when it becomes 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). 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 additional information.
Leases
Duke Energy determines if an arrangement is a lease at contract inception based on whether the arrangement involves the use of a physically distinct identified asset and whether Duke Energy has the right to obtain substantially all of the economic benefits from the use of the asset throughout the period as well as the right to direct the use of the asset. As a policy election, Duke Energy does not evaluate arrangements with initial contract terms of less than one year as leases.
Operating leases are included in Operating lease ROU assets, net, Other current liabilities and Operating lease liabilities on the Consolidated Balance Sheets. Finance leases are included in Property, plant and equipment, Current maturities of long-term debt and Long-Term Debt on the Consolidated Balance Sheets.
For lessee and lessor arrangements, Duke Energy has elected a policy to not separate lease and non-lease components for all asset classes. For lessor arrangements, lease and non-lease components are only combined under one arrangement and accounted for under the lease accounting framework if the non-lease components are not the predominant component of the arrangement and the lease component would be classified as an operating lease.
Nuclear Fuel
Nuclear fuel is classified as Property, Plant and Equipment on the Consolidated Balance Sheets.
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.
Allowance for Funds Used During Construction and Interest Capitalized
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.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
AFUDC equity, a permanent difference for income taxes, reduces the ETR when capitalized and increases the ETR when depreciated or amortized. See Note 23 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.
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 probable of recovery.
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.
Accounts Payable
During 2020, Duke Energy established a supply chain finance program (the “program”) with a global financial institution. The program is voluntary and allows Duke Energy suppliers, at their sole discretion, to sell their receivables from Duke Energy to the financial institution at a rate that leverages Duke Energy’s credit rating and, which may result in favorable terms compared to the rate available to the supplier on their own credit rating. Suppliers participating in the program, determine at their sole discretion which invoices they will sell to the financial institution. Suppliers’ decisions on which invoices are sold do not impact Duke Energy’s payment terms, which are based on commercial terms negotiated between Duke Energy and the supplier regardless of program participation. The commercial terms negotiated between Duke Energy and its subsidiaries file a consolidated federal income tax returnsuppliers are consistent regardless of whether the supplier elects to participate in the program. Duke Energy does not issue any guarantees with respect to the program and does not participate in negotiations between suppliers and the financial institution. Duke Energy does not have an economic interest in the supplier’s decision to participate in the program and receives no interest, fees or other state returns. The Subsidiary Registrants entered into a tax-sharing agreement with Duke Energy. Income taxes recorded represent amountsbenefit from the Subsidiary Registrants would incur as separate C-Corporations. Deferred income taxes have been provided for temporary differences between GAAPfinancial institution based on supplier participation in the program.
At December 31, 2020, $15 million, $1 million 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$14 million of the outstanding Accounts payable balance for Duke Energy, Duke Energy Ohio and Piedmont, respectively, was sold to the financial institution by our suppliers. Suppliers invoices sold to the financial institution under the program totaled $45 million, $9 million and $36 million for the year ended December 31, 2020, for Duke Energy, Duke Energy Ohio and Piedmont, respectively. All activity related properties.
Accumulated deferred income taxes are valued using the enacted tax rate expected to applyamounts due to taxable incomesuppliers who elected to participate in the periods in whichprogram are included within Net cash provided by operating activities on the deferred tax asset or liability is expected to be settled or realized. In the eventConsolidated Statements 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.Cash Flows.
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 | $ | 10,950 |
| | $ | 10,975 |
| | $ | 9,050 |
|
Debt maturities and reduction in short-term debt(a) | 3,135 |
| | 3,500 |
| | 2,850 |
|
Dividend payments(b) | 2,575 |
| | 2,750 |
| | 2,875 |
|
Sources: | | | | | |
| Net cash flows from operations | $ | 7,945 |
| | $ | 9,150 |
| | $ | 9,390 |
|
Debt issuances and increase in short-term debt(c) | 6,000 |
| | 7,100 |
| | 3,050 |
|
Equity issuances(d) | 2,000 |
| | 350 |
| | 350 |
|
| |
(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. |
Among other provisions, the Tax Act lowerslowered the corporate federal income tax rate from 35 percent35% to 21 percent21% and eliminateseliminated bonus depreciation for regulated utilities. For Duke Energy’s regulated operations, the reduction in federal income taxes is expected towill 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 payertaxpayer through at least 2022.2029. As a result, any reduction in customer rates could cause a material reduction in consolidated cash flows from operations in the short-term.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 impactImpacts 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.FERC. See Note 43 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 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.
During March 2020, in response to market volatility and the ongoing economic uncertainty related to COVID-19, Duke Energy took several actions to enhance the company's liquidity position including:
•Duke Energy drew down the remaining $500 million of availability under the existing $1 billion Three-Year Revolving Credit Facility. That additional borrowing was subsequently repaid during the second quarter of 2020; and
•Duke Energy entered into and borrowed the full amount under a $1.5 billion, 364-day Term Loan Credit Agreement. The Term Loan Credit Agreement contained a provision for additional borrowing capacity of $500 million. Duke Energy exercised the provision and borrowed an additional $188 million, for a total borrowing of approximately $1.7 billion. By November 2020, Duke Energy repaid the entire borrowing under the 364-day Term Loan.
Following March 2020, access to credit and equity markets has normalized. In addition to the March 2020 financings to address the company's liquidity position, for the year ended December 31, 2020, Duke Energy issued approximately $5.6 billion in debt and raised approximately $2.9 billion of common equity through equity forward agreements and the company's dividend reinvestment and ATM programs. A portion of the proceeds from the equity forward settlements will be used to fully repay Duke Energy's portion of the ACP construction loan of approximately $860 million. Despite the recovery in capital markets, Duke Energy continues to monitor access to credit and equity markets amid the ongoing economic uncertainty related to COVID-19.
| | | | | |
| MD&A | LIQUIDITY AND CAPITAL RESOURCES |
In addition to actions taken by the company, the CARES Act, enacted in March 2020, as an emergency economic stimulus package in response to the COVID-19 pandemic, included provisions providing relief to entities with remaining AMT credit refund allowances. Through the CARES Act, Duke Energy accelerated remaining AMT credit refund allowances and claimed a refund in full for any AMT credit carryforwards. As a result, in the third quarter of 2020, Duke Energy received $572 million related to AMT credit carryforwards and $19 million of interest income. See Note 23 to the Consolidated Financial Statements, "Income Taxes," for additional information.
As of December 31, 2020, Duke Energy had approximately $259 million of cash on hand, $5.6 billion available under its $8 billion Master Credit Facility and $500 million available under the $1 billion Three-Year Revolving Credit Facility. Duke Energy expects to have sufficient liquidity in the form of cash on hand, cash from operations and available credit capacity to support its funding needs. Refer to Notes 6 and 19 to the Consolidated Financial Statements, "Debt and Credit Facilities" and "Stockholders' Equity," respectively, for information regarding Duke Energy's debt and equity issuances, debt maturities and available credit facilities including the Master Credit Facility.
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, including AFUDC debt and capitalized interest, for the next three fiscal years are included in the table below. | | | (in millions) | 2018 |
| 2019 |
| 2020 |
| (in millions) | 2021 | 2022 | 2023 |
| New generation | $ | 780 |
| $ | 260 |
| $ | 135 |
| New generation | $ | 60 | | $ | 20 | | $ | 85 | |
| Regulated renewables | 155 |
| 415 |
| 365 |
| Regulated renewables | 665 | | 710 | | 755 | |
| Environmental | 610 |
| 35 |
| 30 |
| Environmental | 795 | | 820 | | 600 | |
| Nuclear fuel | 500 |
| 410 |
| 455 |
| Nuclear fuel | 425 | | 400 | | 380 | |
| Major nuclear | 390 |
| 335 |
| 230 |
| Major nuclear | 280 | | 270 | | 205 | |
| Customer additions | 490 |
| 485 |
| 515 |
| Customer additions | 565 | | 555 | | 560 | |
| Grid modernization and other transmission and distribution projects | 2,585 |
| 3,515 |
| 3,415 |
| Grid modernization and other transmission and distribution projects | 3,460 | | 5,025 | | 4,840 | |
| Maintenance and other | 2,665 |
| 2,445 |
| 2,230 |
| Maintenance and other | 2,200 | | 2,650 | | 2,750 | |
| Total Electric Utilities and Infrastructure | 8,175 |
| 7,900 |
| 7,375 |
| Total Electric Utilities and Infrastructure | 8,450 | | 10,450 | | 10,175 | |
| Gas Utilities and Infrastructure | 2,350 |
| 2,275 |
| 950 |
| Gas Utilities and Infrastructure | 1,250 | | 1,275 | | 1,150 | |
| Commercial Renewables and Other | 425 |
| 800 |
| 725 |
| Commercial Renewables and Other | 775 | | 1,075 | | 750 | |
| | Total projected capital and investment expenditures | $ | 10,950 |
| $ | 10,975 |
| $ | 9,050 |
| Total projected capital and investment expenditures | $ | 10,475 | | $ | 12,800 | | $ | 12,075 | |
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 2017,2020, Duke Energy paid quarterly cash dividends for the 91st94th 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 percent65% and 75 percent,75%, based upon adjusted diluted EPS. In 2016EPS, and 2017,expects this trend to continue through 2025. Duke Energy increased the dividend by approximately 4 percent annually. Through 2022,2% annually in both 2020 and 2019, and the annual dividendcompany remains committed to continued growth rate is expected to be between approximately 4 to 6 percent.
of the dividend.
Dividend and Other Funding Restrictions of Duke Energy Subsidiaries
As discussed in Note 43 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 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, 2017,2020, 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 percentdoes not exceed a material amount 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.
| | | | | |
| MD&A | LIQUIDITY AND CAPITAL RESOURCES |
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.
As part of Duke Energy’s continued effort to improve its cash flows from operations and liquidity, Duke Energy works with vendors to improve terms and conditions, including the extension of payment terms. To support this effort, Duke Energy established a supply chain finance program (the “program”) in 2020, under which suppliers, at their sole discretion, may sell their receivables from Duke Energy to the participating financial institution. The financial institution administers the program. Duke Energy does not issue any guarantees with respect to the program and does not participate in negotiations between suppliers and the financial institution. Duke Energy does not have an economic interest in the supplier’s decision to participate in the program and receives no interest, fees or other benefit from the financial institution based on supplier participation in the program. Suppliers’ decisions on which invoices are sold do not impact Duke Energy’s payment terms, which are based on commercial terms negotiated between Duke Energy and the supplier regardless of program participation. A significant deterioration in the credit quality of Duke Energy, economic downturn or changes in the financial markets could limit the financial institutions willingness to participate in the program. Duke Energy does not believe such risk would have a material impact on our cash flows from operations or liquidity, as substantially all our payments are made outside the program.
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.
In 2021, Duke Energy anticipates issuing additional securities of $8 billion through debt capital markets. Additionally, Duke Energy may utilize other instruments, including equity-content securities, such as preferred stock. Proceeds will primarily be for the purpose of funding capital expenditures and debt maturities. See to Note 6 to the Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding significant debt issuances.issuances in 2020.
Duke Energy’s capitalization is balanced between debt and equity as shown in the table below. |
| | | | | | | | |
| | Projected 2018 |
| | Actual 2017 |
| | Actual 2016 |
|
| Equity | 44 | % | | 43 | % | | 45 | % |
| Debt | 56 | % | | 57 | % | | 55 | % |
Duke Energy’s fixed charges coverage ratio, calculated using Securities and Exchange Commission (SEC) guidelines, was 2.9 times for 2017, 2.7 times for 2016 and 3.1 times for 2015. | | | | | | | | | | | | | | | | | |
| | Projected 2021 | | Actual 2020 | | Actual 2019 |
| Equity | 44 | % | | 44 | % | | 44 | % |
| Debt | 56 | % | | 56 | % | | 56 | % |
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 percent65% for each borrower, excluding Piedmont, and 70 percent70% 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, 2017,2020, 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.
| | | | | |
| MD&A | LIQUIDITY AND CAPITAL RESOURCES |
Credit Ratings
Moody’s Investors Service, Inc. (Moody’s), Standard & Poor’s Rating Services (S&P) and Fitch Ratings, Inc.S&P provide credit ratings for various
Duke Energy Registrants. During January 2021, S&P downgraded the issuer credit rating for Duke Energy (Parent) and all of its subsidiaries senior unsecured debt, excluding Progress Energy, from A- to BBB+. Additionally, S&P downgraded the credit rating for Duke Energy (Parent) and Progress Energy senior unsecured debt from BBB+ to BBB. As part of the credit rating report, S&P affirmed their credit rating on senior secured debt for Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana, while also affirming the short-term and commercial paper credit ratings. These actions followed a December 2020, report by S&P to revise the credit rating outlook from stable to negative for Duke Energy and all its subsidiaries. As a result of the downgrade, credit rating outlooks returned to stable. Additionally, during October 2020, Moody's revised their credit rating outlook for Duke Energy (Parent), Duke Energy Carolinas and Duke Energy Progress from stable to negative and in February 2021, revised the credit rating outlook for these same registrants to review for downgrade. The following table includes Duke Energy and certain subsidiaries’ credit ratings and ratings outlook as of February 2018.2021. |
| | | | | | | | | | | | | |
| Moody's | | S&P | | Fitch |
Duke Energy Corporation | Negative | (a)
| Stable | | Negative |
Issuer Credit Rating | Baa1 | | A- | | BBB+ |
Senior Unsecured Debt | Baa1 | | BBB+ | | BBB+ |
Commercial Paper | P-2 | | A-2 | | F-2 |
Duke Energy Carolinas | Stable | | Stable | | N/A |
Senior Secured Debt | Aa2 | | A | | N/A |
Senior Unsecured Debt | A1 | | A- | | N/A |
Progress Energy | Stable | | Stable | | N/A |
Senior Unsecured Debt | Baa2 | | BBB+ | | N/A |
Duke Energy Progress | Stable | | Stable | | N/A |
Senior Secured Debt | Aa3 | | A | | N/A |
Duke Energy Florida | Stable | | Stable | | N/A |
Senior Secured Debt | A1 | | A | | N/A |
Senior Unsecured Debt | A3 | | A- | | N/A |
Duke Energy Ohio | Positive | | Stable | | N/A |
Senior Secured Debt | A2 | | A | | N/A |
Senior Unsecured Debt | Baa1 | | A- | | N/A |
Duke Energy Indiana | Stable | | Stable | | N/A |
Senior Secured Debt | Aa3 | | A | | N/A |
Senior Unsecured Debt | A2 | | A- | | N/A |
Duke Energy Kentucky | Stable | | Stable | | N/A |
Senior Unsecured Debt | Baa1 | | A- | | N/A |
Piedmont Natural Gas | Negative | (a)
| Stable | | N/A |
Senior Unsecured | A2 | | A- | | N/A |
| |
(a) | In January 2018, Moody's revised the ratings outlook for Duke Energy Corporation and | Review for Downgrade | | Stable | |
| Issuer Credit Rating | Baa1 | | BBB+ | |
| Senior Unsecured Debt | Baa1 | | BBB | |
| Commercial Paper | P-2 | | A-2 | |
| Duke Energy Carolinas | Review for Downgrade | | Stable | |
| Senior Secured Debt | Aa2 | | A | |
| Senior Unsecured Debt | A1 | | BBB+ | |
| Progress Energy | Stable | | Stable | |
| Senior Unsecured Debt | Baa1 | | BBB | |
| Duke Energy Progress | Review for Downgrade | | Stable | |
| Senior Secured Debt | Aa3 | | A | |
| Senior Unsecured Debt | A2 | | BBB+ | |
| Duke Energy Florida | Stable | | Stable | |
| Senior Secured Debt | A1 | | A | |
| Senior Unsecured Debt | A3 | | BBB+ | |
| Duke Energy Ohio | Stable | | Stable | |
| Senior Secured Debt | A2 | | A | |
| Senior Unsecured Debt | Baa1 | | BBB+ | |
| Duke Energy Indiana | Stable | | Stable | |
| Senior Secured Debt | Aa3 | | A | |
| Senior Unsecured Debt | A2 | | BBB+ | |
| Duke Energy Kentucky | Stable | | Stable | |
| Senior Unsecured Debt | Baa1 | | BBB+ | |
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.Natural Gas | Stable | | Stable | |
| Senior Unsecured | A3 | | BBB+ | |
| | | | |
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.
Cash Flow Information
The following table summarizes Duke Energy’s cash flows for the threetwo most recently completed fiscal years. | | | | Years Ended December 31, |
| | | Years Ended December 31, | |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
| (in millions) | 2020 | | 2019 | |
| Cash flows provided by (used in): | | | | | | Cash flows provided by (used in): | | |
| Operating activities | $ | 6,634 |
| | $ | 6,817 |
| | $ | 6,700 |
| Operating activities | $ | 8,856 | | | $ | 8,209 | | |
| Investing activities | (8,450 | ) | | (11,533 | ) | | (5,277 | ) | Investing activities | (10,604) | | | (11,957) | | |
| Financing activities | 1,782 |
| | 4,251 |
| | (2,602 | ) | Financing activities | 1,731 | | | 3,730 | | |
| Changes in cash and cash equivalents included in assets held for sale | — |
| | 474 |
| | 1,099 |
| |
| Net (decrease) increase in cash and cash equivalents | (34 | ) | | 9 |
| | (80 | ) | |
| Cash and cash equivalents at beginning of period | 392 |
| | 383 |
| | 463 |
| |
| Cash and cash equivalents at end of period | $ | 358 |
| | $ | 392 |
| | $ | 383 |
| |
| | Net decrease in cash, cash equivalents and restricted cash | | Net decrease in cash, cash equivalents and restricted cash | (17) | | | (18) | | |
| Cash, cash equivalents and restricted cash at beginning of period | | Cash, cash equivalents and restricted cash at beginning of period | 573 | | | 591 | | |
| Cash, cash equivalents and restricted cash at end of period | | Cash, cash equivalents and restricted cash at end of period | $ | 556 | | | $ | 573 | | |
| | | | | |
| MD&A | LIQUIDITY AND CAPITAL RESOURCES |
OPERATING CASH FLOWS
The following table summarizes key components of Duke Energy’s operating cash flows for the threetwo most recently completed fiscal years. | | | | Years Ended December 31, |
| | | Years Ended December 31, | |
| (in millions) | 2017 |
|
| 2016 |
|
| 2015 |
| (in millions) | 2020 | | 2019 | | Variance | |
| Net income | $ | 3,064 |
| | $ | 2,170 |
| | $ | 2,831 |
| Net income | $ | 1,082 | | | $ | 3,571 | | | $ | (2,489) | | |
| Non-cash adjustments to net income | 5,380 |
| | 5,305 |
| | 4,800 |
| Non-cash adjustments to net income | 8,343 | | | 5,737 | | | 2,606 | | |
| Contributions to qualified pension plans | (19 | ) | | (155 | ) | | (302 | ) | |
| | Payments for AROs | (571 | ) | | (608 | ) | | (346 | ) | Payments for AROs | (610) | | | (746) | | | 136 | | |
| | Refund of AMT credit carryforwards | | Refund of AMT credit carryforwards | 572 | | | 573 | | | (1) | | |
| Working capital | (1,220 | ) | | 105 |
| | (283 | ) | Working capital | (531) | | | (926) | | | 395 | | |
| Net cash provided by operating activities | $ | 6,634 |
|
| $ | 6,817 |
|
| $ | 6,700 |
| Net cash provided by operating activities | $ | 8,856 | | | $ | 8,209 | | | $ | 647 | | |
For the year ended December 31, 2017, compared to 2016, theThe variance 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$117 million increase in net income after adjustment for non-cash adjustmentsitems primarily due to increases in current year non-cash adjustments, partially offset by decreases in revenues due to lower sales volumes, accelerated refund of fuel costs at Duke Energy Florida in response to the inclusion of Piedmont's earnings for a full year, favorable pricingCOVID-19 pandemic and weather-normal retail volumeslower wholesale revenue driven by the residential class in the Electric Utilities and Infrastructure Segment combined with continued strong cost control;CCR Settlement Agreement;
•a $136$395 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 flowsoutflows from working capital primarily due to fluctuations in inventory levels, accounts payable levels and lower income taxes paid in the sale of the International business;current year; and
•a $147$136 million decrease in contributions to qualified pension plans.
Offset by:
a $262 million increase in payments for AROs; andAROs.
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 threetwo most recently completed fiscal years. | | | | Years Ended December 31, | |
| | | Years Ended December 31, | |
| (in millions) | 2017 |
|
| 2016 |
|
| 2015 |
| (in millions) | 2020 | | 2019 | | Variance | |
| Capital, investment and acquisition expenditures | $ | (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 | — |
| | 1,418 |
| | 2,968 |
| |
| Capital, investment and acquisition expenditures, net of return of investment capital | | Capital, investment and acquisition expenditures, net of return of investment capital | $ | (10,144) | | | $ | (11,435) | | | $ | 1,291 | | |
| Debt and equity securities, net | | Debt and equity securities, net | (62) | | | (5) | | | (57) | | |
| | Other investing items | (279 | ) | | 181 |
| | 115 |
| Other investing items | (398) | | | (517) | | | 119 | | |
| Net cash used in investing activities | $ | (8,450 | ) |
| $ | (11,533 | ) |
| $ | (5,277 | ) | Net cash used in investing activities | $ | (10,604) | | | $ | (11,957) | | | $ | 1,353 | | |
The primary use of cash related to investing activities is capital, investment and acquisition expenditures, net of return of investment capital detailed by reportable business segment in the following table. |
| | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2017 |
|
| 2016 |
|
| 2015 |
|
| Electric Utilities and Infrastructure | $ | 7,024 |
| | $ | 6,649 |
| | $ | 6,852 |
|
| Gas Utilities and Infrastructure | 907 |
| | 5,519 |
| | 234 |
|
| Commercial Renewables | 92 |
| | 857 |
| | 1,019 |
|
| Other | 175 |
| | 190 |
| | 258 |
|
| Total capital, investment and acquisition expenditures | $ | 8,198 |
|
| $ | 13,215 |
|
| $ | 8,363 |
|
For the year ended December 31, 2017, compared The decrease relates primarily to 2016, the variance was driven primarily by:
a $5,017 million decreasedecreases in capital investment and acquisition expenditures mainly due to the Piedmont acquisitionlower overall investments in the prior year.Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables segments.
Partially offset by: | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | | | | | | |
| | | | | | | |
| (in millions) | 2020 | | 2019 | | Variance | | |
| Electric Utilities and Infrastructure | $ | 7,629 | | | $ | 8,258 | | | $ | (629) | | | |
| Gas Utilities and Infrastructure | 1,309 | | | 1,533 | | | (224) | | | |
| Commercial Renewables | 1,075 | | | 1,423 | | | (348) | | | |
| Other | 264 | | | 221 | | | 43 | | | |
| Total capital, investment and acquisition expenditures, net of return of investment capital | $ | 10,277 | | | $ | 11,435 | | | $ | (1,158) | | | |
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 threetwo most recently completed fiscal years.
| | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | | | | | | | | |
| | | | | | | | | |
| (in millions) | 2020 | | 2019 | | Variance | | | | |
| Issuance of common stock | $ | 2,745 | | | $ | 384 | | | $ | 2,361 | | | | | |
| Issuance of preferred stock | — | | | 1,962 | | | (1,962) | | | | | |
| Issuances of long-term debt, net | 1,824 | | | 3,615 | | | (1,791) | | | | | |
| Notes payable and commercial paper | (319) | | | (380) | | | 61 | | | | | |
| Dividends paid | (2,812) | | | (2,668) | | | (144) | | | | | |
| Contributions from noncontrolling interests | 426 | | | 843 | | | (417) | | | | | |
| Other financing items | (133) | | | (26) | | | (107) | | | | | |
| Net cash provided by financing activities | $ | 1,731 | | | $ | 3,730 | | | $ | (1,999) | | | | | |
| | | | | |
| MD&A | LIQUIDITY AND CAPITAL RESOURCES |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
|
| Issuance of common stock | $ | — |
| | $ | 731 |
| | $ | 17 |
|
| Issuances (Repayments) of long-term debt, net | 4,593 |
| | 7,315 |
| | (74 | ) |
| Notes payable and commercial paper | (362 | ) | | (1,447 | ) | | 1,245 |
|
| Dividends paid | (2,450 | ) | | (2,332 | ) | | (2,254 | ) |
| Repurchase of common shares | — |
| | — |
| | (1,500 | ) |
| Other financing items | 1 |
| | (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, theThe variance was driven primarily by:
•a $2,722$1,962 million decrease in proceeds from the issuance of preferred stock;
•a $1,791 million net decrease in proceeds from issuances of long-term debt driven principally by the prior year $3,750 millionprimarily due to timing of senior unsecured notes used to fund issuances and redemptions of long-term debt; and
•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$417 million decrease in proceedscontributions from stock issuances usednoncontrolling interests, primarily due to fund$415 million related to the sale of a portion ofnoncontrolling interest in the Piedmont acquisitionCommercial Renewables segment in 2016; and
a $118 million current year increase in dividends paid.2019.
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$2,361 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;
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.settlement of equity forwards.
Off-Balance Sheet Arrangements
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-bystandby letters of credit, debt guarantees, surety bonds and indemnifications.
Most of the guarantee arrangements entered into by Duke Energy enhance 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.
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-performancenonperformance risk by third parties for which Duke Energy has issued guarantees.
See Note 7 to the Consolidated Financial Statements, “Guarantees and Indemnifications,” for further details of the guarantee arrangements.
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 andNote 17 to the Consolidated Financial Statements, “Commitments and Contingencies,” "Guarantees and Indemnifications" and "Variable Interest Entities,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, 2017.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due By Period |
| | | | | | | | | More than |
| | | Less than | | 2-3 years | | 4-5 years | | 5 years |
| | | 1 year | | (2022 & | | (2024 & | | (2026 & |
| (in millions) | Total | | (2021) | | 2023) | | 2025) | | beyond) |
Long-term debt(a) | $ | 58,134 | | | $ | 4,110 | | | $ | 8,011 | | | $ | 4,408 | | | $ | 41,605 | |
Interest payments on long-term debt(b) | 33,858 | | | 2,099 | | | 3,898 | | | 3,577 | | | 24,284 | |
Finance leases(c) | 1,465 | | | 186 | | | 347 | | | 170 | | | 762 | |
Operating leases(c) | 1,861 | | | 229 | | | 414 | | | 348 | | | 870 | |
Purchase obligations:(d) | | | | | | | | | |
Fuel and purchased power(e)(f) | 16,591 | | | 3,489 | | | 4,248 | | | 2,998 | | | 5,856 | |
Other purchase obligations(g) | 9,916 | | | 8,850 | | | 974 | | | 52 | | | 40 | |
Nuclear decommissioning trust annual funding(h) | 363 | | | 20 | | | 40 | | | 40 | | | 263 | |
Land easements(i) | 400 | | | 12 | | | 24 | | | 24 | | | 340 | |
Total contractual cash obligations(j)(k) | $ | 122,588 | | | $ | 18,995 | | | $ | 17,956 | | | $ | 11,617 | | | $ | 74,020 | |
(a)See Note 6 to the Consolidated Financial Statements, “Debt and Credit Facilities.”
(b)Interest payments on variable rate debt instruments were calculated using December 31, 2020, interest rates and holding them constant for the life of the instruments.
(c)See Note 5 to the Consolidated Financial Statements, “Leases.” Amounts in the table above include the interest component of finance leases based on the interest rates stated in the lease 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.
|
| | | | | | | | | | | | | | | | | | | |
| | Payments Due By Period |
| | | | | | | | | | More than |
|
| | | | Less than |
| | 2-3 years |
| | 4-5 years |
| | 5 years |
|
| | | | 1 year |
| | (2019 & |
| | (2021 & |
| | (2023 & |
|
| (in millions) | Total |
| | (2018) |
| | 2020) |
| | 2022) |
| | beyond) |
|
Long-term debt(a) | $ | 49,962 |
| | $ | 3,127 |
| | $ | 7,062 |
| | $ | 6,541 |
| | $ | 33,232 |
|
Interest payments on long-term debt(b) | 30,943 |
| | 2,014 |
| | 3,590 |
| | 3,144 |
| | 22,195 |
|
Capital leases(c) | 1,601 |
| | 168 |
| | 343 |
| | 345 |
| | 745 |
|
Operating leases(c) | 1,786 |
| | 233 |
| | 386 |
| | 285 |
| | 882 |
|
Purchase obligations:(d) | |
| | |
| | |
| | |
| | |
|
Fuel and purchased power(e)(f) | 30,956 |
| | 4,506 |
| | 6,085 |
| | 4,474 |
| | 15,891 |
|
Other purchase obligations(g) | 8,726 |
| | 6,642 |
| | 1,406 |
| | 121 |
| | 557 |
|
Nuclear decommissioning trust annual funding(h) | 285 |
| | 14 |
| | 28 |
| | 28 |
| | 215 |
|
Total contractual cash obligations(i)(j) | $ | 124,259 |
| | $ | 16,704 |
| | $ | 18,900 |
| | $ | 14,938 |
| | $ | 73,717 |
|
| | | | | |
(a)MD&A | See Note 6 to the Consolidated Financial Statements, “Debt and Credit Facilities.”OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS |
| |
(b) | 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. |
| |
(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 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. |
| |
(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, "Income Taxes." |
(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 NPNS. For contracts where the price paid is based on an index, the amount is based on market prices at December 31, 2020, 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.
| |
(j) | 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. |
(f)Amounts exclude obligations under the OVEC PPA. See Note 17 to the Consolidated Financial Statements, "Variable Interest Entities," for additional information. (g)Includes contracts for software, telephone, data and consulting or advisory services. Amount also includes contractual obligations for EPC 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)Related to Commercial Renewables wind facilities.
(j)Unrecognized tax benefits of $125 million are not reflected in this table as Duke Energy cannot predict when open income tax years will close with completed examinations. See Note 23 to the Consolidated Financial Statements, "Income Taxes."
(k)The table above excludes reserves for litigation, environmental remediation, asbestos-related injuries and damages claims and self-insurance claims (see Note 4 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 4 to the Consolidated Financial Statements, “Commitments and Contingencies”), funding of pension and other post-retirement benefit plans (see Note 22 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 3 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
Risk Management Policies
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 reviewSee 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 primarily 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 basedformula-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. Within Duke Energy’s Commercial Renewables segment, the company has limited exposure to market price fluctuations in prices of energy-related products as a result of its ownership of renewable assets.
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, market conditions, 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 underlying assumptions could result in significantly different fair values and income recognition.
Hedging Strategies
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. Additionally, Duke Energy’s Commercial Renewables business may enter into short-term or long-term hedge agreements to manage price risk associated with project output.
| | | | | |
| MD&A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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 unregulatednonregulated 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 and Infrastructure 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 or anticipated 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.”
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 $6.1had $7.6 billion of unhedged long- and short-term floating interest rate exposure at December 31, 2017.2020. The impact of a 100 basis100-basis point change in interest rates on pretax income is approximately $61$76 million at December 31, 2017.2020. 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, 2017.2020.
Certain Duke Energy Registrants have variable-rate debt and manage interest rate risk by entering into financial contracts including interest rate swaps. See NoteNotes 6 and 14 "Derivatives and Hedging," to the Consolidated Financial Statements, "Debt and Credit Facilities" and "Derivatives and Hedging." Such financial arrangements generally are indexed based upon LIBOR, which is expected to be phased out by the end of 2021. The Secured Overnight Financing Rate (SOFR) has been identified by regulators and industry participants as the preferred successor rate for additional information aboutU.S. dollar-based LIBOR at that time. Impacted financial arrangements extending beyond 2021 may require contractual amendment or termination and renegotiation to fully adapt to a post-LIBOR environment, and there may be uncertainty regarding the forward-starting interest rate swaps related toeffectiveness of any such alternative index methodologies. Alternative index provisions are being assessed and incorporated into new financial arrangements that extend beyond 2021. Additionally, the Piedmont acquisition.progress of the phaseout is being monitored, including proposed transition relief from the FASB.
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 inabilityfailure to post collateral when required is sufficient cause to terminate contractstransactions and liquidate all positions.
The Duke Energy Registrants also obtain cash, or letters of credit, or surety bonds 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.
The Duke Energy Registrants’ principal counterparties for its electric and natural gas businesses are regional transmission organizations,RTOs, distribution companies, municipalities, electric cooperatives and utilities located throughout the U.S. Exposure to these entities consists primarily of amounts due to Duke Energy Registrants for delivered electricity. Additionally, there may be potential risks associated with remarketing of energy and capacity in the event of default by wholesale power customers. The Duke Energy Registrants have concentrations of receivables from certain of such entities throughout these regions. These concentrations of receivablesthat may affect the Duke Energy Registrants’ overall credit risk in that risk factors can negatively impact the credit quality of the entire sector.risk.
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| MD&A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Duke Energy Registrants are also subject to credit risk from transactions with their suppliers that involve prepayments or milestone payments 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.nonperformance. 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 tariff 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 and the impact of current economic conditions on customers' ability to pay their outstanding balance to ensure the adequacy of bad debt reserves.
In response to the COVID-19 pandemic, in March 2020, the Duke Energy Registrants announced a suspension of disconnections for nonpayment to be effective throughout the national emergency. While disconnections have resumed, the company continues to offer flexible options to customers struggling with the pandemic and the economic fallout, including extended payment arrangements to satisfy delinquent balances. In addition, the Duke Energy Registrants are monitoring the effects of the resultant economic slowdown on counterparties’ abilities to perform under their contractual obligations. The Duke Energy Registrants have observed a significant increase in utility account arrears, which were roughly double historical levels as of December 31, 2020. There is an expectation of an increase in charge-offs in the future. See Notes 1, 3 and 18 to the Consolidated Financial Statements, "Summary of Significant Accounting Policies," "Regulatory Matters" and "Revenue," respectively, for more information. Duke Energy Ohio and Duke Energy Indiana sell certain of their accounts receivable and related collections through Cinergy Receivables Company LLC (CRC),CRC, a Duke Energy consolidated variable interest entity.VIE. 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.”
The Duke Energy Registrants provide certain non-tariff services, primarily to large commercial and industrial customers in which incurred costs, including invested capital, are intended to be recovered from the individual customer and therefore are not subject to rate recovery in the event of customer default. Customer creditworthiness is assessed prior to entering into these transactions. Credit concentration related to these transactions exists for certain of these customers.
Duke Energy’s Commercial Renewables segment enters into long-term agreements with certain creditworthy buyers that may not include the right to call for collateral in the event of a credit rating downgrade. Credit concentration exists to certain counterparties on these agreements, including entities that could be subject to wildfire liability. Additionally, Commercial Renewables may invest in projects for which buyers are below investment grade, although such buyers are required to post negotiated amounts of credit support. Also, power sales agreements and/or hedges of project output are generally for an initial term that does not cover the entire life of the asset. As a result, Commercial Renewables is exposed to market price risk and credit risk related to these agreements.
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 upSee Note 4 to the policy limit will be reimbursed by the third-party insurance carrier. The insurance policy limitConsolidated Financial Statements, "Commitments and Contingencies" for potential future insurance recoveries indemnificationinformation on asbestos-related injuries 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 insurancedamages 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-performancenonperformance by any counterparty.
Marketable Securities Price Risk
As described further in Note 15 to the Consolidated Financial Statements, “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 2122 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.
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| MD&A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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, 2017,2020, 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 fundfunds 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. |
| | | | | | | | |
| | Years Ended December 31, |
| | 2017 |
| | 2016 |
| | 2015 |
|
| Duke Energy | 2.9 |
| | 2.7 |
| | 3.1 |
|
| Duke Energy Carolinas | 4.8 |
| | 4.7 |
| | 4.7 |
|
| Progress Energy | 2.7 |
| | 3.0 |
| | 2.9 |
|
| Duke Energy Progress | 4.1 |
| | 4.0 |
| | 3.7 |
|
| Duke Energy Florida | 3.3 |
| | 4.3 |
| | 4.3 |
|
| Duke Energy Ohio | 3.4 |
| | 3.8 |
| | 3.6 |
|
| Duke Energy Indiana | 4.4 |
| | 4.1 |
| | 3.6 |
|
|
| | | | | | | | | | | |
| | Year Ended | | Two Months Ended | | Years Ended October 31, |
| | December 31, 2017 |
| | December 31, 2016 |
| | 2016 | | 2015 |
| Piedmont | 3.3 |
| | 6.6 |
| | 4.7 |
| | 3.7 |
|
Environmental Regulations
The Duke Energy Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal, coal ash and other environmental matters. These regulations can be changed from time to time and result in new obligations of the Duke Energy Registrants.
On May 14, 2020, the five-year probation period following the Dan River coal ash spill ended. The court-appointed monitor confirmed in U.S. District Court for the Eastern District of North Carolina that Duke Energy met or exceeded every obligation throughout the process. Separately, in a final report to the EPA, it was noted that the company made significant enhancements to its Ethics and Compliance Program and its environmental compliance programs.
The following sections outline various proposed and recently enacted legislation and regulations that may impact the Duke Energy Registrants. Refer to Note 43 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 arelocated at stations generating electricity (regardless of fuel source), which were no longer receiving CCR but contain liquid located at stations currently generating electricity (regardlesscontained liquids as of fuel source).the effective date of the rule. 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
On July 17, 2018, EPA issued a final rule (Phase 1, Part 1) revising certain closure deadlines and groundwater protection standards in the CCR rule. The rule does not change the primary requirements for groundwater monitoring, corrective action, inspections and maintenance, and closure, and thus does not materially affect Duke Energy’s coal ash basin closure plans or compliance obligations under the CCR rule. On October 22, 2018, a coalition of environmental parties have appealed EPA's CCR rulegroups filed a petition for review in the U.S. Court of Appeals for the District of Columbia (D.C. Circuit Court). challenging EPA's final Phase 1, Part 1 revisions to the CCR rule. On March 13, 2019, the D.C. Circuit Court issued an order in the Phase 1, Part 1 litigation granting EPA’s motion to remand the rule without vacatur. To date, EPA has finalized two notice-and-comment rulemakings to implement the court’s decision on remand. The “Part A” rule, which was promulgated on August 28, 2020, establishes an April 18, 2016, EPA filed a motion11, 2021 deadline to cease placement of CCR and non-CCR waste streams into unlined ash basins and initiate closure, and the “Part B” rule, which was promulgated on November 12, 2020, establishes procedures to allow facilities to request approval to operate an existing CCR surface impoundment with the federal courtan alternate liner. A future rulemaking is expected to settle five issues raised in litigation. On June 14, 2016, the court approved the motion with respect to all of those issues.address legacy impoundments. 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 rulemakingthese rulemakings to have a material impact onin light of its coal ash basin closure plans or compliance requirements underprogress in closing CCR units across the CCR rule.enterprise.
In addition to the requirements of the federal CCR regulation,rule, CCR landfills and surface impoundments will continue to be independently regulated by mostthe 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 NoteNotes 3 and 9 to the Consolidated Financial Statements, "Regulatory Matters" and "Asset Retirement Obligations.Obligations," respectively.
Coal Ash Management Act of 2014
AROs recorded on the Duke Energy Carolinas and Duke Energy Progress Consolidated Balance Sheets at December 31, 2017,2020, and December 31, 2016,2019, 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 haspreviously submitted comprehensive site assessments and groundwater corrective plans to NCDEQNCDEQ. In addition, on December 31, 2019, Duke Energy submitted updated groundwater corrective action plans and will submit to NCDEQ site-specific coal ash impoundment closure plans to NCDEQ.
On April 1, 2019, NCDEQ issued a closure determination requiring Duke Energy Carolinas and Duke Energy Progress to excavate all remaining coal ash impoundments at the Allen, Belews Creek, Rogers, Marshall, Mayo and Roxboro facilities in advanceNorth Carolina. On April 26, 2019, Duke Energy Carolinas and Duke Energy Progress filed Petitions for Contested Case Hearings in the Office of closure. These plansAdministrative Hearings to challenge NCDEQ's April 1 Order. On December 31, 2019, Duke Energy Carolinas and Duke Energy Progress entered into a settlement agreement with NCDEQ and certain community groups under which Duke Energy Carolinas and Duke Energy Progress agreed to excavate seven of the nine remaining coal ash basins at these sites with ash moved to on-site lined landfills, including two at Allen, one at Belews Creek, one at Mayo, one at Roxboro, and two at Rogers. At the two remaining basins at Marshall and Roxboro, uncapped basin ash will be excavated and moved to lined landfills. Those portions of the basins at Marshall and Roxboro, which were previously filled with ash and on which permitted facilities were constructed, will not be disturbed and will be closed pursuant to other state regulations.
Following NCDEQ's April 1 Order, Duke Energy estimated the incremental undiscounted cost to close the nine remaining impoundments by excavation would be approximately $4 billion to $5 billion, potentially increasing the total estimated costs to permanently close all associated permits must be approvedash basins in North Carolina and South Carolina to $9.5 billion to $10.5 billion. The settlement lowers the estimated total undiscounted cost to close the nine remaining basins by NCDEQ before closure work can begin.excavation by approximately $1.5 billion as compared to Duke Energy’s original estimate that followed the order. As a result, the estimated total cost to permanently close all ash basins in North Carolina and South Carolina is approximately $8 billion to $9 billion of which approximately $2.8 billion has been spent through 2020. The majority of the remaining spend is expected to occur over the next 15 to 20 years.
Duke Energy has completed excavation of all coal ash at the Riverbend, Dan River and Sutton plants
For further information on AROs,ash basins and recovery, see NoteNotes 3 and 9 to the Consolidated Financial Statements, "Regulatory Matters" and “Asset Retirement Obligations.Obligations,” respectively.
Other Environmental Regulations
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 ownare also subject to various federal, state and operate. The rule allows for several optionslocal laws regarding air and water quality, hazardous and solid waste disposal and other environmental matters, including the following:
•CWA
•Steam Effluent Limitation Guidelines
•Cross-State Air Pollution Rule
Duke Energy continues to demonstrate compliancecomply with enacted environmental statutes 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/regulations even as certain of these regulations are in various stages of clarification, revision 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.legal challenge. The Duke Energy Registrants cannot predict the outcome of these matters.
Steam Electric Effluent Limitations GuidelinesSection 126 Petitions
On January 4,November 16, 2016, the final Steam Electric Effluent Limitations Guidelines (ELG) rule became effective. The rule establishes new requirements for wastewater streams associatedstate of Maryland filed a petition 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. MostEPA under Section 126 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 equipmentClean Air Act alleging that may need to be installed on existing19 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) | Five-Year Estimated Costs |
|
| Duke Energy | $ | 920 |
|
| Duke Energy Carolinas | 380 |
|
| Progress Energy | 360 |
|
| Duke Energy Progress | 230 |
|
| Duke Energy Florida | 130 |
|
| Duke Energy Ohio | 70 |
|
| Duke Energy Indiana | 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 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 Ruletwo plants (three units) 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) subjectcontribute to violations of EPA’s National Ambient Air Quality Standards (NAAQS) for ozone in the final rule requirements, near-term responses include changing unit dispatch to run certain generating units less frequently and/or purchasing NOx allowances fromstate of Maryland. On March 12, 2018, the trading market. Longer term, upgrading the performancestate of existing NOx controls is an option. The Indiana Utility Group and the Indiana Energy Association jointlyNew York filed a petition for reconsideration askingwith EPA, also under Section 126 of the Clean Air Act, alleging that over 60 power plants, including five that Duke Energy Registrants own and operate, contribute to violations of EPA’s ozone NAAQS in the state of New York. Both Maryland and New York sought EPA correct errors it madeorders requiring the states in calculatingwhich the Indiana budget and increase the budget accordingly. EPA has yet to actnamed power plants operate impose more stringent nitrogen oxide emission limitations on the plants. On October 5, 2018, EPA denied the Maryland petition. Numerous parties have filed petitions withThat same day, Maryland appealed EPA's denial. On October 18, 2019, EPA denied the New York petition, and New York appealed that decision on October 29, 2019. On May 19, 2020, the U.S. Court of Appeals for the D.C. Circuit Court challenging various aspectsissued its decision, finding, with one exception, that EPA reasonably denied the Maryland petition. The court remanded one issue to EPA regarding target sources lacking catalytic controls. All 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 predictunits targeted have selective catalytic reduction, so the outcomedecision is favorable for these units.
A different panel 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 canceledheard oral argument in New York’s appeal of EPA’s denial of its Section 126 Petition on May 7, 2020, and on July 14, 2020, the case. On August 10, 2017,panel issued its decision remanding the court ordered that the litigation be suspended indefinitely. The rule remains in effect pending the outcome of litigation and EPA’s review.Petition to EPA has not announced a schedule for completing itsfurther 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.this matter.
North Carolina Clean PowerEnergy Plan (NCCEP)
On October 23, 2015, EPA29, 2018, Governor Roy Cooper signed an executive order calling for a 40% reduction in statewide greenhouse gas emissions by 2025. The order tasked the NCDEQ with developing a clean energy plan for North Carolina. In October 2019, the NCDEQ published inits plan, which includes the Federal Register the final Clean Power Plan (CPP) rule that regulates CO2reduction of electric power sector greenhouse gas emissions from existing fossil fuel-fired EGUs. The CPP established CO2 emission ratesby 70% below 2005 levels by 2030 and mass cap goals that applyattainment of carbon neutrality by 2050, fostering long-term energy affordability and price stability for North Carolina’s residents and businesses by modernizing regulatory and planning processes, and acceleration of clean energy innovation to existing fossil fuel-fired EGUs. Petitions challenging the rule were filed by several groupscreate economic opportunities for both rural 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 theurban areas. Duke Energy Registrants operate have suspended work on the CPPCarolinas and Duke Energy Progress are significant stakeholders in this process. The magnitude and timing of investment 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 itNCCEP 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 perioddepend on the ANPRM ends February 26, 2018. If EPA decidesspeed of adoption and consensus developed by other stakeholders on how best to move forward withsuccessfully transition to this clean energy future while establishing a CPP replacement rule, it will need to issue a formal proposal for public comment. Litigation ofregulatory model that incentivizes business decisions that benefit both the CPP remains on hold in the D.C. Circuit Courtutilities and the February 2016 U.S. Supreme Court stay of the CPP remains in effect.public. The Duke Energy Registrants cannot predict the outcome of these matters.this matter.
Global Climate Change
On September 17, 2019, Duke Energy announced an updated climate strategy with new goals of at least 50% reduction in carbon emissions from electric generation by 2030 and net-zero carbon emissions from electric generation by 2050. On October 9, 2020, Duke Energy announced a new goal to achieve net-zero methane emissions from its natural gas distribution system by 2030. Timelines and initiatives, as well as implementation of new technologies, will vary in each state in which the company operates and will involve collaboration with regulators, customers and other stakeholders.
The Duke Energy Registrants’ greenhouse gas (GHG)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 economic conditions that affect electricity demand, fuel prices, market 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 4751 coal-fired EGUselectric generating units with a combined generating capacity of 5,4256,539 MW. Much of that capacity has been replaced with state-of-the-art highly efficient natural gas-fired generation that produces far fewer CO2CO2 emissions per unit of electricity generated. Duke Energy also has made investments to expand its portfolio of wind and solar projects, increase energy efficiencyEE offerings and invest in ensure continued operations of its zero-CO2 emissions hydropower and nuclear plants. These efforts have diversified its system and significantly reduced CO2 emissions. Between 2005 and 2017,2020, the Duke Energy Registrants have collectively lowered the CO2 emissions from their electricity generation by more than 31 percent,40%, which potentially lowers the exposure to any future mandatory CO2 emission reduction requirements or carbon tax, whether as a result of federal legislation,legislation, EPA regulation, state regulation or other as yet unknown emission reduction requirement. Duke Energy will continue to explore the use of currently-availablecurrently available and commercially-demonstratedcommercially demonstrated technology to reduce CO2 emissions, including energy efficiency,EE, wind, solar, storage, nuclearcarbon capture, utilization and carbon sequestration.sequestration, the use of hydrogen and other low-carbon fuels and advanced nuclear. Duke Energy will adjust to evolving and innovative technologies in a way that balances the reliability and affordability that customers expect.meet regulatory requirements and customer demands. 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 groupsthat scientists 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 with any certainty 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.difficult.
The Duke Energy Registrants annually, biannuallybiennially or triennially prepare lengthy, forward-looking “integrated resource plans” (IRPs).IRPs. These detailed, highly technical plans are based on the company’s thorough analysis of 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 stakeholder input as well as forecasts of future electricity demand, fuel prices, transmission improvements, new generating capacity, integration of renewables, energy storage, energy efficiencyEE 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 IRPIRPs 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 transmission and distribution systems.systems and natural gas facilities. The steps include modernizing the electric grid through smart meters, storm hardening, self-healing and targeted undergrounding and applying lessons learned from previous storms to restoration efforts. The Duke Energy Registrants’ electric generating facilities and natural gas facilities are designed to withstand extreme weather events without significant damage. The Duke Energy Registrants maintain an inventoryinventories of coal, oil and oil on-siteliquified natural gas 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.electricity and/or natural gas.
North CarolinaState Legislation
In July 2017, the North Carolina General Assembly passed House Bill 589, and it was subsequently enactedsigned 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)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 administered by an independent third party and recovery of costs related to the competitive bidding process through the fuel clause and a competitive procurement rider. The law stipulated certain deadlinesprocess used was approved by the NCUC to select projects that would deliver the lowest cost of renewable energy for Duke Energy to file for NCUC approval of programs required undercustomers.
In accordance with the law. Duke Energy has made some regulatory filings since the passage of the law and will continue to implement the requirementsprovisions 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.589, Duke Energy is committed to compliance with all safety enhancements ordered byestimates 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 ordertotal competitive procurement will be completed by March 2019. With the NRC’s continuing review of this matter, Duke Energy cannot predictapproximately 1,185 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,1,385 MW. Duke Energy will own or purchase at least 1,185 MW of energy from renewable energy projects under the North Carolina’s CPRE program. Two tranches of the CPRE process have been completed with contracts executed for winning proposals. Five Duke Energy projects, totaling about 190 MW, were selected during the first tranche and none were selected during the second tranche. Two of the Duke Energy winning projects achieved commercial operation in December 2020 and the remaining three will be ableonline by the third quarter 2021. The need for a third tranche of CPRE will be determined prior to determine an implementation planNovember 2021.
In various states, legislation is being considered to allow third-party sales of electricity. Deregulation or restructuring in the electric industry may result in increased competition and associatedunrecovered costs. See Item 1A, “Risk Factors,” for further discussionThe Duke Energy Registrants cannot predict the outcome of applicable risk factors.these initiatives.
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.”
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 | |
| |
Duke Energy Ohio Inc. (Duke Energy Ohio) | |
| 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 Indiana LLC (Duke Energy Indiana) | |
| 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 | |
| |
Piedmont Natural Gas Company, Inc. (Piedmont) | |
| 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 | |
| |
| | | | | |
| |
| Combined Notes to Consolidated Financial Statements | |
| Note 1 – Summary of Significant Accounting Policies | |
| |
Note 2 – Acquisitions and DispositionsBusiness Segments | |
Note 3 – Business SegmentsRegulatory Matters | |
Note 4 – Regulatory Matters | |
Note 5 – Commitments and Contingencies | |
| Note 5 – Leases | |
| 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 StockRevenue | |
Note 19 – SeveranceStockholders' Equity | |
Note 20 – Stock-Based CompensationSeverance | |
| Note 21 – Stock-Based Compensation | |
| Note 22 – Employee Benefit Plans | |
Note 2223 – Income Taxes | |
Note 2324 – Other Income and Expenses, Net | |
Note 24 – Subsequent Events | |
Note 25 – Quarterly Financial Data (Unaudited)Subsequent Events | |
| |
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, 20172020 and 2016,2019, 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, 2017,2020, 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, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2020, 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, 2017,2020, 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 23, 2018,25, 2021, expressed an unqualified opinion on the Company’sCompany'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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to regulation by federal and state utility regulatory agencies (the “Commissions”), which have jurisdiction with respect to the rates of the Company’s electric and natural gas distribution companies. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $14 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 201825, 2021
We have served as the Company's auditor since 1947.
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS | | | | Years Ended December 31, | | Years Ended December 31, |
| (in millions, except per share amounts) | 2017 |
| | 2016 |
| | 2015 |
| (in millions, except per share amounts) | 2020 | | 2019 | | 2018 |
| Operating Revenues | | | | | | Operating Revenues | |
| Regulated electric | $ | 21,177 |
| | $ | 21,221 |
| | $ | 21,379 |
| Regulated electric | $ | 21,461 | | | $ | 22,615 | | | $ | 22,097 | |
| Regulated natural gas | 1,734 |
| | 863 |
| | 536 |
| Regulated natural gas | 1,642 | | | 1,759 | | | 1,773 | |
| Nonregulated electric and other | 654 |
| | 659 |
| | 456 |
| Nonregulated electric and other | 765 | | | 705 | | | 651 | |
| Total operating revenues | 23,565 |
| | 22,743 |
| | 22,371 |
| Total operating revenues | 23,868 | | | 25,079 | | | 24,521 | |
| Operating Expenses | | | | | | Operating Expenses | |
| Fuel used in electric generation and purchased power | 6,350 |
| | 6,625 |
| | 7,355 |
| Fuel used in electric generation and purchased power | 6,051 | | | 6,826 | | | 6,831 | |
| Cost of natural gas | 632 |
| | 265 |
| | 141 |
| Cost of natural gas | 460 | | | 627 | | | 697 | |
| Operation, maintenance and other | 5,788 |
| | 6,085 |
| | 5,539 |
| Operation, maintenance and other | 5,788 | | | 6,066 | | | 6,463 | |
| Depreciation and amortization | 3,527 |
| | 3,294 |
| | 3,053 |
| Depreciation and amortization | 4,705 | | | 4,548 | | | 4,074 | |
| Property and other taxes | 1,233 |
| | 1,142 |
| | 1,129 |
| Property and other taxes | 1,337 | | | 1,307 | | | 1,280 | |
| Impairment charges | 282 |
| | 18 |
| | 106 |
| Impairment charges | 984 | | | (8) | | | 402 | |
| Total operating expenses | 17,812 |
| | 17,429 |
| | 17,323 |
| Total operating expenses | 19,325 | | | 19,366 | | | 19,747 | |
| Gains on Sales of Other Assets and Other, net | 28 |
| | 27 |
| | 30 |
| |
| Gains (Losses) on Sales of Other Assets and Other, net | | Gains (Losses) on Sales of Other Assets and Other, net | 10 | | | (4) | | | (89) | |
| Operating Income | 5,781 |
| | 5,341 |
| | 5,078 |
| Operating Income | 4,553 | | | 5,709 | | | 4,685 | |
| Other Income and Expenses | | | | | | Other Income and Expenses | |
| Equity in earnings (losses) of unconsolidated affiliates | 119 |
| | (15 | ) | | 69 |
| |
| Equity in (losses) earnings of unconsolidated affiliates | | Equity in (losses) earnings of unconsolidated affiliates | (2,005) | | | 162 | | | 83 | |
| | Other income and expenses, net | 352 |
| | 324 |
| | 290 |
| Other income and expenses, net | 453 | | | 430 | | | 399 | |
| Total other income and expenses | 471 |
| | 309 |
| | 359 |
| Total other income and expenses | (1,552) | | | 592 | | | 482 | |
| Interest Expense | 1,986 |
| | 1,916 |
| | 1,527 |
| Interest Expense | 2,162 | | | 2,204 | | | 2,094 | |
| Income From Continuing Operations Before Income Taxes | 4,266 |
| | 3,734 |
| | 3,910 |
| Income From Continuing Operations Before Income Taxes | 839 | | | 4,097 | | | 3,073 | |
| Income Tax Expense From Continuing Operations | 1,196 |
| | 1,156 |
| | 1,256 |
| |
| Income Tax (Benefit) Expense From Continuing Operations | | Income Tax (Benefit) Expense From Continuing Operations | (236) | | | 519 | | | 448 | |
| Income From Continuing Operations | 3,070 |
| | 2,578 |
| | 2,654 |
| Income From Continuing Operations | 1,075 | | | 3,578 | | | 2,625 | |
| (Loss) Income From Discontinued Operations, net of tax | (6 | ) | | (408 | ) | | 177 |
| |
| Income (Loss) From Discontinued Operations, net of tax | | Income (Loss) From Discontinued Operations, net of tax | 7 | | | (7) | | | 19 | |
| Net Income | 3,064 |
| | 2,170 |
| | 2,831 |
| Net Income | 1,082 | | | 3,571 | | | 2,644 | |
| Less: Net Income Attributable to Noncontrolling Interests | 5 |
| | 18 |
| | 15 |
| |
| Add: Net Loss Attributable to Noncontrolling Interests | | Add: Net Loss Attributable to Noncontrolling Interests | 295 | | | 177 | | | 22 | |
| Net Income Attributable to Duke Energy Corporation | $ | 3,059 |
| | $ | 2,152 |
| | $ | 2,816 |
| Net Income Attributable to Duke Energy Corporation | 1,377 | | | 3,748 | | | 2,666 | |
| Less: Preferred Dividends | | Less: Preferred Dividends | 107 | | | 41 | | | — | |
| Net Income Available to Duke Energy Corporation Common Stockholders | | Net Income Available to Duke Energy Corporation Common Stockholders | $ | 1,270 | | | $ | 3,707 | | | $ | 2,666 | |
| | | | | | | |
Earnings Per Share – Basic and Diluted | | | | | | Earnings Per Share – Basic and Diluted | |
| Income from continuing operations attributable to Duke Energy Corporation common stockholders | | | | | | |
| Basic | $ | 4.37 |
| | $ | 3.71 |
| | $ | 3.80 |
| |
| Diluted | $ | 4.37 |
| | $ | 3.71 |
| | $ | 3.80 |
| |
| (Loss) Income from discontinued operations attributable to Duke Energy Corporation common stockholders |
| | | | | |
| Basic | $ | (0.01 | ) | | $ | (0.60 | ) | | $ | 0.25 |
| |
| Diluted | $ | (0.01 | ) | | $ | (0.60 | ) | | $ | 0.25 |
| |
| Net income attributable to Duke Energy Corporation common stockholders |
| | | | | |
| Basic | $ | 4.36 |
| | $ | 3.11 |
| | $ | 4.05 |
| |
| Diluted | $ | 4.36 |
| | $ | 3.11 |
| | $ | 4.05 |
| |
| Income from continuing operations available to Duke Energy Corporation common stockholders | | Income from continuing operations available to Duke Energy Corporation common stockholders | |
| Basic and Diluted | | Basic and Diluted | $ | 1.71 | | | $ | 5.07 | | | $ | 3.73 | |
| | Income (Loss) from discontinued operations attributable to Duke Energy Corporation common stockholders | | Income (Loss) from discontinued operations attributable to Duke Energy Corporation common stockholders | |
| Basic and Diluted | | Basic and Diluted | $ | 0.01 | | | $ | (0.01) | | | $ | 0.03 | |
| | Net income available to Duke Energy Corporation common stockholders | | Net income available to Duke Energy Corporation common stockholders | |
| Basic and Diluted | | Basic and Diluted | $ | 1.72 | | | $ | 5.06 | | | $ | 3.76 | |
| | Weighted average shares outstanding | | | | | | Weighted average shares outstanding | |
| Basic | 700 |
| | 691 |
| | 694 |
| Basic | 737 | | | 729 | | | 708 | |
| Diluted | 700 |
| | 691 |
| | 694 |
| Diluted | 738 | | | 729 | | | 708 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | | | | Years Ended December 31, | | Years Ended December 31, |
(in millions) | 2017 |
| | 2016 |
| | 2015 |
| (in millions) | 2020 | | 2019 | | 2018 |
| Net Income | $ | 3,064 |
| | $ | 2,170 |
| | $ | 2,831 |
| Net Income | $ | 1,082 | | | $ | 3,571 | | | $ | 2,644 | |
| Other Comprehensive Income (Loss), net of tax | | | | | | |
| Foreign currency translation adjustments | — |
| | 694 |
| | (264 | ) | |
Other Comprehensive (Loss) Income, net of tax(a) | | Other Comprehensive (Loss) Income, net of tax(a) | |
| | Pension and OPEB adjustments | 3 |
| | (11 | ) | | (13 | ) | Pension and OPEB adjustments | 6 | | | 9 | | | (6) | |
| Net unrealized gains on cash flow hedges | 2 |
| | 17 |
| | — |
| |
| Net unrealized losses on cash flow hedges | | Net unrealized losses on cash flow hedges | (138) | | | (47) | | | (10) | |
| Reclassification into earnings from cash flow hedges | 8 |
| | 13 |
| | 9 |
| Reclassification into earnings from cash flow hedges | 11 | | | 6 | | | 6 | |
| Unrealized gains (losses) on available-for-sale securities | 13 |
| | 2 |
| | (6 | ) | Unrealized gains (losses) on available-for-sale securities | 3 | | | 8 | | | (3) | |
Other Comprehensive Income (Loss), net of tax | 26 |
| | 715 |
| | (274 | ) | |
| | Other Comprehensive Loss, net of tax | | Other Comprehensive Loss, net of tax | (118) | | | (24) | | | (13) | |
Comprehensive Income | 3,090 |
| | 2,885 |
| | 2,557 |
| Comprehensive Income | 964 | | | 3,547 | | | 2,631 | |
Less: Comprehensive Income Attributable to Noncontrolling Interests | 5 |
| | 20 |
| | 4 |
| |
| Add: Comprehensive Loss Attributable to Noncontrolling Interests | | Add: Comprehensive Loss Attributable to Noncontrolling Interests | 306 | | | 177 | | | 22 | |
Comprehensive Income Attributable to Duke Energy Corporation | $ | 3,085 |
| | $ | 2,865 |
| | $ | 2,553 |
| Comprehensive Income Attributable to Duke Energy Corporation | 1,270 | | | 3,724 | | | 2,653 | |
| Less: Preferred Dividends | | Less: Preferred Dividends | 107 | | | 41 | | | — | |
| Comprehensive Income Available to Duke Energy Corporation Common Stockholders | | Comprehensive Income Available to Duke Energy Corporation Common Stockholders | $ | 1,163 | | | $ | 3,683 | | | $ | 2,653 | |
(a) Net of income tax impacts of approximately $35 million for the year ended December 31, 2020. Tax impacts are immaterial for other periods presented.
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS | | | | December 31, | | December 31, |
| (in millions) | 2017 |
| | 2016 |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | | ASSETS | |
| Current Assets | | | | Current Assets | |
| Cash and cash equivalents | $ | 358 |
| | $ | 392 |
| Cash and cash equivalents | $ | 259 | | | $ | 311 | |
| Receivables (net of allowance for doubtful accounts of $14 at 2017 and 2016) | 779 |
| | 751 |
| |
| Receivables of VIEs (net of allowance for doubtful accounts of $54 at 2017 and 2016) | 1,995 |
| | 1,893 |
| |
| | Receivables (net of allowance for doubtful accounts of $29 at 2020 and $22 at 2019) | | Receivables (net of allowance for doubtful accounts of $29 at 2020 and $22 at 2019) | 1,009 | | | 1,066 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $117 at 2020 and $54 at 2019) | | Receivables of VIEs (net of allowance for doubtful accounts of $117 at 2020 and $54 at 2019) | 2,144 | | | 1,994 | |
| Inventory | 3,250 |
|
| 3,522 |
| Inventory | 3,167 | | | 3,232 | |
| Regulatory assets (includes $51 at 2017 and $50 at 2016 related to VIEs) | 1,437 |
| | 1,023 |
| |
| Other | 634 |
| | 458 |
| |
| | Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | | Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 1,641 | | | 1,796 | |
| Other (includes $296 at 2020 and $242 at 2019 related to VIEs) | | Other (includes $296 at 2020 and $242 at 2019 related to VIEs) | 462 | | | 764 | |
| Total current assets | 8,453 |
| | 8,039 |
| Total current assets | 8,682 | | | 9,163 | |
| Property, Plant and Equipment | | | | Property, Plant and Equipment | |
| Cost | 127,507 |
| | 121,397 |
| Cost | 155,580 | | | 147,654 | |
| Accumulated depreciation and amortization | (41,537 | ) | | (39,406 | ) | Accumulated depreciation and amortization | (48,827) | | | (45,773) | |
| Generation facilities to be retired, net | 421 |
| | 529 |
| Generation facilities to be retired, net | 29 | | | 246 | |
| Net property, plant and equipment | 86,391 |
| | 82,520 |
| Net property, plant and equipment | 106,782 | | | 102,127 | |
| Other Noncurrent Assets | | | | Other Noncurrent Assets | |
| Goodwill | 19,396 |
| | 19,425 |
| Goodwill | 19,303 | | | 19,303 | |
| Regulatory assets (includes $1,091 at 2017 and $1,142 at 2016 related to VIEs) | 12,442 |
| | 12,878 |
| |
| Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | | Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 12,421 | | | 13,222 | |
| Nuclear decommissioning trust funds | 7,097 |
| | 6,205 |
| Nuclear decommissioning trust funds | 9,114 | | | 8,140 | |
| Operating lease right-of-use assets, net | | Operating lease right-of-use assets, net | 1,524 | | | 1,658 | |
| Investments in equity method unconsolidated affiliates | 1,175 |
| | 925 |
| Investments in equity method unconsolidated affiliates | 961 | | | 1,936 | |
| Other | 2,960 |
| | 2,769 |
| |
| | Other (includes $81 at 2020 and $110 at 2019 related to VIEs) | | Other (includes $81 at 2020 and $110 at 2019 related to VIEs) | 3,601 | | | 3,289 | |
| Total other noncurrent assets | 43,070 |
| | 42,202 |
| Total other noncurrent assets | 46,924 | | | 47,548 | |
| Total Assets | $ | 137,914 |
| | $ | 132,761 |
| Total Assets | $ | 162,388 | | | $ | 158,838 | |
| LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | |
| Current Liabilities | | | | Current Liabilities | |
| Accounts payable | $ | 3,043 |
| | $ | 2,994 |
| Accounts payable | $ | 3,144 | | | $ | 3,487 | |
| Notes payable and commercial paper | 2,163 |
| | 2,487 |
| Notes payable and commercial paper | 2,873 | | | 3,135 | |
| Taxes accrued | 551 |
| | 384 |
| Taxes accrued | 482 | | | 392 | |
| Interest accrued | 525 |
| | 503 |
| Interest accrued | 537 | | | 565 | |
| Current maturities of long-term debt (includes $225 at 2017 and $260 at 2016 related to VIEs) | 3,244 |
| | 2,319 |
| |
| Current maturities of long-term debt (includes $472 at 2020 and $216 at 2019 related to VIEs) | | Current maturities of long-term debt (includes $472 at 2020 and $216 at 2019 related to VIEs) | 4,238 | | | 3,141 | |
| | Asset retirement obligations | 689 |
| | 411 |
| Asset retirement obligations | 718 | | | 881 | |
| Regulatory liabilities | 402 |
| | 409 |
| Regulatory liabilities | 1,377 | | | 784 | |
| Other | 1,865 |
| | 2,044 |
| Other | 2,936 | | | 2,367 | |
| Total current liabilities | 12,482 |
| | 11,551 |
| Total current liabilities | 16,305 | | | 14,752 | |
| Long-Term Debt (includes $4,306 at 2017 and $3,587 at 2016 related to VIEs) | 49,035 |
| | 45,576 |
| |
| Long-Term Debt (includes $3,535 at 2020 and $3,997 at 2019 related to VIEs) | | Long-Term Debt (includes $3,535 at 2020 and $3,997 at 2019 related to VIEs) | 55,625 | | | 54,985 | |
| Other Noncurrent Liabilities | | | | Other Noncurrent Liabilities | |
| Deferred income taxes | 6,621 |
| | 14,155 |
| Deferred income taxes | 9,244 | | | 8,878 | |
| Asset retirement obligations | 9,486 |
| | 10,200 |
| Asset retirement obligations | 12,286 | | | 12,437 | |
| Regulatory liabilities | 15,330 |
| | 6,881 |
| Regulatory liabilities | 15,029 | | | 15,264 | |
| Operating lease liabilities | | Operating lease liabilities | 1,340 | | | 1,432 | |
| Accrued pension and other post-retirement benefit costs | 1,103 |
| | 1,111 |
| Accrued pension and other post-retirement benefit costs | 969 | | | 934 | |
| Investment tax credits | 539 |
| | 493 |
| Investment tax credits | 687 | | | 624 | |
| Other | 1,581 |
| | 1,753 |
| |
| | Other (includes $316 at 2020 and $228 at 2019 related to VIEs) | | Other (includes $316 at 2020 and $228 at 2019 related to VIEs) | 1,719 | | | 1,581 | |
| Total other noncurrent liabilities | 34,660 |
| | 34,593 |
| Total other noncurrent liabilities | 41,274 | | | 41,150 | |
| Commitments and Contingencies |
|
| |
|
| Commitments and Contingencies | 0 | | 0 |
| | Equity | | | | Equity | |
| Common stock, $0.001 par value, 2 billion shares authorized; 700 million shares outstanding at 2017 and 2016 | 1 |
| | 1 |
| |
| Preferred stock, Series A, $0.001 par value, 40 million depositary shares authorized and outstanding at 2020 and 2019 | | Preferred stock, Series A, $0.001 par value, 40 million depositary shares authorized and outstanding at 2020 and 2019 | 973 | | | 973 | |
| Preferred stock, Series B, $0.001 par value, 1 million shares authorized and outstanding at 2020 and 2019 | | Preferred stock, Series B, $0.001 par value, 1 million shares authorized and outstanding at 2020 and 2019 | 989 | | | 989 | |
| Common stock, $0.001 par value, 2 billion shares authorized; 769 million shares outstanding at 2020 and 733 million shares outstanding at 2019 | | Common stock, $0.001 par value, 2 billion shares authorized; 769 million shares outstanding at 2020 and 733 million shares outstanding at 2019 | 1 | | | 1 | |
| Additional paid-in capital | 38,792 |
| | 38,741 |
| Additional paid-in capital | 43,767 | | | 40,881 | |
| Retained earnings | 3,013 |
| | 2,384 |
| Retained earnings | 2,471 | | | 4,108 | |
| Accumulated other comprehensive loss | (67 | ) | | (93 | ) | Accumulated other comprehensive loss | (237) | | | (130) | |
| Total Duke Energy Corporation stockholders' equity | 41,739 |
| | 41,033 |
| Total Duke Energy Corporation stockholders' equity | 47,964 | | | 46,822 | |
| Noncontrolling interests | (2 | ) | | 8 |
| Noncontrolling interests | 1,220 | | | 1,129 | |
| Total equity | 41,737 |
| | 41,041 |
| Total equity | 49,184 | | | 47,951 | |
| Total Liabilities and Equity | $ | 137,914 |
| | $ | 132,761 |
| Total Liabilities and Equity | $ | 162,388 | | | $ | 158,838 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES | |
| Net income | $ | 3,064 |
| | $ | 2,170 |
| | $ | 2,831 |
| Net income | $ | 1,082 | | | $ | 3,571 | | | $ | 2,644 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | Adjustments to reconcile net income to net cash provided by operating activities: | |
| Depreciation, amortization and accretion (including amortization of nuclear fuel) | 4,046 |
| | 3,880 |
| | 3,613 |
| Depreciation, amortization and accretion (including amortization of nuclear fuel) | 5,486 | | | 5,176 | | | 4,696 | |
| Equity in losses (earnings) of unconsolidated affiliates | | Equity in losses (earnings) of unconsolidated affiliates | 2,005 | | | (162) | | | (83) | |
| Equity component of AFUDC | (237 | ) | | (200 | ) | | (164 | ) | Equity component of AFUDC | (154) | | | (139) | | | (221) | |
| | (Gains) Losses on sales of other assets | (33 | ) | | 477 |
| | (48 | ) | (Gains) Losses on sales of other assets | (10) | | | 4 | | | 88 | |
| Impairment charges | 282 |
| | 212 |
| | 153 |
| Impairment charges | 984 | | | (8) | | | 402 | |
| Deferred income taxes | 1,433 |
| | 900 |
| | 1,244 |
| Deferred income taxes | 54 | | | 806 | | | 1,079 | |
| Equity in (earnings) losses of unconsolidated affiliates | (119 | ) | | 15 |
| | (69 | ) | |
| Accrued pension and other post-retirement benefit costs | 8 |
| | 21 |
| | 71 |
| |
| Contributions to qualified pension plans | (19 | ) | | (155 | ) | | (302 | ) | |
| | Payments for asset retirement obligations | (571 | ) | | (608 | ) | | (346 | ) | Payments for asset retirement obligations | (610) | | | (746) | | | (533) | |
| Payment for the disposal of other assets | | Payment for the disposal of other assets | — | | | — | | | (105) | |
| | Provision for rate refunds | | Provision for rate refunds | (22) | | | 60 | | | 425 | |
| Refund of AMT credit carryforwards | | Refund of AMT credit carryforwards | 572 | | | 573 | | | — | |
| (Increase) decrease in | | | | | | (Increase) decrease in | |
| Net realized and unrealized mark-to-market and hedging transactions | 18 |
| | 34 |
| | (29 | ) | Net realized and unrealized mark-to-market and hedging transactions | 63 | | | (48) | | | 22 | |
| Receivables | (83 | ) | | (372 | ) | | 383 |
| Receivables | (56) | | | 78 | | | (345) | |
| Inventory | 268 |
| | 272 |
| | (237 | ) | Inventory | 66 | | | (122) | | | 156 | |
| Other current assets | (388 | ) | | (220 | ) | | (65 | ) | Other current assets | 205 | | | 10 | | | (721) | |
| Increase (decrease) in | | | | | | Increase (decrease) in | |
| Accounts payable | (204 | ) | | 296 |
| | (6 | ) | Accounts payable | (21) | | | (164) | | | 479 | |
| Taxes accrued | 149 |
| | 236 |
| | (38 | ) | Taxes accrued | 117 | | | (224) | | | 23 | |
| Other current liabilities | (482 | ) | | 182 |
| | 168 |
| Other current liabilities | (65) | | | 172 | | | 270 | |
| Other assets | (438 | ) | | (186 | ) | | (216 | ) | Other assets | (398) | | | (559) | | | (1,062) | |
| Other liabilities | (60 | ) | | (137 | ) | | (243 | ) | Other liabilities | (442) | | | (69) | | | (28) | |
| Net cash provided by operating activities | 6,634 |
|
| 6,817 |
|
| 6,700 |
| Net cash provided by operating activities | 8,856 | | | 8,209 | | | 7,186 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES | |
| Capital expenditures | (8,052 | ) | | (7,901 | ) | | (6,766 | ) | Capital expenditures | (9,907) | | | (11,122) | | | (9,389) | |
| Contributions to equity method investments | (414 | ) | | (307 | ) | | (263 | ) | Contributions to equity method investments | (370) | | | (324) | | | (416) | |
| Acquisitions, net of cash acquired | (13 | ) | | (4,778 | ) | | (1,334 | ) | |
| | Return of investment capital | 281 |
| | 1 |
| | 3 |
| Return of investment capital | 133 | | | 11 | | | 137 | |
| Purchases of available-for-sale securities | (4,071 | ) | | (5,153 | ) | | (4,037 | ) | |
| Proceeds from sales and maturities of available-for-sale securities | 4,098 |
| | 5,236 |
| | 4,040 |
| |
| Proceeds from the sales of discontinued operations and other assets, net of cash divested | — |
| | 1,418 |
| | 2,968 |
| |
| Change in restricted cash | (10 | ) | | (4 | ) | | 191 |
| |
| Purchases of debt and equity securities | | Purchases of debt and equity securities | (8,011) | | | (3,348) | | | (3,762) | |
| Proceeds from sales and maturities of debt and equity securities | | Proceeds from sales and maturities of debt and equity securities | 7,949 | | | 3,343 | | | 3,747 | |
| | Other | (269 | ) | | (45 | ) | | (79 | ) | Other | (398) | | | (517) | | | (377) | |
| Net cash used in investing activities | (8,450 | ) |
| (11,533 | ) |
| (5,277 | ) | Net cash used in investing activities | (10,604) | | | (11,957) | | | (10,060) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | |
| Proceeds from the: | | | | | | Proceeds from the: | |
| Issuance of long-term debt | 6,909 |
| | 9,238 |
| | 2,955 |
| Issuance of long-term debt | 6,330 | | | 7,091 | | | 5,299 | |
| Issuance of preferred stock | | Issuance of preferred stock | — | | | 1,962 | | | — | |
| Issuance of common stock | — |
| | 731 |
| | 17 |
| Issuance of common stock | 2,745 | | | 384 | | | 1,838 | |
| | Payments for the redemption of long-term debt | (2,316 | ) | | (1,923 | ) | | (3,029 | ) | Payments for the redemption of long-term debt | (4,506) | | | (3,476) | | | (2,906) | |
| Proceeds from the issuance of short-term debt with original maturities greater than 90 days | 319 |
| | 2,081 |
| | 379 |
| Proceeds from the issuance of short-term debt with original maturities greater than 90 days | 3,009 | | | 397 | | | 472 | |
| Payments for the redemption of short-term debt with original maturities greater than 90 days | (272 | ) | | (2,166 | ) | | (931 | ) | Payments for the redemption of short-term debt with original maturities greater than 90 days | (2,147) | | | (479) | | | (282) | |
| Notes payable and commercial paper | (409 | ) | | (1,362 | ) | | 1,797 |
| Notes payable and commercial paper | (1,181) | | | (298) | | | 981 | |
| | Contributions from noncontrolling interests | | Contributions from noncontrolling interests | 426 | | | 843 | | | 41 | |
| Dividends paid | (2,450 | ) | | (2,332 | ) | | (2,254 | ) | Dividends paid | (2,812) | | | (2,668) | | | (2,471) | |
| Repurchase of common shares | — |
| | — |
| | (1,500 | ) | |
| | Other | 1 |
| | (16 | ) | | (36 | ) | Other | (133) | | | (26) | | | (12) | |
| Net cash provided by (used in) financing activities | 1,782 |
|
| 4,251 |
|
| (2,602 | ) | |
| Changes in cash and cash equivalents included in assets held for sale | — |
| | 474 |
| | 1,099 |
| |
| Net (decrease) increase in cash and cash equivalents | (34 | ) |
| 9 |
|
| (80 | ) | |
| Cash and cash equivalents at beginning of period | 392 |
| | 383 |
| | 463 |
| |
| Cash and cash equivalents at end of period | $ | 358 |
|
| $ | 392 |
|
| $ | 383 |
| |
| Net cash provided by financing activities | | Net cash provided by financing activities | 1,731 | | | 3,730 | | | 2,960 | |
| | Net (decrease) increase in cash, cash equivalents, and restricted cash | | Net (decrease) increase in cash, cash equivalents, and restricted cash | (17) | | | (18) | | | 86 | |
| Cash, cash equivalents, and restricted cash at beginning of period | | Cash, cash equivalents, and restricted cash at beginning of period | 573 | | | 591 | | | 505 | |
| Cash, cash equivalents, and restricted cash at end of period | | Cash, cash equivalents, and restricted cash at end of period | $ | 556 | | | $ | 573 | | | $ | 591 | |
| Supplemental Disclosures: | | | | | | Supplemental Disclosures: | |
| Cash paid for interest, net of amount capitalized | $ | 1,963 |
| | $ | 1,794 |
| | $ | 1,607 |
| Cash paid for interest, net of amount capitalized | $ | 2,186 | | | $ | 2,195 | | | $ | 2,086 | |
| Cash paid for income taxes | 4 |
| | 229 |
| | 170 |
| |
| Cash received from income taxes | | Cash received from income taxes | (585) | | | (651) | | | (266) | |
| Significant non-cash transactions: | | | | | | Significant non-cash transactions: | |
| Accrued capital expenditures | 1,032 |
| | 1,000 |
| | 771 |
| Accrued capital expenditures | 1,116 | | | 1,356 | | | 1,112 | |
| Non-cash dividends | | Non-cash dividends | 110 | | | 108 | | | 107 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Duke Energy Corporation Stockholders'
Accumulated Other Comprehensive
Income (Loss) | | | | | | |
| | | | | | | | | | | | | | Net Unrealized | | | | Total | | | | |
| | | | | | | | | | | | Net | | Gains (Losses) | | | | Duke Energy | | | | |
| | Common | | | | Additional | | | | | | Losses on | | on Available- | | Pension and | | Corporation | | | | |
| Preferred | Stock | | Common | | Paid-in | | Retained | | | | Cash Flow | | for-Sale- | | OPEB | | Stockholders' | | Noncontrolling | | Total |
| (in millions) | Stock | Shares | | Stock | | Capital | | Earnings | | | | Hedges | | Securities | | Adjustments | | Equity | | Interests | | Equity |
| Balance at December 31, 2017 | $ | — | | 700 | | | $ | 1 | | | $ | 38,792 | | | $ | 3,013 | | | | | $ | (10) | | | $ | 12 | | | $ | (69) | | | $ | 41,739 | | | $ | (2) | | | $ | 41,737 | |
| Net income | — | | — | | | — | | | — | | | 2,666 | | | | | — | | | — | | | — | | | 2,666 | | | (22) | | | 2,644 | |
| Other comprehensive loss | — | | — | | | — | | | — | | | — | | | | | (4) | | | (3) | | | (6) | | | (13) | | | — | | | (13) | |
| Common stock issuances, including dividend reinvestment and employee benefits | — | | 27 | | | — | | | 2,003 | | | — | | | | | — | | | — | | | — | | | 2,003 | | | — | | | 2,003 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock dividends | — | | — | | | — | | | — | | | (2,578) | | | | | — | | | — | | | — | | | (2,578) | | | — | | | (2,578) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Distributions to noncontrolling interest in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
Other(a) | — | | — | | | — | | | — | | | 12 | | | | | — | | | (12) | | | — | | | — | | | 42 | | | 42 | |
| Balance at December 31, 2018 | $ | — | | 727 | | | $ | 1 | | | $ | 40,795 | | | $ | 3,113 | | | | | $ | (14) | | | $ | (3) | | | $ | (75) | | | $ | 43,817 | | | $ | 17 | | | $ | 43,834 | |
| Net income | — | | — | | | — | | | — | | | 3,707 | | | | | — | | | — | | | — | | | 3,707 | | | (177) | | | 3,530 | |
| Other comprehensive (loss) Income | — | | — | | | — | | | — | | | — | | | | | (41) | | | 8 | | | 9 | | | (24) | | | — | | | (24) | |
Preferred stock, Series A, issuances, net of issuance costs(b) | 973 | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 973 | | | — | | | 973 | |
Preferred stock, Series B, issuances, net of issuance costs(b) | 989 | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 989 | | | — | | | 989 | |
| Common stock issuances, including dividend reinvestment and employee benefits | — | | 6 | | | — | | | 552 | | | — | | | | | — | | | — | | | — | | | 552 | | | — | | | 552 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock dividends | — | | — | | | — | | | — | | | (2,735) | | | | | — | | | — | | | — | | | (2,735) | | | — | | | (2,735) | |
Sale of noncontrolling interest(c) | — | | — | | | — | | | (466) | | | — | | | | | 10 | | | — | | | — | | | (456) | | | 863 | | | 407 | |
Contribution from noncontrolling interest (f) | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | 428 | | | 428 | |
| Distributions to noncontrolling interest in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (4) | | | (4) | |
Other(d) | — | | — | | | — | | | — | | | 23 | | | | | (6) | | | (2) | | | (16) | | | (1) | | | 2 | | | 1 | |
| Balance at December 31, 2019 | $ | 1,962 | | 733 | | | $ | 1 | | | $ | 40,881 | | | $ | 4,108 | | | | | $ | (51) | | | $ | 3 | | | $ | (82) | | | $ | 46,822 | | | $ | 1,129 | | | $ | 47,951 | |
| Net income | — | | — | | | — | | | — | | | 1,270 | | | | | — | | | — | | | — | | | 1,270 | | | (295) | | | 975 | |
| Other comprehensive (loss) income | — | | — | | | — | | | — | | | — | | | | | (116) | | | 3 | | | 6 | | | (107) | | | (11) | | | (118) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock issuances, including dividend reinvestment and employee benefits | — | | 36 | | | — | | | 2,902 | | | — | | | | | — | | | — | | | — | | | 2,902 | | | — | | | 2,902 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock dividends | — | | — | | | — | | | — | | | (2,815) | | | | | — | | | — | | | — | | | (2,815) | | | — | | | (2,815) | |
| | | | | | | | | | | | | | | | | | | | | | |
Contribution from noncontrolling interest, net of transaction costs(f) | — | | — | | | — | | | (17) | | | — | | | | | — | | | — | | | — | | | (17) | | | 426 | | | 409 | |
| Distributions to noncontrolling interests in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (30) | | | (30) | |
Other(e) | — | | — | | | — | | | 1 | | | (92) | | | | | — | | | — | | | — | | | (91) | | | 1 | | | (90) | |
| Balance at December 31, 2020 | $ | 1,962 | | 769 | | | $ | 1 | | | $ | 43,767 | | | $ | 2,471 | | | | | $ | (167) | | | $ | 6 | | | $ | (76) | | | $ | 47,964 | | | $ | 1,220 | | | $ | 49,184 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Duke Energy Corporation Stockholders' Accumulated Other Comprehensive Loss | | | | | | |
| | | | | | | | | | | | | | Net Unrealized |
| | | | Total |
| | | | |
| | | | | | | | | | Foreign |
| | Net |
| | Gains (Losses) |
| | | | Duke Energy |
| | | | |
| | Common |
| | | | Additional |
| | | | Currency |
| | Losses on |
| | on Available- |
| | Pension and |
| | Corporation |
| | | | |
| | Stock |
| | Common |
| | Paid-in |
| | Retained |
| | Translation |
| | Cash Flow |
| | for-Sale- |
| | OPEB |
| | Stockholders' |
| | Noncontrolling |
| | Total |
|
| (in millions) | Shares |
| | Stock |
| | Capital |
| | Earnings |
| | Adjustments |
| | Hedges |
| | Securities |
| | Adjustments |
| | Equity |
| | Interests |
| | Equity |
|
| Balance at December 31, 2014 | 707 |
| | $ | 1 |
| | $ | 39,405 |
| | $ | 2,012 |
| | $ | (439 | ) | | $ | (59 | ) | | $ | 3 |
| | $ | (48 | ) | | $ | 40,875 |
| | $ | 24 |
| | $ | 40,899 |
|
| Net income | — |
| | — |
| | — |
| | 2,816 |
| | — |
| | — |
| | — |
| | — |
| | 2,816 |
| | 15 |
| | 2,831 |
|
| Other comprehensive (loss) income | — |
| | — |
| | — |
| | — |
| | (253 | ) | | 9 |
| | (6 | ) | | (13 | ) | | (263 | ) | | (11 | ) | | (274 | ) |
| Common stock issuances, including dividend reinvestment and employee benefits | 1 |
| | — |
| | 63 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 63 |
| | — |
| | 63 |
|
| Stock repurchase | (20 | ) | | — |
| | (1,500 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (1,500 | ) | | — |
| | (1,500 | ) |
| Common stock dividends | — |
| | — |
| | — |
| | (2,254 | ) | | — |
| | — |
| | — |
| | — |
| | (2,254 | ) | | — |
| | (2,254 | ) |
| Distributions to noncontrolling interest in subsidiaries | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (9 | ) | | (9 | ) |
Other(a) | — |
| | — |
| | — |
| | (10 | ) | | — |
| | — |
| | — |
| | — |
| | (10 | ) | | 25 |
| | 15 |
|
| Balance at December 31, 2015 | 688 |
|
| $ | 1 |
|
| $ | 37,968 |
|
| $ | 2,564 |
|
| $ | (692 | ) |
| $ | (50 | ) |
| $ | (3 | ) |
| $ | (61 | ) |
| $ | 39,727 |
|
| $ | 44 |
|
| $ | 39,771 |
|
| Net income | — |
| | — |
| | — |
| | 2,152 |
| | — |
| | — |
| | — |
| | — |
| | 2,152 |
| | 18 |
| | 2,170 |
|
Other comprehensive (loss) income(b) | — |
| | — |
| | — |
| | — |
| | 692 |
| | 30 |
| | 2 |
| | (11 | ) | | 713 |
| | 2 |
| | 715 |
|
| Common stock issuances, including dividend reinvestment and employee benefits | 12 |
| | — |
| | 773 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 773 |
| | — |
| | 773 |
|
| Common stock dividends | — |
| | — |
| | — |
| | (2,332 | ) | | — |
| | — |
| | — |
| | — |
| | (2,332 | ) | | — |
| | (2,332 | ) |
| Distributions to noncontrolling interest in subsidiaries | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (6 | ) | | (6 | ) |
Other(c) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (50 | ) | | (50 | ) |
| Balance at December 31, 2016 | 700 |
|
| $ | 1 |
|
| $ | 38,741 |
|
| $ | 2,384 |
|
| $ | — |
|
| $ | (20 | ) |
| $ | (1 | ) |
| $ | (72 | ) |
| $ | 41,033 |
|
| $ | 8 |
|
| $ | 41,041 |
|
| Net income | — |
| | — |
| | — |
| | 3,059 |
| | — |
| | — |
| | — |
| | — |
| | 3,059 |
| | 5 |
| | 3,064 |
|
| Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | 10 |
| | 13 |
| | 3 |
| | 26 |
| | — |
| | 26 |
|
| Common stock issuances, including dividend reinvestment and employee benefits | — |
| | — |
| | 51 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 51 |
| | — |
| | 51 |
|
| Common stock dividends | — |
| | — |
| | — |
| | (2,450 | ) | | — |
| | — |
| | — |
| | — |
| | (2,450 | ) | | — |
| | (2,450 | ) |
| Distributions to noncontrolling interests in subsidiaries | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) |
Other(d) | — |
| | — |
| | — |
| | 20 |
| | — |
| | — |
| | — |
| | — |
| | 20 |
| | (13 | ) | | 7 |
|
| Balance at December 31, 2017 | 700 |
| | $ | 1 |
| | $ | 38,792 |
| | $ | 3,013 |
| | $ | — |
| | $ | (10 | ) | | $ | 12 |
| | $ | (69 | ) | | $ | 41,739 |
| | $ | (2 | ) | | $ | 41,737 |
|
| |
(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. |
(b) Duke Energy issued 40 million depositary shares of preferred stock, Series A, in the first quarter of 2019 and 1 million shares of preferred stock, Series B, in the third quarter of 2019.
(c) See Note 1 for additional discussion of the transaction.
(d) Amounts in Retained Earnings and AOCI primarily represent impacts to accumulated other comprehensive income due to implementation of a new accounting standard related to Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
(e) Amounts in Retained earnings primarily represent impacts due to implementation of a new accounting standard related to Current Estimated Credit Losses. See Note 1 for additional discussion.
(f) Relates to tax equity financing activity in the Commercial Renewables segment.
See Notes to Consolidated Financial Statements
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, 20172020 and 2016,2019, 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, 2017,2020, 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, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2020, 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission and by the South Carolina Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $3.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 201825, 2021
We have served as the Company's auditor since 1947.
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME | | | | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 7,302 |
| | $ | 7,322 |
| | $ | 7,229 |
| Operating Revenues | $ | 7,015 | | | $ | 7,395 | | | $ | 7,300 | |
| Operating Expenses | | | | | | Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 1,822 |
|
| 1,797 |
| | 1,881 |
| Fuel used in electric generation and purchased power | 1,682 | | | 1,804 | | | 1,821 | |
| Operation, maintenance and other | 1,961 |
|
| 2,106 |
| | 2,066 |
| Operation, maintenance and other | 1,743 | | | 1,868 | | | 2,130 | |
| Depreciation and amortization | 1,090 |
|
| 1,075 |
| | 1,051 |
| Depreciation and amortization | 1,462 | | | 1,388 | | | 1,201 | |
| Property and other taxes | 281 |
|
| 276 |
| | 269 |
| Property and other taxes | 299 | | | 292 | | | 295 | |
| Impairment charges | — |
|
| 1 |
| | 1 |
| Impairment charges | 476 | | | 17 | | | 192 | |
| Total operating expenses | 5,154 |
| | 5,255 |
| | 5,268 |
| Total operating expenses | 5,662 | | | 5,369 | | | 5,639 | |
| Gain (Loss) on Sales of Other Assets and Other, net | 1 |
| | (5 | ) | | (1 | ) | |
| Gains (Losses) on Sales of Other Assets and Other, net | | Gains (Losses) on Sales of Other Assets and Other, net | 1 | | | — | | | (1) | |
| Operating Income | 2,149 |
| | 2,062 |
| | 1,960 |
| Operating Income | 1,354 | | | 2,026 | | | 1,660 | |
| Other Income and Expenses, net | 139 |
| | 162 |
| | 160 |
| Other Income and Expenses, net | 177 | | | 151 | | | 153 | |
| Interest Expense | 422 |
| | 424 |
| | 412 |
| Interest Expense | 487 | | | 463 | | | 439 | |
| Income Before Income Taxes | 1,866 |
| | 1,800 |
| | 1,708 |
| Income Before Income Taxes | 1,044 | | | 1,714 | | | 1,374 | |
| Income Tax Expense | 652 |
| | 634 |
| | 627 |
| Income Tax Expense | 88 | | | 311 | | | 303 | |
| Net Income | $ | 1,214 |
| | $ | 1,166 |
| | $ | 1,081 |
| Net Income | $ | 956 | | | $ | 1,403 | | | $ | 1,071 | |
| Other Comprehensive Income, net of tax | | | | | | Other Comprehensive Income, net of tax | | | | | |
| Reclassification into earnings from cash flow hedges | 2 |
| | 2 |
| | 1 |
| Reclassification into earnings from cash flow hedges | — | | | — | | | 1 | |
| Unrealized gains on available-for-sale securities | — |
| | — |
| | 1 |
| |
| | Other Comprehensive Income, net of tax | 2 |
| | 2 |
| | 2 |
| Other Comprehensive Income, net of tax | — | | | — | | | 1 | |
| Comprehensive Income | $ | 1,216 |
| | $ | 1,168 |
| | $ | 1,083 |
| Comprehensive Income | $ | 956 | | | $ | 1,403 | | | $ | 1,072 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED BALANCE SHEETS | | | | | December 31, | | | December 31, |
| (in millions) | | 2017 |
| | 2016 |
| (in millions) | | 2020 | | 2019 |
| ASSETS | | | | | ASSETS | | | | |
| Current Assets | | | | | Current Assets | | | | |
| Cash and cash equivalents | | $ | 16 |
| | $ | 14 |
| Cash and cash equivalents | | $ | 21 | | | $ | 18 | |
| Receivables (net of allowance for doubtful accounts of $2 at 2017 and 2016) | | 200 |
| | 160 |
| |
| Receivables of VIEs (net of allowance for doubtful accounts of $7 at 2017 and 2016) | | 640 |
| | 645 |
| |
| Receivables (net of allowance for doubtful accounts of $1 at 2020 and $3 at 2019) | | Receivables (net of allowance for doubtful accounts of $1 at 2020 and $3 at 2019) | | 247 | | | 324 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $22 at 2020 and $7 at 2019) | | Receivables of VIEs (net of allowance for doubtful accounts of $22 at 2020 and $7 at 2019) | | 696 | | | 642 | |
| Receivables from affiliated companies | | 95 |
| | 163 |
| Receivables from affiliated companies | | 124 | | | 114 | |
| Notes receivable from affiliated companies | | — |
| | 66 |
| |
| | Inventory | | 971 |
|
| 1,055 |
| Inventory | | 1,010 | | | 996 | |
| Regulatory assets | | 299 |
| | 238 |
| Regulatory assets | | 473 | | | 550 | |
| Other | | 19 |
| | 37 |
| Other | | 20 | | | 21 | |
| Total current assets | | 2,240 |
| | 2,378 |
| Total current assets | | 2,591 | | | 2,665 | |
| Property, Plant and Equipment | | | | | Property, Plant and Equipment | | | | |
| Cost | | 42,939 |
| | 41,127 |
| Cost | | 50,640 | | | 48,922 | |
| Accumulated depreciation and amortization | | (15,063 | ) | | (14,365 | ) | Accumulated depreciation and amortization | | (17,453) | | | (16,525) | |
| | Net property, plant and equipment | | 27,876 |
| | 26,762 |
| Net property, plant and equipment | | 33,187 | | | 32,397 | |
| Other Noncurrent Assets | | | | | Other Noncurrent Assets | |
| | Regulatory assets | | 2,853 |
| | 3,159 |
| Regulatory assets | | 2,996 | | | 3,360 | |
| Nuclear decommissioning trust funds | | 3,772 |
| | 3,273 |
| Nuclear decommissioning trust funds | | 4,977 | | | 4,359 | |
| Operating lease right-of-use assets, net | | Operating lease right-of-use assets, net | | 110 | | | 123 | |
| Other | | 979 |
| | 943 |
| Other | | 1,187 | | | 1,149 | |
| Total other noncurrent assets | | 7,604 |
| | 7,375 |
| Total other noncurrent assets | | 9,270 | | | 8,991 | |
| Total Assets | | $ | 37,720 |
| | $ | 36,515 |
| Total Assets | | $ | 45,048 | | | $ | 44,053 | |
| LIABILITIES AND EQUITY | | | | | LIABILITIES AND EQUITY | | | | |
| Current Liabilities | | | | | Current Liabilities | | | | |
| Accounts payable | | $ | 842 |
| | $ | 833 |
| Accounts payable | | $ | 1,000 | | | $ | 954 | |
| Accounts payable to affiliated companies | | 209 |
| | 247 |
| Accounts payable to affiliated companies | | 199 | | | 210 | |
| Notes payable to affiliated companies | | 104 |
| | — |
| Notes payable to affiliated companies | | 506 | | | 29 | |
| Taxes accrued | | 234 |
| | 143 |
| Taxes accrued | | 76 | | | 46 | |
| Interest accrued | | 108 |
| | 102 |
| Interest accrued | | 117 | | | 115 | |
| Current maturities of long-term debt | | 1,205 |
| | 116 |
| Current maturities of long-term debt | | 506 | | | 458 | |
| Asset retirement obligations | | 337 |
| | 222 |
| Asset retirement obligations | | 264 | | | 206 | |
| Regulatory liabilities | | 126 |
| | 161 |
| Regulatory liabilities | | 473 | | | 255 | |
| Other | | 486 |
| | 468 |
| Other | | 546 | | | 611 | |
| Total current liabilities | | 3,651 |
| | 2,292 |
| Total current liabilities | | 3,687 | | | 2,884 | |
| Long-Term Debt | | 8,598 |
| | 9,187 |
| Long-Term Debt | | 11,412 | | | 11,142 | |
| Long-Term Debt Payable to Affiliated Companies | | 300 |
| | 300 |
| Long-Term Debt Payable to Affiliated Companies | | 300 | | | 300 | |
| Other Noncurrent Liabilities | | | | | Other Noncurrent Liabilities | | | | |
| Deferred income taxes | | 3,413 |
| | 6,544 |
| Deferred income taxes | | 3,842 | | | 3,921 | |
| Asset retirement obligations | | 3,273 |
| | 3,673 |
| Asset retirement obligations | | 5,086 | | | 5,528 | |
| Regulatory liabilities | | 6,231 |
| | 2,840 |
| Regulatory liabilities | | 6,535 | | | 6,423 | |
| Operating lease liabilities | | Operating lease liabilities | | 97 | | | 102 | |
| Accrued pension and other post-retirement benefit costs | | 95 |
| | 97 |
| Accrued pension and other post-retirement benefit costs | | 73 | | | 84 | |
| Investment tax credits | | 232 |
| | 203 |
| Investment tax credits | | 236 | | | 231 | |
| Other | | 566 |
| | 607 |
| Other | | 626 | | | 627 | |
| Total other noncurrent liabilities | | 13,810 |
| | 13,964 |
| Total other noncurrent liabilities | | 16,495 | | | 16,916 | |
| Commitments and Contingencies | |
| |
| Commitments and Contingencies | | 0 | | 0 |
| Equity | | | | | Equity | | | | |
| Member's equity | | 11,368 |
| | 10,781 |
| Member's equity | | 13,161 | | | 12,818 | |
| Accumulated other comprehensive loss | | (7 | ) | | (9 | ) | Accumulated other comprehensive loss | | (7) | | | (7) | |
| Total equity | | 11,361 |
| | 10,772 |
| Total equity | | 13,154 | | | 12,811 | |
| Total Liabilities and Equity | | $ | 37,720 |
| | $ | 36,515 |
| Total Liabilities and Equity | | $ | 45,048 | | | $ | 44,053 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 1,214 |
| | $ | 1,166 |
| | $ | 1,081 |
| Net income | $ | 956 | | | $ | 1,403 | | | $ | 1,071 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | Adjustments to reconcile net income to net cash provided by operating activities: | |
| Depreciation and amortization (including amortization of nuclear fuel) | 1,409 |
| | 1,382 |
| | 1,361 |
| Depreciation and amortization (including amortization of nuclear fuel) | 1,731 | | | 1,671 | | | 1,487 | |
| Equity component of AFUDC | (106 | ) | | (102 | ) | | (96 | ) | Equity component of AFUDC | (62) | | | (42) | | | (73) | |
| | (Gains) Losses on sales of other assets | (1 | ) | | 5 |
| | 1 |
| (Gains) Losses on sales of other assets | (1) | | | — | | | 1 | |
| Impairment charges | — |
| | 1 |
| | 1 |
| Impairment charges | 476 | | | 17 | | | 192 | |
| Deferred income taxes | 410 |
| | 470 |
| | 397 |
| Deferred income taxes | (260) | | | 133 | | | 305 | |
| Accrued pension and other post-retirement benefit costs | (4 | ) | | 4 |
| | 15 |
| |
| Contributions to qualified pension plans | — |
| | (43 | ) | | (91 | ) | |
| | Payments for asset retirement obligations | (271 | ) | | (287 | ) | | (167 | ) | Payments for asset retirement obligations | (162) | | | (278) | | | (230) | |
| Provision for rate refunds | | Provision for rate refunds | (5) | | | 36 | | | 182 | |
| (Increase) decrease in |
| | | | | (Increase) decrease in | |
| Net realized and unrealized mark-to-market and hedging transactions | 9 |
| | 5 |
| | — |
| Net realized and unrealized mark-to-market and hedging transactions | (4) | | | (8) | | | 2 | |
| Receivables | (9 | ) | | (76 | ) | | 42 |
| Receivables | 52 | | | (21) | | | (86) | |
| Receivables from affiliated companies | 68 |
| | (56 | ) | | (32 | ) | Receivables from affiliated companies | (10) | | | 68 | | | (87) | |
| Inventory | 78 |
| | 215 |
| | (157 | ) | Inventory | (14) | | | (48) | | | 25 | |
| Other current assets | 7 |
| | 67 |
| | (51 | ) | Other current assets | 209 | | | (73) | | | (161) | |
| Increase (decrease) in |
| | | | | Increase (decrease) in | |
| Accounts payable | 23 |
| | (69 | ) | | (4 | ) | Accounts payable | 55 | | | (50) | | | 168 | |
| Accounts payable to affiliated companies | (38 | ) | | 18 |
| | 75 |
| Accounts payable to affiliated companies | (11) | | | (20) | | | 21 | |
| Taxes accrued | 86 |
| | 187 |
| | (128 | ) | Taxes accrued | 30 | | | (127) | | | (65) | |
| Other current liabilities | (161 | ) | | 63 |
| | 127 |
| Other current liabilities | (56) | | | 127 | | | 89 | |
| Other assets | (49 | ) | | 20 |
| | 76 |
| Other assets | (101) | | | (42) | | | (221) | |
| Other liabilities | (31 | ) | | 6 |
| | (77 | ) | Other liabilities | (47) | | | (37) | | | (90) | |
| Net cash provided by operating activities | 2,634 |
| | 2,976 |
| | 2,373 |
| Net cash provided by operating activities | 2,776 | | | 2,709 | | | 2,530 | |
| CASH FLOWS FROM INVESTING ACTIVITIES |
| | | | | CASH FLOWS FROM INVESTING ACTIVITIES | |
| Capital expenditures | (2,524 | ) | | (2,220 | ) | | (1,933 | ) | Capital expenditures | (2,669) | | | (2,714) | | | (2,706) | |
| Purchases of available-for-sale securities | (2,124 | ) | | (2,832 | ) | | (2,555 | ) | |
| Proceeds from sales and maturities of available-for-sale securities | 2,128 |
| | 2,832 |
| | 2,555 |
| |
| Notes receivable from affiliated companies | 66 |
| | 97 |
| | (13 | ) | |
| Purchases of debt and equity securities | | Purchases of debt and equity securities | (1,602) | | | (1,658) | | | (1,810) | |
| Proceeds from sales and maturities of debt and equity securities | | Proceeds from sales and maturities of debt and equity securities | 1,602 | | | 1,658 | | | 1,810 | |
| | Other | (109 | ) | | (83 | ) | | (35 | ) | Other | (164) | | | (204) | | | (147) | |
| Net cash used in investing activities | (2,563 | ) | | (2,206 | ) | | (1,981 | ) | Net cash used in investing activities | (2,833) | | | (2,918) | | | (2,853) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | |
| Proceeds from the issuance of long-term debt | 569 |
| | 1,587 |
| | 516 |
| Proceeds from the issuance of long-term debt | 998 | | | 886 | | | 1,983 | |
| Payments for the redemption of long-term debt | (116 | ) | | (356 | ) | | (506 | ) | Payments for the redemption of long-term debt | (813) | | | (6) | | | (1,205) | |
| Notes payable to affiliated companies | 104 |
| | — |
| | — |
| Notes payable to affiliated companies | 477 | | | (410) | | | 335 | |
| Distributions to parent | (625 | ) | | (2,000 | ) | | (401 | ) | Distributions to parent | (600) | | | (275) | | | (750) | |
| Other | (1 | ) | | — |
| | (1 | ) | Other | (2) | | | (1) | | | (23) | |
| Net cash used in financing activities | (69 | ) | | (769 | ) | | (392 | ) | |
| Net increase in cash and cash equivalents | 2 |
| | 1 |
| | — |
| |
| Net cash provided by financing activities | | Net cash provided by financing activities | 60 | | | 194 | | | 340 | |
| Net increase (decrease) in cash and cash equivalents | | Net increase (decrease) in cash and cash equivalents | 3 | | | (15) | | | 17 | |
| Cash and cash equivalents at beginning of period | 14 |
| | 13 |
| | 13 |
| Cash and cash equivalents at beginning of period | 18 | | | 33 | | | 16 | |
| Cash and cash equivalents at end of period | $ | 16 |
| | $ | 14 |
| | $ | 13 |
| Cash and cash equivalents at end of period | $ | 21 | | | $ | 18 | | | $ | 33 | |
| Supplemental Disclosures: | | | | | | Supplemental Disclosures: | |
| Cash paid for interest, net of amount capitalized | $ | 398 |
| | $ | 393 |
| | $ | 389 |
| Cash paid for interest, net of amount capitalized | $ | 481 | | | $ | 433 | | | $ | 452 | |
| Cash paid for (received from) income taxes | 193 |
| | (60 | ) | | 342 |
| |
| Cash paid for income taxes | | Cash paid for income taxes | 321 | | | 122 | | | 89 | |
| Significant non-cash transactions: | | | | | | Significant non-cash transactions: | |
| Accrued capital expenditures | 315 |
| | 347 |
| | 239 |
| Accrued capital expenditures | 365 | | | 347 | | | 302 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | | | | | | | | | | | | Accumulated Other | |
| | | | Accumulated Other | | | | | | Comprehensive | | |
| | | | Comprehensive Loss | | | | Loss | | |
| | | | Net Losses |
| | Net Losses |
| | | | Net Gains | | |
| | | | on Cash |
| | Available- |
| | | | (Losses) on | | |
| | Member's |
| | Flow |
| | for-Sale |
| | Total |
| | Member's | | Cash Flow | | | Total |
| (in millions) | Equity |
| | Hedges |
| | Securities |
| | Equity |
| (in millions) | Equity | | Hedges | | | Equity |
| Balance at December 31, 2014 | $ | 10,937 |
| | $ | (12 | ) | | $ | (1 | ) | | $ | 10,924 |
| |
| Balance at December 31, 2017 | | Balance at December 31, 2017 | $ | 11,368 | | | $ | (7) | | | | $ | 11,361 | |
| Net income | 1,081 |
| | — |
| | — |
| | 1,081 |
| Net income | 1,071 | | | — | | | | 1,071 | |
| Other comprehensive income | — |
| | 1 |
| | 1 |
| | 2 |
| Other comprehensive income | — | | | 1 | | | | 1 | |
| Distributions to parent | (401 | ) | | — |
| | — |
| | (401 | ) | Distributions to parent | (750) | | | — | | | | (750) | |
| Balance at December 31, 2015 | $ | 11,617 |
| | $ | (11 | ) | | $ | — |
| | $ | 11,606 |
| |
| | Balance at December 31, 2018 | | Balance at December 31, 2018 | $ | 11,689 | | | $ | (6) | | | | $ | 11,683 | |
| Net income | 1,166 |
| | — |
| | — |
| | 1,166 |
| Net income | 1,403 | | | — | | | | 1,403 | |
| Other comprehensive income | — |
| | 2 |
| | — |
| | 2 |
| |
| | Distributions to parent | (2,000 | ) | | — |
| | — |
| | (2,000 | ) | Distributions to parent | (275) | | | — | | | | (275) | |
| Other | (2 | ) | | — |
| | — |
| | (2 | ) | Other | 1 | | | (1) | | | | 0 | |
| Balance at December 31, 2016 | $ | 10,781 |
| | $ | (9 | ) | | $ | — |
| | $ | 10,772 |
| |
| Balance at December 31, 2019 | | Balance at December 31, 2019 | $ | 12,818 | | | $ | (7) | | | | $ | 12,811 | |
Net income | 1,214 |
| | — |
| | — |
| | 1,214 |
| Net income | 956 | | | — | | | | 956 | |
Other comprehensive income | — |
| | 2 |
| | — |
| | 2 |
| |
| Distributions to parent | (625 | ) | | — |
| | — |
| | (625 | ) | Distributions to parent | (600) | | | — | | | | (600) | |
| Other | (2 | ) | | — |
| | — |
| | (2 | ) | |
| Balance at December 31, 2017 | $ | 11,368 |
| | $ | (7 | ) | | $ | — |
| | $ | 11,361 |
| |
Other(a) | | Other(a) | (13) | | | — | | | | (13) | |
| Balance at December 31, 2020 | | Balance at December 31, 2020 | $ | 13,161 | | | $ | (7) | | | | $ | 13,154 | |
(a) Amounts primarily represent impacts due to implementation of a new accounting standard related to Credit Losses. See Note 1 for additional discussion.
See Notes to Consolidated Financial Statements
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, 20172020 and 2016,2019, 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, 2017,2020, 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, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2020, 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission, South Carolina Public Service Commission and Florida Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $6.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 201825, 2021
We have served as the Company's auditor since 1930.
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME | | | | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 9,783 |
| | $ | 9,853 |
| | $ | 10,277 |
| Operating Revenues | $ | 10,627 | | | $ | 11,202 | | | $ | 10,728 | |
| Operating Expenses | | | | | | Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 3,417 |
| | 3,644 |
| | 4,224 |
| Fuel used in electric generation and purchased power | 3,479 | | | 4,024 | | | 3,976 | |
| Operation, maintenance and other | 2,220 |
| | 2,386 |
| | 2,298 |
| Operation, maintenance and other | 2,479 | | | 2,495 | | | 2,613 | |
| Depreciation and amortization | 1,285 |
| | 1,213 |
| | 1,116 |
| Depreciation and amortization | 1,818 | | | 1,845 | | | 1,619 | |
| Property and other taxes | 503 |
| | 487 |
| | 492 |
| Property and other taxes | 545 | | | 561 | | | 529 | |
| Impairment charges | 156 |
| | 7 |
| | 12 |
| Impairment charges | 495 | | | (24) | | | 87 | |
| Total operating expenses | 7,581 |
|
| 7,737 |
|
| 8,142 |
| Total operating expenses | 8,816 | | | 8,901 | | | 8,824 | |
| Gains on Sales of Other Assets and Other, net | 26 |
| | 25 |
| | 25 |
| Gains on Sales of Other Assets and Other, net | 9 | | | — | | | 24 | |
| Operating Income | 2,228 |
|
| 2,141 |
|
| 2,160 |
| Operating Income | 1,820 | | | 2,301 | | | 1,928 | |
| Other Income and Expenses, net | 128 |
| | 114 |
| | 97 |
| Other Income and Expenses, net | 129 | | | 141 | | | 165 | |
| Interest Expense | 824 |
| | 689 |
| | 670 |
| Interest Expense | 790 | | | 862 | | | 842 | |
| Income From Continuing Operations Before Income Taxes | 1,532 |
|
| 1,566 |
|
| 1,587 |
| |
| Income Tax Expense From Continuing Operations | 264 |
| | 527 |
| | 522 |
| |
| Income From Continuing Operations | 1,268 |
|
| 1,039 |
|
| 1,065 |
| |
| Income (Loss) From Discontinued Operations, net of tax | — |
| | 2 |
| | (3 | ) | |
| Income Before Income Taxes | | Income Before Income Taxes | 1,159 | | | 1,580 | | | 1,251 | |
| Income Tax Expense | | Income Tax Expense | 113 | | | 253 | | | 218 | |
| | Net Income | 1,268 |
|
| 1,041 |
|
| 1,062 |
| Net Income | 1,046 | | | 1,327 | | | 1,033 | |
| Less: Net Income Attributable to Noncontrolling Interests | 10 |
| | 10 |
| | 11 |
| Less: Net Income Attributable to Noncontrolling Interests | 1 | | | — | | | 6 | |
| Net Income Attributable to Parent | $ | 1,258 |
|
| $ | 1,031 |
|
| $ | 1,051 |
| Net Income Attributable to Parent | $ | 1,045 | | | $ | 1,327 | | | $ | 1,027 | |
| | | | | | | |
Net Income | $ | 1,268 |
|
| $ | 1,041 |
|
| $ | 1,062 |
| Net Income | $ | 1,046 | | | $ | 1,327 | | | $ | 1,033 | |
Other Comprehensive Income (Loss), net of tax | | | | | | |
| Other Comprehensive Income, net of tax | | Other Comprehensive Income, net of tax | | | | | |
| Pension and OPEB adjustments | 4 |
| | 1 |
| | (10 | ) | Pension and OPEB adjustments | (1) | | | 2 | | | 5 | |
| Net unrealized gain on cash flow hedges | 5 |
| | — |
| | — |
| Net unrealized gain on cash flow hedges | 5 | | | 5 | | | 6 | |
| Reclassification into earnings from cash flow hedges | — |
| | 8 |
| | 4 |
| |
| Unrealized gains (losses) on available-for-sale securities | 4 |
| | 1 |
| | (1 | ) | |
Other Comprehensive Income (Loss), net of tax | 13 |
|
| 10 |
|
| (7 | ) | |
| | Unrealized (losses) gains on available-for-sale securities | | Unrealized (losses) gains on available-for-sale securities | (1) | | | 1 | | | (1) | |
| | Other Comprehensive Income, net of tax | | Other Comprehensive Income, net of tax | 3 | | | 8 | | | 10 | |
Comprehensive Income | 1,281 |
|
| 1,051 |
|
| 1,055 |
| Comprehensive Income | 1,049 | | | 1,335 | | | 1,043 | |
| Less: Comprehensive Income Attributable to Noncontrolling Interests | 10 |
| | 10 |
| | 11 |
| Less: Comprehensive Income Attributable to Noncontrolling Interests | 1 | | | — | | | 6 | |
| Comprehensive Income Attributable to Parent | $ | 1,271 |
|
| $ | 1,041 |
|
| $ | 1,044 |
| Comprehensive Income Attributable to Parent | $ | 1,048 | | | $ | 1,335 | | | $ | 1,037 | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS | | | | December 31, | | December 31, |
| (in millions) | 2017 |
| | 2016 |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | | ASSETS | | | |
| Current Assets | | | | Current Assets | | | |
| Cash and cash equivalents | $ | 40 |
| | $ | 46 |
| Cash and cash equivalents | $ | 59 | | | $ | 48 | |
| Receivables (net of allowance for doubtful accounts of $4 at 2017 and $6 at 2016) | 123 |
| | 114 |
| |
| Receivables of VIEs (net of allowance for doubtful accounts of $7 at 2017 and 2016) | 780 |
| | 692 |
| |
| Receivables (net of allowance for doubtful accounts of $8 at 2020 and $7 at 2019) | | Receivables (net of allowance for doubtful accounts of $8 at 2020 and $7 at 2019) | 228 | | | 220 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $29 at 2020 and $9 at 2019) | | Receivables of VIEs (net of allowance for doubtful accounts of $29 at 2020 and $9 at 2019) | 901 | | | 830 | |
| Receivables from affiliated companies | 31 |
| | 106 |
| Receivables from affiliated companies | 157 | | | 76 | |
| Notes receivable from affiliated companies | 240 |
| | 80 |
| Notes receivable from affiliated companies | — | | | 164 | |
| Inventory | 1,592 |
|
| 1,717 |
| Inventory | 1,375 | | | 1,423 | |
| Regulatory assets (includes $51 at 2017 and $50 at 2016 related to VIEs) | 741 |
| | 401 |
| |
| Other | 334 |
| | 148 |
| |
| Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | | Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 758 | | | 946 | |
| Other (includes $39 at 2020 and 2019 related to VIEs) | | Other (includes $39 at 2020 and 2019 related to VIEs) | 109 | | | 210 | |
| Total current assets | 3,881 |
| | 3,304 |
| Total current assets | 3,587 | | | 3,917 | |
| Property, Plant and Equipment | | | | Property, Plant and Equipment | | | |
| Cost | 47,323 |
| | 44,864 |
| Cost | 57,892 | | | 55,070 | |
| Accumulated depreciation and amortization | (15,857 | ) | | (15,212 | ) | Accumulated depreciation and amortization | (18,368) | | | (17,159) | |
| Generation facilities to be retired, net | 421 |
| | 529 |
| Generation facilities to be retired, net | 29 | | | 246 | |
| Net property, plant and equipment | 31,887 |
| | 30,181 |
| Net property, plant and equipment | 39,553 | | | 38,157 | |
| Other Noncurrent Assets | | | | Other Noncurrent Assets | | | |
| Goodwill | 3,655 |
| | 3,655 |
| Goodwill | 3,655 | | | 3,655 | |
| Regulatory assets (includes $1,091 at 2017 and $1,142 at 2016 related to VIEs) | 6,010 |
| | 5,722 |
| |
| Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | | Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 5,775 | | | 6,346 | |
| Nuclear decommissioning trust funds | 3,324 |
| | 2,932 |
| Nuclear decommissioning trust funds | 4,137 | | | 3,782 | |
| Operating lease right-of-use assets, net | | Operating lease right-of-use assets, net | 690 | | | 788 | |
| Other | 931 |
| | 856 |
| Other | 1,227 | | | 1,049 | |
| Total other noncurrent assets | 13,920 |
| | 13,165 |
| Total other noncurrent assets | 15,484 | | | 15,620 | |
| Total Assets | $ | 49,688 |
| | $ | 46,650 |
| Total Assets | $ | 58,624 | | | $ | 57,694 | |
| LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | | Current Liabilities | | | |
| Accounts payable | $ | 1,006 |
| | $ | 1,003 |
| Accounts payable | $ | 919 | | | $ | 1,104 | |
| Accounts payable to affiliated companies | 251 |
| | 348 |
| Accounts payable to affiliated companies | 289 | | | 310 | |
| Notes payable to affiliated companies | 805 |
| | 729 |
| Notes payable to affiliated companies | 2,969 | | | 1,821 | |
| Taxes accrued | 101 |
| | 83 |
| Taxes accrued | 121 | | | 46 | |
| Interest accrued | 212 |
| | 201 |
| Interest accrued | 202 | | | 228 | |
| Current maturities of long-term debt (includes $53 at 2017 and $62 at 2016 related to VIEs) | 771 |
| | 778 |
| |
| Current maturities of long-term debt (includes $305 at 2020 and $54 at 2019 related to VIEs) | | Current maturities of long-term debt (includes $305 at 2020 and $54 at 2019 related to VIEs) | 1,426 | | | 1,577 | |
| Asset retirement obligations | 295 |
| | 189 |
| Asset retirement obligations | 283 | | | 485 | |
| Regulatory liabilities | 213 |
| | 189 |
| Regulatory liabilities | 640 | | | 330 | |
| Other | 729 |
| | 745 |
| Other | 793 | | | 902 | |
| Total current liabilities | 4,383 |
| | 4,265 |
| Total current liabilities | 7,642 | | | 6,803 | |
| Long-Term Debt (includes $1,689 at 2017 and $1,741 at 2016 related to VIEs) | 16,916 |
| | 15,590 |
| |
| Long-Term Debt (includes $1,252 at 2020 and $1,632 at 2019 related to VIEs) | | Long-Term Debt (includes $1,252 at 2020 and $1,632 at 2019 related to VIEs) | 17,688 | | | 17,907 | |
| Long-Term Debt Payable to Affiliated Companies | 150 |
| | 1,173 |
| Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
| Other Noncurrent Liabilities | | | | Other Noncurrent Liabilities | | | |
| Deferred income taxes | 3,502 |
| | 5,246 |
| Deferred income taxes | 4,396 | | | 4,462 | |
| Asset retirement obligations | 5,119 |
| | 5,286 |
| Asset retirement obligations | 5,866 | | | 5,986 | |
| Regulatory liabilities | 5,306 |
| | 2,395 |
| Regulatory liabilities | 5,051 | | | 5,225 | |
| Operating lease liabilities | | Operating lease liabilities | 623 | | | 697 | |
| Accrued pension and other post-retirement benefit costs | 545 |
| | 547 |
| Accrued pension and other post-retirement benefit costs | 505 | | | 488 | |
| Other | 302 |
| | 341 |
| Other | 462 | | | 383 | |
| Total other noncurrent liabilities | 14,774 |
| | 13,815 |
| Total other noncurrent liabilities | 16,903 | | | 17,241 | |
| Commitments and Contingencies |
| |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | | Equity | | | |
| Common stock, $0.01 par value, 100 shares authorized and outstanding at 2017 and 2016 | — |
| | — |
| |
| Common stock, $0.01 par value, 100 shares authorized and outstanding at 2020 and 2019 | | Common stock, $0.01 par value, 100 shares authorized and outstanding at 2020 and 2019 | — | | | — | |
| Additional paid-in capital | 9,143 |
| | 8,094 |
| Additional paid-in capital | 9,143 | | | 9,143 | |
| Retained earnings | 4,350 |
| | 3,764 |
| Retained earnings | 7,109 | | | 6,465 | |
| Accumulated other comprehensive loss | (25 | ) | | (38 | ) | Accumulated other comprehensive loss | (15) | | | (18) | |
| Total Progress Energy, Inc. stockholder's equity | 13,468 |
| | 11,820 |
| Total Progress Energy, Inc. stockholder's equity | 16,237 | | | 15,590 | |
| Noncontrolling interests | (3 | ) | | (13 | ) | Noncontrolling interests | 4 | | | 3 | |
| Total equity | 13,465 |
| | 11,807 |
| Total equity | 16,241 | | | 15,593 | |
| Total Liabilities and Equity | $ | 49,688 |
|
| $ | 46,650 |
| Total Liabilities and Equity | $ | 58,624 | | | $ | 57,694 | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 1,268 |
| | $ | 1,041 |
| | $ | 1,062 |
| Net income | $ | 1,046 | | | $ | 1,327 | | | $ | 1,033 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization and accretion (including amortization of nuclear fuel) | 1,516 |
| | 1,435 |
| | 1,312 |
| Depreciation, amortization and accretion (including amortization of nuclear fuel) | 2,327 | | | 2,207 | | | 1,987 | |
| Equity component of AFUDC | (92 | ) | | (76 | ) | | (54 | ) | Equity component of AFUDC | (42) | | | (66) | | | (104) | |
| | Gains on sales of other assets | (28 | ) | | (34 | ) | | (31 | ) | Gains on sales of other assets | (9) | | | — | | | (24) | |
| Impairment charges | 156 |
| | 7 |
| | 12 |
| Impairment charges | 495 | | | (24) | | | 87 | |
| Deferred income taxes | 703 |
| | 532 |
| | 714 |
| Deferred income taxes | (197) | | | 433 | | | 358 | |
| Accrued pension and other post-retirement benefit costs | (28 | ) | | (24 | ) | | (5 | ) | |
| Contributions to qualified pension plans | — |
| | (43 | ) | | (83 | ) | |
| | Payments for asset retirement obligations | (248 | ) | | (270 | ) | | (156 | ) | Payments for asset retirement obligations | (384) | | | (412) | | | (230) | |
| | Provision for rate refunds | | Provision for rate refunds | 2 | | | 15 | | | 122 | |
| (Increase) decrease in | | | | | | (Increase) decrease in | |
| Net realized and unrealized mark-to-market and hedging transactions | — |
| | 42 |
| | (6 | ) | Net realized and unrealized mark-to-market and hedging transactions | (9) | | | (34) | | | 18 | |
| Receivables | (89 | ) | | 7 |
| | 105 |
| Receivables | (69) | | | 47 | | | (207) | |
| Receivables from affiliated companies | 71 |
| | 211 |
| | (316 | ) | Receivables from affiliated companies | (81) | | | 81 | | | (137) | |
| Inventory | 125 |
| | 35 |
| | (67 | ) | Inventory | 49 | | | 62 | | | 121 | |
| Other current assets | (384 | ) | | 3 |
| | 553 |
| Other current assets | 223 | | | 184 | | | (12) | |
| Increase (decrease) in | | | | | | Increase (decrease) in | |
| Accounts payable | (260 | ) | | 252 |
| | (193 | ) | Accounts payable | (62) | | | (4) | | | 217 | |
| Accounts payable to affiliated companies | (97 | ) | | 37 |
| | 108 |
| Accounts payable to affiliated companies | (21) | | | (50) | | | 109 | |
| Taxes accrued | 17 |
| | 15 |
| | (63 | ) | Taxes accrued | 75 | | | (74) | | | 8 | |
| Other current liabilities | (166 | ) | | (42 | ) | | 136 |
| Other current liabilities | 139 | | | 25 | | | 129 | |
| Other assets | (301 | ) | | (248 | ) | | (167 | ) | Other assets | (128) | | | (341) | | | (896) | |
| Other liabilities | (98 | ) | | (36 | ) | | (112 | ) | Other liabilities | (177) | | | (167) | | | (35) | |
| Net cash provided by operating activities | 2,065 |
|
| 2,844 |
|
| 2,749 |
| Net cash provided by operating activities | 3,177 | | | 3,209 | | | 2,544 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (3,152 | ) | | (3,306 | ) | | (2,698 | ) | Capital expenditures | (3,488) | | | (3,952) | | | (3,854) | |
| Asset Acquisitions | — |
| | (10 | ) | | (1,249 | ) | |
| Purchases of available-for-sale securities | (1,806 | ) | | (2,143 | ) | | (1,174 | ) | |
| Proceeds from sales and maturities of available-for-sale securities | 1,824 |
| | 2,187 |
| | 1,211 |
| |
| Proceeds from insurance | 7 |
| | 58 |
| | — |
| |
| Proceeds from the sale of nuclear fuel | 20 |
| | 20 |
| | 102 |
| |
| | Purchases of debt and equity securities | | Purchases of debt and equity securities | (5,998) | | | (1,511) | | | (1,753) | |
| Proceeds from sales and maturities of debt and equity securities | | Proceeds from sales and maturities of debt and equity securities | 6,010 | | | 1,504 | | | 1,769 | |
| | Notes receivable from affiliated companies | (160 | ) | | (80 | ) | | 220 |
| Notes receivable from affiliated companies | 164 | | | (164) | | | 240 | |
| Change in restricted cash | 5 |
| | (6 | ) | | — |
| |
| | Other | (86 | ) | | 47 |
| | (34 | ) | Other | (160) | | | (190) | | | (162) | |
| Net cash used in investing activities | (3,348 | ) | | (3,233 | ) | | (3,622 | ) | Net cash used in investing activities | (3,472) | | | (4,313) | | | (3,760) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 2,118 |
| | 2,375 |
| | 1,186 |
| Proceeds from the issuance of long-term debt | 1,791 | | | 2,187 | | | 1,833 | |
| Payments for the redemption of long-term debt | (813 | ) | | (327 | ) | | (1,553 | ) | Payments for the redemption of long-term debt | (2,157) | | | (1,667) | | | (771) | |
| | Notes payable to affiliated companies | 100 |
| | 444 |
| | 623 |
| Notes payable to affiliated companies | 1,148 | | | 586 | | | 430 | |
| Capital contribution from parent | — |
| | — |
| | 625 |
| |
| | Dividends to parent | (124 | ) | | (2,098 | ) | | — |
| Dividends to parent | (400) | | | — | | | (250) | |
| Other | (4 | ) | | (3 | ) | | (6 | ) | Other | (13) | | | 12 | | | (1) | |
| Net cash provided by financing activities | 1,277 |
|
| 391 |
|
| 875 |
| Net cash provided by financing activities | 369 | | | 1,118 | | | 1,241 | |
| Net (decrease) increase in cash and cash equivalents | (6 | ) |
| 2 |
|
| 2 |
| |
| Cash and cash equivalents at beginning of period | 46 |
| | 44 |
| | 42 |
| |
| Cash and cash equivalents at end of period | $ | 40 |
| | $ | 46 |
| | $ | 44 |
| |
| Net increase in cash, cash equivalents, and restricted cash | | Net increase in cash, cash equivalents, and restricted cash | 74 | | | 14 | | | 25 | |
| Cash, cash equivalents, and restricted cash at beginning of period | | Cash, cash equivalents, and restricted cash at beginning of period | 126 | | | 112 | | | 87 | |
| Cash, cash equivalents, and restricted cash at end of period | | Cash, cash equivalents, and restricted cash at end of period | $ | 200 | | | $ | 126 | | | $ | 112 | |
| Supplemental Disclosures: | | | | | | Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 773 |
| | $ | 673 |
| | $ | 649 |
| Cash paid for interest, net of amount capitalized | $ | 819 | | | $ | 892 | | | $ | 798 | |
| Cash (received from) paid for income taxes | (146 | ) | | (187 | ) | | (426 | ) | |
| Cash paid for (received from) income taxes | | Cash paid for (received from) income taxes | 149 | | | (79) | | | (348) | |
| Significant non-cash transactions: | | | | | | Significant non-cash transactions: | |
| Accrued capital expenditures | 391 |
| | 317 |
| | 329 |
| Accrued capital expenditures | 363 | | | 447 | | | 478 | |
| Equitization of certain notes payable to affiliates | 1,047 |
| | — |
| | — |
| |
| Dividend to parent related to a legal entity restructuring | 547 |
| | — |
| | — |
| |
|
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | | | | |
| | |
| | Accumulated Other Comprehensive Loss | | |
| | |
| | |
| | | | | | | Accumulated Other Comprehensive Income (Loss) | | | | | | |
| | | | | | Net |
| | Net Unrealized |
| | | | Total Progress |
| | | | | | | | Net Gains | | Net Unrealized | | | Total Progress | |
| | Additional |
| | | | Losses on |
| | Gains on |
| | Pension and |
| | Energy, Inc. |
| | | | | | | Additional | | (Losses) on | | Gains (Losses) | | Pension and | | Energy, Inc. | |
| | Paid-in |
| | Retained |
| | Cash Flow |
| | Available-for- |
| | OPEB |
| | Stockholder's |
| | Noncontrolling |
| | Total |
| | | Paid-in | | Retained | | Cash Flow | | on Available-for- | | OPEB | | Stockholder's | | Noncontrolling | | Total |
| (in millions) | Capital |
| | Earnings |
| | Hedges |
| | Sale Securities |
| | Adjustments |
| | Equity |
| | Interests |
| | Equity |
| (in millions) | | Capital | | Earnings | | Hedges | | Sale Securities | | Adjustments | | Equity | | Interests | | Equity |
| Balance at December 31, 2014 | $ | 7,467 |
| | $ | 3,782 |
| | $ | (35 | ) | | $ | 1 |
| | $ | (7 | ) | | $ | 11,208 |
| | $ | (32 | ) | | $ | 11,176 |
| |
| Balance at December 31, 2017 | | Balance at December 31, 2017 | | $ | 9,143 | | | $ | 4,350 | | | $ | (18) | | | $ | 5 | | | $ | (12) | | | $ | 13,468 | | | $ | (3) | | | $ | 13,465 | |
| Net income | — |
| | 1,051 |
| | — |
| | — |
| | — |
| | 1,051 |
| | 11 |
| | 1,062 |
| Net income | | — | | | 1,027 | | | — | | | — | | | — | | | 1,027 | | | 6 | | | 1,033 | |
| Other comprehensive income (loss) | — |
| | — |
| | 4 |
| | (1 | ) | | (10 | ) | | (7 | ) | | — |
| | (7 | ) | Other comprehensive income (loss) | | — | | | — | | | 6 | | | (1) | | | 5 | | | 10 | | | — | | | 10 | |
| | Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (4 | ) | | (4 | ) | Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
| Capital contribution from parent | 625 |
| | — |
| | — |
| | — |
| | — |
| | 625 |
| | — |
| | 625 |
| |
| Other | — |
| | (2 | ) | | — |
| | — |
| | — |
| | (2 | ) | | 3 |
| | 1 |
| |
| Balance at December 31, 2015 | $ | 8,092 |
|
| $ | 4,831 |
|
| $ | (31 | ) |
| $ | — |
|
| $ | (17 | ) |
| $ | 12,875 |
|
| $ | (22 | ) |
| $ | 12,853 |
| |
| | Dividends to parent | | Dividends to parent | | — | | | (250) | | | — | | | — | | | — | | | (250) | | | — | | | (250) | |
| Other(a) | | Other(a) | | — | | | 4 | | | — | | | (5) | | | — | | | (1) | | | 1 | | | 0 | |
| Balance at December 31, 2018 | | Balance at December 31, 2018 | | $ | 9,143 | | | $ | 5,131 | | | $ | (12) | | | $ | (1) | | | $ | (7) | | | $ | 14,254 | | | $ | 3 | | | $ | 14,257 | |
| Net income | — |
| | 1,031 |
| | — |
| | — |
| | — |
| | 1,031 |
| | 10 |
| | 1,041 |
| Net income | | — | | | 1,327 | | | — | | | — | | | — | | | 1,327 | | | — | | | 1,327 | |
| Other comprehensive income | — |
| | — |
| | 8 |
| | 1 |
| | 1 |
| | 10 |
| | — |
| | 10 |
| Other comprehensive income | | — | | | — | | | 5 | | | 1 | | | 2 | | | 8 | | | — | | | 8 | |
| Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | |
| Other(b) | | Other(b) | | — | | | 7 | | | (3) | | | (1) | | | (2) | | | 1 | | | — | | | 1 | |
| Balance at December 31, 2019 | | Balance at December 31, 2019 | | $ | 9,143 | | | $ | 6,465 | | | $ | (10) | | | $ | (1) | | | $ | (7) | | | $ | 15,590 | | | $ | 3 | | | $ | 15,593 | |
| Net income | | Net income | | — | | | 1,045 | | | — | | | — | | | — | | | 1,045 | | | 1 | | | 1,046 | |
| Other comprehensive income (loss) | | Other comprehensive income (loss) | | — | | | — | | | 5 | | | (1) | | | (1) | | | 3 | | | — | | | 3 | |
| | Dividends to parent | — |
| | (2,098 | ) | | — |
| | — |
| | — |
| | (2,098 | ) | | — |
| | (2,098 | ) | Dividends to parent | | — | | | (400) | | | — | | | — | | | — | | | (400) | | | — | | | (400) | |
| | Other | 2 |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
| Other | | — | | | (1) | | | — | | | — | | | — | | | (1) | | | — | | | (1) | |
| Balance at December 31, 2016 | $ | 8,094 |
|
| $ | 3,764 |
|
| $ | (23 | ) |
| $ | 1 |
|
| $ | (16 | ) |
| $ | 11,820 |
|
| $ | (13 | ) |
| $ | 11,807 |
| |
| Net income | — |
| | 1,258 |
| | — |
| | — |
| | — |
| | 1,258 |
| | 10 |
| | 1,268 |
| |
| Other comprehensive income | — |
| | — |
| | 5 |
| | 4 |
| | 4 |
| | 13 |
| | — |
| | 13 |
| |
Dividends to parent(a) | — |
| | (672 | ) | | — |
| | — |
| | — |
| | (672 | ) | | — |
| | (672 | ) | |
| Equitization of certain notes payable to affiliates | 1,047 |
| | — |
| | — |
| | — |
| | — |
| | 1,047 |
| | — |
| | 1,047 |
| |
| Other | 2 |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
| |
| Balance at December 31, 2017 | $ | 9,143 |
|
| $ | 4,350 |
|
| $ | (18 | ) |
| $ | 5 |
|
| $ | (12 | ) |
| $ | 13,468 |
|
| $ | (3 | ) |
| $ | 13,465 |
| |
| Balance at December 31, 2020 | | Balance at December 31, 2020 | | $ | 9,143 | | | $ | 7,109 | | | $ | (5) | | | $ | (2) | | | $ | (8) | | | $ | 16,237 | | | $ | 4 | | | $ | 16,241 | |
(a) IncludesAmounts in Retained Earnings and AOCI represent a $547 million non-cash dividendcumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information.
(b) Amounts in Retained Earnings and AOCI primarily represent impacts to accumulated other comprehensive income due to implementation of a legal entity restructuring.new accounting standard related to Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
See Notes to Consolidated Financial Statements
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, 20172020 and 2016,2019, 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, 2017,2020, 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, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2020, 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission and by the South Carolina Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $4.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 201825, 2021
We have served as the Company's auditor since 1930.
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME | | | | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 5,129 |
| | $ | 5,277 |
| | $ | 5,290 |
| Operating Revenues | $ | 5,422 | | | $ | 5,957 | | | $ | 5,699 | |
| Operating Expenses | | | | | | Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 1,609 |
| | 1,830 |
| | 2,029 |
| Fuel used in electric generation and purchased power | 1,743 | | | 2,012 | | | 1,892 | |
| Operation, maintenance and other | 1,389 |
| | 1,504 |
| | 1,452 |
| Operation, maintenance and other | 1,332 | | | 1,446 | | | 1,578 | |
| Depreciation and amortization | 725 |
| | 703 |
| | 643 |
| Depreciation and amortization | 1,116 | | | 1,143 | | | 991 | |
| Property and other taxes | 156 |
| | 156 |
| | 140 |
| Property and other taxes | 167 | | | 176 | | | 155 | |
| Impairment charges | 19 |
| | 1 |
| | 5 |
| Impairment charges | 499 | | | 12 | | | 33 | |
| Total operating expenses | 3,898 |
| | 4,194 |
| | 4,269 |
| Total operating expenses | 4,857 | | | 4,789 | | | 4,649 | |
| Gains on Sales of Other Assets and Other, net | 4 |
| | 3 |
| | 3 |
| Gains on Sales of Other Assets and Other, net | 8 | | | — | | | 9 | |
| Operating Income | 1,235 |
| | 1,086 |
| | 1,024 |
| Operating Income | 573 | | | 1,168 | | | 1,059 | |
| Other Income and Expenses, net | 65 |
| | 71 |
| | 71 |
| Other Income and Expenses, net | 75 | | | 100 | | | 87 | |
| Interest Expense | 293 |
| | 257 |
| | 235 |
| Interest Expense | 269 | | | 306 | | | 319 | |
| Income Before Income Taxes | 1,007 |
| | 900 |
| | 860 |
| Income Before Income Taxes | 379 | | | 962 | | | 827 | |
| Income Tax Expense | 292 |
| | 301 |
| | 294 |
| |
| Income Tax (Benefit) Expense | | Income Tax (Benefit) Expense | (36) | | | 157 | | | 160 | |
| Net Income and Comprehensive Income | $ | 715 |
| | $ | 599 |
| | $ | 566 |
| Net Income and Comprehensive Income | $ | 415 | | | $ | 805 | | | $ | 667 | |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED BALANCE SHEETS | | | | December 31, | | December 31, |
| (in millions) | 2017 |
| | 2016 |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | | ASSETS | | | |
| Current Assets | | | | Current Assets | | | |
| Cash and cash equivalents | $ | 20 |
| | $ | 11 |
| Cash and cash equivalents | $ | 39 | | | $ | 22 | |
| Receivables (net of allowance for doubtful accounts of $1 at 2017 and $4 at 2016) | 56 |
| | 51 |
| |
| Receivables of VIEs (net of allowance for doubtful accounts of $5 at 2017 and 2016) | 459 |
| | 404 |
| |
| Receivables (net of allowance for doubtful accounts of $4 at 2020 and $3 at 2019) | | Receivables (net of allowance for doubtful accounts of $4 at 2020 and $3 at 2019) | 132 | | | 123 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $19 at 2020 and $5 at 2019) | | Receivables of VIEs (net of allowance for doubtful accounts of $19 at 2020 and $5 at 2019) | 500 | | | 489 | |
| Receivables from affiliated companies | 3 |
| | 5 |
| Receivables from affiliated companies | 50 | | | 52 | |
| Notes receivable from affiliated companies | — |
| | 165 |
| |
| | Inventory | 1,017 |
|
| 1,076 |
| Inventory | 911 | | | 934 | |
| Regulatory assets | 352 |
| | 188 |
| Regulatory assets | 492 | | | 526 | |
| Other | 97 |
| | 57 |
| Other | 60 | | | 60 | |
| Total current assets | 2,004 |
| | 1,957 |
| Total current assets | 2,184 | | | 2,206 | |
| Property, Plant and Equipment | | | | Property, Plant and Equipment | |
| Cost | 29,583 |
| | 28,419 |
| Cost | 35,759 | | | 34,603 | |
| Accumulated depreciation and amortization | (10,903 | ) | | (10,561 | ) | Accumulated depreciation and amortization | (12,801) | | | (11,915) | |
| Generation facilities to be retired, net | 421 |
| | 529 |
| Generation facilities to be retired, net | 29 | | | 246 | |
| Net property, plant and equipment | 19,101 |
| | 18,387 |
| Net property, plant and equipment | 22,987 | | | 22,934 | |
| Other Noncurrent Assets | | | | Other Noncurrent Assets | |
| Regulatory assets | 3,507 |
| | 3,243 |
| Regulatory assets | 3,976 | | | 4,152 | |
| Nuclear decommissioning trust funds | 2,588 |
| | 2,217 |
| Nuclear decommissioning trust funds | 3,500 | | | 3,047 | |
| Operating lease right-of-use assets, net | | Operating lease right-of-use assets, net | 346 | | | 387 | |
| Other | 599 |
| | 525 |
| Other | 740 | | | 651 | |
| Total other noncurrent assets | 6,694 |
| | 5,985 |
| Total other noncurrent assets | 8,562 | | | 8,237 | |
| Total Assets | $ | 27,799 |
| | $ | 26,329 |
| Total Assets | $ | 33,733 | | | $ | 33,377 | |
| LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | |
| Current Liabilities | | | | Current Liabilities | |
| Accounts payable | $ | 402 |
| | $ | 589 |
| Accounts payable | $ | 454 | | | $ | 629 | |
| Accounts payable to affiliated companies | 179 |
| | 227 |
| Accounts payable to affiliated companies | 215 | | | 203 | |
| Notes payable to affiliated companies | 240 |
| | — |
| Notes payable to affiliated companies | 295 | | | 66 | |
| Taxes accrued | 64 |
| | 104 |
| Taxes accrued | 85 | | | 17 | |
| Interest accrued | 102 |
| | 102 |
| Interest accrued | 99 | | | 110 | |
| Current maturities of long-term debt | 3 |
| | 452 |
| Current maturities of long-term debt | 603 | | | 1,006 | |
| Asset retirement obligations | 295 |
| | 189 |
| Asset retirement obligations | 283 | | | 485 | |
| Regulatory liabilities | 139 |
| | 158 |
| Regulatory liabilities | 530 | | | 236 | |
| Other | 376 |
| | 365 |
| Other | 411 | | | 478 | |
| Total current liabilities | 1,800 |
| | 2,186 |
| Total current liabilities | 2,975 | | | 3,230 | |
| Long-Term Debt | 7,204 |
| | 6,409 |
| Long-Term Debt | 8,505 | | | 7,902 | |
| Long-Term Debt Payable to Affiliated Companies | 150 |
| | 150 |
| Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
| Other Noncurrent Liabilities | | | | Other Noncurrent Liabilities | |
| Deferred income taxes | 1,883 |
| | 3,323 |
| Deferred income taxes | 2,298 | | | 2,388 | |
| Asset retirement obligations | 4,378 |
| | 4,508 |
| Asset retirement obligations | 5,352 | | | 5,408 | |
| Regulatory liabilities | 3,999 |
| | 1,946 |
| Regulatory liabilities | 4,394 | | | 4,232 | |
| Operating lease liabilities | | Operating lease liabilities | 323 | | | 354 | |
| Accrued pension and other post-retirement benefit costs | 248 |
| | 252 |
| Accrued pension and other post-retirement benefit costs | 242 | | | 238 | |
| Investment tax credits | 143 |
| | 146 |
| Investment tax credits | 132 | | | 137 | |
| Other | 45 |
| | 51 |
| Other | 102 | | | 92 | |
| Total other noncurrent liabilities | 10,696 |
| | 10,226 |
| Total other noncurrent liabilities | 12,843 | | | 12,849 | |
| Commitments and Contingencies | | | | Commitments and Contingencies | 0 | | 0 |
| Equity | | | | Equity | |
| Member's Equity | 7,949 |
| | 7,358 |
| Member's Equity | 9,260 | | | 9,246 | |
| | Total Liabilities and Equity | $ | 27,799 |
| | $ | 26,329 |
| Total Liabilities and Equity | $ | 33,733 | | | $ | 33,377 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 | | 2016 | | 2015 | (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 715 |
| | $ | 599 |
| | $ | 566 |
| Net income | $ | 415 | | | $ | 805 | | | $ | 667 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization and accretion (including amortization of nuclear fuel) | 936 |
| | 907 |
| | 821 |
| |
| Depreciation and amortization (including amortization of nuclear fuel) | | Depreciation and amortization (including amortization of nuclear fuel) | 1,299 | | | 1,329 | | | 1,183 | |
| Equity component of AFUDC | (47 | ) | | (50 | ) | | (47 | ) | Equity component of AFUDC | (29) | | | (60) | | | (57) | |
| | Gains on sales of other assets | (5 | ) | | (6 | ) | | (7 | ) | Gains on sales of other assets | (8) | | | — | | | (9) | |
| Impairment charges | 19 |
| | 1 |
| | 5 |
| Impairment charges | 499 | | | 12 | | | 33 | |
| Deferred income taxes | 384 |
| | 384 |
| | 354 |
| Deferred income taxes | (234) | | | 197 | | | 236 | |
| Accrued pension and other post-retirement benefit costs | (20 | ) | | (32 | ) | | (14 | ) | |
| Contributions to qualified pension plans | — |
| | (24 | ) | | (42 | ) | |
| | Payments for asset retirement obligations | (192 | ) | | (212 | ) | | (109 | ) | Payments for asset retirement obligations | (304) | | | (390) | | | (195) | |
| | Provisions for rate refunds | | Provisions for rate refunds | 2 | | | 12 | | | 122 | |
| (Increase) decrease in | | | | | | (Increase) decrease in | |
| Net realized and unrealized mark-to-market and hedging transactions | (4 | ) | | 4 |
| | (3 | ) | Net realized and unrealized mark-to-market and hedging transactions | 1 | | | (6) | | | 5 | |
| Receivables | (58 | ) | | (17 | ) | | 43 |
| Receivables | (4) | | | 21 | | | (107) | |
| Receivables from affiliated companies | 2 |
| | 11 |
| | (6 | ) | Receivables from affiliated companies | 2 | | | (29) | | | (20) | |
| Inventory | 59 |
| | 12 |
| | (50 | ) | Inventory | 23 | | | 20 | | | 63 | |
| Other current assets | (75 | ) | | 84 |
| | 185 |
| Other current assets | 98 | | | 101 | | | (201) | |
| Increase (decrease) in | | | | | | Increase (decrease) in | |
| Accounts payable | (230 | ) | | 181 |
| | (65 | ) | Accounts payable | (127) | | | 32 | | | 219 | |
| Accounts payable to affiliated companies | (48 | ) | | 37 |
| | 70 |
| Accounts payable to affiliated companies | 12 | | | (75) | | | 99 | |
| Taxes accrued | (39 | ) | | 90 |
| | (34 | ) | Taxes accrued | 68 | | | (46) | | | (11) | |
| Other current liabilities | (131 | ) | | 114 |
| | 76 |
| Other current liabilities | 157 | | | 68 | | | 46 | |
| Other assets | (53 | ) | | (163 | ) | | (83 | ) | Other assets | (207) | | | (205) | | | (465) | |
| Other liabilities | (18 | ) | | 12 |
| | (66 | ) | Other liabilities | 3 | | | 37 | | | 20 | |
| Net cash provided by operating activities | 1,195 |
| | 1,932 |
| | 1,594 |
| Net cash provided by operating activities | 1,666 | | | 1,823 | | | 1,628 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (1,715 | ) | | (1,733 | ) | | (1,669 | ) | Capital expenditures | (1,581) | | | (2,108) | | | (2,220) | |
| Asset acquisition | — |
| | — |
| | (1,249 | ) | |
| Purchases of available-for-sale securities | (1,249 | ) | | (1,658 | ) | | (727 | ) | |
| Proceeds from sales and maturities of available-for-sale securities | 1,207 |
| | 1,615 |
| | 672 |
| |
| Proceeds from insurance | 4 |
| — |
| — |
| | — |
| |
| Notes receivable from affiliated companies | 165 |
| | (165 | ) | | 237 |
| |
| | Purchases of debt and equity securities | | Purchases of debt and equity securities | (1,555) | | | (842) | | | (1,236) | |
| Proceeds from sales and maturities of debt and equity securities | | Proceeds from sales and maturities of debt and equity securities | 1,516 | | | 810 | | | 1,206 | |
| | Other | (55 | ) | | 26 |
| | (30 | ) | Other | (57) | | | (119) | | | (95) | |
| Net cash used in investing activities | (1,643 | ) | | (1,915 | ) | | (2,766 | ) | Net cash used in investing activities | (1,677) | | | (2,259) | | | (2,345) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | |
| Proceeds from the issuance of long-term debt | 812 |
| | 505 |
| | 1,186 |
| Proceeds from the issuance of long-term debt | 1,296 | | | 1,269 | | | 845 | |
| Payments for the redemption of long-term debt | (470 | ) | | (15 | ) | | (991 | ) | Payments for the redemption of long-term debt | (1,085) | | | (605) | | | (3) | |
| | Notes payable to affiliated companies | 240 |
| | (209 | ) | | 359 |
| Notes payable to affiliated companies | 229 | | | (228) | | | 54 | |
| Capital contribution from parent | — |
| | — |
| | 626 |
| |
| | Distributions to parent | (124 | ) | | (300 | ) | | — |
| Distributions to parent | (400) | | | — | | | (175) | |
| | Other | (1 | ) | | (2 | ) | | (2 | ) | Other | (12) | | | (1) | | | (1) | |
| Net cash provided by (used in) financing activities | 457 |
| | (21 | ) | | 1,178 |
| |
| Net cash provided by financing activities | | Net cash provided by financing activities | 28 | | | 435 | | | 720 | |
| Net increase (decrease) in cash and cash equivalents | 9 |
| | (4 | ) | | 6 |
| Net increase (decrease) in cash and cash equivalents | 17 | | | (1) | | | 3 | |
| Cash and cash equivalents at beginning of period | 11 |
| | 15 |
| | 9 |
| Cash and cash equivalents at beginning of period | 22 | | | 23 | | | 20 | |
| Cash and cash equivalents at end of period | $ | 20 |
| | $ | 11 |
| | $ | 15 |
| Cash and cash equivalents at end of period | $ | 39 | | | $ | 22 | | | $ | 23 | |
| Supplemental Disclosures: | | | | | | Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 291 |
| | $ | 248 |
| | $ | 218 |
| Cash paid for interest, net of amount capitalized | $ | 301 | | | $ | 331 | | | $ | 303 | |
| Cash paid for (received from) income taxes | 59 |
| | (287 | ) | | (197 | ) | Cash paid for (received from) income taxes | 123 | | | (30) | | | (112) | |
| Significant non-cash transactions: | | | | | | Significant non-cash transactions: | |
| Accrued capital expenditures | 191 |
| | 147 |
| | 143 |
| Accrued capital expenditures | 149 | | | 175 | | | 220 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| | | | | | | | | | | | | | | |
| | Common |
| | Retained |
| | Member's |
| | Total |
|
| (in millions) | Stock |
| | Earnings |
| | Equity |
| | Equity |
|
| Balance at December 31, 2014 | $ | 2,159 |
| | $ | 3,708 |
| | $ | — |
| | $ | 5,867 |
|
| Net income | — |
| | 355 |
| | 211 |
| | 566 |
|
| Transfer to Member's Equity | (2,159 | ) | | (4,063 | ) | | 6,222 |
| | — |
|
| Capital contribution from parent | — |
| | — |
| | 626 |
| | 626 |
|
| Balance at December 31, 2015 | $ | — |
| | $ | — |
| | $ | 7,059 |
| | $ | 7,059 |
|
| Net income | — |
| | — |
| | 599 |
| | 599 |
|
| Distribution to parent | — |
| | — |
| | (300 | ) | | (300 | ) |
| Balance at December 31, 2016 | $ | — |
| | $ | — |
| | $ | 7,358 |
| | $ | 7,358 |
|
| Net income | — |
| | — |
| | 715 |
| | 715 |
|
| Distribution to parent | — |
| | — |
| | (124 | ) | | (124 | ) |
| Balance at December 31, 2017 | $ | — |
| | $ | — |
|
| $ | 7,949 |
| | $ | 7,949 |
|
| | | | | | | | | | | | | |
| | | | | Member's | | | | |
| (in millions) | | | | | Equity | | | | |
| Balance at December 31, 2017 | | | | | $ | 7,949 | | | | | |
| Net income | | | | | 667 | | | | | |
| Distribution to parent | | | | | (175) | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2018 | | | | | $ | 8,441 | | | | | |
| Net income | | | | | 805 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2019 | | | | | $ | 9,246 | | | | | |
| Net income | | | | | 415 | | | | | |
| Distribution to parent | | | | | (400) | | | | | |
| | | | | | | | | |
| Other | | | | | (1) | | | | | |
| Balance at December 31, 2020 | | | | | $ | 9,260 | | | | | |
See Notes to Consolidated Financial Statements
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, 20172020 and 2016,2019, 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, 2017,2020, 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, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2020, 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Florida Public Service Commission (the “Commission”), which has jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $2.1 billion recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commission; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commission, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commission, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commission’s treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commission, including the settlement agreement filed with the Commission subsequent to December 31, 2020, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 201825, 2021
We have served as the Company's auditor since 2001.
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME | | | | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 4,646 |
| | $ | 4,568 |
| | $ | 4,977 |
| Operating Revenues | $ | 5,188 | | | $ | 5,231 | | | $ | 5,021 | |
| Operating Expenses | | | | | | Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 1,808 |
| | 1,814 |
| | 2,195 |
| Fuel used in electric generation and purchased power | 1,737 | | | 2,012 | | | 2,085 | |
| Operation, maintenance and other | 818 |
| | 865 |
| | 835 |
| Operation, maintenance and other | 1,131 | | | 1,034 | | | 1,025 | |
| Depreciation and amortization | 560 |
| | 509 |
| | 473 |
| Depreciation and amortization | 702 | | | 702 | | | 628 | |
| Property and other taxes | 347 |
| | 333 |
| | 352 |
| Property and other taxes | 381 | | | 392 | | | 374 | |
| Impairment charges | 138 |
| | 6 |
| | 7 |
| Impairment charges | (4) | | | (36) | | | 54 | |
| Total operating expenses | 3,671 |
| | 3,527 |
| | 3,862 |
| Total operating expenses | 3,947 | | | 4,104 | | | 4,166 | |
| Gains on Sales of Other Assets and Other, net | 1 |
| | — |
| | — |
| Gains on Sales of Other Assets and Other, net | 1 | | | — | | | 1 | |
| Operating Income | 976 |
| | 1,041 |
| | 1,115 |
| Operating Income | 1,242 | | | 1,127 | | | 856 | |
| Other Income and Expenses, net | 61 |
| | 44 |
| | 24 |
| Other Income and Expenses, net | 53 | | | 48 | | | 86 | |
| Interest Expense | 279 |
| | 212 |
| | 198 |
| Interest Expense | 326 | | | 328 | | | 287 | |
| Income Before Income Taxes | 758 |
| | 873 |
| | 941 |
| Income Before Income Taxes | 969 | | | 847 | | | 655 | |
| Income Tax Expense | 46 |
| | 322 |
| | 342 |
| Income Tax Expense | 198 | | | 155 | | | 101 | |
| Net Income | $ | 712 |
| | $ | 551 |
| | $ | 599 |
| Net Income | $ | 771 | | | $ | 692 | | | $ | 554 | |
| Other Comprehensive Income, net of tax | | | | | | |
| Unrealized gains on available-for-sale securities | 3 |
| | 1 |
| | — |
| |
| Other Comprehensive Income, net of tax | 3 |
| | 1 |
| | — |
| |
| | Other Comprehensive Income (Loss), net of tax | | Other Comprehensive Income (Loss), net of tax | | | | | |
| Unrealized (losses) gains on available-for-sale securities | | Unrealized (losses) gains on available-for-sale securities | (1) | | | 1 | | | (1) | |
| | Other Comprehensive (Loss) Income, net of tax | | Other Comprehensive (Loss) Income, net of tax | (1) | | | 1 | | | (1) | |
| Comprehensive Income | $ | 715 |
| | $ | 552 |
| | $ | 599 |
| Comprehensive Income | $ | 770 | | | $ | 693 | | | $ | 553 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED BALANCE SHEETS | | | | December 31, | | December 31, |
| (in millions) | 2017 |
| | 2016 |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | | ASSETS | | | |
| Current Assets | | | | Current Assets | | | |
| Cash and cash equivalents | $ | 13 |
| | $ | 16 |
| Cash and cash equivalents | $ | 11 | | | $ | 17 | |
| Receivables (net of allowance for doubtful accounts of $3 at 2017 and $2 at 2016) | 65 |
| | 61 |
| |
| Receivables of VIEs (net of allowance for doubtful accounts of $2 at 2017 and 2016) | 321 |
| | 288 |
| |
| Receivables (net of allowance for doubtful accounts of $4 at 2020 and $3 at 2019) | | Receivables (net of allowance for doubtful accounts of $4 at 2020 and $3 at 2019) | 94 | | | 96 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $10 at 2020 and $4 at 2019) | | Receivables of VIEs (net of allowance for doubtful accounts of $10 at 2020 and $4 at 2019) | 401 | | | 341 | |
| Receivables from affiliated companies | 2 |
| | 5 |
| Receivables from affiliated companies | 3 | | | — | |
| Notes receivable from affiliated companies | 313 |
| | — |
| Notes receivable from affiliated companies | — | | | 173 | |
| Inventory | 574 |
|
| 641 |
| Inventory | 464 | | | 489 | |
| Regulatory assets (includes $51 at 2017 and $50 at 2016 related to VIEs) | 389 |
| | 213 |
| |
| Other (includes $40 at 2017 and $53 at 2016 related to VIEs) | 86 |
| | 125 |
| |
| Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | | Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 265 | | | 419 | |
| Other (includes $39 at 2020 and 2019 related to VIEs) | | Other (includes $39 at 2020 and 2019 related to VIEs) | 41 | | | 58 | |
| Total current assets | 1,763 |
| | 1,349 |
| Total current assets | 1,279 | | | 1,593 | |
| Property, Plant and Equipment | | | | Property, Plant and Equipment | | | |
| Cost | 17,730 |
| | 16,434 |
| Cost | 22,123 | | | 20,457 | |
| Accumulated depreciation and amortization | (4,947 | ) | | (4,644 | ) | Accumulated depreciation and amortization | (5,560) | | | (5,236) | |
| Net property, plant and equipment | 12,783 |
| | 11,790 |
| Net property, plant and equipment | 16,563 | | | 15,221 | |
| Other Noncurrent Assets | | | | Other Noncurrent Assets | | | |
| Regulatory assets (includes $1,091 at 2017 and $1,142 at 2016 related to VIEs) | 2,503 |
| | 2,480 |
| |
| | Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | | Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 1,799 | | | 2,194 | |
| Nuclear decommissioning trust funds | 736 |
| | 715 |
| Nuclear decommissioning trust funds | 637 | | | 734 | |
| Operating lease right-of-use assets, net | | Operating lease right-of-use assets, net | 344 | | | 401 | |
| Other | 284 |
| | 278 |
| Other | 335 | | | 311 | |
| Total other noncurrent assets | 3,523 |
| | 3,473 |
| Total other noncurrent assets | 3,115 | | | 3,640 | |
| Total Assets | $ | 18,069 |
| | $ | 16,612 |
| Total Assets | $ | 20,957 | | | $ | 20,454 | |
| LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | | Current Liabilities | | | |
| Accounts payable | $ | 602 |
| | $ | 413 |
| Accounts payable | $ | 465 | | | $ | 474 | |
| Accounts payable to affiliated companies | 74 |
| | 125 |
| Accounts payable to affiliated companies | 85 | | | 131 | |
| Notes payable to affiliated companies | — |
| | 297 |
| Notes payable to affiliated companies | 196 | | | — | |
| Taxes accrued | 34 |
| | 33 |
| Taxes accrued | 82 | | | 43 | |
| Interest accrued | 56 |
| | 49 |
| Interest accrued | 69 | | | 75 | |
| Current maturities of long-term debt (includes $53 at 2017 and $62 at 2016 related to VIEs) | 768 |
| | 326 |
| |
| Current maturities of long-term debt (includes $305 at 2020 and $54 at 2019 related to VIEs) | | Current maturities of long-term debt (includes $305 at 2020 and $54 at 2019 related to VIEs) | 823 | | | 571 | |
| | Regulatory liabilities | 74 |
| | 31 |
| Regulatory liabilities | 110 | | | 94 | |
| Other | 334 |
| | 352 |
| Other | 374 | | | 415 | |
| Total current liabilities | 1,942 |
| | 1,626 |
| Total current liabilities | 2,204 | | | 1,803 | |
| Long-Term Debt (includes $1,389 at 2017 and $1,442 at 2016 related to VIEs) | 6,327 |
| | 5,799 |
| |
| Long-Term Debt (includes $1,002 at 2020 and $1,307 at 2019 related to VIEs) | | Long-Term Debt (includes $1,002 at 2020 and $1,307 at 2019 related to VIEs) | 7,092 | | | 7,416 | |
| Other Noncurrent Liabilities | | | | Other Noncurrent Liabilities | | | |
| Deferred income taxes | 1,761 |
| | 2,694 |
| Deferred income taxes | 2,191 | | | 2,179 | |
| | Asset retirement obligations | 742 |
| | 778 |
| Asset retirement obligations | 514 | | | 578 | |
| Regulatory liabilities | 1,307 |
| | 448 |
| Regulatory liabilities | 658 | | | 993 | |
| Operating lease liabilities | | Operating lease liabilities | 300 | | | 343 | |
| Accrued pension and other post-retirement benefit costs | 264 |
| | 262 |
| Accrued pension and other post-retirement benefit costs | 231 | | | 218 | |
| | Other | 108 |
| | 105 |
| Other | 209 | | | 136 | |
| Total other noncurrent liabilities | 4,182 |
| | 4,287 |
| Total other noncurrent liabilities | 4,103 | | | 4,447 | |
| Commitments and Contingencies | | | | Commitments and Contingencies | 0 | | 0 |
| | Equity | | | | Equity | | | |
| Member's equity | 5,614 |
| | 4,899 |
| Member's equity | 7,560 | | | 6,789 | |
| Accumulated other comprehensive income | 4 |
| | 1 |
| |
| | Accumulated other comprehensive loss | | Accumulated other comprehensive loss | (2) | | | (1) | |
| Total equity | 5,618 |
| | 4,900 |
| Total equity | 7,558 | | | 6,788 | |
| Total Liabilities and Equity | $ | 18,069 |
| | $ | 16,612 |
| Total Liabilities and Equity | $ | 20,957 | | | $ | 20,454 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 712 |
| | $ | 551 |
| | $ | 599 |
| Net income | $ | 771 | | | $ | 692 | | | $ | 554 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization and accretion | 570 |
| | 516 |
| | 480 |
| Depreciation, amortization and accretion | 1,019 | | | 869 | | | 793 | |
| Equity component of AFUDC | (45 | ) | | (26 | ) | | (7 | ) | Equity component of AFUDC | (12) | | | (6) | | | (47) | |
| | Gains on sales of other assets | (1 | ) | | — |
| | — |
| Gains on sales of other assets | (1) | | | — | | | (1) | |
| Impairment charges | 138 |
| | 6 |
| | 7 |
| Impairment charges | (4) | | | (36) | | | 54 | |
| Deferred income taxes | 245 |
| | 224 |
| | 348 |
| Deferred income taxes | 27 | | | 180 | | | 159 | |
| Accrued pension and other post-retirement benefit costs | (13 | ) | | 2 |
| | 5 |
| |
| Contributions to qualified pension plans | — |
| | (20 | ) | | (40 | ) | |
| | Payments for asset retirement obligations | (56 | ) | | (58 | ) | | (47 | ) | Payments for asset retirement obligations | (80) | | | (22) | | | (35) | |
| (Increase) decrease in | | | | | | (Increase) decrease in | |
| Net realized and unrealized mark-to-market and hedging transactions | 5 |
| | 38 |
| | (3 | ) | Net realized and unrealized mark-to-market and hedging transactions | (14) | | | (33) | | | 7 | |
| Receivables | (38 | ) | | 23 |
| | 61 |
| Receivables | (64) | | | 26 | | | (100) | |
| Receivables from affiliated companies | — |
| | 21 |
| | (44 | ) | Receivables from affiliated companies | (3) | | | 17 | | | (26) | |
| Inventory | 66 |
| | 23 |
| | (17 | ) | Inventory | 26 | | | 42 | | | 58 | |
| Other current assets | (125 | ) | | (133 | ) | | 116 |
| Other current assets | 40 | | | 156 | | | 59 | |
| Increase (decrease) in | | | | | | Increase (decrease) in | |
| Accounts payable | (32 | ) | | 71 |
| | (127 | ) | Accounts payable | 66 | | | (36) | | | (1) | |
| Accounts payable to affiliated companies | (51 | ) | | 9 |
| | 46 |
| Accounts payable to affiliated companies | (46) | | | 40 | | | 17 | |
| Taxes accrued | 1 |
| | (117 | ) | | 67 |
| Taxes accrued | 39 | | | (31) | | | 40 | |
| Other current liabilities | (37 | ) | | (149 | ) | | 57 |
| Other current liabilities | (7) | | | (36) | | | 82 | |
| Other assets | (229 | ) | | (84 | ) | | (84 | ) | Other assets | 85 | | | (131) | | | (429) | |
| Other liabilities | (82 | ) | | (53 | ) | | (44 | ) | Other liabilities | (181) | | | (213) | | | (75) | |
| Net cash provided by operating activities | 1,028 |
| | 844 |
| | 1,373 |
| Net cash provided by operating activities | 1,661 | | | 1,478 | | | 1,109 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES | |
| Capital expenditures | (1,437 | ) | | (1,583 | ) | | (1,029 | ) | Capital expenditures | (1,907) | | | (1,844) | | | (1,634) | |
| Purchases of available-for-sale securities | (557 | ) | | (485 | ) | | (447 | ) | |
| Proceeds from sales and maturities of available-for-sale securities | 617 |
| | 572 |
| | 538 |
| |
| Proceeds from insurance | 4 |
| | 58 |
| | — |
| |
| Proceeds from the sale of nuclear fuel | 20 |
| | 20 |
| | 102 |
| |
| | Purchases of debt and equity securities | | Purchases of debt and equity securities | (4,443) | | | (669) | | | (517) | |
| Proceeds from sales and maturities of debt and equity securities | | Proceeds from sales and maturities of debt and equity securities | 4,495 | | | 695 | | | 563 | |
| | Notes receivable from affiliated companies | (313 | ) | | — |
| | — |
| Notes receivable from affiliated companies | 173 | | | (173) | | | 313 | |
| Change in restricted cash | — |
| | (6 | ) | | — |
| |
| | Other | (31 | ) | | 21 |
| | (3 | ) | Other | (103) | | | (67) | | | (65) | |
| Net cash used in investing activities | (1,697 | ) | | (1,403 | ) | | (839 | ) | Net cash used in investing activities | (1,785) | | | (2,058) | | | (1,340) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | |
| Proceeds from the issuance of long-term debt | 1,306 |
| | 1,870 |
| | — |
| Proceeds from the issuance of long-term debt | 495 | | | 918 | | | 988 | |
| Payments for the redemption of long-term debt | (342 | ) | | (12 | ) | | (562 | ) | Payments for the redemption of long-term debt | (572) | | | (262) | | | (769) | |
| | Notes payable to affiliated companies | (297 | ) | | (516 | ) | | 729 |
| Notes payable to affiliated companies | 196 | | | (108) | | | 108 | |
| Dividends to parent | — |
| | — |
| | (350 | ) | |
| | Distribution to parent | — |
| | (775 | ) | | (350 | ) | Distribution to parent | — | | | — | | | (75) | |
| | Other | (1 | ) | | — |
| | (1 | ) | Other | (1) | | | 13 | | | 1 | |
| Net cash provided by (used in) financing activities | 666 |
| | 567 |
| | (534 | ) | |
| Net (decrease) increase in cash and cash equivalents | (3 | ) | | 8 |
| | — |
| |
| Cash and cash equivalents at beginning of period | 16 |
| | 8 |
| | 8 |
| |
| Cash and cash equivalents at end of period | $ | 13 |
| | $ | 16 |
| | $ | 8 |
| |
| Net cash provided by financing activities | | Net cash provided by financing activities | 118 | | | 561 | | | 253 | |
| Net (decrease) increase in cash, cash equivalents, and restricted cash | | Net (decrease) increase in cash, cash equivalents, and restricted cash | (6) | | | (19) | | | 22 | |
| Cash, cash equivalents, and restricted cash at beginning of period | | Cash, cash equivalents, and restricted cash at beginning of period | 56 | | | 75 | | | 53 | |
| Cash, cash equivalents, and restricted cash at end of period | | Cash, cash equivalents, and restricted cash at end of period | $ | 50 | | | $ | 56 | | | $ | 75 | |
| Supplemental Disclosures: | | | | | | Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 274 |
| | $ | 208 |
| | $ | 205 |
| Cash paid for interest, net of amount capitalized | $ | 321 | | | $ | 332 | | | $ | 270 | |
| Cash (received from) paid for income taxes | (197 | ) | | 216 |
| | (229 | ) | |
| Cash paid for (received from) income taxes | | Cash paid for (received from) income taxes | 138 | | | 1 | | | (120) | |
| Significant non-cash transactions: | | | | | | Significant non-cash transactions: | |
| Accrued capital expenditures | 199 |
| | 170 |
| | 186 |
| Accrued capital expenditures | 214 | | | 272 | | | 258 | |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | | | | | | | | | | Accumulated | | | | | Accumulated | | |
| | | | | | | | Other | | | | | Other | | |
| | | | | | | | Comprehensive | | | | | Comprehensive | | |
| | | | | | | | Income | | | | | Income (Loss) | | |
| | | | | | | | Net Unrealized |
| | | | | | Net Unrealized | | | |
| | | | | | | | Gains on |
| | | | | | Gains (Losses) on | | | |
| | Common |
| | Retained |
| | Member's |
| | Available-for- |
| | Total |
| | | | Member's | | Available-for- | | | Total |
| (in millions) | Stock |
| | Earnings |
| | Equity |
| | Sale Securities |
| | Equity |
| (in millions) | | | Equity | | Sale Securities | | | Equity |
| Balance at December 31, 2014 | $ | 1,762 |
| | $ | 3,460 |
| | $ | — |
| | $ | — |
| | $ | 5,222 |
| |
| Balance at December 31, 2017 | | Balance at December 31, 2017 | | | $ | 5,614 | | | $ | 4 | | | | $ | 5,618 | |
| Net income | — |
| | 351 |
| | 248 |
| | — |
| | 599 |
| Net income | | | 554 | | | — | | | | 554 | |
| Transfer to Member's Equity | (1,762 | ) | | (3,461 | ) | | 5,223 |
| | — |
| | — |
| |
| Dividends to parent | — |
| | (350 | ) | | — |
| | — |
| | (350 | ) | |
| Other comprehensive loss | | Other comprehensive loss | | | — | | | (1) | | | | (1) | |
| | Distribution to parent | — |
| | — |
| | (350 | ) | | — |
| | (350 | ) | Distribution to parent | | | (75) | | | — | | | | (75) | |
| Balance at December 31, 2015 | $ | — |
| | $ | — |
| | $ | 5,121 |
| | $ | — |
| | $ | 5,121 |
| |
| Other(a) | | Other(a) | | | 4 | | | (5) | | | | (1) | |
| Balance at December 31, 2018 | | Balance at December 31, 2018 | | | $ | 6,097 | | | $ | (2) | | | | $ | 6,095 | |
| Net income | — |
| | — |
| | 551 |
| | — |
| | 551 |
| Net income | | | 692 | | | — | | | | 692 | |
| Other comprehensive income | — |
| | — |
| | — |
| | 1 |
| | 1 |
| Other comprehensive income | | | — | | | 1 | | | | 1 | |
| Distribution to parent | — |
| | — |
| | (775 | ) | | — |
| | (775 | ) | |
| Other | — |
| | — |
| | 2 |
| | — |
| | 2 |
| |
| Balance at December 31, 2016 | $ | — |
| | $ | — |
| | $ | 4,899 |
| | $ | 1 |
| | $ | 4,900 |
| |
| | Balance at December 31, 2019 | | Balance at December 31, 2019 | | | $ | 6,789 | | | $ | (1) | | | | $ | 6,788 | |
| Net income | — |
| | — |
| | 712 |
| | — |
| | 712 |
| Net income | | | 771 | | | — | | | | 771 | |
| Other comprehensive income | — |
| | — |
| | — |
| | 3 |
| | 3 |
| |
| Other | — |
| | — |
| | 3 |
| | — |
| | 3 |
| |
| Balance at December 31, 2017 | $ | — |
| | $ | — |
| | $ | 5,614 |
| | $ | 4 |
| | $ | 5,618 |
| |
| Other comprehensive loss | | Other comprehensive loss | | | — | | | (1) | | | | (1) | |
| | Balance at December 31, 2020 | | Balance at December 31, 2020 | | | $ | 7,560 | | | $ | (2) | | | | $ | 7,558 | |
(a) Amounts represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information.
See Notes to Consolidated Financial Statements
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, 20172020 and 2016,2019, 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, 2017,2020, 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, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2020, 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.
CriticalAuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Public Utilities Commission of Ohio and by the Kentucky Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric and gas rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $650 million recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 201825, 2021
We have served as the Company's auditor since 2002.
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME | | | | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | | | | | | Operating Revenues | | | | | |
| Regulated electric | $ | 1,373 |
| | $ | 1,410 |
| | $ | 1,331 |
| Regulated electric | $ | 1,405 | | | $ | 1,456 | | | $ | 1,450 | |
| Regulated natural gas | | Regulated natural gas | 453 | | | 484 | | | 506 | |
| Nonregulated electric and other | 42 |
| | 31 |
| | 33 |
| Nonregulated electric and other | — | | | — | | | 1 | |
| Regulated natural gas | 508 |
| | 503 |
| | 541 |
| |
| Total operating revenues | 1,923 |
| | 1,944 |
| | 1,905 |
| Total operating revenues | 1,858 | | | 1,940 | | | 1,957 | |
Operating Expenses | | | | | | Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power – regulated | 369 |
| | 442 |
| | 446 |
| Fuel used in electric generation and purchased power – regulated | 339 | | | 388 | | | 412 | |
| Fuel used in electric generation and purchased power – nonregulated | 58 |
| | 51 |
| | 47 |
| |
| | Cost of natural gas | 107 |
| | 103 |
| | 141 |
| Cost of natural gas | 73 | | | 95 | | | 113 | |
| Operation, maintenance and other | 524 |
| | 512 |
| | 495 |
| Operation, maintenance and other | 463 | | | 520 | | | 480 | |
| Depreciation and amortization | 261 |
| | 233 |
| | 227 |
| Depreciation and amortization | 278 | | | 265 | | | 268 | |
| Property and other taxes | 278 |
| | 258 |
| | 254 |
| Property and other taxes | 324 | | | 308 | | | 290 | |
| Impairment charges | 1 |
| | — |
| | — |
| |
| | Total operating expenses | 1,598 |
| | 1,599 |
| | 1,610 |
| Total operating expenses | 1,477 | | | 1,576 | | | 1,563 | |
| Gains on Sales of Other Assets and Other, net | 1 |
| | 2 |
| | 8 |
| |
| Losses on Sales of Other Assets and Other, net | | Losses on Sales of Other Assets and Other, net | — | | | — | | | (106) | |
| Operating Income | 326 |
| | 347 |
| | 303 |
| Operating Income | 381 | | | 364 | | | 288 | |
| Other Income and Expenses, net | 17 |
| | 9 |
| | 6 |
| Other Income and Expenses, net | 16 | | | 24 | | | 23 | |
| Interest Expense | 91 |
| | 86 |
| | 79 |
| Interest Expense | 102 | | | 109 | | | 92 | |
| Income From Continuing Operations Before Income Taxes | 252 |
| | 270 |
| | 230 |
| Income From Continuing Operations Before Income Taxes | 295 | | | 279 | | | 219 | |
| Income Tax Expense From Continuing Operations | 59 |
| | 78 |
| | 81 |
| Income Tax Expense From Continuing Operations | 43 | | | 40 | | | 43 | |
| Income From Continuing Operations | 193 |
| | 192 |
| | 149 |
| Income From Continuing Operations | 252 | | | 239 | | | 176 | |
| (Loss) Income From Discontinued Operations, net of tax | (1 | ) | | 36 |
| | 23 |
| |
| Loss From Discontinued Operations, net of tax | | Loss From Discontinued Operations, net of tax | — | | | (1) | | | — | |
| Net Income and Comprehensive Income | $ | 192 |
| | $ | 228 |
| | $ | 172 |
| Net Income and Comprehensive Income | $ | 252 | | | $ | 238 | | | $ | 176 | |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED BALANCE SHEETS | | | | December 31, | | December 31, |
| (in millions) | 2017 |
| | 2016 |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | | ASSETS | | | |
| Current Assets | | | | Current Assets | | | |
| Cash and cash equivalents | $ | 12 |
| | $ | 13 |
| Cash and cash equivalents | $ | 14 | | | $ | 17 | |
| Receivables (net of allowance for doubtful accounts of $3 at 2017 and $2 at 2016) | 68 |
| | 71 |
| |
| Receivables (net of allowance for doubtful accounts of $4 at 2020 and $4 at 2019) | | Receivables (net of allowance for doubtful accounts of $4 at 2020 and $4 at 2019) | 98 | | | 84 | |
| Receivables from affiliated companies | 133 |
| | 129 |
| Receivables from affiliated companies | 102 | | | 92 | |
| Notes receivable from affiliated companies | 14 |
| | 94 |
| |
| | Inventory | 133 |
|
| 137 |
| Inventory | 110 | | | 135 | |
| | Regulatory assets | 49 |
| | 37 |
| Regulatory assets | 39 | | | 49 | |
| Other | 39 |
| | 37 |
| Other | 31 | | | 21 | |
| Total current assets | 448 |
| | 518 |
| Total current assets | 394 | | | 398 | |
| Property, Plant and Equipment | | | | Property, Plant and Equipment | | | |
| Cost | 8,732 |
| | 8,126 |
| Cost | 11,022 | | | 10,241 | |
| Accumulated depreciation and amortization | (2,691 | ) | | (2,579 | ) | Accumulated depreciation and amortization | (3,013) | | | (2,843) | |
| | Net property, plant and equipment | 6,041 |
| | 5,547 |
| Net property, plant and equipment | 8,009 | | | 7,398 | |
| Other Noncurrent Assets | | | | Other Noncurrent Assets | | | |
| Goodwill | 920 |
| | 920 |
| Goodwill | 920 | | | 920 | |
| Regulatory assets | 445 |
| | 520 |
| Regulatory assets | 610 | | | 549 | |
| Operating lease right-of-use assets, net | | Operating lease right-of-use assets, net | 20 | | | 21 | |
| | Other | 21 |
| | 23 |
| Other | 72 | | | 52 | |
| Total other noncurrent assets | 1,386 |
| | 1,463 |
| Total other noncurrent assets | 1,622 | | | 1,542 | |
| Total Assets | $ | 7,875 |
| | $ | 7,528 |
| Total Assets | $ | 10,025 | | | $ | 9,338 | |
| LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | | Current Liabilities | | | |
| Accounts payable | $ | 313 |
| | $ | 282 |
| Accounts payable | $ | 279 | | | $ | 288 | |
| Accounts payable to affiliated companies | 62 |
| | 63 |
| Accounts payable to affiliated companies | 68 | | | 68 | |
| Notes payable to affiliated companies | 29 |
| | 16 |
| Notes payable to affiliated companies | 169 | | | 312 | |
| Taxes accrued | 190 |
| | 178 |
| Taxes accrued | 247 | | | 219 | |
| Interest accrued | 21 |
| | 19 |
| Interest accrued | 31 | | | 30 | |
| Current maturities of long-term debt | 3 |
| | 1 |
| Current maturities of long-term debt | 50 | | | — | |
| | Asset retirement obligations | 3 |
| | — |
| Asset retirement obligations | 3 | | | 1 | |
| Regulatory liabilities | 36 |
| | 21 |
| Regulatory liabilities | 65 | | | 64 | |
| Other | 71 |
| | 91 |
| Other | 70 | | | 75 | |
| Total current liabilities | 728 |
| | 671 |
| Total current liabilities | 982 | | | 1,057 | |
| Long-Term Debt | 2,039 |
| | 1,858 |
| Long-Term Debt | 3,014 | | | 2,594 | |
| Long-Term Debt Payable to Affiliated Companies | 25 |
| | 25 |
| Long-Term Debt Payable to Affiliated Companies | 25 | | | 25 | |
| Other Noncurrent Liabilities | | | | Other Noncurrent Liabilities | | | |
| Deferred income taxes | 781 |
| | 1,443 |
| Deferred income taxes | 981 | | | 922 | |
| Asset retirement obligations | 81 |
| | 77 |
| Asset retirement obligations | 108 | | | 79 | |
| Regulatory liabilities | 891 |
| | 236 |
| Regulatory liabilities | 748 | | | 763 | |
| Operating lease liabilities | | Operating lease liabilities | 20 | | | 21 | |
| Accrued pension and other post-retirement benefit costs | 59 |
| | 56 |
| Accrued pension and other post-retirement benefit costs | 113 | | | 100 | |
| | Other | 108 |
| | 166 |
| Other | 99 | | | 94 | |
| Total other noncurrent liabilities | 1,920 |
| | 1,978 |
| Total other noncurrent liabilities | 2,069 | | | 1,979 | |
| Commitments and Contingencies | | | | Commitments and Contingencies | 0 | | 0 |
| Equity | | | | Equity | | | |
| Common stock, $8.50 par value, 120 million shares authorized; 90 million shares outstanding at 2017 and 2016 | 762 |
| | 762 |
| |
| Common stock, $8.50 par value, 120 million shares authorized; 90 million shares outstanding at 2020 and 2019 | | Common stock, $8.50 par value, 120 million shares authorized; 90 million shares outstanding at 2020 and 2019 | 762 | | | 762 | |
| Additional paid-in capital | 2,670 |
| | 2,695 |
| Additional paid-in capital | 2,776 | | | 2,776 | |
| Accumulated deficit | (269 | ) | | (461 | ) | |
| Retained earnings | | Retained earnings | 397 | | | 145 | |
| | Total equity | 3,163 |
| | 2,996 |
| Total equity | 3,935 | | | 3,683 | |
| Total Liabilities and Equity | $ | 7,875 |
| | $ | 7,528 |
| Total Liabilities and Equity | $ | 10,025 | | | $ | 9,338 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 192 |
| | $ | 228 |
| | $ | 172 |
| Net income | $ | 252 | | | $ | 238 | | | $ | 176 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization and accretion | 265 |
| | 237 |
| | 230 |
| Depreciation, amortization and accretion | 283 | | | 269 | | | 271 | |
| Equity component of AFUDC | (11 | ) | | (6 | ) | | (3 | ) | Equity component of AFUDC | (7) | | | (13) | | | (11) | |
| Gains on sales of other assets | (1 | ) | | (2 | ) | | (8 | ) | |
| Impairment charges | 1 |
| | — |
| | 40 |
| |
| Losses on sales of other assets | | Losses on sales of other assets | 0 | | | 0 | | | 106 | |
| | Deferred income taxes | 90 |
| | 55 |
| | 206 |
| Deferred income taxes | 31 | | | 81 | | | 25 | |
| Accrued pension and other post-retirement benefit costs | 2 |
| | 6 |
| | 9 |
| |
| Contributions to qualified pension plans | (4 | ) | | (5 | ) | | (8 | ) | |
| | Payments for asset retirement obligations | (7 | ) | | (5 | ) | | (4 | ) | Payments for asset retirement obligations | (2) | | | (8) | | | (3) | |
| Provision for rate refunds | | Provision for rate refunds | 14 | | | 7 | | | 24 | |
| (Increase) decrease in | | | | | | (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | — |
| | (2 | ) | | (10 | ) | |
| | Receivables | 2 |
| | (4 | ) | | 23 |
| Receivables | (13) | | | 20 | | | (33) | |
| Receivables from affiliated companies | (4 | ) | | (36 | ) | | 23 |
| Receivables from affiliated companies | 9 | | | 22 | | | 19 | |
| Inventory | 6 |
| | (32 | ) | | — |
| Inventory | 25 | | | (9) | | | 7 | |
| Other current assets | (22 | ) | | 79 |
| | — |
| Other current assets | (18) | | | (5) | | | 16 | |
| Increase (decrease) in | | | | | | Increase (decrease) in | | | | | |
| Accounts payable | 12 |
| | 19 |
| | (1 | ) | Accounts payable | 2 | | | (17) | | | (19) | |
| Accounts payable to affiliated companies | (1 | ) | | 10 |
| | (21 | ) | Accounts payable to affiliated companies | 0 | | | (10) | | | 16 | |
| Taxes accrued | 11 |
| | 3 |
| | (21 | ) | Taxes accrued | 30 | | | 17 | | | 12 | |
| Other current liabilities | (19 | ) | | (54 | ) | | 88 |
| Other current liabilities | 3 | | | 1 | | | 14 | |
| Other assets | (28 | ) | | (35 | ) | | 25 |
| Other assets | (32) | | | (26) | | | (24) | |
| Other liabilities | (5 | ) | | (31 | ) | | (73 | ) | Other liabilities | (2) | | | (41) | | | (26) | |
| Net cash provided by operating activities | 479 |
| | 425 |
| | 667 |
| Net cash provided by operating activities | 575 | | | 526 | | | 570 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (686 | ) | | (476 | ) | | (399 | ) | Capital expenditures | (834) | | | (952) | | | (827) | |
| | Notes receivable from affiliated companies | 80 |
| | (94 | ) | | 145 |
| Notes receivable from affiliated companies | (19) | | | — | | | 14 | |
| | Other | (41 | ) | | (30 | ) | | (15 | ) | Other | (48) | | | (68) | | | (89) | |
| Net cash used in investing activities | (647 | ) | | (600 | ) | | (269 | ) | Net cash used in investing activities | (901) | | | (1,020) | | | (902) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 182 |
| | 341 |
| | — |
| Proceeds from the issuance of long-term debt | 467 | | | 1,003 | | | 99 | |
| Payments for the redemption of long-term debt | (2 | ) | | (53 | ) | | (157 | ) | Payments for the redemption of long-term debt | — | | | (551) | | | (3) | |
| Notes payable to affiliated companies | 13 |
| | (87 | ) | | (95 | ) | Notes payable to affiliated companies | (144) | | | 38 | | | 245 | |
| Dividends to parent | (25 | ) | | (25 | ) | | (150 | ) | |
| Other | (1 | ) | | (2 | ) | | (2 | ) | |
| Net cash provided by (used in) financing activities | 167 |
| | 174 |
| | (404 | ) | |
| Net decrease in cash and cash equivalents | (1 | ) | | (1 | ) | | (6 | ) | |
| | Net cash provided by financing activities | | Net cash provided by financing activities | 323 | | | 490 | | | 341 | |
| Net (decrease) increase in cash and cash equivalents | | Net (decrease) increase in cash and cash equivalents | (3) | | | (4) | | | 9 | |
| Cash and cash equivalents at beginning of period | 13 |
| | 14 |
| | 20 |
| Cash and cash equivalents at beginning of period | 17 | | | 21 | | | 12 | |
| Cash and cash equivalents at end of period | $ | 12 |
| | $ | 13 |
| | $ | 14 |
| Cash and cash equivalents at end of period | $ | 14 | | | $ | 17 | | | $ | 21 | |
| Supplemental Disclosures: | | | | | | Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 85 |
| | $ | 81 |
| | $ | 76 |
| Cash paid for interest, net of amount capitalized | $ | 97 | | | $ | 97 | | | $ | 87 | |
| Cash (received from) paid for income taxes | (8 | ) | | (46 | ) | | 410 |
| |
| Cash received from income taxes | | Cash received from income taxes | — | | | (37) | | | (6) | |
| Significant non-cash transactions: | | | | | | Significant non-cash transactions: | |
| Accrued capital expenditures | 82 |
| | 83 |
| | 20 |
| Accrued capital expenditures | 104 | | | 109 | | | 95 | |
| Distribution of membership interest of Duke Energy SAM, LLC to parent | — |
| | — |
| | 1,912 |
| |
| Non-cash equity contribution from parent | | Non-cash equity contribution from parent | — | | | — | | | 106 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| | | | | | | | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | Additional |
| | | | |
| | Common |
| | Paid-in |
| | Accumulated |
| | Total |
|
| (in millions) | Stock |
| | Capital |
| | Deficit |
| | Equity |
|
| Balance at December 31, 2014 | $ | 762 |
| | $ | 4,782 |
| | $ | (870 | ) | | $ | 4,674 |
|
| Net income | — |
| | — |
| | 172 |
| | 172 |
|
| Dividends to parent | — |
| | (150 | ) | | — |
| | (150 | ) |
| Distribution of membership interest of Duke Energy SAM, LLC to parent | — |
| | (1,912 | ) | | — |
| | (1,912 | ) |
| Balance at December 31, 2015 | $ | 762 |
| | $ | 2,720 |
| | $ | (698 | ) | | $ | 2,784 |
|
| Net income | — |
| | — |
| | 228 |
| | 228 |
|
| Contribution from parent | — |
| | — |
| | 9 |
| | 9 |
|
| Dividends to parent | — |
| | (25 | ) | | — |
| | (25 | ) |
| Balance at December 31, 2016 | $ | 762 |
|
| $ | 2,695 |
|
| $ | (461 | ) |
| $ | 2,996 |
|
| Net income | — |
| | — |
| | 192 |
| | 192 |
|
| Dividends to parent | — |
| | (25 | ) | | — |
| | (25 | ) |
| Balance at December 31, 2017 | $ | 762 |
| | $ | 2,670 |
| | $ | (269 | ) | | $ | 3,163 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | Additional | | Retained | | | | |
| Common | | Paid-in | | Earnings | | | | Total |
| (in millions) | Stock | | Capital | | (Deficit) | | | | Equity |
| Balance at December 31, 2017 | $ | 762 | | | $ | 2,670 | | | $ | (269) | | | | | $ | 3,163 | |
| Net income | — | | | — | | | 176 | | | | | 176 | |
| Contribution from parent | — | | | 106 | | | — | | | | | 106 | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2018 | $ | 762 | | | $ | 2,776 | | | $ | (93) | | | | | $ | 3,445 | |
| Net income | — | | | — | | | 238 | | | | | 238 | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2019 | $ | 762 | | | $ | 2,776 | | | $ | 145 | | | | | $ | 3,683 | |
| Net income | — | | | — | | | 252 | | | | | 252 | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2020 | $ | 762 | | | $ | 2,776 | | | $ | 397 | | | | | $ | 3,935 | |
See Notes to Consolidated Financial Statements
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, 20172020 and 2016,2019, 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, 2017,2020, 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, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2020, 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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Indiana Utility Regulatory Commission (the “Commission”), which has jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $1.3 billion recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commission; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commission, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commission, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commission’s treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commission, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
Duke Energy Indiana Coal Ash Asset Retirement Obligations – Refer to Notes 3, 4, and 9 to the financial statements
Critical Audit Matter Description
Duke Energy Indiana has asset retirement obligations associated with coal ash impoundments at operating and retired coal generation facilities. These legal obligations are the result of Indiana state and federal regulations. There is significant judgment in determining the assumptions used in estimating the closure costs for each site since Duke Energy Indiana does not have approved closure plans for certain sites. Potential changes to the projected closure costs for each site as well as probability weightings for the cash flows associated with the different potential closure methods (“probability weightings”) creates estimation uncertainty. The liability for coal ash asset retirement obligations at Duke Energy Indiana was $1,140 million at December 31, 2020.
We identified the asset retirement obligations associated with coal ash impoundments at Duke Energy Indiana as a critical audit matter because of the significant management estimates and assumptions, including projected closure costs as well as the different potential closure methods. The audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to potential changes to the projected closure costs for each site as well as probability weightings for the cash flows associated with the different potential closure methods required a high degree of auditor judgment and an increased extent of effort, including the need to involve our environmental specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the underlying estimated closure costs for coal ash asset retirement obligations at Duke Energy Indiana included the following, among others:
•We tested the effectiveness of controls over management’s coal ash asset retirement obligation estimate, including those over management’s determination of the estimated closure costs and probability weightings.
•We evaluated management’s ability to accurately estimate future closure costs by comparing actual closure costs to management’s historical estimates.
•We tested the mathematical accuracy of management’s coal ash asset retirement obligation calculations, including the application of probability weightings.
•We made inquiries of internal and external legal counsel regarding the status of the legal matters associated with the probability weightings.
•We inspected the opinions from internal and external legal counsel supporting the probability weightings.
•We inspected the Company’s filings with and orders from the Indiana Department of Environmental Management, for evidence that might contradict management’s assertions regarding the estimated closure costs and probability weightings.
•With the assistance of our environmental specialists, we evaluated the reasonableness of management’s estimated closure costs by comparing the costs to actual costs incurred at comparable coal ash impoundments, underlying contracts, and publicly available industry cost data, as applicable.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 201825, 2021
We have served as the Company's auditor since 2002.
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME | | | | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 3,047 |
| | $ | 2,958 |
| | $ | 2,890 |
| Operating Revenues | $ | 2,795 | | | $ | 3,004 | | | $ | 3,059 | |
| Operating Expenses | | | | | | Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 966 |
|
| 909 |
| | 982 |
| Fuel used in electric generation and purchased power | 767 | | | 935 | | | 1,000 | |
| Operation, maintenance and other | 733 |
|
| 723 |
| | 682 |
| Operation, maintenance and other | 762 | | | 790 | | | 788 | |
| Depreciation and amortization | 458 |
|
| 496 |
| | 434 |
| Depreciation and amortization | 569 | | | 525 | | | 520 | |
| Property and other taxes | 76 |
|
| 58 |
| | 61 |
| Property and other taxes | 81 | | | 69 | | | 78 | |
| Impairment charges | 18 |
|
| 8 |
| | 88 |
| Impairment charges | — | | | — | | | 30 | |
| Total operating expenses | 2,251 |
| | 2,194 |
| | 2,247 |
| Total operating expenses | 2,179 | | | 2,319 | | | 2,416 | |
| Gains on Sales of Other Assets and Other, net | — |
| | 1 |
| | 1 |
| |
| | Operating Income | 796 |
| | 765 |
| | 644 |
| Operating Income | 616 | | | 685 | | | 643 | |
| Other Income and Expenses, net | 37 |
| | 22 |
| | 11 |
| Other Income and Expenses, net | 37 | | | 41 | | | 45 | |
| Interest Expense | 178 |
| | 181 |
| | 176 |
| Interest Expense | 161 | | | 156 | | | 167 | |
| Income Before Income Taxes | 655 |
|
| 606 |
|
| 479 |
| Income Before Income Taxes | 492 | | | 570 | | | 521 | |
| Income Tax Expense | 301 |
| | 225 |
| | 163 |
| Income Tax Expense | 84 | | | 134 | | | 128 | |
| Net Income | $ | 354 |
|
| $ | 381 |
|
| $ | 316 |
| |
| Other Comprehensive Loss, net of tax | | | | | | |
| Reclassification into earnings from cash flow hedges | — |
| | (1 | ) | | (2 | ) | |
| Comprehensive Income | $ | 354 |
|
| $ | 380 |
|
| $ | 314 |
| |
| Net Income and Comprehensive Income | | Net Income and Comprehensive Income | $ | 408 | | | $ | 436 | | | $ | 393 | |
|
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED BALANCE SHEETS | | | | December 31, | | December 31, |
| (in millions) | 2017 |
| | 2016 |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | | ASSETS | | | |
| Current Assets | | | | Current Assets | | | |
| Cash and cash equivalents | $ | 9 |
| | $ | 17 |
| Cash and cash equivalents | $ | 7 | | | $ | 25 | |
| Receivables (net of allowance for doubtful accounts of $2 at 2017 and $1 at 2016) | 57 |
| | 105 |
| |
| Receivables (net of allowance for doubtful accounts of $3 at 2020 and $3 at 2019) | | Receivables (net of allowance for doubtful accounts of $3 at 2020 and $3 at 2019) | 55 | | | 60 | |
| Receivables from affiliated companies | 125 |
| | 114 |
| Receivables from affiliated companies | 112 | | | 79 | |
| Notes receivable from affiliated companies | — |
| | 86 |
| |
| | Inventory | 450 |
|
| 504 |
| Inventory | 473 | | | 517 | |
| Regulatory assets | 165 |
| | 149 |
| Regulatory assets | 125 | | | 90 | |
| Other | 30 |
| | 45 |
| Other | 37 | | | 60 | |
| Total current assets | 836 |
| | 1,020 |
| Total current assets | 809 | | | 831 | |
| Property, Plant and Equipment | | | | Property, Plant and Equipment | | | |
| Cost | 14,948 |
| | 14,241 |
| Cost | 17,382 | | | 16,305 | |
| Accumulated depreciation and amortization | (4,662 | ) | | (4,317 | ) | Accumulated depreciation and amortization | (5,661) | | | (5,233) | |
| | Net property, plant and equipment | 10,286 |
| | 9,924 |
| Net property, plant and equipment | 11,721 | | | 11,072 | |
| Other Noncurrent Assets | | |
| Other Noncurrent Assets | | |
| Regulatory assets | 978 |
| | 1,073 |
| Regulatory assets | 1,203 | | | 1,082 | |
| Operating lease right-of-use assets, net | | Operating lease right-of-use assets, net | 55 | | | 57 | |
| | Other | 189 |
| | 147 |
| Other | 253 | | | 234 | |
| Total other noncurrent assets | 1,167 |
| | 1,220 |
| Total other noncurrent assets | 1,511 | | | 1,373 | |
| Total Assets | $ | 12,289 |
| | $ | 12,164 |
| Total Assets | $ | 14,041 | | | $ | 13,276 | |
| LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | | Current Liabilities | | | |
| Accounts payable | $ | 196 |
| | $ | 263 |
| Accounts payable | $ | 188 | | | $ | 201 | |
| Accounts payable to affiliated companies | 78 |
| | 74 |
| Accounts payable to affiliated companies | 88 | | | 87 | |
| Notes payable to affiliated companies | 161 |
| | — |
| Notes payable to affiliated companies | 131 | | | 30 | |
| Taxes accrued | 95 |
| | 31 |
| Taxes accrued | 62 | | | 49 | |
| Interest accrued | 57 |
| | 61 |
| Interest accrued | 51 | | | 58 | |
| Current maturities of long-term debt | 3 |
| | 3 |
| Current maturities of long-term debt | 70 | | | 503 | |
| Asset retirement obligations | 54 |
| | — |
| Asset retirement obligations | 168 | | | 189 | |
| Regulatory liabilities | 24 |
| | 40 |
| Regulatory liabilities | 111 | | | 55 | |
| Other | 104 |
| | 93 |
| Other | 83 | | | 112 | |
| Total current liabilities | 772 |
| | 565 |
| Total current liabilities | 952 | | | 1,284 | |
| Long-Term Debt | 3,630 |
| | 3,633 |
| Long-Term Debt | 3,871 | | | 3,404 | |
| Long-Term Debt Payable to Affiliated Companies | 150 |
| | 150 |
| Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
| Other Noncurrent Liabilities | | | | Other Noncurrent Liabilities | | | |
| Deferred income taxes | 925 |
| | 1,900 |
| Deferred income taxes | 1,228 | | | 1,150 | |
| Asset retirement obligations | 727 |
| | 866 |
| Asset retirement obligations | 1,008 | | | 643 | |
| Regulatory liabilities | 1,723 |
| | 748 |
| Regulatory liabilities | 1,627 | | | 1,685 | |
| Operating lease liabilities | | Operating lease liabilities | 53 | | | 55 | |
| Accrued pension and other post-retirement benefit costs | 76 |
| | 71 |
| Accrued pension and other post-retirement benefit costs | 171 | | | 148 | |
| Investment tax credits | 147 |
| | 137 |
| Investment tax credits | 168 | | | 164 | |
| Other | 18 |
| | 27 |
| Other | 30 | | | 18 | |
| Total other noncurrent liabilities | 3,616 |
| | 3,749 |
| Total other noncurrent liabilities | 4,285 | | | 3,863 | |
| Commitments and Contingencies | | | | Commitments and Contingencies | 0 | | 0 |
| Equity | | | | Equity | | | |
| Member's Equity | 4,121 |
| | 4,067 |
| Member's Equity | 4,783 | | | 4,575 | |
| | Total Liabilities and Equity | $ | 12,289 |
| | $ | 12,164 |
| Total Liabilities and Equity | $ | 14,041 | | | $ | 13,276 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 354 |
| | $ | 381 |
| | $ | 316 |
| Net income | $ | 408 | | | $ | 436 | | | $ | 393 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 462 |
| | 499 |
| | 439 |
| |
| Depreciation, amortization, and accretion | | Depreciation, amortization, and accretion | 572 | | | 531 | | | 524 | |
| Equity component of AFUDC | (28 | ) | | (16 | ) | | (11 | ) | Equity component of AFUDC | (23) | | | (18) | | | (32) | |
| Gains on sales of other assets | — |
| | — |
| | (1 | ) | |
| | Impairment charges | 18 |
| | 8 |
| | 88 |
| Impairment charges | — | | | — | | | 30 | |
| Deferred income taxes | 152 |
| | 213 |
| | 262 |
| Deferred income taxes | 29 | | | 156 | | | 95 | |
| Accrued pension and other post-retirement benefit costs | 2 |
| | 8 |
| | 13 |
| |
| Contributions to qualified pension plans | — |
| | (9 | ) | | (19 | ) | |
| | Payments for asset retirement obligations | (45 | ) | | (46 | ) | | (19 | ) | Payments for asset retirement obligations | (63) | | | (48) | | | (69) | |
| Provision for rate refunds | | Provision for rate refunds | — | | | — | | | 53 | |
| (Increase) decrease in | | | | | | (Increase) decrease in | | | | | |
| | Receivables | 59 |
| | (2 | ) | | (7 | ) | Receivables | 8 | | | (8) | | | 7 | |
| Receivables from affiliated companies | (11 | ) | | (43 | ) | | 44 |
| Receivables from affiliated companies | 0 | | | 41 | | | 3 | |
| Inventory | 54 |
| | 66 |
| | (21 | ) | Inventory | 44 | | | (95) | | | 28 | |
| Other current assets | 28 |
| | (67 | ) | | 90 |
| Other current assets | (3) | | | 76 | | | (25) | |
| Increase (decrease) in | | | | | | Increase (decrease) in | | | | | |
| Accounts payable | (86 | ) | | 8 |
| | 33 |
| Accounts payable | (12) | | | (10) | | | 37 | |
| Accounts payable to affiliated companies | 4 |
| | (9 | ) | | 25 |
| Accounts payable to affiliated companies | 1 | | | 4 | | | 5 | |
| Taxes accrued | 64 |
| | (4 | ) | | 35 |
| Taxes accrued | 13 | | | (25) | | | (52) | |
| Other current liabilities | (10 | ) | | (81 | ) | | 26 |
| Other current liabilities | 6 | | | 15 | | | 14 | |
| Other assets | (28 | ) | | (27 | ) | | (82 | ) | Other assets | (68) | | | (74) | | | 26 | |
| Other liabilities | (20 | ) | | (8 | ) | | (35 | ) | Other liabilities | 26 | | | 16 | | | (31) | |
| Net cash provided by operating activities | 969 |
| | 871 |
| | 1,176 |
| Net cash provided by operating activities | 938 | | | 997 | | | 1,006 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (840 | ) | | (755 | ) | | (690 | ) | Capital expenditures | (888) | | | (876) | | | (832) | |
| Purchases of available-for-sale securities | (20 | ) | | (14 | ) | | (9 | ) | |
| Proceeds from sales and maturities of available-for-sale securities | 7 |
| | 11 |
| | 11 |
| |
| Proceeds from the sales of other assets | — |
| | — |
| | 17 |
| |
| Purchases of debt and equity securities | | Purchases of debt and equity securities | (37) | | | (26) | | | (48) | |
| Proceeds from sales and maturities of debt and equity securities | | Proceeds from sales and maturities of debt and equity securities | 22 | | | 20 | | | 44 | |
| | Notes receivable from affiliated companies | 86 |
| | (3 | ) | | (83 | ) | Notes receivable from affiliated companies | (33) | | | — | | | — | |
| | Other | (65 | ) | | 32 |
| | (17 | ) | Other | 48 | | | (49) | | | 18 | |
| Net cash used in investing activities | (832 | ) | | (729 | ) | | (771 | ) | Net cash used in investing activities | (888) | | | (931) | | | (818) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | — |
| | 494 |
| | — |
| Proceeds from the issuance of long-term debt | 544 | | | 485 | | | — | |
| Payments for the redemption of long-term debt | (5 | ) | | (478 | ) | | (5 | ) | Payments for the redemption of long-term debt | (513) | | | (213) | | | (3) | |
| Notes payable to affiliated companies | 161 |
| | — |
| | (71 | ) | Notes payable to affiliated companies | 101 | | | (137) | | | 6 | |
| Dividends to parent | — |
| | — |
| | (326 | ) | |
| | Distributions to parent | (300 | ) | | (149 | ) | | — |
| Distributions to parent | (200) | | | (200) | | | (175) | |
| Other | (1 | ) | | (1 | ) | | — |
| Other | — | | | — | | | (1) | |
| Net cash used in financing activities | (145 | ) | | (134 | ) | | (402 | ) | Net cash used in financing activities | (68) | | | (65) | | | (173) | |
| Net (decrease) increase in cash and cash equivalents | (8 | ) | | 8 |
| | 3 |
| Net (decrease) increase in cash and cash equivalents | (18) | | | 1 | | | 15 | |
| Cash and cash equivalents at beginning of period | 17 |
| | 9 |
| | 6 |
| Cash and cash equivalents at beginning of period | 25 | | | 24 | | | 9 | |
| Cash and cash equivalents at end of period | $ | 9 |
| | $ | 17 |
| | $ | 9 |
| Cash and cash equivalents at end of period | $ | 7 | | | $ | 25 | | | $ | 24 | |
| Supplemental Disclosures: | | | | | | Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 179 |
| | $ | 171 |
| | $ | 175 |
| Cash paid for interest, net of amount capitalized | $ | 164 | | | $ | 150 | | | $ | 162 | |
| Cash paid for (received from) income taxes | 117 |
| | (7 | ) | | (253 | ) | Cash paid for (received from) income taxes | 36 | | | (6) | | | 75 | |
| Significant non-cash transactions: | | | | | | Significant non-cash transactions: | |
| Accrued capital expenditures | 125 |
| | 99 |
| | 64 |
| Accrued capital expenditures | 101 | | | 102 | | | 88 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | |
| | | | | | | | | | Other | | |
| | | | | | | | | | Comprehensive | | |
| | | | | | | | | | Income | | |
| | | | Additional |
| | | | | | Net Gains on |
| | |
| | Common |
| | Paid-in |
| | Retained |
| | Member's |
| | Cash Flow |
| | Total |
|
| (in millions) | Stock |
| | Capital |
| | Earnings |
| | Equity |
| | Hedges |
| | Equity |
|
| Balance at December 31, 2014 | $ | 1 |
| | $ | 1,384 |
| | $ | 2,460 |
| | $ | — |
| | $ | 3 |
| | $ | 3,848 |
|
| Net income | — |
| | — |
| | 316 |
| | — |
| | — |
| | 316 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) |
| Dividends to parent | — |
| | — |
| | (326 | ) | | — |
| | — |
| | (326 | ) |
| Balance at December 31, 2015 | $ | 1 |
|
| $ | 1,384 |
|
| $ | 2,450 |
|
| $ | — |
| | $ | 1 |
|
| $ | 3,836 |
|
| Net income | — |
| | — |
| | — |
| | 381 |
| | — |
| | 381 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
| Distributions to parent | — |
| | — |
| | — |
| | (149 | ) | | — |
| | (149 | ) |
| Transfer to Member's Equity | (1 | ) | | (1,384 | ) | | (2,450 | ) | | 3,835 |
| | — |
| | — |
|
| Balance at December 31, 2016 | $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 4,067 |
| | $ | — |
|
| $ | 4,067 |
|
| Net income | — |
| | — |
| | — |
| | 354 |
| | — |
| | 354 |
|
| Distributions to parent | — |
| | — |
| | — |
| | (300 | ) | | — |
| | (300 | ) |
| Balance at December 31, 2017 | $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 4,121 |
| | $ | — |
|
| $ | 4,121 |
|
| | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | Member's | | | | |
| (in millions) | | | | | | | Equity | | | | |
| Balance at December 31, 2017 | | | | | | | $ | 4,121 | | | | | |
| Net income | | | | | | | 393 | | | | | |
| | | | | | | | | | | |
| Distributions to parent | | | | | | | (175) | | | | | |
| | | | | | | | | | | |
| Balance at December 31, 2018 | | | | | | | $ | 4,339 | | | | | |
| Net income | | | | | | | 436 | | | | | |
| | | | | | | | | | | |
| Distributions to parent | | | | | | | (200) | | | | | |
| | | | | | | | | | | |
| Balance at December 31, 2019 | | | | | | | $ | 4,575 | | | | | |
| Net income | | | | | | | 408 | | | | | |
| Distributions to parent | | | | | | | (200) | | | | | |
| Balance at December 31, 2020 | | | | | | | $ | 4,783 | | | | | |
See Notes to Consolidated Financial Statements
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, 20172020 and 2016,2019, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the periodsperiod ended December 31, 2017, October 31, 2016, October 31, 2015 and for the 2 months ended December 31, 20162020, 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, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the three years in the periodsperiod ended December 31, 2017, October 31, 2016, October 31, 2015 and for the 2 months ended December 31, 2016,2020, 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
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of Matter
As discussed in Note 1the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements effectiveand (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission, the Public Service Commission of South Carolina, and the Tennessee Public Utility Commission (collectively the “Commissions”), which have jurisdiction with respect to the gas rates of the Company. Management has determined it meets the criteria for fiscal year 2016,the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company changedhas approximately $450 million recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its fiscal year endassertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from October 31 to December 31. This resulted in a 2-month transition period beginning November 1, 2016 through December 31, 2016.management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/Deloitte & Touche LLP
Charlotte, North Carolina
February 21, 201825, 2021
We have served as the Company's auditor since 1951.
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME | | | | Year Ended | | Two Months Ended | | Years Ended October 31, | | Years Ended December 31, |
| (in millions) | December 31, 2017 |
| | December 31, 2016 | | 2016 |
| | 2015 |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | | | | | | | | Operating Revenues | |
| Regulated natural gas | $ | 1,319 |
| | $ | 320 |
| | $ | 1,139 |
| | $ | 1,372 |
| Regulated natural gas | $ | 1,286 | | | $ | 1,369 | | | $ | 1,365 | |
| Nonregulated natural gas and other | 9 |
| | 2 |
| | 10 |
| | 11 |
| Nonregulated natural gas and other | 11 | | | 12 | | | 10 | |
| | Total operating revenues | 1,328 |
| | 322 |
| | 1,149 |
| | 1,383 |
| Total operating revenues | 1,297 | | | 1,381 | | | 1,375 | |
| Operating Expenses | | | | | | | | Operating Expenses | | |
| Cost of natural gas | 524 |
| | 144 |
| | 391 |
| | 644 |
| Cost of natural gas | 386 | | | 532 | | | 584 | |
| Operation, maintenance and other | 315 |
| | 52 |
| | 353 |
| | 305 |
| Operation, maintenance and other | 322 | | | 328 | | | 357 | |
| Depreciation and amortization | 148 |
| | 23 |
| | 137 |
| | 129 |
| Depreciation and amortization | 180 | | | 172 | | | 159 | |
| Property and other taxes | 48 |
| | 7 |
| | 43 |
| | 42 |
| Property and other taxes | 53 | | | 45 | | | 49 | |
| Impairment charges | 7 |
| | — |
| | — |
| | — |
| Impairment charges | 7 | | | — | | | — | |
| Total operating expenses | 1,042 |
| | 226 |
|
| 924 |
|
| 1,120 |
| Total operating expenses | 948 | | | 1,077 | | | 1,149 | |
| | Operating Income | 286 |
| | 96 |
|
| 225 |
|
| 263 |
| Operating Income | 349 | | | 304 | | | 226 | |
| Equity in (losses) earnings of unconsolidated affiliates | (6 | ) | | 2 |
| | 29 |
| | 34 |
| |
| Gain on sale of unconsolidated affiliates | — |
| | — |
| | 133 |
| | — |
| |
| Equity in earnings of unconsolidated affiliates | | Equity in earnings of unconsolidated affiliates | 9 | | | 8 | | | 7 | |
| | Other income and expense, net | — |
| | — |
| | (1 | ) | | (1 | ) | Other income and expense, net | 51 | | | 20 | | | 14 | |
| Total other income and expenses | (6 | ) | | 2 |
|
| 161 |
|
| 33 |
| Total other income and expenses | 60 | | | 28 | | | 21 | |
| Interest Expense | 79 |
| | 12 |
| | 69 |
| | 69 |
| Interest Expense | 118 | | | 87 | | | 81 | |
| Income Before Income Taxes | 201 |
| | 86 |
|
| 317 |
|
| 227 |
| Income Before Income Taxes | 291 | | | 245 | | | 166 | |
| Income Tax Expense | 62 |
| | 32 |
| | 124 |
| | 90 |
| Income Tax Expense | 18 | | | 43 | | | 37 | |
| Net Income | $ | 139 |
| | $ | 54 |
|
| $ | 193 |
|
| $ | 137 |
| |
| Other Comprehensive Income (Loss), net of tax | | | | | | | | |
| Unrealized loss from hedging activities of equity method investments | — |
| | — |
| | (3 | ) | | (2 | ) | |
| Reclassification into earnings from hedging activities of equity method investments | — |
| | — |
| | 4 |
| | 1 |
| |
| Other Comprehensive Income (Loss), net of tax | — |
| | — |
| | 1 |
| | (1 | ) | |
| Comprehensive Income | $ | 139 |
| | $ | 54 |
| | $ | 194 |
| | $ | 136 |
| |
| Net Income and Comprehensive Income | | Net Income and Comprehensive Income | $ | 273 | | | $ | 202 | | | $ | 129 | |
|
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
| | | | December 31, | | December 31, |
| (in millions) | 2017 |
| | 2016 |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | | ASSETS | |
| Current Assets | | | | Current Assets | |
| Cash and cash equivalents | $ | 19 |
| | $ | 25 |
| |
| Receivables (net of allowance for doubtful accounts of $2 at 2017 and $3 at 2016) | 275 |
| | 232 |
| |
| | Receivables (net of allowance for doubtful accounts of $12 at 2020 and $6 at 2019) | | Receivables (net of allowance for doubtful accounts of $12 at 2020 and $6 at 2019) | $ | 250 | | | $ | 241 | |
| Receivables from affiliated companies | 7 |
| | 7 |
| Receivables from affiliated companies | 10 | | | 10 | |
| Inventory | 66 |
| | 66 |
| Inventory | 68 | | | 72 | |
| Regulatory assets | 95 |
| | 124 |
| Regulatory assets | 153 | | | 73 | |
| | Other | 52 |
| | 21 |
| Other | 20 | | | 28 | |
| Total current assets | 514 |
| | 475 |
| Total current assets | 501 | | | 424 | |
| Property, Plant and Equipment | | | | Property, Plant and Equipment | |
| Cost | 6,725 |
| | 6,174 |
| Cost | 9,134 | | | 8,446 | |
| Accumulated depreciation and amortization | (1,479 | ) | | (1,360 | ) | Accumulated depreciation and amortization | (1,749) | | | (1,681) | |
| Net property, plant and equipment | 5,246 |
| | 4,814 |
| Net property, plant and equipment | 7,385 | | | 6,765 | |
| Other Noncurrent Assets | | | | Other Noncurrent Assets | |
| Goodwill | 49 |
| | 49 |
| Goodwill | 49 | | | 49 | |
| Regulatory assets | 283 |
| | 373 |
| Regulatory assets | 302 | | | 290 | |
| Operating lease right-of-use assets, net | | Operating lease right-of-use assets, net | 20 | | | 24 | |
| Investments in equity method unconsolidated affiliates | 61 |
| | 212 |
| Investments in equity method unconsolidated affiliates | 88 | | | 83 | |
| Other | 65 |
| | 21 |
| Other | 270 | | | 121 | |
| Total other noncurrent assets | 458 |
| | 655 |
| Total other noncurrent assets | 729 | | | 567 | |
| Total Assets | $ | 6,218 |
| | $ | 5,944 |
| Total Assets | $ | 8,615 | | | $ | 7,756 | |
| LIABILITIES AND EQUITY | | | | LIABILITIES AND EQUITY | |
| Current Liabilities | | | | Current Liabilities | |
| Accounts payable | $ | 125 |
| | $ | 155 |
| Accounts payable | $ | 230 | | | $ | 215 | |
| Accounts payable to affiliated companies | 13 |
| | 8 |
| Accounts payable to affiliated companies | 79 | | | 3 | |
| Notes payable and commercial paper | — |
| | 330 |
| |
| | Notes payable to affiliated companies | 364 |
| | — |
| Notes payable to affiliated companies | 530 | | | 476 | |
| Taxes accrued | 19 |
| | 67 |
| Taxes accrued | 23 | | | 24 | |
| Interest accrued | 31 |
| | 33 |
| Interest accrued | 34 | | | 33 | |
| Current maturities of long-term debt | 250 |
| | 35 |
| Current maturities of long-term debt | 160 | | | 0 | |
| Regulatory liabilities | 3 |
| | — |
| Regulatory liabilities | 88 | | | 81 | |
| Other | 69 |
| | 102 |
| Other | 69 | | | 67 | |
| Total current liabilities | 874 |
| | 730 |
| Total current liabilities | 1,213 | | | 899 | |
| Long-Term Debt | 1,787 |
| | 1,786 |
| Long-Term Debt | 2,620 | | | 2,384 | |
| | Other Noncurrent Liabilities | | | | Other Noncurrent Liabilities | |
| Deferred income taxes | 564 |
| | 931 |
| Deferred income taxes | 821 | | | 708 | |
| Asset retirement obligations | 15 |
| | 14 |
| Asset retirement obligations | 20 | | | 17 | |
| Regulatory liabilities | 1,141 |
| | 608 |
| Regulatory liabilities | 1,044 | | | 1,131 | |
| Operating lease liabilities | | Operating lease liabilities | 19 | | | 23 | |
| Accrued pension and other post-retirement benefit costs | 5 |
| | 14 |
| Accrued pension and other post-retirement benefit costs | 8 | | | 3 | |
| Other | 170 |
| | 189 |
| Other | 155 | | | 148 | |
| Total other noncurrent liabilities | 1,895 |
| | 1,756 |
| Total other noncurrent liabilities | 2,067 | | | 2,030 | |
| Commitments and Contingencies | | | | Commitments and Contingencies | 0 | | 0 |
| Equity | | | | Equity | |
| Common stock, no par value: 100 shares authorized and outstanding at 2017 and 2016 | 860 |
| | 860 |
| |
| Common stock, 0 par value: 100 shares authorized and outstanding at 2020 and 2019 | | Common stock, 0 par value: 100 shares authorized and outstanding at 2020 and 2019 | 1,310 | | | 1,310 | |
| | Retained earnings | 802 |
| | 812 |
| Retained earnings | 1,405 | | | 1,133 | |
| | Total equity | 1,662 |
| | 1,672 |
| Total equity | 2,715 | | | 2,443 | |
| Total Liabilities and Equity | $ | 6,218 |
| | $ | 5,944 |
| Total Liabilities and Equity | $ | 8,615 | | | $ | 7,756 | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | Year Ended | | Two Months Ended | | Years Ended October 31, | | Years Ended December 31, |
| (in millions) | December 31, 2017 |
| | December 31, 2016 |
| | 2016 |
| | 2015 |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES | |
| Net income | $ | 139 |
| | $ | 54 |
| | $ | 193 |
| | $ | 137 |
| Net income | $ | 273 | | | $ | 202 | | | $ | 129 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | Adjustments to reconcile net income to net cash provided by operating activities: | |
| Depreciation and amortization | 151 |
| | 25 |
| | 148 |
| | 140 |
| Depreciation and amortization | 182 | | | 174 | | | 161 | |
| Gains on sales of other assets | — |
| | — |
| | (133 | ) | | — |
| |
| Equity component of AFUDC | | Equity component of AFUDC | (19) | | | — | | | — | |
| | Impairment charges | 7 |
| | — |
| | — |
| | — |
| Impairment charges | 7 | | | — | | | — | |
| Deferred income taxes | 154 |
| | 26 |
| | 74 |
| | 73 |
| Deferred income taxes | 53 | | | 136 | | | (31) | |
| Equity in losses (earnings) from unconsolidated affiliates | 6 |
| | (2 | ) | | (29 | ) | | (34 | ) | |
| Accrued pension and other post-retirement benefit costs | 23 |
| | 5 |
| | 3 |
| | 8 |
| |
| Contributions to qualified pension plans | (11 | ) | | (10 | ) | | (14 | ) | | (13 | ) | |
| Payments for asset retirement obligations | — |
| | (1 | ) | | (6 | ) | | (6 | ) | |
| Equity in (earnings) losses from unconsolidated affiliates | | Equity in (earnings) losses from unconsolidated affiliates | (9) | | | (8) | | | (7) | |
| | Provision for rate refunds | | Provision for rate refunds | (33) | | | 2 | | | 43 | |
| (Increase) decrease in | | | | | | | | (Increase) decrease in | |
| | Receivables | (40 | ) | | (157 | ) | | 12 |
| | 3 |
| Receivables | 10 | | | 28 | | | 7 | |
| Receivables from affiliated companies | — |
| | — |
| | (7 | ) | | — |
| Receivables from affiliated companies | — | | | 12 | | | (15) | |
| Inventory | — |
| | (11 | ) | | 14 |
| | 16 |
| Inventory | 3 | | | (2) | | | (4) | |
| Other current assets | (20 | ) | | 8 |
| | (98 | ) | | 46 |
| Other current assets | (66) | | | (25) | | | 71 | |
| Increase (decrease) in | | | | | | | | Increase (decrease) in | |
| Accounts payable | (13 | ) | | 35 |
| | 6 |
| | (5 | ) | Accounts payable | 16 | | | (7) | | | 15 | |
| Accounts payable to affiliated companies | 5 |
| | 4 |
| | 6 |
| | — |
| Accounts payable to affiliated companies | 76 | | | (35) | | | 25 | |
| Taxes accrued | (48 | ) | | (2 | ) | | 38 |
| | 4 |
| Taxes accrued | 3 | | | (60) | | | 65 | |
| Other current liabilities | (9 | ) | | 2 |
| | 28 |
| | (21 | ) | Other current liabilities | (11) | | | 1 | | | 21 | |
| Other assets | 7 |
| | (7 | ) | | (107 | ) | | (5 | ) | Other assets | (11) | | | 1 | | | 3 | |
| Other liabilities | (2 | ) | | 5 |
| | 180 |
| | 29 |
| Other liabilities | 7 | | | (10) | | | (5) | |
| Net cash provided by (used in) operating activities | 349 |
| | (26 | ) | | 308 |
| | 372 |
| |
| Net cash provided by operating activities | | Net cash provided by operating activities | 481 | | | 409 | | | 478 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES | |
| Capital expenditures | (585 | ) | | (113 | ) | | (522 | ) | | (444 | ) | Capital expenditures | (901) | | | (1,053) | | | (721) | |
| Contributions to equity method investments | (12 | ) | | (12 | ) | | (47 | ) | | (30 | ) | Contributions to equity method investments | — | | | (16) | | | — | |
| Proceeds from the sales of other assets | — |
| | — |
| | 175 |
| | — |
| |
| | Other | (6 | ) | | 1 |
| | 21 |
| | (5 | ) | Other | (28) | | | (14) | | | (10) | |
| Net cash used in investing activities | (603 | ) | | (124 | ) | | (373 | ) | | (479 | ) | Net cash used in investing activities | (929) | | | (1,083) | | | (731) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | |
| Proceeds from the: | | | | | | | | |
| Issuance of long-term debt | 250 |
| | — |
| | 295 |
| | 148 |
| |
| Issuance of common stock | — |
| | — |
| | 122 |
| | 81 |
| |
| Proceeds from the issuance of long-term debt | | Proceeds from the issuance of long-term debt | 394 | | | 596 | | | 100 | |
| | Payments for the redemption of long-term debt | (35 | ) | | — |
| | (40 | ) | | — |
| Payments for the redemption of long-term debt | — | | | (350) | | | — | |
| Notes payable and commercial paper | (330 | ) | | 185 |
| | (195 | ) | | (15 | ) | |
| | Notes payable to affiliated companies | 364 |
| | — |
| | — |
| | — |
| Notes payable to affiliated companies | 54 | | | 278 | | | (166) | |
| Dividends to parent | — |
| | (27 | ) | | — |
| | — |
| |
| Dividends paid | — |
| | — |
| | (114 | ) | | (103 | ) | |
| Other | (1 | ) | | — |
| | — |
| | — |
| |
| | Capital contribution from parent | | Capital contribution from parent | — | | | 150 | | | 300 | |
| | Net cash provided by financing activities | 248 |
| | 158 |
| | 68 |
| | 111 |
| Net cash provided by financing activities | 448 | | | 674 | | | 234 | |
| Net (decrease) increase in cash and cash equivalents | (6 | ) | | 8 |
| | 3 |
| | 4 |
| |
| Net decrease in cash and cash equivalents | | Net decrease in cash and cash equivalents | — | | | — | | | (19) | |
| Cash and cash equivalents at beginning of period | 25 |
| | 17 |
| | 14 |
| | 10 |
| Cash and cash equivalents at beginning of period | — | | | — | | | 19 | |
| Cash and cash equivalents at end of period | $ | 19 |
| | $ | 25 |
| | $ | 17 |
| | $ | 14 |
| Cash and cash equivalents at end of period | $ | — | | | $ | — | | | $ | — | |
| Supplemental Disclosures: | | | | | | | | Supplemental Disclosures: | |
| Cash paid for interest, net of amount capitalized | $ | 78 |
| | $ | 11 |
| | $ | 81 |
| | $ | 72 |
| Cash paid for interest, net of amount capitalized | $ | 115 | | | $ | 84 | | | $ | 79 | |
| Cash (received from) paid for income taxes | (12 | ) | | — |
| | (25 | ) | | 3 |
| |
| Cash received from income taxes | | Cash received from income taxes | (36) | | | (31) | | | (16) | |
| Significant non-cash transactions: | | | | | | | | Significant non-cash transactions: | |
| Accrued capital expenditures | 34 |
| | 48 |
| | 63 |
| | 59 |
| Accrued capital expenditures | 106 | | | 109 | | | 96 | |
| Transfer of ownership interest of certain equity method investees to parent | 149 |
| | — |
| | — |
| | — |
| |
|
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| | | | | | | | | | | | | | | |
| | | | | | Accumulated | | |
| | | | | | Other | | |
| | | | | | Comprehensive | | |
| | | | | | Income (Loss) | | |
| | | | | | Net Loss on |
| | |
| | | | | | Hedging Activities |
| | |
| | Common |
| | Retained |
| | of Unconsolidated |
| | Total |
|
| (in millions) | Stock |
| | Earnings |
| | Affiliates |
| | Equity |
|
| Balance at October 31, 2014 | $ | 637 |
| | $ | 672 |
| | $ | — |
| | $ | 1,309 |
|
| Net income | — |
| | 137 |
| | — |
| | 137 |
|
| Other comprehensive loss | — |
| | — |
| | (1 | ) | | (1 | ) |
| Common stock issuances, including dividend reinvestment and employee benefits | 85 |
| | — |
| | — |
| | 85 |
|
| Expenses from issuance of common stock | (1 | ) | | — |
| | — |
| | (1 | ) |
| Common stock dividends | — |
| | (103 | ) | | — |
| | (103 | ) |
| Balance at October 31, 2015 | $ | 721 |
| | $ | 706 |
| | $ | (1 | ) | | $ | 1,426 |
|
| Net income | — |
| | 193 |
| | — |
| | 193 |
|
| Other comprehensive income | — |
| | — |
| | 1 |
| | 1 |
|
| Common stock issuances, including dividend reinvestment and employee benefits | 139 |
| | — |
| | — |
| | 139 |
|
| Common stock dividends | — |
| | (114 | ) | | — |
| | (114 | ) |
| Balance at October 31, 2016 | $ | 860 |
| | $ | 785 |
| | $ | — |
| | $ | 1,645 |
|
| Net income | — |
| | 54 |
| | — |
| | 54 |
|
| Dividends to parent | — |
| | (27 | ) | | — |
| | (27 | ) |
| Balance at December 31, 2016 | $ | 860 |
| | $ | 812 |
| | $ | — |
| | $ | 1,672 |
|
Net income | — |
| | 139 |
| | — |
| | 139 |
|
| Transfer of ownership interest of certain equity method investees to parent | — |
| | (149 | ) | | — |
| | (149 | ) |
| Balance at December 31, 2017 | $ | 860 |
| | $ | 802 |
| | $ | — |
| | $ | 1,662 |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Common | | Retained | | | | Total |
| (in millions) | Stock | | Earnings | | | | Equity |
| Balance at December 31, 2017 | $ | 860 | | | $ | 802 | | | | | $ | 1,662 | |
| Net income | — | | | 129 | | | | | 129 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Contribution from parent | 300 | | | — | | | | | 300 | |
| | | | | | | |
| Balance at December 31, 2018 | $ | 1,160 | | | $ | 931 | | | | | $ | 2,091 | |
| Net income | — | | | 202 | | | | | 202 | |
| | | | | | | |
| Contribution from parent | 150 | | | — | | | | | 150 | |
| | | | | | | |
| Balance at December 31, 2019 | $ | 1,310 | | | $ | 1,133 | | | | | $ | 2,443 | |
| Net income | — | | | 273 | | | | | 273 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Other | — | | | (1) | | | | | (1) | |
| Balance at December 31, 2020 | $ | 1,310 | | | $ | 1,405 | | | | | $ | 2,715 | |
See Notes to Consolidated Financial Statements
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 | | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | 21 | 22 | 23 | 24 | 25 |
| 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. | • | • | • | • | • | • | | | • | • | • | • | • | • | • | • | • | | • | • | • | • | • | • | • |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Applicable Notes |
| Registrant | 1 | | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | 21 | 22 | 23 | 24 | 25 | |
| Duke Energy | • | | • | • | • | • | • | • | • | • | • | • | • | | • | • | • | • | • | • | • | • | • | • | • | • | |
| Duke Energy Carolinas | • | | • | • | • | • | • | | • | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Progress Energy | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Duke Energy Progress | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Duke Energy Florida | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Duke Energy Ohio | • | | • | • | • | • | • | | | • | • | • | | • | • | | • | • | • | | • | • | • | • | • | • | |
| Duke Energy Indiana | • | | • | • | • | • | • | | • | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Piedmont | • | | • | • | • | • | • | | | • | • | • | • | • | • | | • | | • | | • | • | • | • | • | • | |
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).FERC and other regulatory agencies listed below. Duke Energy operates in the United States (U.S.)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);Carolinas; Progress Energy, Inc. (Progress Energy);Energy; Duke Energy Progress, LLC (Duke Energy Progress);Progress; Duke Energy Florida, LLC (Duke Energy Florida);Florida; Duke Energy Ohio, Inc. (Duke Energy Ohio);Ohio; Duke Energy Indiana LLC (Duke Energy Indiana) and Piedmont Natural Gas Company, Inc. (Piedmont).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),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 or VIEs where the respective Duke Energy Registrants have control. See Note 17 for additional information on VIEs. These Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain jointly owned generation and transmission facilities. See Note 8 for additional information on joint ownership. Substantially all of the Subsidiary Registrants' operations qualify for regulatory accounting.
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)NCUC, PSCSC, NRC and FERC.
Progress Energy is a public utility holding company, headquartered in Raleigh, North Carolina, subject to regulation by FERC. Progress Energywhich conducts operations through its wholly owned subsidiaries, Duke Energy Progress and Duke Energy Florida. Progress Energy is subject to regulation by FERC and other regulatory agencies listed below.
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),FPSC, NRC and FERC.
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 – (Continued)
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).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)PUCO, 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)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)TPUC and FERC.
Certain prior year amounts have been reclassified to conform to the current year presentation.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
COVID-19
The COVID-19 pandemic is having a significant impact on global health and economic environments. In March 2020, the World Health Organization declared COVID-19 a global pandemic, and the federal government proclaimed that the COVID-19 outbreak in the United States constitutes a national emergency. The Duke Energy Registrants are monitoring developments closely and responding appropriately. The company incurred approximately $112 million of incremental COVID-19 costs before deferral for the year ended December 31, 2020, included in Operation, maintenance and other on the Consolidated Statements of Operations. Further, the company waived approximately $64 million of late payment fees for the year ended December 31, 2020. The company has deferred approximately $76 million of the incremental costs, which were primarily bad debt expense, personal protective equipment and cleaning supplies, and a cost component of late payment fees. See Notes 3, 6, 17, 18 and 23 for additional information as well as steps taken to mitigate the impacts to our business and customers from the COVID-19 pandemic.
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 percent5% of total Current Assets or Current Liabilities on the Duke Energy Registrants' Consolidated Balance Sheets at either December 31, 2017,2020, or 2016.2019. | | | | | December 31, | | December 31, |
| (in millions) | Location | | 2017 |
| | 2016 |
| (in millions) | Location | | 2020 | | 2019 |
| Duke Energy | | | | | Duke Energy | |
| | Other accrued liabilities | | Other accrued liabilities | Current Liabilities | | $ | 1,455 | | | $ | 604 | |
| Accrued compensation | Current Liabilities | | $ | 757 |
| | $ | 765 |
| Accrued compensation | Current Liabilities | | 662 | | | 862 | |
| Duke Energy Carolinas | | | | | Duke Energy Carolinas | |
| Accrued compensation | Current Liabilities | | $ | 252 |
| | $ | 248 |
| Accrued compensation | Current Liabilities | | $ | 213 | | | $ | 271 | |
| Other accrued liabilities | | Other accrued liabilities | Current Liabilities | | 178 | | | 147 | |
| Progress Energy | | Progress Energy | | | | | |
| | Customer deposits | Current Liabilities | | 121 |
| | 155 |
| Customer deposits | Current Liabilities | | $ | 347 | | | $ | 354 | |
| Progress Energy | | | |
| | |
| |
| Income taxes receivable | Current Assets | | $ | 278 |
| | $ | 19 |
| |
| Customer deposits | Current Liabilities | | 338 |
| | 363 |
| |
| Duke Energy Progress | | | |
| | |
| |
| Customer deposits | Current Liabilities | | $ | 129 |
| | $ | 141 |
| |
| Accrued compensation | Current Liabilities | | 132 |
| | 135 |
| |
| | Duke Energy Florida | | | |
| | |
| Duke Energy Florida | | | | | |
| Customer deposits | Current Liabilities | | $ | 208 |
| | $ | 222 |
| Customer deposits | Current Liabilities | | $ | 203 | | | $ | 209 | |
| | Duke Energy Ohio | | | |
| | |
| Duke Energy Ohio | | | | | |
| Gas Storage | | Gas Storage | Current Assets | | $ | 21 | | | $ | 0 | |
| | Duke Energy Indiana | | Duke Energy Indiana | | | | | |
| Income taxes receivable | Current Assets | | $ | 36 |
| | $ | 16 |
| Income taxes receivable | Current Assets | | $ | 9 | | | $ | 44 | |
| Customer deposits | Current Liabilities | | 46 |
| | 62 |
| |
| Duke Energy Indiana | | | |
| | |
| |
| Customer deposits | Current Liabilities | | $ | 45 |
| | $ | 44 |
| |
| Piedmont | | | | | |
| Income taxes receivable | Current Assets | | $ | 43 |
| | $ | 9 |
| |
|
Discontinued Operations
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.
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 – (Continued)
Amounts Attributable to Controlling Interests
For the yearyears ended December 31, 2017,2020, 2019 and 2018, the LossIncome (Loss) From Discontinued Operations, net of tax on Duke Energy's Consolidated StatementStatements of Operations is entirely attributable to controlling interest.
Noncontrolling Interest
Duke Energy maintains a controlling financial interest in certain less than wholly owned nonregulated subsidiaries. As a result, Duke Energy consolidates these subsidiaries and presents the third-party investors' portion of Duke Energy's net income (loss), net assets and comprehensive income (loss) as noncontrolling interest. Noncontrolling interest is included as a component of equity on the Consolidated Balance Sheet.
Several operating agreements of Duke Energy's subsidiaries with noncontrolling interest are subject to allocations of tax attributes and cash flows in accordance with contractual agreements that vary throughout the lives of the subsidiaries. Therefore, Duke Energy and the other investors' (the owners) interests in the subsidiaries are not fixed, and the subsidiaries apply the HLBV method in allocating income or loss and other comprehensive income or loss (all measured on a pretax basis) to the owners. The HLBV method measures the amounts that each owner would hypothetically claim at each balance sheet reporting date, including tax benefits realized by the owners, most of which is over the IRS recapture period, upon a hypothetical liquidation of the subsidiary at the net book value of its underlying assets. The change in the amount that each owner would hypothetically receive at the reporting date compared to the amount it would have received on the previous reporting date represents the amount of income or loss allocated to each owner for the reporting period.
Other operating agreements of Duke Energy's subsidiaries with noncontrolling interest allocate profit and loss based on their pro rata shares of the ownership interest in the respective subsidiary. Therefore, Duke Energy allocates net income or loss and other comprehensive income or loss of these subsidiaries to the owners based on their pro rata shares.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
During the third quarter of 2019, Duke Energy completed a sale of minority interest in a portion of certain renewable assets within the Commercial Renewables Segment for pretax proceeds to Duke Energy of $415 million. The portion of Duke Energy's commercial renewables energy portfolio sold includes 49% of 37 operating wind, solar and battery storage assets and 33% of 11 operating solar assets across the U.S. Duke Energy retained control of these assets, and, therefore, no gain or loss was recognized on the Consolidated Statements of Operations. The difference between the consideration received and the carrying value of the noncontrolling interest claim on net assets is $466 million, net of tax benefit of $8 million, and was recorded to equity.
The following table presents
Net Income Attributablecash received for the sale of noncontrolling interest and allocated losses to
Duke Energy Corporation for continuing operations and discontinued operationsnoncontrolling interest for the years ended December 31,
2016,2020, and
2015.2019. |
| | | | | | |
| | Year ended December 31, |
| (in millions) | 2016 | 2015 |
| Income from Continuing Operations | $ | 2,578 |
| $ | 2,654 |
|
| Income from Continuing Operations Attributable to Noncontrolling Interests | 7 |
| 9 |
|
| Income from Continuing Operations Attributable to Duke Energy Corporation | $ | 2,571 |
| $ | 2,645 |
|
| (Loss) Income From Discontinued Operations, net of tax | $ | (408 | ) | $ | 177 |
|
| Income from Discontinued Operations Attributable to Noncontrolling Interests, net of tax | 11 |
| 6 |
|
| (Loss) Income From Discontinued Operations Attributable to Duke Energy Corporation, net of tax | $ | (419 | ) | $ | 171 |
|
| Net Income | $ | 2,170 |
| $ | 2,831 |
|
| Net Income Attributable to Noncontrolling Interests | 18 |
| 15 |
|
| Net Income Attributable to Duke Energy Corporation | $ | 2,152 |
| $ | 2,816 |
|
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2020 | | 2019 |
| Noncontrolling Interest Capital Contributions | | | |
| Cash received for the sale of noncontrolling interest to tax equity members | $ | 426 | | | $ | 428 | |
| Cash received for the sale of noncontrolling interest to pro rata share members | — | | | 415 | |
| Total Noncontrolling Interest Capital Contributions | $ | 426 | | | $ | 843 | |
| Noncontrolling Interest Allocation of Income | | | |
| Allocated losses to noncontrolling tax equity members utilizing the HLBV method | $ | 271 | | | $ | 165 | |
| Allocated losses to noncontrolling members based on pro rata shares of ownership | 24 | | | 12 | |
| Total Noncontrolling Interest Allocated Losses | $ | 295 | | | $ | 177 | |
2021 Sale of Minority Interest in Duke Energy Indiana
In January 2021, Duke Energy entered into a definitive agreement providing for the sale of a 19.9% minority interest in Duke Energy Indiana with an affiliate of GIC, Singapore's sovereign wealth fund and an experienced investor in U.S. infrastructure. To facilitate the transaction, Duke Energy will issue and sell membership interests in Duke Energy Indiana Holdco, LLC. a newly created holding company that will own 100% of the issued and outstanding membership interests in Duke Energy Indiana. The transaction will be completed following two closings for an aggregate purchase price of approximately $2 billion. The first closing is expected to be completed in the second quarter of 2021 and Duke Energy will issue and sell 11.1% of the membership interests in exchange for 50% of the purchase price. Under the terms of the agreement, Duke Energy has the discretion to determine the timing of the second closing, but it will occur no later than January 2023. At the second closing, Duke Energy will issue and sell additional membership interests such that GIC will own 19.9% of the membership interests for the remaining 50% of the purchase price. Duke Energy will continue to operate and retain control of Duke Energy Indiana and, therefore, no gain or loss is expected to be recognized in the Consolidated Statements of Operations. Additionally, the transaction will be reflected within Duke Energy Corporations' stockholders' equity as a sale of a noncontrolling interest.
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.
Significant Accounting Policies
Use of Estimates
In preparing financial statements that conform to generally accepted accounting principles (GAAP) in the U.S.,GAAP, 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. Regulatory assets are reviewed for recoverability each reporting period. If a regulatory asset is no longer deemed probable of recovery, the deferred cost is charged to earnings. See Note 43 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. 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. These disallowances can require judgments on allowed future rate recovery.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 charge 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).PGA clauses. 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 and Restricted Cash
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, RegistrantsProgress Energy and Duke Energy Florida have restricted cash balances related primarily to collateral assets, escrow deposits and variable interest entities (VIEs).VIEs. See Note 17 for additional information. Restricted cash balancesamounts are reflectedincluded in Other within Current Assets and in Other within Other Noncurrent Assets on the Consolidated Balance Sheets. At December 31, 2017,The following table presents the components of cash, cash equivalents and 2016, Duke Energy had restricted cash totaling $147 million and $137 million, respectively.included in the Consolidated Balance Sheets.
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 – (Continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| | | Duke | | | | Duke |
| Duke | Progress | Energy | | Duke | Progress | Energy |
| Energy | Energy | Florida | | Energy | Energy | Florida |
| Current Assets | | | | | | | |
| Cash and cash equivalents | $ | 259 | | $ | 59 | | $ | 11 | | | $ | 311 | | $ | 48 | | $ | 17 | |
| Other | 194 | | 39 | | 39 | | | 222 | | 39 | | 39 | |
| Other Noncurrent Assets | | | | | | | |
| Other | 103 | | 102 | | — | | | 40 | | 39 | | — | |
| Total cash, cash equivalents and restricted cash | $ | 556 | | $ | 200 | | $ | 50 | | | $ | 573 | | $ | 126 | | $ | 56 | |
| | | | | | | |
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 subsequentlyInventory is charged to expense or capitalized to property, plant and equipment when installed. Inventory, including excessissued, primarily using the average cost method. Excess or obsolete inventory is written-downwritten down to the lower of cost or marketnet realizable value. Once inventory has been written-down,written down, it creates a new cost basis for the inventory that is not subsequently written-up.written up. Provisions for inventory write-offs were not material at December 31, 2017,2020, and 2016.2019, respectively. The components of inventory are presented in the tables below. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
| Materials and supplies | $ | 2,293 |
| | $ | 744 |
| | $ | 1,118 |
| | $ | 774 |
| | $ | 343 |
| | $ | 82 |
| | $ | 309 |
| | $ | 2 |
|
| Coal | 603 |
| | 192 |
| | 255 |
| | 139 |
| | 116 |
| | 17 |
| | 139 |
| | — |
|
| Natural gas, oil and other | 354 |
| | 35 |
| | 219 |
| | 104 |
| | 115 |
| | 34 |
| | 2 |
| | 64 |
|
| Total inventory | $ | 3,250 |
| | $ | 971 |
| | $ | 1,592 |
| | $ | 1,017 |
| | $ | 574 |
| | $ | 133 |
| | $ | 450 |
| | $ | 66 |
|
| | | | December 31, 2016 | | December 31, 2020 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | | | | Duke | | Duke | | Duke | | Duke | | Duke | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | | | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Materials and supplies | $ | 2,374 |
| | $ | 767 |
| | $ | 1,167 |
| | $ | 813 |
| | $ | 354 |
| | $ | 84 |
| | $ | 312 |
| | $ | 1 |
| Materials and supplies | $ | 2,312 | | | $ | 785 | | | $ | 999 | | | $ | 673 | | | $ | 325 | | | $ | 78 | | | $ | 307 | | | $ | 12 | |
| Coal | 774 |
| | 251 |
| | 314 |
| | 148 |
| | 166 |
| | 19 |
| | 190 |
| | — |
| Coal | 561 | | | 186 | | | 193 | | | 131 | | | 63 | | | 16 | | | 165 | | | — | |
| Natural gas, oil and other | 374 |
| | 37 |
| | 236 |
| | 115 |
| | 121 |
| | 34 |
| | 2 |
| | 65 |
| Natural gas, oil and other | 294 | | | 39 | | | 183 | | | 107 | | | 76 | | | 16 | | | 1 | | | 56 | |
| Total inventory | $ | 3,522 |
| | $ | 1,055 |
| | $ | 1,717 |
| | $ | 1,076 |
| | $ | 641 |
| | $ | 137 |
| | $ | 504 |
| | $ | 66 |
| Total inventory | $ | 3,167 | | | $ | 1,010 | | | $ | 1,375 | | | $ | 911 | | | $ | 464 | | | $ | 110 | | | $ | 473 | | | $ | 68 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Materials and supplies | $ | 2,297 | | | $ | 768 | | | $ | 1,038 | | | $ | 686 | | | $ | 351 | | | $ | 79 | | | $ | 318 | | | $ | 5 | |
| Coal | 586 | | | 187 | | | 186 | | | 138 | | | 48 | | | 15 | | | 198 | | | — | |
| Natural gas, oil and other | 349 | | | 41 | | | 199 | | | 110 | | | 90 | | | 41 | | | 1 | | | 67 | |
| Total inventory | $ | 3,232 | | | $ | 996 | | | $ | 1,423 | | | $ | 934 | | | $ | 489 | | | $ | 135 | | | $ | 517 | | | $ | 72 | |
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Investments in Debt and Equity Securities
The Duke Energy Registrants classify investments into two categories – tradingin equity securities as FV-NI and available-for-sale.investments in debt securities as AFS. Both categories are recorded at fair value on the Consolidated Balance Sheets. Realized and unrealized gains and losses on trading securities classified as FV-NI are reported through net income. Unrealized gains and losses for debt securities classified as AFS are included in earnings.AOCI until realized, unless it is determined the carrying value of an investment has a credit loss. For certain investments of regulated operations, such as substantially all of the Nuclear Decommissioning Trust Funds (NDTF),NDTF, realized and unrealized gains and losses (including any other-than-temporary impairments (OTTIs))credit losses) on available-for-saledebt 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 theThe 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 operatinga business 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. See Note 11 for further information.
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.
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 – (Continued)
Renewable energy certificatesRECs are used to measure compliance with renewable energy standards and are held primarily for consumption. See Note 11 for further information.
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-downwritten down to its then-currentthen 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.
Equity Method Investment Impairments
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 whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. If 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.
Impairment assessments use a discounted cash flow income approach and include consideration of the severity and duration of any decline in the fair value of the investments. The estimated cash flows may be based on alternative expected outcomes that are probability weighted. Key inputs that involve estimates and significant management judgment include cash flow projections, selection of a discount rate, probability weighting of potential outcomes, and whether any decline in value is considered temporary.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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.
| | | | Years Ended December 31, | | Years Ended December 31, |
| | 2017 |
| | 2016 |
| | 2015 |
| | 2020 | | 2019 | | 2018 |
| Duke Energy | 2.8 | % | | 2.8 | % | | 2.9 | % | Duke Energy | 3.0 | % | | 3.1 | % | | 3.0 | % |
| Duke Energy Carolinas | 2.8 | % | | 2.8 | % | | 2.8 | % | Duke Energy Carolinas | 2.8 | % | | 2.8 | % | | 2.8 | % |
| Progress Energy | 2.6 | % | | 2.7 | % | | 2.6 | % | Progress Energy | 3.2 | % | | 3.1 | % | | 2.9 | % |
| Duke Energy Progress | 2.6 | % | | 2.6 | % | | 2.6 | % | Duke Energy Progress | 3.1 | % | | 3.1 | % | | 2.9 | % |
| Duke Energy Florida | 2.8 | % | | 2.8 | % | | 2.7 | % | Duke Energy Florida | 3.3 | % | | 3.1 | % | | 3.0 | % |
| Duke Energy Ohio | 2.8 | % | | 2.6 | % | | 2.7 | % | Duke Energy Ohio | 2.9 | % | | 2.6 | % | | 2.8 | % |
| Duke Energy Indiana | 3.0 | % | | 3.1 | % | | 3.0 | % | Duke Energy Indiana | 3.5 | % | | 3.3 | % | | 3.3 | % |
Piedmont(a) | 2.3 | % | | | | | |
| Piedmont | | Piedmont | 2.3 | % | | 2.4 | % | | 2.5 | % |
| |
(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 and any depreciation already recognized, is charged to accumulated depreciation. However, when it becomes 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 furtheradditional information.
Leases
Duke Energy determines if an arrangement is a lease at contract inception based on whether the arrangement involves the use of a physically distinct identified asset and whether Duke Energy has the right to obtain substantially all of the economic benefits from the use of the asset throughout the period as well as the right to direct the use of the asset. As a policy election, Duke Energy does not evaluate arrangements with initial contract terms of less than one year as leases.
Operating leases are included in Operating lease ROU assets, net, Other current liabilities and Operating lease liabilities on the Consolidated Balance Sheets. Finance leases are included in Property, plant and equipment, Current maturities of long-term debt and Long-Term Debt on the Consolidated Balance Sheets.
For lessee and lessor arrangements, Duke Energy has elected a policy to not separate lease and non-lease components for all asset classes. For lessor arrangements, lease and non-lease components are only combined under one arrangement and accounted for under the lease accounting framework if the non-lease components are not the predominant component of the arrangement and the lease component would be classified as an operating lease.
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).
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 – (Continued)
Sheets.
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.
Allowance for Funds Used During Construction and Interest Capitalized
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.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
AFUDC equity, a permanent difference for income taxes, reduces the effective tax rate (ETR)ETR when capitalized and increases the ETR when depreciated or amortized. See Note 2223 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.
Asset Retirement Obligations
Asset retirement obligations (AROs)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.probable of recovery.
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 decommissioningAccounts Payable
During 2020, Duke Energy established a supply chain finance program (the “program”) with a global financial institution. The program is voluntary and allows Duke Energy suppliers, at their sole discretion, to sell their receivables from Duke Energy to the financial institution at a rate that leverages Duke Energy’s credit rating and, which may result in favorable terms compared to the rate available to the supplier on their own credit rating. Suppliers participating in the program, determine at their sole discretion which invoices they will sell to the financial institution. Suppliers’ decisions on which invoices are sold do not impact Duke Energy’s payment terms, which are based on site-specific cost studies.commercial terms negotiated between Duke Energy Carolinas and the supplier regardless of program participation. The commercial terms negotiated between Duke Energy Progress assume prompt dismantlementand its suppliers are consistent regardless of whether the supplier elects to participate in the program. Duke Energy does not issue any guarantees with respect to the program and does not participate in negotiations between suppliers and the financial institution. Duke Energy does not have an economic interest in the supplier’s decision to participate in the program and receives no interest, fees or other benefit from the financial institution based on supplier participation in the program.
At December 31, 2020, $15 million, $1 million and $14 million of the nuclear facilities after operations are ceased.outstanding Accounts payable balance for 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,Ohio and Piedmont, respectively, was sold to the financial institution by our suppliers. Suppliers invoices sold to the financial institution under the program totaled $45 million, $9 million and $36 million for the year ended December 31, 2020, for Duke Energy, Progress and Duke Energy Florida also assume that spent fuel will be stored on-site until such time that it can be transferredOhio and Piedmont, respectively. All activity related to a yetamounts due to be built U.S. Departmentsuppliers who elected to participate in the program are included within Net cash provided by operating activities on the Consolidated Statements 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.Cash Flows.
Revenue Recognition
Duke Energy recognizes revenue as customers obtain control of promised goods and Unbilled Revenue
Revenues on salesservices in an amount that reflects consideration expected in exchange for those goods or services. Generally, the delivery of electricity and natural gas areresults in the transfer of control to customers at the time the commodity is delivered and the amount of revenue recognized when service is provided or the product is delivered. Unbilled revenues are recognized by applying customer billing ratesequal to the amount billed to each customer, including estimated volumes of energy or natural gas delivered butwhen billings have 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. |
| | | | | | | |
| | December 31, |
| (in millions) | 2017 |
| | 2016 |
|
| Duke Energy | $ | 944 |
| | $ | 831 |
|
| Duke Energy Carolinas | 342 |
| | 313 |
|
| Progress Energy | 228 |
| | 161 |
|
| Duke Energy Progress | 143 |
| | 102 |
|
| Duke Energy Florida | 85 |
| | 59 |
|
| Duke Energy Ohio | 4 |
| | 2 |
|
| Duke Energy Indiana | 21 |
| | 32 |
|
| Piedmont | 86 |
| | 77 |
|
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 – (Continued)
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.occurred. See Note 1718 for further information. These receivables for unbilled revenues are shown in the table below. |
| | | | | | | |
| | December 31, |
| (in millions) | 2017 |
| | 2016 |
|
| Duke Energy Ohio | $ | 104 |
| | $ | 97 |
|
| Duke Energy Indiana | 132 |
| | 123 |
|
Allowance for Doubtful Accounts
Allowances for doubtful accounts are presented in the following table. |
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
|
| Allowance for Doubtful Accounts | | | | | |
| Duke Energy | $ | 14 |
| | $ | 14 |
| | $ | 12 |
|
| Duke Energy Carolinas | 2 |
| | 2 |
| | 3 |
|
| Progress Energy | 4 |
| | 6 |
| | 6 |
|
| Duke Energy Progress | 1 |
| | 4 |
| | 4 |
|
| Duke Energy Florida | 3 |
| | 2 |
| | 2 |
|
| Duke Energy Ohio | 3 |
| | 2 |
| | 2 |
|
| Duke Energy Indiana | 2 |
| | 1 |
| | 1 |
|
Piedmont(a) | 2 |
| | 3 |
| | |
Allowance for Doubtful Accounts – VIEs | | | | | |
| Duke Energy | $ | 54 |
| | $ | 54 |
| | $ | 53 |
|
| Duke Energy Carolinas | 7 |
| | 7 |
| | 7 |
|
| Progress Energy | 7 |
| | 7 |
| | 8 |
|
| Duke Energy Progress | 5 |
| | 5 |
| | 5 |
|
| Duke Energy Florida | 2 |
| | 2 |
| | 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)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.
Captive Insurance ReservesNew 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.”
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | | | | | |
| 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 | |
| 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 | |
| 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 | |
| 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 | |
| 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 Ohio | |
| 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 Indiana | |
| 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 | |
| |
| Piedmont | |
| 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 | |
| | | | | |
| |
| Combined Notes to Consolidated Financial Statements | |
| Note 1 – Summary of Significant Accounting Policies | |
| |
| Note 2 – Business Segments | |
| Note 3 – Regulatory Matters | |
| Note 4 – Commitments and Contingencies | |
| Note 5 – Leases | |
| 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 – Revenue | |
| Note 19 – Stockholders' Equity | |
| Note 20 – Severance | |
| Note 21 – Stock-Based Compensation | |
| Note 22 – Employee Benefit Plans | |
| Note 23 – Income Taxes | |
| Note 24 – Other Income and Expenses, Net | |
| Note 25 – Subsequent Events | |
| |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Duke Energy has captive insuranceCorporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Corporation and subsidiaries that provide coverage,(the "Company") as of December 31, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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, 2020, 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 25, 2021, expressed an indemnity basis,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 Subsidiary RegistrantsCompany 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 certainevaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to regulation by federal and state utility regulatory agencies (the “Commissions”), which have jurisdiction with respect to the rates of the Company’s electric and natural gas distribution companies. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $14 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1947.
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions, except per share amounts) | 2020 | | 2019 | | 2018 |
| Operating Revenues | | | | | |
| Regulated electric | $ | 21,461 | | | $ | 22,615 | | | $ | 22,097 | |
| Regulated natural gas | 1,642 | | | 1,759 | | | 1,773 | |
| Nonregulated electric and other | 765 | | | 705 | | | 651 | |
| Total operating revenues | 23,868 | | | 25,079 | | | 24,521 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 6,051 | | | 6,826 | | | 6,831 | |
| Cost of natural gas | 460 | | | 627 | | | 697 | |
| Operation, maintenance and other | 5,788 | | | 6,066 | | | 6,463 | |
| Depreciation and amortization | 4,705 | | | 4,548 | | | 4,074 | |
| Property and other taxes | 1,337 | | | 1,307 | | | 1,280 | |
| Impairment charges | 984 | | | (8) | | | 402 | |
| Total operating expenses | 19,325 | | | 19,366 | | | 19,747 | |
| Gains (Losses) on Sales of Other Assets and Other, net | 10 | | | (4) | | | (89) | |
| Operating Income | 4,553 | | | 5,709 | | | 4,685 | |
| Other Income and Expenses | | | | | |
| Equity in (losses) earnings of unconsolidated affiliates | (2,005) | | | 162 | | | 83 | |
| | | | | |
| Other income and expenses, net | 453 | | | 430 | | | 399 | |
| Total other income and expenses | (1,552) | | | 592 | | | 482 | |
| Interest Expense | 2,162 | | | 2,204 | | | 2,094 | |
| Income From Continuing Operations Before Income Taxes | 839 | | | 4,097 | | | 3,073 | |
| Income Tax (Benefit) Expense From Continuing Operations | (236) | | | 519 | | | 448 | |
| Income From Continuing Operations | 1,075 | | | 3,578 | | | 2,625 | |
| Income (Loss) From Discontinued Operations, net of tax | 7 | | | (7) | | | 19 | |
| Net Income | 1,082 | | | 3,571 | | | 2,644 | |
| Add: Net Loss Attributable to Noncontrolling Interests | 295 | | | 177 | | | 22 | |
| Net Income Attributable to Duke Energy Corporation | 1,377 | | | 3,748 | | | 2,666 | |
| Less: Preferred Dividends | 107 | | | 41 | | | — | |
| Net Income Available to Duke Energy Corporation Common Stockholders | $ | 1,270 | | | $ | 3,707 | | | $ | 2,666 | |
| | | | | |
Earnings Per Share – Basic and Diluted | | | | | |
| Income from continuing operations available to Duke Energy Corporation common stockholders | | | | | |
| Basic and Diluted | $ | 1.71 | | | $ | 5.07 | | | $ | 3.73 | |
| | | | | |
| Income (Loss) from discontinued operations attributable to Duke Energy Corporation common stockholders | | | | | |
| Basic and Diluted | $ | 0.01 | | | $ | (0.01) | | | $ | 0.03 | |
| | | | | |
| Net income available to Duke Energy Corporation common stockholders | | | | | |
| Basic and Diluted | $ | 1.72 | | | $ | 5.06 | | | $ | 3.76 | |
| | | | | |
| Weighted average shares outstanding | | | | | |
| Basic | 737 | | | 729 | | | 708 | |
| Diluted | 738 | | | 729 | | | 708 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Net Income | $ | 1,082 | | | $ | 3,571 | | | $ | 2,644 | |
Other Comprehensive (Loss) Income, net of tax(a) | | | | | |
| | | | | |
| Pension and OPEB adjustments | 6 | | | 9 | | | (6) | |
| Net unrealized losses on cash flow hedges | (138) | | | (47) | | | (10) | |
| Reclassification into earnings from cash flow hedges | 11 | | | 6 | | | 6 | |
| Unrealized gains (losses) on available-for-sale securities | 3 | | | 8 | | | (3) | |
| | | | | |
| Other Comprehensive Loss, net of tax | (118) | | | (24) | | | (13) | |
| Comprehensive Income | 964 | | | 3,547 | | | 2,631 | |
| Add: Comprehensive Loss Attributable to Noncontrolling Interests | 306 | | | 177 | | | 22 | |
| Comprehensive Income Attributable to Duke Energy Corporation | 1,270 | | | 3,724 | | | 2,653 | |
| Less: Preferred Dividends | 107 | | | 41 | | | — | |
| Comprehensive Income Available to Duke Energy Corporation Common Stockholders | $ | 1,163 | | | $ | 3,683 | | | $ | 2,653 | |
(a) Net of income tax impacts of approximately $35 million for the year ended December 31, 2020. Tax impacts are immaterial for other periods presented.
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 259 | | | $ | 311 | |
| | | |
| Receivables (net of allowance for doubtful accounts of $29 at 2020 and $22 at 2019) | 1,009 | | | 1,066 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $117 at 2020 and $54 at 2019) | 2,144 | | | 1,994 | |
| Inventory | 3,167 | | | 3,232 | |
| | | |
| Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 1,641 | | | 1,796 | |
| Other (includes $296 at 2020 and $242 at 2019 related to VIEs) | 462 | | | 764 | |
| Total current assets | 8,682 | | | 9,163 | |
| Property, Plant and Equipment | | | |
| Cost | 155,580 | | | 147,654 | |
| Accumulated depreciation and amortization | (48,827) | | | (45,773) | |
| Generation facilities to be retired, net | 29 | | | 246 | |
| Net property, plant and equipment | 106,782 | | | 102,127 | |
| Other Noncurrent Assets | | | |
| Goodwill | 19,303 | | | 19,303 | |
| Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 12,421 | | | 13,222 | |
| Nuclear decommissioning trust funds | 9,114 | | | 8,140 | |
| Operating lease right-of-use assets, net | 1,524 | | | 1,658 | |
| Investments in equity method unconsolidated affiliates | 961 | | | 1,936 | |
| | | |
| Other (includes $81 at 2020 and $110 at 2019 related to VIEs) | 3,601 | | | 3,289 | |
| Total other noncurrent assets | 46,924 | | | 47,548 | |
| Total Assets | $ | 162,388 | | | $ | 158,838 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 3,144 | | | $ | 3,487 | |
| Notes payable and commercial paper | 2,873 | | | 3,135 | |
| Taxes accrued | 482 | | | 392 | |
| Interest accrued | 537 | | | 565 | |
| Current maturities of long-term debt (includes $472 at 2020 and $216 at 2019 related to VIEs) | 4,238 | | | 3,141 | |
| | | |
| Asset retirement obligations | 718 | | | 881 | |
| Regulatory liabilities | 1,377 | | | 784 | |
| Other | 2,936 | | | 2,367 | |
| Total current liabilities | 16,305 | | | 14,752 | |
| Long-Term Debt (includes $3,535 at 2020 and $3,997 at 2019 related to VIEs) | 55,625 | | | 54,985 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 9,244 | | | 8,878 | |
| Asset retirement obligations | 12,286 | | | 12,437 | |
| Regulatory liabilities | 15,029 | | | 15,264 | |
| Operating lease liabilities | 1,340 | | | 1,432 | |
| Accrued pension and other post-retirement benefit costs | 969 | | | 934 | |
| Investment tax credits | 687 | | | 624 | |
| | | |
| Other (includes $316 at 2020 and $228 at 2019 related to VIEs) | 1,719 | | | 1,581 | |
| Total other noncurrent liabilities | 41,274 | | | 41,150 | |
| Commitments and Contingencies | 0 | | 0 |
| | | |
| Equity | | | |
| Preferred stock, Series A, $0.001 par value, 40 million depositary shares authorized and outstanding at 2020 and 2019 | 973 | | | 973 | |
| Preferred stock, Series B, $0.001 par value, 1 million shares authorized and outstanding at 2020 and 2019 | 989 | | | 989 | |
| Common stock, $0.001 par value, 2 billion shares authorized; 769 million shares outstanding at 2020 and 733 million shares outstanding at 2019 | 1 | | | 1 | |
| Additional paid-in capital | 43,767 | | | 40,881 | |
| Retained earnings | 2,471 | | | 4,108 | |
| Accumulated other comprehensive loss | (237) | | | (130) | |
| Total Duke Energy Corporation stockholders' equity | 47,964 | | | 46,822 | |
| Noncontrolling interests | 1,220 | | | 1,129 | |
| Total equity | 49,184 | | | 47,951 | |
| Total Liabilities and Equity | $ | 162,388 | | | $ | 158,838 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 1,082 | | | $ | 3,571 | | | $ | 2,644 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization and accretion (including amortization of nuclear fuel) | 5,486 | | | 5,176 | | | 4,696 | |
| Equity in losses (earnings) of unconsolidated affiliates | 2,005 | | | (162) | | | (83) | |
| Equity component of AFUDC | (154) | | | (139) | | | (221) | |
| | | | | |
| | | | | |
| | | | | |
| (Gains) Losses on sales of other assets | (10) | | | 4 | | | 88 | |
| Impairment charges | 984 | | | (8) | | | 402 | |
| Deferred income taxes | 54 | | | 806 | | | 1,079 | |
| | | | | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (610) | | | (746) | | | (533) | |
| Payment for the disposal of other assets | — | | | — | | | (105) | |
| | | | | |
| Provision for rate refunds | (22) | | | 60 | | | 425 | |
| Refund of AMT credit carryforwards | 572 | | | 573 | | | — | |
| (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | 63 | | | (48) | | | 22 | |
| Receivables | (56) | | | 78 | | | (345) | |
| Inventory | 66 | | | (122) | | | 156 | |
| Other current assets | 205 | | | 10 | | | (721) | |
| Increase (decrease) in | | | | | |
| Accounts payable | (21) | | | (164) | | | 479 | |
| Taxes accrued | 117 | | | (224) | | | 23 | |
| Other current liabilities | (65) | | | 172 | | | 270 | |
| Other assets | (398) | | | (559) | | | (1,062) | |
| Other liabilities | (442) | | | (69) | | | (28) | |
| Net cash provided by operating activities | 8,856 | | | 8,209 | | | 7,186 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (9,907) | | | (11,122) | | | (9,389) | |
| Contributions to equity method investments | (370) | | | (324) | | | (416) | |
| | | | | |
| Return of investment capital | 133 | | | 11 | | | 137 | |
| Purchases of debt and equity securities | (8,011) | | | (3,348) | | | (3,762) | |
| Proceeds from sales and maturities of debt and equity securities | 7,949 | | | 3,343 | | | 3,747 | |
| | | | | |
| | | | | |
| Other | (398) | | | (517) | | | (377) | |
| Net cash used in investing activities | (10,604) | | | (11,957) | | | (10,060) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the: | | | | | |
| Issuance of long-term debt | 6,330 | | | 7,091 | | | 5,299 | |
| Issuance of preferred stock | — | | | 1,962 | | | — | |
| Issuance of common stock | 2,745 | | | 384 | | | 1,838 | |
| | | | | |
| Payments for the redemption of long-term debt | (4,506) | | | (3,476) | | | (2,906) | |
| Proceeds from the issuance of short-term debt with original maturities greater than 90 days | 3,009 | | | 397 | | | 472 | |
| Payments for the redemption of short-term debt with original maturities greater than 90 days | (2,147) | | | (479) | | | (282) | |
| Notes payable and commercial paper | (1,181) | | | (298) | | | 981 | |
| | | | | |
| Contributions from noncontrolling interests | 426 | | | 843 | | | 41 | |
| Dividends paid | (2,812) | | | (2,668) | | | (2,471) | |
| | | | | |
| Other | (133) | | | (26) | | | (12) | |
| Net cash provided by financing activities | 1,731 | | | 3,730 | | | 2,960 | |
| | | | | |
| Net (decrease) increase in cash, cash equivalents, and restricted cash | (17) | | | (18) | | | 86 | |
| Cash, cash equivalents, and restricted cash at beginning of period | 573 | | | 591 | | | 505 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 556 | | | $ | 573 | | | $ | 591 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 2,186 | | | $ | 2,195 | | | $ | 2,086 | |
| Cash received from income taxes | (585) | | | (651) | | | (266) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 1,116 | | | 1,356 | | | 1,112 | |
| Non-cash dividends | 110 | | | 108 | | | 107 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Duke Energy Corporation Stockholders'
Accumulated Other Comprehensive
Income (Loss) | | | | | | |
| | | | | | | | | | | | | | Net Unrealized | | | | Total | | | | |
| | | | | | | | | | | | Net | | Gains (Losses) | | | | Duke Energy | | | | |
| | Common | | | | Additional | | | | | | Losses on | | on Available- | | Pension and | | Corporation | | | | |
| Preferred | Stock | | Common | | Paid-in | | Retained | | | | Cash Flow | | for-Sale- | | OPEB | | Stockholders' | | Noncontrolling | | Total |
| (in millions) | Stock | Shares | | Stock | | Capital | | Earnings | | | | Hedges | | Securities | | Adjustments | | Equity | | Interests | | Equity |
| Balance at December 31, 2017 | $ | — | | 700 | | | $ | 1 | | | $ | 38,792 | | | $ | 3,013 | | | | | $ | (10) | | | $ | 12 | | | $ | (69) | | | $ | 41,739 | | | $ | (2) | | | $ | 41,737 | |
| Net income | — | | — | | | — | | | — | | | 2,666 | | | | | — | | | — | | | — | | | 2,666 | | | (22) | | | 2,644 | |
| Other comprehensive loss | — | | — | | | — | | | — | | | — | | | | | (4) | | | (3) | | | (6) | | | (13) | | | — | | | (13) | |
| Common stock issuances, including dividend reinvestment and employee benefits | — | | 27 | | | — | | | 2,003 | | | — | | | | | — | | | — | | | — | | | 2,003 | | | — | | | 2,003 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock dividends | — | | — | | | — | | | — | | | (2,578) | | | | | — | | | — | | | — | | | (2,578) | | | — | | | (2,578) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Distributions to noncontrolling interest in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
Other(a) | — | | — | | | — | | | — | | | 12 | | | | | — | | | (12) | | | — | | | — | | | 42 | | | 42 | |
| Balance at December 31, 2018 | $ | — | | 727 | | | $ | 1 | | | $ | 40,795 | | | $ | 3,113 | | | | | $ | (14) | | | $ | (3) | | | $ | (75) | | | $ | 43,817 | | | $ | 17 | | | $ | 43,834 | |
| Net income | — | | — | | | — | | | — | | | 3,707 | | | | | — | | | — | | | — | | | 3,707 | | | (177) | | | 3,530 | |
| Other comprehensive (loss) Income | — | | — | | | — | | | — | | | — | | | | | (41) | | | 8 | | | 9 | | | (24) | | | — | | | (24) | |
Preferred stock, Series A, issuances, net of issuance costs(b) | 973 | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 973 | | | — | | | 973 | |
Preferred stock, Series B, issuances, net of issuance costs(b) | 989 | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 989 | | | — | | | 989 | |
| Common stock issuances, including dividend reinvestment and employee benefits | — | | 6 | | | — | | | 552 | | | — | | | | | — | | | — | | | — | | | 552 | | | — | | | 552 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock dividends | — | | — | | | — | | | — | | | (2,735) | | | | | — | | | — | | | — | | | (2,735) | | | — | | | (2,735) | |
Sale of noncontrolling interest(c) | — | | — | | | — | | | (466) | | | — | | | | | 10 | | | — | | | — | | | (456) | | | 863 | | | 407 | |
Contribution from noncontrolling interest (f) | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | 428 | | | 428 | |
| Distributions to noncontrolling interest in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (4) | | | (4) | |
Other(d) | — | | — | | | — | | | — | | | 23 | | | | | (6) | | | (2) | | | (16) | | | (1) | | | 2 | | | 1 | |
| Balance at December 31, 2019 | $ | 1,962 | | 733 | | | $ | 1 | | | $ | 40,881 | | | $ | 4,108 | | | | | $ | (51) | | | $ | 3 | | | $ | (82) | | | $ | 46,822 | | | $ | 1,129 | | | $ | 47,951 | |
| Net income | — | | — | | | — | | | — | | | 1,270 | | | | | — | | | — | | | — | | | 1,270 | | | (295) | | | 975 | |
| Other comprehensive (loss) income | — | | — | | | — | | | — | | | — | | | | | (116) | | | 3 | | | 6 | | | (107) | | | (11) | | | (118) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock issuances, including dividend reinvestment and employee benefits | — | | 36 | | | — | | | 2,902 | | | — | | | | | — | | | — | | | — | | | 2,902 | | | — | | | 2,902 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock dividends | — | | — | | | — | | | — | | | (2,815) | | | | | — | | | — | | | — | | | (2,815) | | | — | | | (2,815) | |
| | | | | | | | | | | | | | | | | | | | | | |
Contribution from noncontrolling interest, net of transaction costs(f) | — | | — | | | — | | | (17) | | | — | | | | | — | | | — | | | — | | | (17) | | | 426 | | | 409 | |
| Distributions to noncontrolling interests in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (30) | | | (30) | |
Other(e) | — | | — | | | — | | | 1 | | | (92) | | | | | — | | | — | | | — | | | (91) | | | 1 | | | (90) | |
| Balance at December 31, 2020 | $ | 1,962 | | 769 | | | $ | 1 | | | $ | 43,767 | | | $ | 2,471 | | | | | $ | (167) | | | $ | 6 | | | $ | (76) | | | $ | 47,964 | | | $ | 1,220 | | | $ | 49,184 | |
(a) Amounts in Retained Earnings and AOCI represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information. Amount in Noncontrolling Interests primarily relates to tax equity financing activity in the Commercial Renewables segment.
(b) Duke Energy issued 40 million depositary shares of preferred stock, Series A, in the first quarter of 2019 and 1 million shares of preferred stock, Series B, in the third parties,quarter of 2019.
(c) See Note 1 for additional discussion of the transaction.
(d) Amounts in Retained Earnings and AOCI primarily represent impacts to accumulated other comprehensive income due to implementation of a new accounting standard related to Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
(e) Amounts in Retained earnings primarily represent impacts due to implementation of a new accounting standard related to Current Estimated Credit Losses. See Note 1 for additional discussion.
(f) Relates to tax equity financing activity in the Commercial Renewables segment.
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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 limitedtest basis, forevidence regarding the amounts and disclosures in the financial losses, primarily related to property, workers’ compensationstatements. Our audits also included evaluating the accounting principles used and general liability. Liabilities include provisions for estimated losses incurred but not yet reported (IBNR),significant estimates made by management, as well as estimated provisionsevaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for known claims. IBNR reserve estimatesour opinion.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are primarilymaterial to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission and by the South Carolina Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $3.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based upon historical loss experience, industry dataon an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other actuarial assumptions. Reserve estimates are adjustedpublicly available information to assess the likelihood of recovery in future periodsrates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as actual losses differapplicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from experience.management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
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
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are recognized when realization is deemed probable.probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1947.
PART II
DUKE ENERGY CORPORATION –
DUKE ENERGY CAROLINAS, LLC –
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 7,015 | | | $ | 7,395 | | | $ | 7,300 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 1,682 | | | 1,804 | | | 1,821 | |
| Operation, maintenance and other | 1,743 | | | 1,868 | | | 2,130 | |
| Depreciation and amortization | 1,462 | | | 1,388 | | | 1,201 | |
| Property and other taxes | 299 | | | 292 | | | 295 | |
| Impairment charges | 476 | | | 17 | | | 192 | |
| Total operating expenses | 5,662 | | | 5,369 | | | 5,639 | |
| Gains (Losses) on Sales of Other Assets and Other, net | 1 | | | — | | | (1) | |
| Operating Income | 1,354 | | | 2,026 | | | 1,660 | |
| Other Income and Expenses, net | 177 | | | 151 | | | 153 | |
| Interest Expense | 487 | | | 463 | | | 439 | |
| Income Before Income Taxes | 1,044 | | | 1,714 | | | 1,374 | |
| Income Tax Expense | 88 | | | 311 | | | 303 | |
| Net Income | $ | 956 | | | $ | 1,403 | | | $ | 1,071 | |
| Other Comprehensive Income, net of tax | | | | | |
| Reclassification into earnings from cash flow hedges | — | | | — | | | 1 | |
| | | | | |
| Other Comprehensive Income, net of tax | — | | | — | | | 1 | |
| Comprehensive Income | $ | 956 | | | $ | 1,403 | | | $ | 1,072 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | | | |
| | | December 31, |
| (in millions) | | 2020 | | 2019 |
| ASSETS | | | | |
| Current Assets | | | | |
| Cash and cash equivalents | | $ | 21 | | | $ | 18 | |
| Receivables (net of allowance for doubtful accounts of $1 at 2020 and $3 at 2019) | | 247 | | | 324 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $22 at 2020 and $7 at 2019) | | 696 | | | 642 | |
| Receivables from affiliated companies | | 124 | | | 114 | |
| | | | |
| Inventory | | 1,010 | | | 996 | |
| Regulatory assets | | 473 | | | 550 | |
| Other | | 20 | | | 21 | |
| Total current assets | | 2,591 | | | 2,665 | |
| Property, Plant and Equipment | | | | |
| Cost | | 50,640 | | | 48,922 | |
| Accumulated depreciation and amortization | | (17,453) | | | (16,525) | |
| | | | |
| Net property, plant and equipment | | 33,187 | | | 32,397 | |
| Other Noncurrent Assets | | | | |
| | | | |
| Regulatory assets | | 2,996 | | | 3,360 | |
| Nuclear decommissioning trust funds | | 4,977 | | | 4,359 | |
| Operating lease right-of-use assets, net | | 110 | | | 123 | |
| Other | | 1,187 | | | 1,149 | |
| Total other noncurrent assets | | 9,270 | | | 8,991 | |
| Total Assets | | $ | 45,048 | | | $ | 44,053 | |
| LIABILITIES AND EQUITY | | | | |
| Current Liabilities | | | | |
| Accounts payable | | $ | 1,000 | | | $ | 954 | |
| Accounts payable to affiliated companies | | 199 | | | 210 | |
| Notes payable to affiliated companies | | 506 | | | 29 | |
| Taxes accrued | | 76 | | | 46 | |
| Interest accrued | | 117 | | | 115 | |
| Current maturities of long-term debt | | 506 | | | 458 | |
| Asset retirement obligations | | 264 | | | 206 | |
| Regulatory liabilities | | 473 | | | 255 | |
| Other | | 546 | | | 611 | |
| Total current liabilities | | 3,687 | | | 2,884 | |
| Long-Term Debt | | 11,412 | | | 11,142 | |
| Long-Term Debt Payable to Affiliated Companies | | 300 | | | 300 | |
| Other Noncurrent Liabilities | | | | |
| Deferred income taxes | | 3,842 | | | 3,921 | |
| Asset retirement obligations | | 5,086 | | | 5,528 | |
| Regulatory liabilities | | 6,535 | | | 6,423 | |
| Operating lease liabilities | | 97 | | | 102 | |
| Accrued pension and other post-retirement benefit costs | | 73 | | | 84 | |
| Investment tax credits | | 236 | | | 231 | |
| Other | | 626 | | | 627 | |
| Total other noncurrent liabilities | | 16,495 | | | 16,916 | |
| Commitments and Contingencies | | 0 | | 0 |
| Equity | | | | |
| Member's equity | | 13,161 | | | 12,818 | |
| Accumulated other comprehensive loss | | (7) | | | (7) | |
| Total equity | | 13,154 | | | 12,811 | |
| Total Liabilities and Equity | | $ | 45,048 | | | $ | 44,053 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 956 | | | $ | 1,403 | | | $ | 1,071 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization (including amortization of nuclear fuel) | 1,731 | | | 1,671 | | | 1,487 | |
| Equity component of AFUDC | (62) | | | (42) | | | (73) | |
| | | | | |
| | | | | |
| | | | | |
| (Gains) Losses on sales of other assets | (1) | | | — | | | 1 | |
| Impairment charges | 476 | | | 17 | | | 192 | |
| Deferred income taxes | (260) | | | 133 | | | 305 | |
| | | | | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (162) | | | (278) | | | (230) | |
| Provision for rate refunds | (5) | | | 36 | | | 182 | |
| (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | (4) | | | (8) | | | 2 | |
| Receivables | 52 | | | (21) | | | (86) | |
| Receivables from affiliated companies | (10) | | | 68 | | | (87) | |
| Inventory | (14) | | | (48) | | | 25 | |
| Other current assets | 209 | | | (73) | | | (161) | |
| Increase (decrease) in | | | | | |
| Accounts payable | 55 | | | (50) | | | 168 | |
| Accounts payable to affiliated companies | (11) | | | (20) | | | 21 | |
| Taxes accrued | 30 | | | (127) | | | (65) | |
| Other current liabilities | (56) | | | 127 | | | 89 | |
| Other assets | (101) | | | (42) | | | (221) | |
| Other liabilities | (47) | | | (37) | | | (90) | |
| Net cash provided by operating activities | 2,776 | | | 2,709 | | | 2,530 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (2,669) | | | (2,714) | | | (2,706) | |
| Purchases of debt and equity securities | (1,602) | | | (1,658) | | | (1,810) | |
| Proceeds from sales and maturities of debt and equity securities | 1,602 | | | 1,658 | | | 1,810 | |
| | | | | |
| | | | | |
| Other | (164) | | | (204) | | | (147) | |
| Net cash used in investing activities | (2,833) | | | (2,918) | | | (2,853) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 998 | | | 886 | | | 1,983 | |
| Payments for the redemption of long-term debt | (813) | | | (6) | | | (1,205) | |
| Notes payable to affiliated companies | 477 | | | (410) | | | 335 | |
| Distributions to parent | (600) | | | (275) | | | (750) | |
| Other | (2) | | | (1) | | | (23) | |
| Net cash provided by financing activities | 60 | | | 194 | | | 340 | |
| Net increase (decrease) in cash and cash equivalents | 3 | | | (15) | | | 17 | |
| Cash and cash equivalents at beginning of period | 18 | | | 33 | | | 16 | |
| Cash and cash equivalents at end of period | $ | 21 | | | $ | 18 | | | $ | 33 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 481 | | | $ | 433 | | | $ | 452 | |
| Cash paid for income taxes | 321 | | | 122 | | | 89 | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 365 | | | 347 | | | 302 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | |
| | | Accumulated Other | | |
| | | | Comprehensive | | |
| | | Loss | | | | |
| | | Net Gains | | | | |
| | | (Losses) on | | | | |
| Member's | | Cash Flow | | | | Total |
| (in millions) | Equity | | Hedges | | | | Equity |
| Balance at December 31, 2017 | $ | 11,368 | | | $ | (7) | | | | | $ | 11,361 | |
| Net income | 1,071 | | | — | | | | | 1,071 | |
| Other comprehensive income | — | | | 1 | | | | | 1 | |
| Distributions to parent | (750) | | | — | | | | | (750) | |
| | | | | | | |
| Balance at December 31, 2018 | $ | 11,689 | | | $ | (6) | | | | | $ | 11,683 | |
| Net income | 1,403 | | | — | | | | | 1,403 | |
| | | | | | | |
| Distributions to parent | (275) | | | — | | | | | (275) | |
| Other | 1 | | | (1) | | | | | 0 | |
| Balance at December 31, 2019 | $ | 12,818 | | | $ | (7) | | | | | $ | 12,811 | |
| Net income | 956 | | | — | | | | | 956 | |
| | | | | | | |
| Distributions to parent | (600) | | | — | | | | | (600) | |
Other(a) | (13) | | | — | | | | | (13) | |
| Balance at December 31, 2020 | $ | 13,161 | | | $ | (7) | | | | | $ | 13,154 | |
(a) Amounts primarily represent impacts due to implementation of a new accounting standard related to Credit Losses. See Note 1 for additional discussion.
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission, South Carolina Public Service Commission and Florida Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $6.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1930.
PROGRESS ENERGY, INC. –
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 10,627 | | | $ | 11,202 | | | $ | 10,728 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 3,479 | | | 4,024 | | | 3,976 | |
| Operation, maintenance and other | 2,479 | | | 2,495 | | | 2,613 | |
| Depreciation and amortization | 1,818 | | | 1,845 | | | 1,619 | |
| Property and other taxes | 545 | | | 561 | | | 529 | |
| Impairment charges | 495 | | | (24) | | | 87 | |
| Total operating expenses | 8,816 | | | 8,901 | | | 8,824 | |
| Gains on Sales of Other Assets and Other, net | 9 | | | — | | | 24 | |
| Operating Income | 1,820 | | | 2,301 | | | 1,928 | |
| Other Income and Expenses, net | 129 | | | 141 | | | 165 | |
| Interest Expense | 790 | | | 862 | | | 842 | |
| Income Before Income Taxes | 1,159 | | | 1,580 | | | 1,251 | |
| Income Tax Expense | 113 | | | 253 | | | 218 | |
| | | | | |
| | | | | |
| Net Income | 1,046 | | | 1,327 | | | 1,033 | |
| Less: Net Income Attributable to Noncontrolling Interests | 1 | | | — | | | 6 | |
| Net Income Attributable to Parent | $ | 1,045 | | | $ | 1,327 | | | $ | 1,027 | |
| | | | | |
| Net Income | $ | 1,046 | | | $ | 1,327 | | | $ | 1,033 | |
| Other Comprehensive Income, net of tax | | | | | |
| Pension and OPEB adjustments | (1) | | | 2 | | | 5 | |
| Net unrealized gain on cash flow hedges | 5 | | | 5 | | | 6 | |
| | | | | |
| | | | | |
| Unrealized (losses) gains on available-for-sale securities | (1) | | | 1 | | | (1) | |
| | | | | |
| Other Comprehensive Income, net of tax | 3 | | | 8 | | | 10 | |
| Comprehensive Income | 1,049 | | | 1,335 | | | 1,043 | |
| Less: Comprehensive Income Attributable to Noncontrolling Interests | 1 | | | — | | | 6 | |
| Comprehensive Income Attributable to Parent | $ | 1,048 | | | $ | 1,335 | | | $ | 1,037 | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 59 | | | $ | 48 | |
| Receivables (net of allowance for doubtful accounts of $8 at 2020 and $7 at 2019) | 228 | | | 220 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $29 at 2020 and $9 at 2019) | 901 | | | 830 | |
| Receivables from affiliated companies | 157 | | | 76 | |
| Notes receivable from affiliated companies | — | | | 164 | |
| Inventory | 1,375 | | | 1,423 | |
| Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 758 | | | 946 | |
| Other (includes $39 at 2020 and 2019 related to VIEs) | 109 | | | 210 | |
| Total current assets | 3,587 | | | 3,917 | |
| Property, Plant and Equipment | | | |
| Cost | 57,892 | | | 55,070 | |
| Accumulated depreciation and amortization | (18,368) | | | (17,159) | |
| Generation facilities to be retired, net | 29 | | | 246 | |
| Net property, plant and equipment | 39,553 | | | 38,157 | |
| Other Noncurrent Assets | | | |
| Goodwill | 3,655 | | | 3,655 | |
| Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 5,775 | | | 6,346 | |
| Nuclear decommissioning trust funds | 4,137 | | | 3,782 | |
| Operating lease right-of-use assets, net | 690 | | | 788 | |
| Other | 1,227 | | | 1,049 | |
| Total other noncurrent assets | 15,484 | | | 15,620 | |
| Total Assets | $ | 58,624 | | | $ | 57,694 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 919 | | | $ | 1,104 | |
| Accounts payable to affiliated companies | 289 | | | 310 | |
| Notes payable to affiliated companies | 2,969 | | | 1,821 | |
| Taxes accrued | 121 | | | 46 | |
| Interest accrued | 202 | | | 228 | |
| Current maturities of long-term debt (includes $305 at 2020 and $54 at 2019 related to VIEs) | 1,426 | | | 1,577 | |
| Asset retirement obligations | 283 | | | 485 | |
| Regulatory liabilities | 640 | | | 330 | |
| Other | 793 | | | 902 | |
| Total current liabilities | 7,642 | | | 6,803 | |
| Long-Term Debt (includes $1,252 at 2020 and $1,632 at 2019 related to VIEs) | 17,688 | | | 17,907 | |
| Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 4,396 | | | 4,462 | |
| Asset retirement obligations | 5,866 | | | 5,986 | |
| Regulatory liabilities | 5,051 | | | 5,225 | |
| Operating lease liabilities | 623 | | | 697 | |
| Accrued pension and other post-retirement benefit costs | 505 | | | 488 | |
| Other | 462 | | | 383 | |
| Total other noncurrent liabilities | 16,903 | | | 17,241 | |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | |
| Common stock, $0.01 par value, 100 shares authorized and outstanding at 2020 and 2019 | — | | | — | |
| Additional paid-in capital | 9,143 | | | 9,143 | |
| Retained earnings | 7,109 | | | 6,465 | |
| Accumulated other comprehensive loss | (15) | | | (18) | |
| Total Progress Energy, Inc. stockholder's equity | 16,237 | | | 15,590 | |
| Noncontrolling interests | 4 | | | 3 | |
| Total equity | 16,241 | | | 15,593 | |
| Total Liabilities and Equity | $ | 58,624 | | | $ | 57,694 | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 1,046 | | | $ | 1,327 | | | $ | 1,033 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization and accretion (including amortization of nuclear fuel) | 2,327 | | | 2,207 | | | 1,987 | |
| Equity component of AFUDC | (42) | | | (66) | | | (104) | |
| | | | | |
| | | | | |
| | | | | |
| Gains on sales of other assets | (9) | | | — | | | (24) | |
| Impairment charges | 495 | | | (24) | | | 87 | |
| Deferred income taxes | (197) | | | 433 | | | 358 | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (384) | | | (412) | | | (230) | |
| | | | | |
| Provision for rate refunds | 2 | | | 15 | | | 122 | |
| (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | (9) | | | (34) | | | 18 | |
| Receivables | (69) | | | 47 | | | (207) | |
| Receivables from affiliated companies | (81) | | | 81 | | | (137) | |
| Inventory | 49 | | | 62 | | | 121 | |
| Other current assets | 223 | | | 184 | | | (12) | |
| Increase (decrease) in | | | | | |
| Accounts payable | (62) | | | (4) | | | 217 | |
| Accounts payable to affiliated companies | (21) | | | (50) | | | 109 | |
| Taxes accrued | 75 | | | (74) | | | 8 | |
| Other current liabilities | 139 | | | 25 | | | 129 | |
| Other assets | (128) | | | (341) | | | (896) | |
| Other liabilities | (177) | | | (167) | | | (35) | |
| Net cash provided by operating activities | 3,177 | | | 3,209 | | | 2,544 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (3,488) | | | (3,952) | | | (3,854) | |
| | | | | |
| Purchases of debt and equity securities | (5,998) | | | (1,511) | | | (1,753) | |
| Proceeds from sales and maturities of debt and equity securities | 6,010 | | | 1,504 | | | 1,769 | |
| | | | | |
| | | | | |
| | | | | |
| Notes receivable from affiliated companies | 164 | | | (164) | | | 240 | |
| | | | | |
| Other | (160) | | | (190) | | | (162) | |
| Net cash used in investing activities | (3,472) | | | (4,313) | | | (3,760) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 1,791 | | | 2,187 | | | 1,833 | |
| Payments for the redemption of long-term debt | (2,157) | | | (1,667) | | | (771) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Notes payable to affiliated companies | 1,148 | | | 586 | | | 430 | |
| | | | | |
| | | | | |
| | | | | |
| Dividends to parent | (400) | | | — | | | (250) | |
| Other | (13) | | | 12 | | | (1) | |
| Net cash provided by financing activities | 369 | | | 1,118 | | | 1,241 | |
| Net increase in cash, cash equivalents, and restricted cash | 74 | | | 14 | | | 25 | |
| Cash, cash equivalents, and restricted cash at beginning of period | 126 | | | 112 | | | 87 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 200 | | | $ | 126 | | | $ | 112 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 819 | | | $ | 892 | | | $ | 798 | |
| Cash paid for (received from) income taxes | 149 | | | (79) | | | (348) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 363 | | | 447 | | | 478 | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Accumulated Other Comprehensive Income (Loss) | | | | | | |
| | | | | | | Net Gains | | Net Unrealized | | | | Total Progress | | | | |
| | | Additional | | | | (Losses) on | | Gains (Losses) | | Pension and | | Energy, Inc. | | | | |
| | | Paid-in | | Retained | | Cash Flow | | on Available-for- | | OPEB | | Stockholder's | | Noncontrolling | | Total |
| (in millions) | | | Capital | | Earnings | | Hedges | | Sale Securities | | Adjustments | | Equity | | Interests | | Equity |
| Balance at December 31, 2017 | | | $ | 9,143 | | | $ | 4,350 | | | $ | (18) | | | $ | 5 | | | $ | (12) | | | $ | 13,468 | | | $ | (3) | | | $ | 13,465 | |
| Net income | | | — | | | 1,027 | | | — | | | — | | | — | | | 1,027 | | | 6 | | | 1,033 | |
| Other comprehensive income (loss) | | | — | | | — | | | 6 | | | (1) | | | 5 | | | 10 | | | — | | | 10 | |
| | | | | | | | | | | | | | | | | |
| Distributions to noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
| | | | | | | | | | | | | | | | | |
| Dividends to parent | | | — | | | (250) | | | — | | | — | | | — | | | (250) | | | — | | | (250) | |
| | | | | | | | | | | | | | | | | |
Other(a) | | | — | | | 4 | | | — | | | (5) | | | — | | | (1) | | | 1 | | | 0 | |
| Balance at December 31, 2018 | | | $ | 9,143 | | | $ | 5,131 | | | $ | (12) | | | $ | (1) | | | $ | (7) | | | $ | 14,254 | | | $ | 3 | | | $ | 14,257 | |
| Net income | | | — | | | 1,327 | | | — | | | — | | | — | | | 1,327 | | | — | | | 1,327 | |
| Other comprehensive income | | | — | | | — | | | 5 | | | 1 | | | 2 | | | 8 | | | — | | | 8 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Other(b) | | | — | | | 7 | | | (3) | | | (1) | | | (2) | | | 1 | | | — | | | 1 | |
| Balance at December 31, 2019 | | | $ | 9,143 | | | $ | 6,465 | | | $ | (10) | | | $ | (1) | | | $ | (7) | | | $ | 15,590 | | | $ | 3 | | | $ | 15,593 | |
| Net income | | | — | | | 1,045 | | | — | | | — | | | — | | | 1,045 | | | 1 | | | 1,046 | |
| Other comprehensive income (loss) | | | — | | | — | | | 5 | | | (1) | | | (1) | | | 3 | | | — | | | 3 | |
| | | | | | | | | | | | | | | | | |
| Dividends to parent | | | — | | | (400) | | | — | | | — | | | — | | | (400) | | | — | | | (400) | |
| | | | | | | | | | | | | | | | | |
| Other | | | — | | | (1) | | | — | | | — | | | — | | | (1) | | | — | | | (1) | |
| Balance at December 31, 2020 | | | $ | 9,143 | | | $ | 7,109 | | | $ | (5) | | | $ | (2) | | | $ | (8) | | | $ | 16,237 | | | $ | 4 | | | $ | 16,241 | |
(a) Amounts in Retained Earnings and AOCI represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information.
(b) Amounts in Retained Earnings and AOCI primarily represent impacts to accumulated other comprehensive income due to implementation of a new accounting standard related to Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission and by the South Carolina Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $4.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1930.
DUKE ENERGY PROGRESS, LLC –
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 5,422 | | | $ | 5,957 | | | $ | 5,699 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 1,743 | | | 2,012 | | | 1,892 | |
| Operation, maintenance and other | 1,332 | | | 1,446 | | | 1,578 | |
| Depreciation and amortization | 1,116 | | | 1,143 | | | 991 | |
| Property and other taxes | 167 | | | 176 | | | 155 | |
| Impairment charges | 499 | | | 12 | | | 33 | |
| Total operating expenses | 4,857 | | | 4,789 | | | 4,649 | |
| Gains on Sales of Other Assets and Other, net | 8 | | | — | | | 9 | |
| Operating Income | 573 | | | 1,168 | | | 1,059 | |
| Other Income and Expenses, net | 75 | | | 100 | | | 87 | |
| Interest Expense | 269 | | | 306 | | | 319 | |
| Income Before Income Taxes | 379 | | | 962 | | | 827 | |
| Income Tax (Benefit) Expense | (36) | | | 157 | | | 160 | |
| Net Income and Comprehensive Income | $ | 415 | | | $ | 805 | | | $ | 667 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 39 | | | $ | 22 | |
| Receivables (net of allowance for doubtful accounts of $4 at 2020 and $3 at 2019) | 132 | | | 123 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $19 at 2020 and $5 at 2019) | 500 | | | 489 | |
| Receivables from affiliated companies | 50 | | | 52 | |
| | | |
| Inventory | 911 | | | 934 | |
| Regulatory assets | 492 | | | 526 | |
| Other | 60 | | | 60 | |
| Total current assets | 2,184 | | | 2,206 | |
| Property, Plant and Equipment | | | |
| Cost | 35,759 | | | 34,603 | |
| Accumulated depreciation and amortization | (12,801) | | | (11,915) | |
| Generation facilities to be retired, net | 29 | | | 246 | |
| Net property, plant and equipment | 22,987 | | | 22,934 | |
| Other Noncurrent Assets | | | |
| Regulatory assets | 3,976 | | | 4,152 | |
| Nuclear decommissioning trust funds | 3,500 | | | 3,047 | |
| Operating lease right-of-use assets, net | 346 | | | 387 | |
| Other | 740 | | | 651 | |
| Total other noncurrent assets | 8,562 | | | 8,237 | |
| Total Assets | $ | 33,733 | | | $ | 33,377 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 454 | | | $ | 629 | |
| Accounts payable to affiliated companies | 215 | | | 203 | |
| Notes payable to affiliated companies | 295 | | | 66 | |
| Taxes accrued | 85 | | | 17 | |
| Interest accrued | 99 | | | 110 | |
| Current maturities of long-term debt | 603 | | | 1,006 | |
| Asset retirement obligations | 283 | | | 485 | |
| Regulatory liabilities | 530 | | | 236 | |
| Other | 411 | | | 478 | |
| Total current liabilities | 2,975 | | | 3,230 | |
| Long-Term Debt | 8,505 | | | 7,902 | |
| Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 2,298 | | | 2,388 | |
| Asset retirement obligations | 5,352 | | | 5,408 | |
| Regulatory liabilities | 4,394 | | | 4,232 | |
| Operating lease liabilities | 323 | | | 354 | |
| Accrued pension and other post-retirement benefit costs | 242 | | | 238 | |
| Investment tax credits | 132 | | | 137 | |
| Other | 102 | | | 92 | |
| Total other noncurrent liabilities | 12,843 | | | 12,849 | |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | |
| Member's Equity | 9,260 | | | 9,246 | |
| | | |
| | | |
| | | |
| Total Liabilities and Equity | $ | 33,733 | | | $ | 33,377 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 415 | | | $ | 805 | | | $ | 667 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization (including amortization of nuclear fuel) | 1,299 | | | 1,329 | | | 1,183 | |
| Equity component of AFUDC | (29) | | | (60) | | | (57) | |
| | | | | |
| | | | | |
| | | | | |
| Gains on sales of other assets | (8) | | | — | | | (9) | |
| Impairment charges | 499 | | | 12 | | | 33 | |
| Deferred income taxes | (234) | | | 197 | | | 236 | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (304) | | | (390) | | | (195) | |
| | | | | |
| Provisions for rate refunds | 2 | | | 12 | | | 122 | |
| (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | 1 | | | (6) | | | 5 | |
| Receivables | (4) | | | 21 | | | (107) | |
| Receivables from affiliated companies | 2 | | | (29) | | | (20) | |
| Inventory | 23 | | | 20 | | | 63 | |
| Other current assets | 98 | | | 101 | | | (201) | |
| Increase (decrease) in | | | | | |
| Accounts payable | (127) | | | 32 | | | 219 | |
| Accounts payable to affiliated companies | 12 | | | (75) | | | 99 | |
| Taxes accrued | 68 | | | (46) | | | (11) | |
| Other current liabilities | 157 | | | 68 | | | 46 | |
| Other assets | (207) | | | (205) | | | (465) | |
| Other liabilities | 3 | | | 37 | | | 20 | |
| Net cash provided by operating activities | 1,666 | | | 1,823 | | | 1,628 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (1,581) | | | (2,108) | | | (2,220) | |
| | | | | |
| Purchases of debt and equity securities | (1,555) | | | (842) | | | (1,236) | |
| Proceeds from sales and maturities of debt and equity securities | 1,516 | | | 810 | | | 1,206 | |
| | | | | |
| | | | | |
| | | | | |
| Other | (57) | | | (119) | | | (95) | |
| Net cash used in investing activities | (1,677) | | | (2,259) | | | (2,345) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 1,296 | | | 1,269 | | | 845 | |
| Payments for the redemption of long-term debt | (1,085) | | | (605) | | | (3) | |
| | | | | |
| Notes payable to affiliated companies | 229 | | | (228) | | | 54 | |
| | | | | |
| Distributions to parent | (400) | | | — | | | (175) | |
| | | | | |
| Other | (12) | | | (1) | | | (1) | |
| Net cash provided by financing activities | 28 | | | 435 | | | 720 | |
| Net increase (decrease) in cash and cash equivalents | 17 | | | (1) | | | 3 | |
| Cash and cash equivalents at beginning of period | 22 | | | 23 | | | 20 | |
| Cash and cash equivalents at end of period | $ | 39 | | | $ | 22 | | | $ | 23 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 301 | | | $ | 331 | | | $ | 303 | |
| Cash paid for (received from) income taxes | 123 | | | (30) | | | (112) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 149 | | | 175 | | | 220 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | |
| | | | | Member's | | | | |
| (in millions) | | | | | Equity | | | | |
| Balance at December 31, 2017 | | | | | $ | 7,949 | | | | | |
| Net income | | | | | 667 | | | | | |
| Distribution to parent | | | | | (175) | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2018 | | | | | $ | 8,441 | | | | | |
| Net income | | | | | 805 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2019 | | | | | $ | 9,246 | | | | | |
| Net income | | | | | 415 | | | | | |
| Distribution to parent | | | | | (400) | | | | | |
| | | | | | | | | |
| Other | | | | | (1) | | | | | |
| Balance at December 31, 2020 | | | | | $ | 9,260 | | | | | |
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Florida Public Service Commission (the “Commission”), which has jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $2.1 billion recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commission; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commission, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commission, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commission’s treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commission, including the settlement agreement filed with the Commission subsequent to December 31, 2020, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 2001.
DUKE ENERGY FLORIDA, LLC –
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 5,188 | | | $ | 5,231 | | | $ | 5,021 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 1,737 | | | 2,012 | | | 2,085 | |
| Operation, maintenance and other | 1,131 | | | 1,034 | | | 1,025 | |
| Depreciation and amortization | 702 | | | 702 | | | 628 | |
| Property and other taxes | 381 | | | 392 | | | 374 | |
| Impairment charges | (4) | | | (36) | | | 54 | |
| Total operating expenses | 3,947 | | | 4,104 | | | 4,166 | |
| Gains on Sales of Other Assets and Other, net | 1 | | | — | | | 1 | |
| Operating Income | 1,242 | | | 1,127 | | | 856 | |
| Other Income and Expenses, net | 53 | | | 48 | | | 86 | |
| Interest Expense | 326 | | | 328 | | | 287 | |
| Income Before Income Taxes | 969 | | | 847 | | | 655 | |
| Income Tax Expense | 198 | | | 155 | | | 101 | |
| Net Income | $ | 771 | | | $ | 692 | | | $ | 554 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other Comprehensive Income (Loss), net of tax | | | | | |
| Unrealized (losses) gains on available-for-sale securities | (1) | | | 1 | | | (1) | |
| | | | | |
| | | | | |
| Other Comprehensive (Loss) Income, net of tax | (1) | | | 1 | | | (1) | |
| Comprehensive Income | $ | 770 | | | $ | 693 | | | $ | 553 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 11 | | | $ | 17 | |
| Receivables (net of allowance for doubtful accounts of $4 at 2020 and $3 at 2019) | 94 | | | 96 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $10 at 2020 and $4 at 2019) | 401 | | | 341 | |
| Receivables from affiliated companies | 3 | | | — | |
| Notes receivable from affiliated companies | — | | | 173 | |
| Inventory | 464 | | | 489 | |
| Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 265 | | | 419 | |
| Other (includes $39 at 2020 and 2019 related to VIEs) | 41 | | | 58 | |
| Total current assets | 1,279 | | | 1,593 | |
| Property, Plant and Equipment | | | |
| Cost | 22,123 | | | 20,457 | |
| Accumulated depreciation and amortization | (5,560) | | | (5,236) | |
| Net property, plant and equipment | 16,563 | | | 15,221 | |
| Other Noncurrent Assets | | | |
| | | |
| Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 1,799 | | | 2,194 | |
| Nuclear decommissioning trust funds | 637 | | | 734 | |
| Operating lease right-of-use assets, net | 344 | | | 401 | |
| Other | 335 | | | 311 | |
| Total other noncurrent assets | 3,115 | | | 3,640 | |
| Total Assets | $ | 20,957 | | | $ | 20,454 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 465 | | | $ | 474 | |
| Accounts payable to affiliated companies | 85 | | | 131 | |
| Notes payable to affiliated companies | 196 | | | — | |
| Taxes accrued | 82 | | | 43 | |
| Interest accrued | 69 | | | 75 | |
| Current maturities of long-term debt (includes $305 at 2020 and $54 at 2019 related to VIEs) | 823 | | | 571 | |
| | | |
| Regulatory liabilities | 110 | | | 94 | |
| Other | 374 | | | 415 | |
| Total current liabilities | 2,204 | | | 1,803 | |
| Long-Term Debt (includes $1,002 at 2020 and $1,307 at 2019 related to VIEs) | 7,092 | | | 7,416 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 2,191 | | | 2,179 | |
| | | |
| Asset retirement obligations | 514 | | | 578 | |
| Regulatory liabilities | 658 | | | 993 | |
| Operating lease liabilities | 300 | | | 343 | |
| Accrued pension and other post-retirement benefit costs | 231 | | | 218 | |
| | | |
| Other | 209 | | | 136 | |
| Total other noncurrent liabilities | 4,103 | | | 4,447 | |
| Commitments and Contingencies | 0 | | 0 |
| | | |
| Equity | | | |
| Member's equity | 7,560 | | | 6,789 | |
| | | |
| | | |
| Accumulated other comprehensive loss | (2) | | | (1) | |
| Total equity | 7,558 | | | 6,788 | |
| Total Liabilities and Equity | $ | 20,957 | | | $ | 20,454 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 771 | | | $ | 692 | | | $ | 554 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization and accretion | 1,019 | | | 869 | | | 793 | |
| Equity component of AFUDC | (12) | | | (6) | | | (47) | |
| | | | | |
| Gains on sales of other assets | (1) | | | — | | | (1) | |
| Impairment charges | (4) | | | (36) | | | 54 | |
| Deferred income taxes | 27 | | | 180 | | | 159 | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (80) | | | (22) | | | (35) | |
| (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | (14) | | | (33) | | | 7 | |
| Receivables | (64) | | | 26 | | | (100) | |
| Receivables from affiliated companies | (3) | | | 17 | | | (26) | |
| Inventory | 26 | | | 42 | | | 58 | |
| Other current assets | 40 | | | 156 | | | 59 | |
| Increase (decrease) in | | | | | |
| Accounts payable | 66 | | | (36) | | | (1) | |
| Accounts payable to affiliated companies | (46) | | | 40 | | | 17 | |
| Taxes accrued | 39 | | | (31) | | | 40 | |
| Other current liabilities | (7) | | | (36) | | | 82 | |
| Other assets | 85 | | | (131) | | | (429) | |
| Other liabilities | (181) | | | (213) | | | (75) | |
| Net cash provided by operating activities | 1,661 | | | 1,478 | | | 1,109 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (1,907) | | | (1,844) | | | (1,634) | |
| | | | | |
| Purchases of debt and equity securities | (4,443) | | | (669) | | | (517) | |
| Proceeds from sales and maturities of debt and equity securities | 4,495 | | | 695 | | | 563 | |
| | | | | |
| | | | | |
| Notes receivable from affiliated companies | 173 | | | (173) | | | 313 | |
| | | | | |
| Other | (103) | | | (67) | | | (65) | |
| Net cash used in investing activities | (1,785) | | | (2,058) | | | (1,340) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 495 | | | 918 | | | 988 | |
| Payments for the redemption of long-term debt | (572) | | | (262) | | | (769) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Notes payable to affiliated companies | 196 | | | (108) | | | 108 | |
| | | | | |
| Distribution to parent | — | | | — | | | (75) | |
| | | | | |
| Other | (1) | | | 13 | | | 1 | |
| Net cash provided by financing activities | 118 | | | 561 | | | 253 | |
| Net (decrease) increase in cash, cash equivalents, and restricted cash | (6) | | | (19) | | | 22 | |
| Cash, cash equivalents, and restricted cash at beginning of period | 56 | | | 75 | | | 53 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 50 | | | $ | 56 | | | $ | 75 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 321 | | | $ | 332 | | | $ | 270 | |
| Cash paid for (received from) income taxes | 138 | | | 1 | | | (120) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 214 | | | 272 | | | 258 | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Accumulated | | |
| | | | | | | Other | | |
| | | | | | | Comprehensive | | |
| | | | | | | Income (Loss) | | |
| | | | | | | Net Unrealized | | | | |
| | | | | | | Gains (Losses) on | | | | |
| | | | | | Member's | | Available-for- | | | | Total |
| (in millions) | | | | | Equity | | Sale Securities | | | | Equity |
| Balance at December 31, 2017 | | | | | $ | 5,614 | | | $ | 4 | | | | | $ | 5,618 | |
| Net income | | | | | 554 | | | — | | | | | 554 | |
| Other comprehensive loss | | | | | — | | | (1) | | | | | (1) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Distribution to parent | | | | | (75) | | | — | | | | | (75) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other(a) | | | | | 4 | | | (5) | | | | | (1) | |
| Balance at December 31, 2018 | | | | | $ | 6,097 | | | $ | (2) | | | | | $ | 6,095 | |
| Net income | | | | | 692 | | | — | | | | | 692 | |
| Other comprehensive income | | | | | — | | | 1 | | | | | 1 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balance at December 31, 2019 | | | | | $ | 6,789 | | | $ | (1) | | | | | $ | 6,788 | |
| Net income | | | | | 771 | | | — | | | | | 771 | |
| Other comprehensive loss | | | | | — | | | (1) | | | | | (1) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balance at December 31, 2020 | | | | | $ | 7,560 | | | $ | (2) | | | | | $ | 7,558 | |
(a) Amounts represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information.
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
CriticalAuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Public Utilities Commission of Ohio and by the Kentucky Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric and gas rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $650 million recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 2002.
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | | | | | |
| Regulated electric | $ | 1,405 | | | $ | 1,456 | | | $ | 1,450 | |
| Regulated natural gas | 453 | | | 484 | | | 506 | |
| Nonregulated electric and other | — | | | — | | | 1 | |
| Total operating revenues | 1,858 | | | 1,940 | | | 1,957 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power – regulated | 339 | | | 388 | | | 412 | |
| | | | | |
| Cost of natural gas | 73 | | | 95 | | | 113 | |
| Operation, maintenance and other | 463 | | | 520 | | | 480 | |
| Depreciation and amortization | 278 | | | 265 | | | 268 | |
| Property and other taxes | 324 | | | 308 | | | 290 | |
| | | | | |
| Total operating expenses | 1,477 | | | 1,576 | | | 1,563 | |
| Losses on Sales of Other Assets and Other, net | — | | | — | | | (106) | |
| Operating Income | 381 | | | 364 | | | 288 | |
| Other Income and Expenses, net | 16 | | | 24 | | | 23 | |
| Interest Expense | 102 | | | 109 | | | 92 | |
| Income From Continuing Operations Before Income Taxes | 295 | | | 279 | | | 219 | |
| Income Tax Expense From Continuing Operations | 43 | | | 40 | | | 43 | |
| Income From Continuing Operations | 252 | | | 239 | | | 176 | |
| Loss From Discontinued Operations, net of tax | — | | | (1) | | | — | |
| Net Income and Comprehensive Income | $ | 252 | | | $ | 238 | | | $ | 176 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 14 | | | $ | 17 | |
| Receivables (net of allowance for doubtful accounts of $4 at 2020 and $4 at 2019) | 98 | | | 84 | |
| Receivables from affiliated companies | 102 | | | 92 | |
| | | |
| Inventory | 110 | | | 135 | |
| | | |
| Regulatory assets | 39 | | | 49 | |
| Other | 31 | | | 21 | |
| Total current assets | 394 | | | 398 | |
| Property, Plant and Equipment | | | |
| Cost | 11,022 | | | 10,241 | |
| Accumulated depreciation and amortization | (3,013) | | | (2,843) | |
| | | |
| Net property, plant and equipment | 8,009 | | | 7,398 | |
| Other Noncurrent Assets | | | |
| Goodwill | 920 | | | 920 | |
| Regulatory assets | 610 | | | 549 | |
| Operating lease right-of-use assets, net | 20 | | | 21 | |
| | | |
| | | |
| | | |
| Other | 72 | | | 52 | |
| Total other noncurrent assets | 1,622 | | | 1,542 | |
| Total Assets | $ | 10,025 | | | $ | 9,338 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 279 | | | $ | 288 | |
| Accounts payable to affiliated companies | 68 | | | 68 | |
| Notes payable to affiliated companies | 169 | | | 312 | |
| Taxes accrued | 247 | | | 219 | |
| Interest accrued | 31 | | | 30 | |
| Current maturities of long-term debt | 50 | | | — | |
| | | |
| Asset retirement obligations | 3 | | | 1 | |
| Regulatory liabilities | 65 | | | 64 | |
| Other | 70 | | | 75 | |
| Total current liabilities | 982 | | | 1,057 | |
| Long-Term Debt | 3,014 | | | 2,594 | |
| Long-Term Debt Payable to Affiliated Companies | 25 | | | 25 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 981 | | | 922 | |
| Asset retirement obligations | 108 | | | 79 | |
| Regulatory liabilities | 748 | | | 763 | |
| Operating lease liabilities | 20 | | | 21 | |
| Accrued pension and other post-retirement benefit costs | 113 | | | 100 | |
| | | |
| | | |
| Other | 99 | | | 94 | |
| Total other noncurrent liabilities | 2,069 | | | 1,979 | |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | |
| Common stock, $8.50 par value, 120 million shares authorized; 90 million shares outstanding at 2020 and 2019 | 762 | | | 762 | |
| Additional paid-in capital | 2,776 | | | 2,776 | |
| Retained earnings | 397 | | | 145 | |
| | | |
| Total equity | 3,935 | | | 3,683 | |
| Total Liabilities and Equity | $ | 10,025 | | | $ | 9,338 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 252 | | | $ | 238 | | | $ | 176 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization and accretion | 283 | | | 269 | | | 271 | |
| Equity component of AFUDC | (7) | | | (13) | | | (11) | |
| Losses on sales of other assets | 0 | | | 0 | | | 106 | |
| | | | | |
| Deferred income taxes | 31 | | | 81 | | | 25 | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (2) | | | (8) | | | (3) | |
| Provision for rate refunds | 14 | | | 7 | | | 24 | |
| (Increase) decrease in | | | | | |
| | | | | |
| Receivables | (13) | | | 20 | | | (33) | |
| Receivables from affiliated companies | 9 | | | 22 | | | 19 | |
| Inventory | 25 | | | (9) | | | 7 | |
| Other current assets | (18) | | | (5) | | | 16 | |
| Increase (decrease) in | | | | | |
| Accounts payable | 2 | | | (17) | | | (19) | |
| Accounts payable to affiliated companies | 0 | | | (10) | | | 16 | |
| Taxes accrued | 30 | | | 17 | | | 12 | |
| Other current liabilities | 3 | | | 1 | | | 14 | |
| Other assets | (32) | | | (26) | | | (24) | |
| Other liabilities | (2) | | | (41) | | | (26) | |
| Net cash provided by operating activities | 575 | | | 526 | | | 570 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (834) | | | (952) | | | (827) | |
| | | | | |
| | | | | |
| Notes receivable from affiliated companies | (19) | | | — | | | 14 | |
| | | | | |
| Other | (48) | | | (68) | | | (89) | |
| Net cash used in investing activities | (901) | | | (1,020) | | | (902) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 467 | | | 1,003 | | | 99 | |
| Payments for the redemption of long-term debt | — | | | (551) | | | (3) | |
| Notes payable to affiliated companies | (144) | | | 38 | | | 245 | |
| | | | | |
| | | | | |
| Net cash provided by financing activities | 323 | | | 490 | | | 341 | |
| Net (decrease) increase in cash and cash equivalents | (3) | | | (4) | | | 9 | |
| Cash and cash equivalents at beginning of period | 17 | | | 21 | | | 12 | |
| Cash and cash equivalents at end of period | $ | 14 | | | $ | 17 | | | $ | 21 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 97 | | | $ | 97 | | | $ | 87 | |
| Cash received from income taxes | — | | | (37) | | | (6) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 104 | | | 109 | | | 95 | |
| Non-cash equity contribution from parent | — | | | — | | | 106 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | Additional | | Retained | | | | |
| Common | | Paid-in | | Earnings | | | | Total |
| (in millions) | Stock | | Capital | | (Deficit) | | | | Equity |
| Balance at December 31, 2017 | $ | 762 | | | $ | 2,670 | | | $ | (269) | | | | | $ | 3,163 | |
| Net income | — | | | — | | | 176 | | | | | 176 | |
| Contribution from parent | — | | | 106 | | | — | | | | | 106 | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2018 | $ | 762 | | | $ | 2,776 | | | $ | (93) | | | | | $ | 3,445 | |
| Net income | — | | | — | | | 238 | | | | | 238 | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2019 | $ | 762 | | | $ | 2,776 | | | $ | 145 | | | | | $ | 3,683 | |
| Net income | — | | | — | | | 252 | | | | | 252 | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2020 | $ | 762 | | | $ | 2,776 | | | $ | 397 | | | | | $ | 3,935 | |
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Indiana Utility Regulatory Commission (the “Commission”), which has jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $1.3 billion recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commission; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commission, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commission, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commission’s treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commission, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
Duke Energy Indiana Coal Ash Asset Retirement Obligations – Refer to Notes 3, 4, and 9 to the financial statements
Critical Audit Matter Description
Duke Energy Indiana has asset retirement obligations associated with coal ash impoundments at operating and retired coal generation facilities. These legal obligations are the result of Indiana state and federal regulations. There is significant judgment in determining the assumptions used in estimating the closure costs for each site since Duke Energy Indiana does not have approved closure plans for certain sites. Potential changes to the projected closure costs for each site as well as probability weightings for the cash flows associated with the different potential closure methods (“probability weightings”) creates estimation uncertainty. The liability for coal ash asset retirement obligations at Duke Energy Indiana was $1,140 million at December 31, 2020.
We identified the asset retirement obligations associated with coal ash impoundments at Duke Energy Indiana as a critical audit matter because of the significant management estimates and assumptions, including projected closure costs as well as the different potential closure methods. The audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to potential changes to the projected closure costs for each site as well as probability weightings for the cash flows associated with the different potential closure methods required a high degree of auditor judgment and an increased extent of effort, including the need to involve our environmental specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the underlying estimated closure costs for coal ash asset retirement obligations at Duke Energy Indiana included the following, among others:
•We tested the effectiveness of controls over management’s coal ash asset retirement obligation estimate, including those over management’s determination of the estimated closure costs and probability weightings.
•We evaluated management’s ability to accurately estimate future closure costs by comparing actual closure costs to management’s historical estimates.
•We tested the mathematical accuracy of management’s coal ash asset retirement obligation calculations, including the application of probability weightings.
•We made inquiries of internal and external legal counsel regarding the status of the legal matters associated with the probability weightings.
•We inspected the opinions from internal and external legal counsel supporting the probability weightings.
•We inspected the Company’s filings with and orders from the Indiana Department of Environmental Management, for evidence that might contradict management’s assertions regarding the estimated closure costs and probability weightings.
•With the assistance of our environmental specialists, we evaluated the reasonableness of management’s estimated closure costs by comparing the costs to actual costs incurred at comparable coal ash impoundments, underlying contracts, and publicly available industry cost data, as applicable.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 2002.
DUKE ENERGY INDIANA, LLC– LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 2,795 | | | $ | 3,004 | | | $ | 3,059 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 767 | | | 935 | | | 1,000 | |
| Operation, maintenance and other | 762 | | | 790 | | | 788 | |
| Depreciation and amortization | 569 | | | 525 | | | 520 | |
| Property and other taxes | 81 | | | 69 | | | 78 | |
| Impairment charges | — | | | — | | | 30 | |
| Total operating expenses | 2,179 | | | 2,319 | | | 2,416 | |
| | | | | |
| Operating Income | 616 | | | 685 | | | 643 | |
| Other Income and Expenses, net | 37 | | | 41 | | | 45 | |
| Interest Expense | 161 | | | 156 | | | 167 | |
| Income Before Income Taxes | 492 | | | 570 | | | 521 | |
| Income Tax Expense | 84 | | | 134 | | | 128 | |
| Net Income and Comprehensive Income | $ | 408 | | | $ | 436 | | | $ | 393 | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 7 | | | $ | 25 | |
| Receivables (net of allowance for doubtful accounts of $3 at 2020 and $3 at 2019) | 55 | | | 60 | |
| Receivables from affiliated companies | 112 | | | 79 | |
| | | |
| Inventory | 473 | | | 517 | |
| Regulatory assets | 125 | | | 90 | |
| Other | 37 | | | 60 | |
| Total current assets | 809 | | | 831 | |
| Property, Plant and Equipment | | | |
| Cost | 17,382 | | | 16,305 | |
| Accumulated depreciation and amortization | (5,661) | | | (5,233) | |
| | | |
| Net property, plant and equipment | 11,721 | | | 11,072 | |
| Other Noncurrent Assets | | | |
| Regulatory assets | 1,203 | | | 1,082 | |
| Operating lease right-of-use assets, net | 55 | | | 57 | |
| | | |
| Other | 253 | | | 234 | |
| Total other noncurrent assets | 1,511 | | | 1,373 | |
| Total Assets | $ | 14,041 | | | $ | 13,276 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 188 | | | $ | 201 | |
| Accounts payable to affiliated companies | 88 | | | 87 | |
| Notes payable to affiliated companies | 131 | | | 30 | |
| Taxes accrued | 62 | | | 49 | |
| Interest accrued | 51 | | | 58 | |
| Current maturities of long-term debt | 70 | | | 503 | |
| Asset retirement obligations | 168 | | | 189 | |
| Regulatory liabilities | 111 | | | 55 | |
| Other | 83 | | | 112 | |
| Total current liabilities | 952 | | | 1,284 | |
| Long-Term Debt | 3,871 | | | 3,404 | |
| Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 1,228 | | | 1,150 | |
| Asset retirement obligations | 1,008 | | | 643 | |
| Regulatory liabilities | 1,627 | | | 1,685 | |
| Operating lease liabilities | 53 | | | 55 | |
| Accrued pension and other post-retirement benefit costs | 171 | | | 148 | |
| Investment tax credits | 168 | | | 164 | |
| Other | 30 | | | 18 | |
| Total other noncurrent liabilities | 4,285 | | | 3,863 | |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | |
| Member's Equity | 4,783 | | | 4,575 | |
| | | |
| | | |
| Total Liabilities and Equity | $ | 14,041 | | | $ | 13,276 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 408 | | | $ | 436 | | | $ | 393 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization, and accretion | 572 | | | 531 | | | 524 | |
| Equity component of AFUDC | (23) | | | (18) | | | (32) | |
| | | | | |
| Impairment charges | — | | | — | | | 30 | |
| Deferred income taxes | 29 | | | 156 | | | 95 | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (63) | | | (48) | | | (69) | |
| Provision for rate refunds | — | | | — | | | 53 | |
| (Increase) decrease in | | | | | |
| | | | | |
| Receivables | 8 | | | (8) | | | 7 | |
| Receivables from affiliated companies | 0 | | | 41 | | | 3 | |
| Inventory | 44 | | | (95) | | | 28 | |
| Other current assets | (3) | | | 76 | | | (25) | |
| Increase (decrease) in | | | | | |
| Accounts payable | (12) | | | (10) | | | 37 | |
| Accounts payable to affiliated companies | 1 | | | 4 | | | 5 | |
| Taxes accrued | 13 | | | (25) | | | (52) | |
| Other current liabilities | 6 | | | 15 | | | 14 | |
| Other assets | (68) | | | (74) | | | 26 | |
| Other liabilities | 26 | | | 16 | | | (31) | |
| Net cash provided by operating activities | 938 | | | 997 | | | 1,006 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (888) | | | (876) | | | (832) | |
| Purchases of debt and equity securities | (37) | | | (26) | | | (48) | |
| Proceeds from sales and maturities of debt and equity securities | 22 | | | 20 | | | 44 | |
| | | | | |
| Notes receivable from affiliated companies | (33) | | | — | | | — | |
| | | | | |
| Other | 48 | | | (49) | | | 18 | |
| Net cash used in investing activities | (888) | | | (931) | | | (818) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 544 | | | 485 | | | — | |
| Payments for the redemption of long-term debt | (513) | | | (213) | | | (3) | |
| Notes payable to affiliated companies | 101 | | | (137) | | | 6 | |
| | | | | |
| Distributions to parent | (200) | | | (200) | | | (175) | |
| Other | — | | | — | | | (1) | |
| Net cash used in financing activities | (68) | | | (65) | | | (173) | |
| Net (decrease) increase in cash and cash equivalents | (18) | | | 1 | | | 15 | |
| Cash and cash equivalents at beginning of period | 25 | | | 24 | | | 9 | |
| Cash and cash equivalents at end of period | $ | 7 | | | $ | 25 | | | $ | 24 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 164 | | | $ | 150 | | | $ | 162 | |
| Cash paid for (received from) income taxes | 36 | | | (6) | | | 75 | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 101 | | | 102 | | | 88 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | Member's | | | | |
| (in millions) | | | | | | | Equity | | | | |
| Balance at December 31, 2017 | | | | | | | $ | 4,121 | | | | | |
| Net income | | | | | | | 393 | | | | | |
| | | | | | | | | | | |
| Distributions to parent | | | | | | | (175) | | | | | |
| | | | | | | | | | | |
| Balance at December 31, 2018 | | | | | | | $ | 4,339 | | | | | |
| Net income | | | | | | | 436 | | | | | |
| | | | | | | | | | | |
| Distributions to parent | | | | | | | (200) | | | | | |
| | | | | | | | | | | |
| Balance at December 31, 2019 | | | | | | | $ | 4,575 | | | | | |
| Net income | | | | | | | 408 | | | | | |
| Distributions to parent | | | | | | | (200) | | | | | |
| Balance at December 31, 2020 | | | | | | | $ | 4,783 | | | | | |
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission, the Public Service Commission of South Carolina, and the Tennessee Public Utility Commission (collectively the “Commissions”), which have jurisdiction with respect to the gas rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $450 million recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1951.
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | | | | | |
| Regulated natural gas | $ | 1,286 | | | $ | 1,369 | | | $ | 1,365 | |
| Nonregulated natural gas and other | 11 | | | 12 | | | 10 | |
| | | | | |
| Total operating revenues | 1,297 | | | 1,381 | | | 1,375 | |
| Operating Expenses | | | | | |
| Cost of natural gas | 386 | | | 532 | | | 584 | |
| Operation, maintenance and other | 322 | | | 328 | | | 357 | |
| Depreciation and amortization | 180 | | | 172 | | | 159 | |
| Property and other taxes | 53 | | | 45 | | | 49 | |
| Impairment charges | 7 | | | — | | | — | |
| Total operating expenses | 948 | | | 1,077 | | | 1,149 | |
| | | | | |
| Operating Income | 349 | | | 304 | | | 226 | |
| Equity in earnings of unconsolidated affiliates | 9 | | | 8 | | | 7 | |
| | | | | |
| Other income and expense, net | 51 | | | 20 | | | 14 | |
| Total other income and expenses | 60 | | | 28 | | | 21 | |
| Interest Expense | 118 | | | 87 | | | 81 | |
| Income Before Income Taxes | 291 | | | 245 | | | 166 | |
| Income Tax Expense | 18 | | | 43 | | | 37 | |
| Net Income and Comprehensive Income | $ | 273 | | | $ | 202 | | | $ | 129 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| | | |
| Receivables (net of allowance for doubtful accounts of $12 at 2020 and $6 at 2019) | $ | 250 | | | $ | 241 | |
| Receivables from affiliated companies | 10 | | | 10 | |
| Inventory | 68 | | | 72 | |
| Regulatory assets | 153 | | | 73 | |
| | | |
| Other | 20 | | | 28 | |
| Total current assets | 501 | | | 424 | |
| Property, Plant and Equipment | | | |
| Cost | 9,134 | | | 8,446 | |
| Accumulated depreciation and amortization | (1,749) | | | (1,681) | |
| Net property, plant and equipment | 7,385 | | | 6,765 | |
| Other Noncurrent Assets | | | |
| Goodwill | 49 | | | 49 | |
| Regulatory assets | 302 | | | 290 | |
| Operating lease right-of-use assets, net | 20 | | | 24 | |
| Investments in equity method unconsolidated affiliates | 88 | | | 83 | |
| Other | 270 | | | 121 | |
| Total other noncurrent assets | 729 | | | 567 | |
| Total Assets | $ | 8,615 | | | $ | 7,756 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 230 | | | $ | 215 | |
| Accounts payable to affiliated companies | 79 | | | 3 | |
| | | |
| Notes payable to affiliated companies | 530 | | | 476 | |
| Taxes accrued | 23 | | | 24 | |
| Interest accrued | 34 | | | 33 | |
| Current maturities of long-term debt | 160 | | | 0 | |
| Regulatory liabilities | 88 | | | 81 | |
| Other | 69 | | | 67 | |
| Total current liabilities | 1,213 | | | 899 | |
| Long-Term Debt | 2,620 | | | 2,384 | |
| | | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 821 | | | 708 | |
| Asset retirement obligations | 20 | | | 17 | |
| Regulatory liabilities | 1,044 | | | 1,131 | |
| Operating lease liabilities | 19 | | | 23 | |
| Accrued pension and other post-retirement benefit costs | 8 | | | 3 | |
| Other | 155 | | | 148 | |
| Total other noncurrent liabilities | 2,067 | | | 2,030 | |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | |
| Common stock, 0 par value: 100 shares authorized and outstanding at 2020 and 2019 | 1,310 | | | 1,310 | |
| | | |
| Retained earnings | 1,405 | | | 1,133 | |
| | | |
| Total equity | 2,715 | | | 2,443 | |
| Total Liabilities and Equity | $ | 8,615 | | | $ | 7,756 | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 273 | | | $ | 202 | | | $ | 129 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 182 | | | 174 | | | 161 | |
| Equity component of AFUDC | (19) | | | — | | | — | |
| | | | | |
| Impairment charges | 7 | | | — | | | — | |
| Deferred income taxes | 53 | | | 136 | | | (31) | |
| Equity in (earnings) losses from unconsolidated affiliates | (9) | | | (8) | | | (7) | |
| | | | | |
| | | | | |
| | | | | |
| Provision for rate refunds | (33) | | | 2 | | | 43 | |
| (Increase) decrease in | | | | | |
| | | | | |
| Receivables | 10 | | | 28 | | | 7 | |
| Receivables from affiliated companies | — | | | 12 | | | (15) | |
| Inventory | 3 | | | (2) | | | (4) | |
| Other current assets | (66) | | | (25) | | | 71 | |
| Increase (decrease) in | | | | | |
| Accounts payable | 16 | | | (7) | | | 15 | |
| Accounts payable to affiliated companies | 76 | | | (35) | | | 25 | |
| Taxes accrued | 3 | | | (60) | | | 65 | |
| Other current liabilities | (11) | | | 1 | | | 21 | |
| Other assets | (11) | | | 1 | | | 3 | |
| Other liabilities | 7 | | | (10) | | | (5) | |
| Net cash provided by operating activities | 481 | | | 409 | | | 478 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (901) | | | (1,053) | | | (721) | |
| Contributions to equity method investments | — | | | (16) | | | — | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other | (28) | | | (14) | | | (10) | |
| Net cash used in investing activities | (929) | | | (1,083) | | | (731) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 394 | | | 596 | | | 100 | |
| | | | | |
| Payments for the redemption of long-term debt | — | | | (350) | | | — | |
| | | | | |
| | | | | |
| Notes payable to affiliated companies | 54 | | | 278 | | | (166) | |
| | | | | |
| | | | | |
| Capital contribution from parent | — | | | 150 | | | 300 | |
| | | | | |
| | | | | |
| | | | | |
| Net cash provided by financing activities | 448 | | | 674 | | | 234 | |
| Net decrease in cash and cash equivalents | — | | | — | | | (19) | |
| Cash and cash equivalents at beginning of period | — | | | — | | | 19 | |
| Cash and cash equivalents at end of period | $ | — | | | $ | — | | | $ | — | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 115 | | | $ | 84 | | | $ | 79 | |
| Cash received from income taxes | (36) | | | (31) | | | (16) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 106 | | | 109 | | | 96 | |
| | | | | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Common | | Retained | | | | Total |
| (in millions) | Stock | | Earnings | | | | Equity |
| Balance at December 31, 2017 | $ | 860 | | | $ | 802 | | | | | $ | 1,662 | |
| Net income | — | | | 129 | | | | | 129 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Contribution from parent | 300 | | | — | | | | | 300 | |
| | | | | | | |
| Balance at December 31, 2018 | $ | 1,160 | | | $ | 931 | | | | | $ | 2,091 | |
| Net income | — | | | 202 | | | | | 202 | |
| | | | | | | |
| Contribution from parent | 150 | | | — | | | | | 150 | |
| | | | | | | |
| Balance at December 31, 2019 | $ | 1,310 | | | $ | 1,133 | | | | | $ | 2,443 | |
| Net income | — | | | 273 | | | | | 273 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Other | — | | | (1) | | | | | (1) | |
| Balance at December 31, 2020 | $ | 1,310 | | | $ | 1,405 | | | | | $ | 2,715 | |
See Notes to Consolidated Financial Statements
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Index to Combined Notes To Consolidated Financial Statements – (Continued)
The notes to the consolidated financial statements are a combined presentation. The following table indicates the registrants to which the notes apply.
Unamortized Debt Premium, Discount | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Applicable Notes |
| Registrant | 1 | | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | 21 | 22 | 23 | 24 | 25 | |
| Duke Energy | • | | • | • | • | • | • | • | • | • | • | • | • | | • | • | • | • | • | • | • | • | • | • | • | • | |
| Duke Energy Carolinas | • | | • | • | • | • | • | | • | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Progress Energy | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Duke Energy Progress | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Duke Energy Florida | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Duke Energy Ohio | • | | • | • | • | • | • | | | • | • | • | | • | • | | • | • | • | | • | • | • | • | • | • | |
| Duke Energy Indiana | • | | • | • | • | • | • | | • | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Piedmont | • | | • | • | • | • | • | | | • | • | • | • | • | • | | • | | • | | • | • | • | • | • | • | |
Tables within the notes may not sum across due to (i) Progress Energy's consolidation of Duke Energy Progress, Duke Energy Florida and Expenseother subsidiaries that are not registrants and (ii) subsidiaries that are not registrants but included in the consolidated Duke Energy balances.
Premiums, discounts
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and expenses incurredBasis of Consolidation
Duke Energy is an energy company headquartered in Charlotte, North Carolina, subject to regulation by the FERC and other regulatory agencies listed below. Duke Energy operates in the U.S. primarily through its direct and indirect subsidiaries. Certain Duke Energy subsidiaries are also subsidiary registrants, including Duke Energy Carolinas; Progress Energy; 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 its separate Subsidiary Registrants, which along with Duke Energy, are collectively referred to as the issuance of outstanding long-term debt are amortized over the termDuke Energy Registrants.
The information in these combined notes relates to each of the debt issue. The gain or loss on extinguishment associated with refinancing higher-cost debt obligationsDuke 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 or VIEs where the respective Duke Energy Registrants have control. See Note 17 for additional information on VIEs. These Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain jointly owned generation and transmission facilities. See Note 8 for additional information on joint ownership. Substantially all of the Subsidiary Registrants' operations qualify for regulatory accounting.
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 NCUC, PSCSC, NRC and FERC.
Progress Energy is a public utility holding company, which conducts operations through its wholly owned subsidiaries, Duke Energy Progress and Duke Energy Florida. Progress Energy is amortized. Amortization expensesubject to regulation by FERC and other regulatory agencies listed below.
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 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 as Interest Expense 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. 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 PUCO, KPSC and FERC.
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 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, TPUC and FERC.
Certain prior year amounts have been reclassified to conform to the current year presentation.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
COVID-19
The COVID-19 pandemic is having a significant impact on global health and economic environments. In March 2020, the World Health Organization declared COVID-19 a global pandemic, and the federal government proclaimed that the COVID-19 outbreak in the United States constitutes a national emergency. The Duke Energy Registrants are monitoring developments closely and responding appropriately. The company incurred approximately $112 million of incremental COVID-19 costs before deferral for the year ended December 31, 2020, included in Operation, maintenance and other on the Consolidated Statements of Operations. Further, the company waived approximately $64 million of late payment fees for the year ended December 31, 2020. The company has deferred approximately $76 million of the incremental costs, which were primarily bad debt expense, personal protective equipment and cleaning supplies, and a cost component of late payment fees. See Notes 3, 6, 17, 18 and 23 for additional information as well as steps taken to mitigate the impacts to our business and customers from the COVID-19 pandemic.
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% of total Current Assets or Current Liabilities on the Duke Energy Registrants' Consolidated Balance Sheets at either December 31, 2020, or 2019.
| | | | | | | | | | | | | | | | | |
| | | December 31, |
| (in millions) | Location | | 2020 | | 2019 |
| Duke Energy | | | | | |
| | | | | |
| Other accrued liabilities | Current Liabilities | | $ | 1,455 | | | $ | 604 | |
| Accrued compensation | Current Liabilities | | 662 | | | 862 | |
| Duke Energy Carolinas | | | | | |
| Accrued compensation | Current Liabilities | | $ | 213 | | | $ | 271 | |
| Other accrued liabilities | Current Liabilities | | 178 | | | 147 | |
| Progress Energy | | | | | |
| | | | | |
| Customer deposits | Current Liabilities | | $ | 347 | | | $ | 354 | |
| | | | | |
| | | | | |
| | | | | |
| Duke Energy Florida | | | | | |
| Customer deposits | Current Liabilities | | $ | 203 | | | $ | 209 | |
| | | | | |
| Duke Energy Ohio | | | | | |
| Gas Storage | Current Assets | | $ | 21 | | | $ | 0 | |
| | | | | |
| Duke Energy Indiana | | | | | |
| Income taxes receivable | Current Assets | | $ | 9 | | | $ | 44 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Discontinued 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. For the years ended December 31, 2020, 2019 and 2018, the Income (Loss) From Discontinued Operations, net of tax on Duke Energy's Consolidated Statements of Operations is entirely attributable to controlling interest.
Noncontrolling Interest
Duke Energy maintains a controlling financial interest in certain less than wholly owned nonregulated subsidiaries. As a result, Duke Energy consolidates these subsidiaries and presents the third-party investors' portion of Duke Energy's net income (loss), net assets and comprehensive income (loss) as noncontrolling interest. Noncontrolling interest is included as a component of equity on the Consolidated Balance Sheet.
Several operating agreements of Duke Energy's subsidiaries with noncontrolling interest are subject to allocations of tax attributes and cash flows in accordance with contractual agreements that vary throughout the lives of the subsidiaries. Therefore, Duke Energy and the other investors' (the owners) interests in the subsidiaries are not fixed, and the subsidiaries apply the HLBV method in allocating income or loss and other comprehensive income or loss (all measured on a pretax basis) to the owners. The HLBV method measures the amounts that each owner would hypothetically claim at each balance sheet reporting date, including tax benefits realized by the owners, most of which is over the IRS recapture period, upon a hypothetical liquidation of the subsidiary at the net book value of its underlying assets. The change in the amount that each owner would hypothetically receive at the reporting date compared to the amount it would have received on the previous reporting date represents the amount of income or loss allocated to each owner for the reporting period.
Other operating agreements of Duke Energy's subsidiaries with noncontrolling interest allocate profit and loss based on their pro rata shares of the ownership interest in the respective subsidiary. Therefore, Duke Energy allocates net income or loss and other comprehensive income or loss of these subsidiaries to the owners based on their pro rata shares.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
During the third quarter of 2019, Duke Energy completed a sale of minority interest in a portion of certain renewable assets within the Commercial Renewables Segment for pretax proceeds to Duke Energy of $415 million. The portion of Duke Energy's commercial renewables energy portfolio sold includes 49% of 37 operating wind, solar and battery storage assets and 33% of 11 operating solar assets across the U.S. Duke Energy retained control of these assets, and, therefore, no gain or loss was recognized on the Consolidated Statements of Operations. The difference between the consideration received and the carrying value of the noncontrolling interest claim on net assets is $466 million, net of tax benefit of $8 million, and was recorded to equity.
The following table presents cash received for the sale of noncontrolling interest and allocated losses to noncontrolling interest for the years ended December 31, 2020, and 2019.
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2020 | | 2019 |
| Noncontrolling Interest Capital Contributions | | | |
| Cash received for the sale of noncontrolling interest to tax equity members | $ | 426 | | | $ | 428 | |
| Cash received for the sale of noncontrolling interest to pro rata share members | — | | | 415 | |
| Total Noncontrolling Interest Capital Contributions | $ | 426 | | | $ | 843 | |
| Noncontrolling Interest Allocation of Income | | | |
| Allocated losses to noncontrolling tax equity members utilizing the HLBV method | $ | 271 | | | $ | 165 | |
| Allocated losses to noncontrolling members based on pro rata shares of ownership | 24 | | | 12 | |
| Total Noncontrolling Interest Allocated Losses | $ | 295 | | | $ | 177 | |
2021 Sale of Minority Interest in Duke Energy Indiana
In January 2021, Duke Energy entered into a definitive agreement providing for the sale of a 19.9% minority interest in Duke Energy Indiana with an affiliate of GIC, Singapore's sovereign wealth fund and an experienced investor in U.S. infrastructure. To facilitate the transaction, Duke Energy will issue and sell membership interests in Duke Energy Indiana Holdco, LLC. a newly created holding company that will own 100% of the issued and outstanding membership interests in Duke Energy Indiana. The transaction will be completed following two closings for an aggregate purchase price of approximately $2 billion. The first closing is expected to be completed in the second quarter of 2021 and Duke Energy will issue and sell 11.1% of the membership interests in exchange for 50% of the purchase price. Under the terms of the agreement, Duke Energy has the discretion to determine the timing of the second closing, but it will occur no later than January 2023. At the second closing, Duke Energy will issue and sell additional membership interests such that GIC will own 19.9% of the membership interests for the remaining 50% of the purchase price. Duke Energy will continue to operate and retain control of Duke Energy Indiana and, therefore, no gain or loss is expected to be recognized in the Consolidated Statements of Operations. Additionally, the transaction will be reflected within Duke Energy Corporations' stockholders' equity as a sale of a noncontrolling interest.
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.
Significant Accounting Policies
Use of Estimates
In preparing financial statements that conform to GAAP, 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. Regulatory assets are reviewed for recoverability each reporting period. If a regulatory asset is no longer deemed probable of recovery, the deferred cost is charged to earnings. See Note 3 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. 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. These disallowances can require judgments on allowed future rate recovery.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 charge for a disallowance of costs for regulated plants under construction, recently completed or abandoned is based on discounted cash flows.
The Duke Energy Registrants utilize cost-tracking mechanisms, commonly referred to as fuel adjustment clauses or PGA clauses. 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, Cash Equivalents and Restricted Cash
All highly liquid investments with maturities of three months or less at the date of acquisition are considered cash equivalents. Duke Energy, Progress Energy and Duke Energy Florida have restricted cash balances related primarily to collateral assets, escrow deposits and VIEs. See Note 17 for additional information. Restricted cash amounts are included in Other within Current Assets and Other Noncurrent Assets on the Consolidated Balance Sheets. The following table presents the components of cash, cash equivalents and restricted cash included in the Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| | | Duke | | | | Duke |
| Duke | Progress | Energy | | Duke | Progress | Energy |
| Energy | Energy | Florida | | Energy | Energy | Florida |
| Current Assets | | | | | | | |
| Cash and cash equivalents | $ | 259 | | $ | 59 | | $ | 11 | | | $ | 311 | | $ | 48 | | $ | 17 | |
| Other | 194 | | 39 | | 39 | | | 222 | | 39 | | 39 | |
| Other Noncurrent Assets | | | | | | | |
| Other | 103 | | 102 | | — | | | 40 | | 39 | | — | |
| Total cash, cash equivalents and restricted cash | $ | 556 | | $ | 200 | | $ | 50 | | | $ | 573 | | $ | 126 | | $ | 56 | |
| | | | | | | |
Inventory
Inventory related to regulated operations is valued at historical cost. Inventory related to nonregulated operations is valued at the lower of cost or market. Inventory is charged to expense or capitalized to property, plant and equipment when issued, primarily using the average cost method. Excess or obsolete inventory is written down to the lower of cost or net realizable 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, 2020, and 2019, respectively. The components of inventory are presented in the tables below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Materials and supplies | $ | 2,312 | | | $ | 785 | | | $ | 999 | | | $ | 673 | | | $ | 325 | | | $ | 78 | | | $ | 307 | | | $ | 12 | |
| Coal | 561 | | | 186 | | | 193 | | | 131 | | | 63 | | | 16 | | | 165 | | | — | |
| Natural gas, oil and other | 294 | | | 39 | | | 183 | | | 107 | | | 76 | | | 16 | | | 1 | | | 56 | |
| Total inventory | $ | 3,167 | | | $ | 1,010 | | | $ | 1,375 | | | $ | 911 | | | $ | 464 | | | $ | 110 | | | $ | 473 | | | $ | 68 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Materials and supplies | $ | 2,297 | | | $ | 768 | | | $ | 1,038 | | | $ | 686 | | | $ | 351 | | | $ | 79 | | | $ | 318 | | | $ | 5 | |
| Coal | 586 | | | 187 | | | 186 | | | 138 | | | 48 | | | 15 | | | 198 | | | — | |
| Natural gas, oil and other | 349 | | | 41 | | | 199 | | | 110 | | | 90 | | | 41 | | | 1 | | | 67 | |
| Total inventory | $ | 3,232 | | | $ | 996 | | | $ | 1,423 | | | $ | 934 | | | $ | 489 | | | $ | 135 | | | $ | 517 | | | $ | 72 | |
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Investments in Debt and Equity Securities
The Duke Energy Registrants classify investments in equity securities as FV-NI and investments in debt securities as AFS. Both categories are recorded at fair value on the Consolidated Balance Sheets. Realized and unrealized gains and losses on securities classified as FV-NI are reported through net income. Unrealized gains and losses for debt securities classified as AFS are included in AOCI until realized, unless it is determined the carrying value of an investment has a credit loss. For certain investments of regulated operations, such as substantially all of the NDTF, realized and unrealized gains and losses (including any credit losses) on debt securities are recorded as a regulatory asset or liability. 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
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 a business 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. See Note 11 for further information.
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.
RECs are used to measure compliance with renewable energy standards and are held primarily for consumption. See Note 11 for further information.
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.
Equity Method Investment Impairments
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 whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. If 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.
Impairment assessments use a discounted cash flow income approach and include consideration of the severity and duration of any decline in the fair value of the investments. The estimated cash flows may be based on alternative expected outcomes that are probability weighted. Key inputs that involve estimates and significant management judgment include cash flow projections, selection of a discount rate, probability weighting of potential outcomes, and whether any decline in value is considered temporary.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 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.
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Duke Energy | 3.0 | % | | 3.1 | % | | 3.0 | % |
| Duke Energy Carolinas | 2.8 | % | | 2.8 | % | | 2.8 | % |
| Progress Energy | 3.2 | % | | 3.1 | % | | 2.9 | % |
| Duke Energy Progress | 3.1 | % | | 3.1 | % | | 2.9 | % |
| Duke Energy Florida | 3.3 | % | | 3.1 | % | | 3.0 | % |
| Duke Energy Ohio | 2.9 | % | | 2.6 | % | | 2.8 | % |
| Duke Energy Indiana | 3.5 | % | | 3.3 | % | | 3.3 | % |
| Piedmont | 2.3 | % | | 2.4 | % | | 2.5 | % |
In general, when the Duke Energy Registrants retire regulated property, plant and equipment, the original cost plus the cost of retirement, less salvage value and any depreciation already recognized, is charged to accumulated depreciation. However, when it becomes 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). 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 additional information.
Leases
Duke Energy determines if an arrangement is a lease at contract inception based on whether the arrangement involves the use of a physically distinct identified asset and whether Duke Energy has the right to obtain substantially all of the economic benefits from the use of the asset throughout the period as well as the right to direct the use of the asset. As a policy election, Duke Energy does not evaluate arrangements with initial contract terms of less than one year as leases.
Operating leases are included in Operating lease ROU assets, net, Other current liabilities and Operating lease liabilities on the Consolidated Balance Sheets. Finance leases are included in Property, plant and equipment, Current maturities of long-term debt and Long-Term Debt on the Consolidated Balance Sheets.
For lessee and lessor arrangements, Duke Energy has elected a policy to not separate lease and non-lease components for all asset classes. For lessor arrangements, lease and non-lease components are only combined under one arrangement and accounted for under the lease accounting framework if the non-lease components are not the predominant component of the arrangement and the lease component would be classified as an operating lease.
Nuclear Fuel
Nuclear fuel is classified as Property, Plant and Equipment on the Consolidated Balance Sheets.
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.
Allowance for Funds Used During Construction and Interest Capitalized
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.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
AFUDC equity, a permanent difference for income taxes, reduces the ETR when capitalized and increases the ETR when depreciated or amortized. See Note 23 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.
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 probable of recovery.
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.
Accounts Payable
During 2020, Duke Energy established a supply chain finance program (the “program”) with a global financial institution. The program is voluntary and allows Duke Energy suppliers, at their sole discretion, to sell their receivables from Duke Energy to the financial institution at a rate that leverages Duke Energy’s credit rating and, which may result in favorable terms compared to the rate available to the supplier on their own credit rating. Suppliers participating in the program, determine at their sole discretion which invoices they will sell to the financial institution. Suppliers’ decisions on which invoices are sold do not impact Duke Energy’s payment terms, which are based on commercial terms negotiated between Duke Energy and the supplier regardless of program participation. The commercial terms negotiated between Duke Energy and its suppliers are consistent regardless of whether the supplier elects to participate in the program. Duke Energy does not issue any guarantees with respect to the program and does not participate in negotiations between suppliers and the financial institution. Duke Energy does not have an economic interest in the supplier’s decision to participate in the program and receives no interest, fees or other benefit from the financial institution based on supplier participation in the program.
At December 31, 2020, $15 million, $1 million and $14 million of the outstanding Accounts payable balance for Duke Energy, Duke Energy Ohio and Piedmont, respectively, was sold to the financial institution by our suppliers. Suppliers invoices sold to the financial institution under the program totaled $45 million, $9 million and $36 million for the year ended December 31, 2020, for Duke Energy, Duke Energy Ohio and Piedmont, respectively. All activity related to amounts due to suppliers who elected to participate in the program are included within Net cash provided by operating activities on the Consolidated Statements of Cash Flows.
Premiums, discountsRevenue Recognition
Duke Energy recognizes revenue as customers obtain control of promised goods and expenses are presented asservices in an adjustmentamount that reflects consideration expected in exchange for those goods or services. Generally, the delivery of electricity and natural gas results in the transfer of control to customers at the time the commodity is delivered and the amount of revenue recognized is equal 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 recordedbilled to each customer, including estimated volumes delivered 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 dobillings have 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.
yet occurred. See Notes 4 and 5Note 18 for further information.
PensionDerivatives and Other Post-Retirement Benefit PlansHedging
Duke Energy maintains qualified, non-qualifiedDerivative and other post-retirement benefit plans. Eligible employees of the Subsidiary Registrants participatenon-derivative instruments may be used in the respective qualified, non-qualifiedconnection with commodity price and other post-retirement benefit plansinterest rate activities, including swaps, futures, forwards 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 guaranteeoptions. All derivative instruments, except those that qualify 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 RegistrantsNPNS exception, 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 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.
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 – (Continued)
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 amountat 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 ITC and, therefore, the ITC benefit is ultimately recognizedchange in the statementfair value of operations through reduced depreciation expense. Additionally, certain tax credits and government grants resultcash flow hedges is recorded in an initial tax depreciable base in excessAOCI. The effective portion of the book carryingchange in the fair value of a fair value hedge is offset in net income by an amount equalchanges in the hedged item. For activity subject to one halfregulatory 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 the ITC. Deferred tax benefits are recordedthese derivatives have no immediate earnings impact.
Formal documentation, including transaction type and risk management strategy, is maintained for all contracts accounted for as a reductionhedge. At inception and at least every three months thereafter, the hedge contract is assessed to income tax expensesee if it is highly effective in the period that the basis difference is created.offsetting changes in cash flows or fair values of hedged items.
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 accountedSee Note 14 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. |
| | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
|
| Duke Energy | $ | 376 |
| | $ | 362 |
| | $ | 396 |
|
| Duke Energy Carolinas | 36 |
| | 31 |
| | 31 |
|
| Progress Energy | 220 |
| | 213 |
| | 229 |
|
| Duke Energy Progress | 19 |
| | 18 |
| | 16 |
|
| Duke Energy Florida | 201 |
| | 195 |
| | 213 |
|
| Duke Energy Ohio | 98 |
| | 100 |
| | 102 |
|
| Duke Energy Indiana | 20 |
| | 17 |
| | 34 |
|
Piedmont(a) | 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.information.
New Accounting Standards
TheSee Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies,” for a discussion of the impact of new accounting standards adopted for 2017standards.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See “Management’s Discussion and 2016 had no material impactAnalysis of Results of Operations and Financial Condition – Quantitative and Qualitative Disclosures About Market Risk.”
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | | | | | |
| 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 | |
| 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 | |
| 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 | |
| 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 | |
| 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 Ohio | |
| 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 Indiana | |
| 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 | |
| |
| Piedmont | |
| 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 | |
| | | | | |
| |
| Combined Notes to Consolidated Financial Statements | |
| Note 1 – Summary of Significant Accounting Policies | |
| |
| Note 2 – Business Segments | |
| Note 3 – Regulatory Matters | |
| Note 4 – Commitments and Contingencies | |
| Note 5 – Leases | |
| 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 – Revenue | |
| Note 19 – Stockholders' Equity | |
| Note 20 – Severance | |
| Note 21 – Stock-Based Compensation | |
| Note 22 – Employee Benefit Plans | |
| Note 23 – Income Taxes | |
| Note 24 – Other Income and Expenses, Net | |
| Note 25 – Subsequent Events | |
| |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Duke Energy Corporation
Opinion on the presentation or resultsFinancial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Corporation and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows, orfor each of the three years in the period ended December 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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, 2020, 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 25, 2021, 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to regulation by federal and state utility regulatory agencies (the “Commissions”), which have jurisdiction with respect to the rates of the Company’s electric and natural gas distribution companies. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $14 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1947.
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions, except per share amounts) | 2020 | | 2019 | | 2018 |
| Operating Revenues | | | | | |
| Regulated electric | $ | 21,461 | | | $ | 22,615 | | | $ | 22,097 | |
| Regulated natural gas | 1,642 | | | 1,759 | | | 1,773 | |
| Nonregulated electric and other | 765 | | | 705 | | | 651 | |
| Total operating revenues | 23,868 | | | 25,079 | | | 24,521 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 6,051 | | | 6,826 | | | 6,831 | |
| Cost of natural gas | 460 | | | 627 | | | 697 | |
| Operation, maintenance and other | 5,788 | | | 6,066 | | | 6,463 | |
| Depreciation and amortization | 4,705 | | | 4,548 | | | 4,074 | |
| Property and other taxes | 1,337 | | | 1,307 | | | 1,280 | |
| Impairment charges | 984 | | | (8) | | | 402 | |
| Total operating expenses | 19,325 | | | 19,366 | | | 19,747 | |
| Gains (Losses) on Sales of Other Assets and Other, net | 10 | | | (4) | | | (89) | |
| Operating Income | 4,553 | | | 5,709 | | | 4,685 | |
| Other Income and Expenses | | | | | |
| Equity in (losses) earnings of unconsolidated affiliates | (2,005) | | | 162 | | | 83 | |
| | | | | |
| Other income and expenses, net | 453 | | | 430 | | | 399 | |
| Total other income and expenses | (1,552) | | | 592 | | | 482 | |
| Interest Expense | 2,162 | | | 2,204 | | | 2,094 | |
| Income From Continuing Operations Before Income Taxes | 839 | | | 4,097 | | | 3,073 | |
| Income Tax (Benefit) Expense From Continuing Operations | (236) | | | 519 | | | 448 | |
| Income From Continuing Operations | 1,075 | | | 3,578 | | | 2,625 | |
| Income (Loss) From Discontinued Operations, net of tax | 7 | | | (7) | | | 19 | |
| Net Income | 1,082 | | | 3,571 | | | 2,644 | |
| Add: Net Loss Attributable to Noncontrolling Interests | 295 | | | 177 | | | 22 | |
| Net Income Attributable to Duke Energy Corporation | 1,377 | | | 3,748 | | | 2,666 | |
| Less: Preferred Dividends | 107 | | | 41 | | | — | |
| Net Income Available to Duke Energy Corporation Common Stockholders | $ | 1,270 | | | $ | 3,707 | | | $ | 2,666 | |
| | | | | |
Earnings Per Share – Basic and Diluted | | | | | |
| Income from continuing operations available to Duke Energy Corporation common stockholders | | | | | |
| Basic and Diluted | $ | 1.71 | | | $ | 5.07 | | | $ | 3.73 | |
| | | | | |
| Income (Loss) from discontinued operations attributable to Duke Energy Corporation common stockholders | | | | | |
| Basic and Diluted | $ | 0.01 | | | $ | (0.01) | | | $ | 0.03 | |
| | | | | |
| Net income available to Duke Energy Corporation common stockholders | | | | | |
| Basic and Diluted | $ | 1.72 | | | $ | 5.06 | | | $ | 3.76 | |
| | | | | |
| Weighted average shares outstanding | | | | | |
| Basic | 737 | | | 729 | | | 708 | |
| Diluted | 738 | | | 729 | | | 708 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Net Income | $ | 1,082 | | | $ | 3,571 | | | $ | 2,644 | |
Other Comprehensive (Loss) Income, net of tax(a) | | | | | |
| | | | | |
| Pension and OPEB adjustments | 6 | | | 9 | | | (6) | |
| Net unrealized losses on cash flow hedges | (138) | | | (47) | | | (10) | |
| Reclassification into earnings from cash flow hedges | 11 | | | 6 | | | 6 | |
| Unrealized gains (losses) on available-for-sale securities | 3 | | | 8 | | | (3) | |
| | | | | |
| Other Comprehensive Loss, net of tax | (118) | | | (24) | | | (13) | |
| Comprehensive Income | 964 | | | 3,547 | | | 2,631 | |
| Add: Comprehensive Loss Attributable to Noncontrolling Interests | 306 | | | 177 | | | 22 | |
| Comprehensive Income Attributable to Duke Energy Corporation | 1,270 | | | 3,724 | | | 2,653 | |
| Less: Preferred Dividends | 107 | | | 41 | | | — | |
| Comprehensive Income Available to Duke Energy Corporation Common Stockholders | $ | 1,163 | | | $ | 3,683 | | | $ | 2,653 | |
(a) Net of income tax impacts of approximately $35 million for the year ended December 31, 2020. Tax impacts are immaterial for other periods presented.
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 259 | | | $ | 311 | |
| | | |
| Receivables (net of allowance for doubtful accounts of $29 at 2020 and $22 at 2019) | 1,009 | | | 1,066 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $117 at 2020 and $54 at 2019) | 2,144 | | | 1,994 | |
| Inventory | 3,167 | | | 3,232 | |
| | | |
| Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 1,641 | | | 1,796 | |
| Other (includes $296 at 2020 and $242 at 2019 related to VIEs) | 462 | | | 764 | |
| Total current assets | 8,682 | | | 9,163 | |
| Property, Plant and Equipment | | | |
| Cost | 155,580 | | | 147,654 | |
| Accumulated depreciation and amortization | (48,827) | | | (45,773) | |
| Generation facilities to be retired, net | 29 | | | 246 | |
| Net property, plant and equipment | 106,782 | | | 102,127 | |
| Other Noncurrent Assets | | | |
| Goodwill | 19,303 | | | 19,303 | |
| Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 12,421 | | | 13,222 | |
| Nuclear decommissioning trust funds | 9,114 | | | 8,140 | |
| Operating lease right-of-use assets, net | 1,524 | | | 1,658 | |
| Investments in equity method unconsolidated affiliates | 961 | | | 1,936 | |
| | | |
| Other (includes $81 at 2020 and $110 at 2019 related to VIEs) | 3,601 | | | 3,289 | |
| Total other noncurrent assets | 46,924 | | | 47,548 | |
| Total Assets | $ | 162,388 | | | $ | 158,838 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 3,144 | | | $ | 3,487 | |
| Notes payable and commercial paper | 2,873 | | | 3,135 | |
| Taxes accrued | 482 | | | 392 | |
| Interest accrued | 537 | | | 565 | |
| Current maturities of long-term debt (includes $472 at 2020 and $216 at 2019 related to VIEs) | 4,238 | | | 3,141 | |
| | | |
| Asset retirement obligations | 718 | | | 881 | |
| Regulatory liabilities | 1,377 | | | 784 | |
| Other | 2,936 | | | 2,367 | |
| Total current liabilities | 16,305 | | | 14,752 | |
| Long-Term Debt (includes $3,535 at 2020 and $3,997 at 2019 related to VIEs) | 55,625 | | | 54,985 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 9,244 | | | 8,878 | |
| Asset retirement obligations | 12,286 | | | 12,437 | |
| Regulatory liabilities | 15,029 | | | 15,264 | |
| Operating lease liabilities | 1,340 | | | 1,432 | |
| Accrued pension and other post-retirement benefit costs | 969 | | | 934 | |
| Investment tax credits | 687 | | | 624 | |
| | | |
| Other (includes $316 at 2020 and $228 at 2019 related to VIEs) | 1,719 | | | 1,581 | |
| Total other noncurrent liabilities | 41,274 | | | 41,150 | |
| Commitments and Contingencies | 0 | | 0 |
| | | |
| Equity | | | |
| Preferred stock, Series A, $0.001 par value, 40 million depositary shares authorized and outstanding at 2020 and 2019 | 973 | | | 973 | |
| Preferred stock, Series B, $0.001 par value, 1 million shares authorized and outstanding at 2020 and 2019 | 989 | | | 989 | |
| Common stock, $0.001 par value, 2 billion shares authorized; 769 million shares outstanding at 2020 and 733 million shares outstanding at 2019 | 1 | | | 1 | |
| Additional paid-in capital | 43,767 | | | 40,881 | |
| Retained earnings | 2,471 | | | 4,108 | |
| Accumulated other comprehensive loss | (237) | | | (130) | |
| Total Duke Energy Corporation stockholders' equity | 47,964 | | | 46,822 | |
| Noncontrolling interests | 1,220 | | | 1,129 | |
| Total equity | 49,184 | | | 47,951 | |
| Total Liabilities and Equity | $ | 162,388 | | | $ | 158,838 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 1,082 | | | $ | 3,571 | | | $ | 2,644 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization and accretion (including amortization of nuclear fuel) | 5,486 | | | 5,176 | | | 4,696 | |
| Equity in losses (earnings) of unconsolidated affiliates | 2,005 | | | (162) | | | (83) | |
| Equity component of AFUDC | (154) | | | (139) | | | (221) | |
| | | | | |
| | | | | |
| | | | | |
| (Gains) Losses on sales of other assets | (10) | | | 4 | | | 88 | |
| Impairment charges | 984 | | | (8) | | | 402 | |
| Deferred income taxes | 54 | | | 806 | | | 1,079 | |
| | | | | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (610) | | | (746) | | | (533) | |
| Payment for the disposal of other assets | — | | | — | | | (105) | |
| | | | | |
| Provision for rate refunds | (22) | | | 60 | | | 425 | |
| Refund of AMT credit carryforwards | 572 | | | 573 | | | — | |
| (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | 63 | | | (48) | | | 22 | |
| Receivables | (56) | | | 78 | | | (345) | |
| Inventory | 66 | | | (122) | | | 156 | |
| Other current assets | 205 | | | 10 | | | (721) | |
| Increase (decrease) in | | | | | |
| Accounts payable | (21) | | | (164) | | | 479 | |
| Taxes accrued | 117 | | | (224) | | | 23 | |
| Other current liabilities | (65) | | | 172 | | | 270 | |
| Other assets | (398) | | | (559) | | | (1,062) | |
| Other liabilities | (442) | | | (69) | | | (28) | |
| Net cash provided by operating activities | 8,856 | | | 8,209 | | | 7,186 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (9,907) | | | (11,122) | | | (9,389) | |
| Contributions to equity method investments | (370) | | | (324) | | | (416) | |
| | | | | |
| Return of investment capital | 133 | | | 11 | | | 137 | |
| Purchases of debt and equity securities | (8,011) | | | (3,348) | | | (3,762) | |
| Proceeds from sales and maturities of debt and equity securities | 7,949 | | | 3,343 | | | 3,747 | |
| | | | | |
| | | | | |
| Other | (398) | | | (517) | | | (377) | |
| Net cash used in investing activities | (10,604) | | | (11,957) | | | (10,060) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the: | | | | | |
| Issuance of long-term debt | 6,330 | | | 7,091 | | | 5,299 | |
| Issuance of preferred stock | — | | | 1,962 | | | — | |
| Issuance of common stock | 2,745 | | | 384 | | | 1,838 | |
| | | | | |
| Payments for the redemption of long-term debt | (4,506) | | | (3,476) | | | (2,906) | |
| Proceeds from the issuance of short-term debt with original maturities greater than 90 days | 3,009 | | | 397 | | | 472 | |
| Payments for the redemption of short-term debt with original maturities greater than 90 days | (2,147) | | | (479) | | | (282) | |
| Notes payable and commercial paper | (1,181) | | | (298) | | | 981 | |
| | | | | |
| Contributions from noncontrolling interests | 426 | | | 843 | | | 41 | |
| Dividends paid | (2,812) | | | (2,668) | | | (2,471) | |
| | | | | |
| Other | (133) | | | (26) | | | (12) | |
| Net cash provided by financing activities | 1,731 | | | 3,730 | | | 2,960 | |
| | | | | |
| Net (decrease) increase in cash, cash equivalents, and restricted cash | (17) | | | (18) | | | 86 | |
| Cash, cash equivalents, and restricted cash at beginning of period | 573 | | | 591 | | | 505 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 556 | | | $ | 573 | | | $ | 591 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 2,186 | | | $ | 2,195 | | | $ | 2,086 | |
| Cash received from income taxes | (585) | | | (651) | | | (266) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 1,116 | | | 1,356 | | | 1,112 | |
| Non-cash dividends | 110 | | | 108 | | | 107 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Duke Energy Corporation Stockholders'
Accumulated Other Comprehensive
Income (Loss) | | | | | | |
| | | | | | | | | | | | | | Net Unrealized | | | | Total | | | | |
| | | | | | | | | | | | Net | | Gains (Losses) | | | | Duke Energy | | | | |
| | Common | | | | Additional | | | | | | Losses on | | on Available- | | Pension and | | Corporation | | | | |
| Preferred | Stock | | Common | | Paid-in | | Retained | | | | Cash Flow | | for-Sale- | | OPEB | | Stockholders' | | Noncontrolling | | Total |
| (in millions) | Stock | Shares | | Stock | | Capital | | Earnings | | | | Hedges | | Securities | | Adjustments | | Equity | | Interests | | Equity |
| Balance at December 31, 2017 | $ | — | | 700 | | | $ | 1 | | | $ | 38,792 | | | $ | 3,013 | | | | | $ | (10) | | | $ | 12 | | | $ | (69) | | | $ | 41,739 | | | $ | (2) | | | $ | 41,737 | |
| Net income | — | | — | | | — | | | — | | | 2,666 | | | | | — | | | — | | | — | | | 2,666 | | | (22) | | | 2,644 | |
| Other comprehensive loss | — | | — | | | — | | | — | | | — | | | | | (4) | | | (3) | | | (6) | | | (13) | | | — | | | (13) | |
| Common stock issuances, including dividend reinvestment and employee benefits | — | | 27 | | | — | | | 2,003 | | | — | | | | | — | | | — | | | — | | | 2,003 | | | — | | | 2,003 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock dividends | — | | — | | | — | | | — | | | (2,578) | | | | | — | | | — | | | — | | | (2,578) | | | — | | | (2,578) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Distributions to noncontrolling interest in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
Other(a) | — | | — | | | — | | | — | | | 12 | | | | | — | | | (12) | | | — | | | — | | | 42 | | | 42 | |
| Balance at December 31, 2018 | $ | — | | 727 | | | $ | 1 | | | $ | 40,795 | | | $ | 3,113 | | | | | $ | (14) | | | $ | (3) | | | $ | (75) | | | $ | 43,817 | | | $ | 17 | | | $ | 43,834 | |
| Net income | — | | — | | | — | | | — | | | 3,707 | | | | | — | | | — | | | — | | | 3,707 | | | (177) | | | 3,530 | |
| Other comprehensive (loss) Income | — | | — | | | — | | | — | | | — | | | | | (41) | | | 8 | | | 9 | | | (24) | | | — | | | (24) | |
Preferred stock, Series A, issuances, net of issuance costs(b) | 973 | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 973 | | | — | | | 973 | |
Preferred stock, Series B, issuances, net of issuance costs(b) | 989 | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | 989 | | | — | | | 989 | |
| Common stock issuances, including dividend reinvestment and employee benefits | — | | 6 | | | — | | | 552 | | | — | | | | | — | | | — | | | — | | | 552 | | | — | | | 552 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock dividends | — | | — | | | — | | | — | | | (2,735) | | | | | — | | | — | | | — | | | (2,735) | | | — | | | (2,735) | |
Sale of noncontrolling interest(c) | — | | — | | | — | | | (466) | | | — | | | | | 10 | | | — | | | — | | | (456) | | | 863 | | | 407 | |
Contribution from noncontrolling interest (f) | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | 428 | | | 428 | |
| Distributions to noncontrolling interest in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (4) | | | (4) | |
Other(d) | — | | — | | | — | | | — | | | 23 | | | | | (6) | | | (2) | | | (16) | | | (1) | | | 2 | | | 1 | |
| Balance at December 31, 2019 | $ | 1,962 | | 733 | | | $ | 1 | | | $ | 40,881 | | | $ | 4,108 | | | | | $ | (51) | | | $ | 3 | | | $ | (82) | | | $ | 46,822 | | | $ | 1,129 | | | $ | 47,951 | |
| Net income | — | | — | | | — | | | — | | | 1,270 | | | | | — | | | — | | | — | | | 1,270 | | | (295) | | | 975 | |
| Other comprehensive (loss) income | — | | — | | | — | | | — | | | — | | | | | (116) | | | 3 | | | 6 | | | (107) | | | (11) | | | (118) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock issuances, including dividend reinvestment and employee benefits | — | | 36 | | | — | | | 2,902 | | | — | | | | | — | | | — | | | — | | | 2,902 | | | — | | | 2,902 | |
| | | | | | | | | | | | | | | | | | | | | | |
| Common stock dividends | — | | — | | | — | | | — | | | (2,815) | | | | | — | | | — | | | — | | | (2,815) | | | — | | | (2,815) | |
| | | | | | | | | | | | | | | | | | | | | | |
Contribution from noncontrolling interest, net of transaction costs(f) | — | | — | | | — | | | (17) | | | — | | | | | — | | | — | | | — | | | (17) | | | 426 | | | 409 | |
| Distributions to noncontrolling interests in subsidiaries | — | | — | | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (30) | | | (30) | |
Other(e) | — | | — | | | — | | | 1 | | | (92) | | | | | — | | | — | | | — | | | (91) | | | 1 | | | (90) | |
| Balance at December 31, 2020 | $ | 1,962 | | 769 | | | $ | 1 | | | $ | 43,767 | | | $ | 2,471 | | | | | $ | (167) | | | $ | 6 | | | $ | (76) | | | $ | 47,964 | | | $ | 1,220 | | | $ | 49,184 | |
(a) Amounts in Retained Earnings and AOCI represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information. Amount in Noncontrolling Interests primarily relates to tax equity financing activity in the Commercial Renewables segment.
(b) Duke Energy Registrants.issued 40 million depositary shares of preferred stock, Series A, in the first quarter of 2019 and 1 million shares of preferred stock, Series B, in the third quarter of 2019.
(c) See Note 1 for additional discussion of the transaction.
(d) Amounts in Retained Earnings and AOCI primarily represent impacts to accumulated other comprehensive income due to implementation of a new accounting standard related to Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
(e) Amounts in Retained earnings primarily represent impacts due to implementation of a new accounting standard related to Current Estimated Credit Losses. See Note 1 for additional discussion.
(f) Relates to tax equity financing activity in the Commercial Renewables segment.
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission and by the South Carolina Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $3.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1947.
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 7,015 | | | $ | 7,395 | | | $ | 7,300 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 1,682 | | | 1,804 | | | 1,821 | |
| Operation, maintenance and other | 1,743 | | | 1,868 | | | 2,130 | |
| Depreciation and amortization | 1,462 | | | 1,388 | | | 1,201 | |
| Property and other taxes | 299 | | | 292 | | | 295 | |
| Impairment charges | 476 | | | 17 | | | 192 | |
| Total operating expenses | 5,662 | | | 5,369 | | | 5,639 | |
| Gains (Losses) on Sales of Other Assets and Other, net | 1 | | | — | | | (1) | |
| Operating Income | 1,354 | | | 2,026 | | | 1,660 | |
| Other Income and Expenses, net | 177 | | | 151 | | | 153 | |
| Interest Expense | 487 | | | 463 | | | 439 | |
| Income Before Income Taxes | 1,044 | | | 1,714 | | | 1,374 | |
| Income Tax Expense | 88 | | | 311 | | | 303 | |
| Net Income | $ | 956 | | | $ | 1,403 | | | $ | 1,071 | |
| Other Comprehensive Income, net of tax | | | | | |
| Reclassification into earnings from cash flow hedges | — | | | — | | | 1 | |
| | | | | |
| Other Comprehensive Income, net of tax | — | | | — | | | 1 | |
| Comprehensive Income | $ | 956 | | | $ | 1,403 | | | $ | 1,072 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | | | |
| | | December 31, |
| (in millions) | | 2020 | | 2019 |
| ASSETS | | | | |
| Current Assets | | | | |
| Cash and cash equivalents | | $ | 21 | | | $ | 18 | |
| Receivables (net of allowance for doubtful accounts of $1 at 2020 and $3 at 2019) | | 247 | | | 324 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $22 at 2020 and $7 at 2019) | | 696 | | | 642 | |
| Receivables from affiliated companies | | 124 | | | 114 | |
| | | | |
| Inventory | | 1,010 | | | 996 | |
| Regulatory assets | | 473 | | | 550 | |
| Other | | 20 | | | 21 | |
| Total current assets | | 2,591 | | | 2,665 | |
| Property, Plant and Equipment | | | | |
| Cost | | 50,640 | | | 48,922 | |
| Accumulated depreciation and amortization | | (17,453) | | | (16,525) | |
| | | | |
| Net property, plant and equipment | | 33,187 | | | 32,397 | |
| Other Noncurrent Assets | | | | |
| | | | |
| Regulatory assets | | 2,996 | | | 3,360 | |
| Nuclear decommissioning trust funds | | 4,977 | | | 4,359 | |
| Operating lease right-of-use assets, net | | 110 | | | 123 | |
| Other | | 1,187 | | | 1,149 | |
| Total other noncurrent assets | | 9,270 | | | 8,991 | |
| Total Assets | | $ | 45,048 | | | $ | 44,053 | |
| LIABILITIES AND EQUITY | | | | |
| Current Liabilities | | | | |
| Accounts payable | | $ | 1,000 | | | $ | 954 | |
| Accounts payable to affiliated companies | | 199 | | | 210 | |
| Notes payable to affiliated companies | | 506 | | | 29 | |
| Taxes accrued | | 76 | | | 46 | |
| Interest accrued | | 117 | | | 115 | |
| Current maturities of long-term debt | | 506 | | | 458 | |
| Asset retirement obligations | | 264 | | | 206 | |
| Regulatory liabilities | | 473 | | | 255 | |
| Other | | 546 | | | 611 | |
| Total current liabilities | | 3,687 | | | 2,884 | |
| Long-Term Debt | | 11,412 | | | 11,142 | |
| Long-Term Debt Payable to Affiliated Companies | | 300 | | | 300 | |
| Other Noncurrent Liabilities | | | | |
| Deferred income taxes | | 3,842 | | | 3,921 | |
| Asset retirement obligations | | 5,086 | | | 5,528 | |
| Regulatory liabilities | | 6,535 | | | 6,423 | |
| Operating lease liabilities | | 97 | | | 102 | |
| Accrued pension and other post-retirement benefit costs | | 73 | | | 84 | |
| Investment tax credits | | 236 | | | 231 | |
| Other | | 626 | | | 627 | |
| Total other noncurrent liabilities | | 16,495 | | | 16,916 | |
| Commitments and Contingencies | | 0 | | 0 |
| Equity | | | | |
| Member's equity | | 13,161 | | | 12,818 | |
| Accumulated other comprehensive loss | | (7) | | | (7) | |
| Total equity | | 13,154 | | | 12,811 | |
| Total Liabilities and Equity | | $ | 45,048 | | | $ | 44,053 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 956 | | | $ | 1,403 | | | $ | 1,071 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization (including amortization of nuclear fuel) | 1,731 | | | 1,671 | | | 1,487 | |
| Equity component of AFUDC | (62) | | | (42) | | | (73) | |
| | | | | |
| | | | | |
| | | | | |
| (Gains) Losses on sales of other assets | (1) | | | — | | | 1 | |
| Impairment charges | 476 | | | 17 | | | 192 | |
| Deferred income taxes | (260) | | | 133 | | | 305 | |
| | | | | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (162) | | | (278) | | | (230) | |
| Provision for rate refunds | (5) | | | 36 | | | 182 | |
| (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | (4) | | | (8) | | | 2 | |
| Receivables | 52 | | | (21) | | | (86) | |
| Receivables from affiliated companies | (10) | | | 68 | | | (87) | |
| Inventory | (14) | | | (48) | | | 25 | |
| Other current assets | 209 | | | (73) | | | (161) | |
| Increase (decrease) in | | | | | |
| Accounts payable | 55 | | | (50) | | | 168 | |
| Accounts payable to affiliated companies | (11) | | | (20) | | | 21 | |
| Taxes accrued | 30 | | | (127) | | | (65) | |
| Other current liabilities | (56) | | | 127 | | | 89 | |
| Other assets | (101) | | | (42) | | | (221) | |
| Other liabilities | (47) | | | (37) | | | (90) | |
| Net cash provided by operating activities | 2,776 | | | 2,709 | | | 2,530 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (2,669) | | | (2,714) | | | (2,706) | |
| Purchases of debt and equity securities | (1,602) | | | (1,658) | | | (1,810) | |
| Proceeds from sales and maturities of debt and equity securities | 1,602 | | | 1,658 | | | 1,810 | |
| | | | | |
| | | | | |
| Other | (164) | | | (204) | | | (147) | |
| Net cash used in investing activities | (2,833) | | | (2,918) | | | (2,853) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 998 | | | 886 | | | 1,983 | |
| Payments for the redemption of long-term debt | (813) | | | (6) | | | (1,205) | |
| Notes payable to affiliated companies | 477 | | | (410) | | | 335 | |
| Distributions to parent | (600) | | | (275) | | | (750) | |
| Other | (2) | | | (1) | | | (23) | |
| Net cash provided by financing activities | 60 | | | 194 | | | 340 | |
| Net increase (decrease) in cash and cash equivalents | 3 | | | (15) | | | 17 | |
| Cash and cash equivalents at beginning of period | 18 | | | 33 | | | 16 | |
| Cash and cash equivalents at end of period | $ | 21 | | | $ | 18 | | | $ | 33 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 481 | | | $ | 433 | | | $ | 452 | |
| Cash paid for income taxes | 321 | | | 122 | | | 89 | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 365 | | | 347 | | | 302 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | |
| | | Accumulated Other | | |
| | | | Comprehensive | | |
| | | Loss | | | | |
| | | Net Gains | | | | |
| | | (Losses) on | | | | |
| Member's | | Cash Flow | | | | Total |
| (in millions) | Equity | | Hedges | | | | Equity |
| Balance at December 31, 2017 | $ | 11,368 | | | $ | (7) | | | | | $ | 11,361 | |
| Net income | 1,071 | | | — | | | | | 1,071 | |
| Other comprehensive income | — | | | 1 | | | | | 1 | |
| Distributions to parent | (750) | | | — | | | | | (750) | |
| | | | | | | |
| Balance at December 31, 2018 | $ | 11,689 | | | $ | (6) | | | | | $ | 11,683 | |
| Net income | 1,403 | | | — | | | | | 1,403 | |
| | | | | | | |
| Distributions to parent | (275) | | | — | | | | | (275) | |
| Other | 1 | | | (1) | | | | | 0 | |
| Balance at December 31, 2019 | $ | 12,818 | | | $ | (7) | | | | | $ | 12,811 | |
| Net income | 956 | | | — | | | | | 956 | |
| | | | | | | |
| Distributions to parent | (600) | | | — | | | | | (600) | |
Other(a) | (13) | | | — | | | | | (13) | |
| Balance at December 31, 2020 | $ | 13,161 | | | $ | (7) | | | | | $ | 13,154 | |
(a) Amounts primarily represent impacts due to implementation of a new accounting standard related to Credit Losses. See Note 1 for additional discussion.
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission, South Carolina Public Service Commission and Florida Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $6.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1930.
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 10,627 | | | $ | 11,202 | | | $ | 10,728 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 3,479 | | | 4,024 | | | 3,976 | |
| Operation, maintenance and other | 2,479 | | | 2,495 | | | 2,613 | |
| Depreciation and amortization | 1,818 | | | 1,845 | | | 1,619 | |
| Property and other taxes | 545 | | | 561 | | | 529 | |
| Impairment charges | 495 | | | (24) | | | 87 | |
| Total operating expenses | 8,816 | | | 8,901 | | | 8,824 | |
| Gains on Sales of Other Assets and Other, net | 9 | | | — | | | 24 | |
| Operating Income | 1,820 | | | 2,301 | | | 1,928 | |
| Other Income and Expenses, net | 129 | | | 141 | | | 165 | |
| Interest Expense | 790 | | | 862 | | | 842 | |
| Income Before Income Taxes | 1,159 | | | 1,580 | | | 1,251 | |
| Income Tax Expense | 113 | | | 253 | | | 218 | |
| | | | | |
| | | | | |
| Net Income | 1,046 | | | 1,327 | | | 1,033 | |
| Less: Net Income Attributable to Noncontrolling Interests | 1 | | | — | | | 6 | |
| Net Income Attributable to Parent | $ | 1,045 | | | $ | 1,327 | | | $ | 1,027 | |
| | | | | |
| Net Income | $ | 1,046 | | | $ | 1,327 | | | $ | 1,033 | |
| Other Comprehensive Income, net of tax | | | | | |
| Pension and OPEB adjustments | (1) | | | 2 | | | 5 | |
| Net unrealized gain on cash flow hedges | 5 | | | 5 | | | 6 | |
| | | | | |
| | | | | |
| Unrealized (losses) gains on available-for-sale securities | (1) | | | 1 | | | (1) | |
| | | | | |
| Other Comprehensive Income, net of tax | 3 | | | 8 | | | 10 | |
| Comprehensive Income | 1,049 | | | 1,335 | | | 1,043 | |
| Less: Comprehensive Income Attributable to Noncontrolling Interests | 1 | | | — | | | 6 | |
| Comprehensive Income Attributable to Parent | $ | 1,048 | | | $ | 1,335 | | | $ | 1,037 | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 59 | | | $ | 48 | |
| Receivables (net of allowance for doubtful accounts of $8 at 2020 and $7 at 2019) | 228 | | | 220 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $29 at 2020 and $9 at 2019) | 901 | | | 830 | |
| Receivables from affiliated companies | 157 | | | 76 | |
| Notes receivable from affiliated companies | — | | | 164 | |
| Inventory | 1,375 | | | 1,423 | |
| Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 758 | | | 946 | |
| Other (includes $39 at 2020 and 2019 related to VIEs) | 109 | | | 210 | |
| Total current assets | 3,587 | | | 3,917 | |
| Property, Plant and Equipment | | | |
| Cost | 57,892 | | | 55,070 | |
| Accumulated depreciation and amortization | (18,368) | | | (17,159) | |
| Generation facilities to be retired, net | 29 | | | 246 | |
| Net property, plant and equipment | 39,553 | | | 38,157 | |
| Other Noncurrent Assets | | | |
| Goodwill | 3,655 | | | 3,655 | |
| Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 5,775 | | | 6,346 | |
| Nuclear decommissioning trust funds | 4,137 | | | 3,782 | |
| Operating lease right-of-use assets, net | 690 | | | 788 | |
| Other | 1,227 | | | 1,049 | |
| Total other noncurrent assets | 15,484 | | | 15,620 | |
| Total Assets | $ | 58,624 | | | $ | 57,694 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 919 | | | $ | 1,104 | |
| Accounts payable to affiliated companies | 289 | | | 310 | |
| Notes payable to affiliated companies | 2,969 | | | 1,821 | |
| Taxes accrued | 121 | | | 46 | |
| Interest accrued | 202 | | | 228 | |
| Current maturities of long-term debt (includes $305 at 2020 and $54 at 2019 related to VIEs) | 1,426 | | | 1,577 | |
| Asset retirement obligations | 283 | | | 485 | |
| Regulatory liabilities | 640 | | | 330 | |
| Other | 793 | | | 902 | |
| Total current liabilities | 7,642 | | | 6,803 | |
| Long-Term Debt (includes $1,252 at 2020 and $1,632 at 2019 related to VIEs) | 17,688 | | | 17,907 | |
| Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 4,396 | | | 4,462 | |
| Asset retirement obligations | 5,866 | | | 5,986 | |
| Regulatory liabilities | 5,051 | | | 5,225 | |
| Operating lease liabilities | 623 | | | 697 | |
| Accrued pension and other post-retirement benefit costs | 505 | | | 488 | |
| Other | 462 | | | 383 | |
| Total other noncurrent liabilities | 16,903 | | | 17,241 | |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | |
| Common stock, $0.01 par value, 100 shares authorized and outstanding at 2020 and 2019 | — | | | — | |
| Additional paid-in capital | 9,143 | | | 9,143 | |
| Retained earnings | 7,109 | | | 6,465 | |
| Accumulated other comprehensive loss | (15) | | | (18) | |
| Total Progress Energy, Inc. stockholder's equity | 16,237 | | | 15,590 | |
| Noncontrolling interests | 4 | | | 3 | |
| Total equity | 16,241 | | | 15,593 | |
| Total Liabilities and Equity | $ | 58,624 | | | $ | 57,694 | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 1,046 | | | $ | 1,327 | | | $ | 1,033 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization and accretion (including amortization of nuclear fuel) | 2,327 | | | 2,207 | | | 1,987 | |
| Equity component of AFUDC | (42) | | | (66) | | | (104) | |
| | | | | |
| | | | | |
| | | | | |
| Gains on sales of other assets | (9) | | | — | | | (24) | |
| Impairment charges | 495 | | | (24) | | | 87 | |
| Deferred income taxes | (197) | | | 433 | | | 358 | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (384) | | | (412) | | | (230) | |
| | | | | |
| Provision for rate refunds | 2 | | | 15 | | | 122 | |
| (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | (9) | | | (34) | | | 18 | |
| Receivables | (69) | | | 47 | | | (207) | |
| Receivables from affiliated companies | (81) | | | 81 | | | (137) | |
| Inventory | 49 | | | 62 | | | 121 | |
| Other current assets | 223 | | | 184 | | | (12) | |
| Increase (decrease) in | | | | | |
| Accounts payable | (62) | | | (4) | | | 217 | |
| Accounts payable to affiliated companies | (21) | | | (50) | | | 109 | |
| Taxes accrued | 75 | | | (74) | | | 8 | |
| Other current liabilities | 139 | | | 25 | | | 129 | |
| Other assets | (128) | | | (341) | | | (896) | |
| Other liabilities | (177) | | | (167) | | | (35) | |
| Net cash provided by operating activities | 3,177 | | | 3,209 | | | 2,544 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (3,488) | | | (3,952) | | | (3,854) | |
| | | | | |
| Purchases of debt and equity securities | (5,998) | | | (1,511) | | | (1,753) | |
| Proceeds from sales and maturities of debt and equity securities | 6,010 | | | 1,504 | | | 1,769 | |
| | | | | |
| | | | | |
| | | | | |
| Notes receivable from affiliated companies | 164 | | | (164) | | | 240 | |
| | | | | |
| Other | (160) | | | (190) | | | (162) | |
| Net cash used in investing activities | (3,472) | | | (4,313) | | | (3,760) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 1,791 | | | 2,187 | | | 1,833 | |
| Payments for the redemption of long-term debt | (2,157) | | | (1,667) | | | (771) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Notes payable to affiliated companies | 1,148 | | | 586 | | | 430 | |
| | | | | |
| | | | | |
| | | | | |
| Dividends to parent | (400) | | | — | | | (250) | |
| Other | (13) | | | 12 | | | (1) | |
| Net cash provided by financing activities | 369 | | | 1,118 | | | 1,241 | |
| Net increase in cash, cash equivalents, and restricted cash | 74 | | | 14 | | | 25 | |
| Cash, cash equivalents, and restricted cash at beginning of period | 126 | | | 112 | | | 87 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 200 | | | $ | 126 | | | $ | 112 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 819 | | | $ | 892 | | | $ | 798 | |
| Cash paid for (received from) income taxes | 149 | | | (79) | | | (348) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 363 | | | 447 | | | 478 | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Accumulated Other Comprehensive Income (Loss) | | | | | | |
| | | | | | | Net Gains | | Net Unrealized | | | | Total Progress | | | | |
| | | Additional | | | | (Losses) on | | Gains (Losses) | | Pension and | | Energy, Inc. | | | | |
| | | Paid-in | | Retained | | Cash Flow | | on Available-for- | | OPEB | | Stockholder's | | Noncontrolling | | Total |
| (in millions) | | | Capital | | Earnings | | Hedges | | Sale Securities | | Adjustments | | Equity | | Interests | | Equity |
| Balance at December 31, 2017 | | | $ | 9,143 | | | $ | 4,350 | | | $ | (18) | | | $ | 5 | | | $ | (12) | | | $ | 13,468 | | | $ | (3) | | | $ | 13,465 | |
| Net income | | | — | | | 1,027 | | | — | | | — | | | — | | | 1,027 | | | 6 | | | 1,033 | |
| Other comprehensive income (loss) | | | — | | | — | | | 6 | | | (1) | | | 5 | | | 10 | | | — | | | 10 | |
| | | | | | | | | | | | | | | | | |
| Distributions to noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
| | | | | | | | | | | | | | | | | |
| Dividends to parent | | | — | | | (250) | | | — | | | — | | | — | | | (250) | | | — | | | (250) | |
| | | | | | | | | | | | | | | | | |
Other(a) | | | — | | | 4 | | | — | | | (5) | | | — | | | (1) | | | 1 | | | 0 | |
| Balance at December 31, 2018 | | | $ | 9,143 | | | $ | 5,131 | | | $ | (12) | | | $ | (1) | | | $ | (7) | | | $ | 14,254 | | | $ | 3 | | | $ | 14,257 | |
| Net income | | | — | | | 1,327 | | | — | | | — | | | — | | | 1,327 | | | — | | | 1,327 | |
| Other comprehensive income | | | — | | | — | | | 5 | | | 1 | | | 2 | | | 8 | | | — | | | 8 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Other(b) | | | — | | | 7 | | | (3) | | | (1) | | | (2) | | | 1 | | | — | | | 1 | |
| Balance at December 31, 2019 | | | $ | 9,143 | | | $ | 6,465 | | | $ | (10) | | | $ | (1) | | | $ | (7) | | | $ | 15,590 | | | $ | 3 | | | $ | 15,593 | |
| Net income | | | — | | | 1,045 | | | — | | | — | | | — | | | 1,045 | | | 1 | | | 1,046 | |
| Other comprehensive income (loss) | | | — | | | — | | | 5 | | | (1) | | | (1) | | | 3 | | | — | | | 3 | |
| | | | | | | | | | | | | | | | | |
| Dividends to parent | | | — | | | (400) | | | — | | | — | | | — | | | (400) | | | — | | | (400) | |
| | | | | | | | | | | | | | | | | |
| Other | | | — | | | (1) | | | — | | | — | | | — | | | (1) | | | — | | | (1) | |
| Balance at December 31, 2020 | | | $ | 9,143 | | | $ | 7,109 | | | $ | (5) | | | $ | (2) | | | $ | (8) | | | $ | 16,237 | | | $ | 4 | | | $ | 16,241 | |
(a) Amounts in Retained Earnings and AOCI represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information.
(b) Amounts in Retained Earnings and AOCI primarily represent impacts to accumulated other comprehensive income due to implementation of a new accounting standard related to Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1, 3, and 9 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission and by the South Carolina Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $4.5 billion recorded as regulatory assets.
The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Rates charged to customers are determined and approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on the Company’s investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment and the timing and amount of assets to be recovered by rates. The regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. As discussed in Note 3, regulatory proceedings in recent years in North Carolina and South Carolina have focused on the recoverability of asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders in North Carolina and South Carolina requires significant management judgment.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1930.
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 5,422 | | | $ | 5,957 | | | $ | 5,699 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 1,743 | | | 2,012 | | | 1,892 | |
| Operation, maintenance and other | 1,332 | | | 1,446 | | | 1,578 | |
| Depreciation and amortization | 1,116 | | | 1,143 | | | 991 | |
| Property and other taxes | 167 | | | 176 | | | 155 | |
| Impairment charges | 499 | | | 12 | | | 33 | |
| Total operating expenses | 4,857 | | | 4,789 | | | 4,649 | |
| Gains on Sales of Other Assets and Other, net | 8 | | | — | | | 9 | |
| Operating Income | 573 | | | 1,168 | | | 1,059 | |
| Other Income and Expenses, net | 75 | | | 100 | | | 87 | |
| Interest Expense | 269 | | | 306 | | | 319 | |
| Income Before Income Taxes | 379 | | | 962 | | | 827 | |
| Income Tax (Benefit) Expense | (36) | | | 157 | | | 160 | |
| Net Income and Comprehensive Income | $ | 415 | | | $ | 805 | | | $ | 667 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 39 | | | $ | 22 | |
| Receivables (net of allowance for doubtful accounts of $4 at 2020 and $3 at 2019) | 132 | | | 123 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $19 at 2020 and $5 at 2019) | 500 | | | 489 | |
| Receivables from affiliated companies | 50 | | | 52 | |
| | | |
| Inventory | 911 | | | 934 | |
| Regulatory assets | 492 | | | 526 | |
| Other | 60 | | | 60 | |
| Total current assets | 2,184 | | | 2,206 | |
| Property, Plant and Equipment | | | |
| Cost | 35,759 | | | 34,603 | |
| Accumulated depreciation and amortization | (12,801) | | | (11,915) | |
| Generation facilities to be retired, net | 29 | | | 246 | |
| Net property, plant and equipment | 22,987 | | | 22,934 | |
| Other Noncurrent Assets | | | |
| Regulatory assets | 3,976 | | | 4,152 | |
| Nuclear decommissioning trust funds | 3,500 | | | 3,047 | |
| Operating lease right-of-use assets, net | 346 | | | 387 | |
| Other | 740 | | | 651 | |
| Total other noncurrent assets | 8,562 | | | 8,237 | |
| Total Assets | $ | 33,733 | | | $ | 33,377 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 454 | | | $ | 629 | |
| Accounts payable to affiliated companies | 215 | | | 203 | |
| Notes payable to affiliated companies | 295 | | | 66 | |
| Taxes accrued | 85 | | | 17 | |
| Interest accrued | 99 | | | 110 | |
| Current maturities of long-term debt | 603 | | | 1,006 | |
| Asset retirement obligations | 283 | | | 485 | |
| Regulatory liabilities | 530 | | | 236 | |
| Other | 411 | | | 478 | |
| Total current liabilities | 2,975 | | | 3,230 | |
| Long-Term Debt | 8,505 | | | 7,902 | |
| Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 2,298 | | | 2,388 | |
| Asset retirement obligations | 5,352 | | | 5,408 | |
| Regulatory liabilities | 4,394 | | | 4,232 | |
| Operating lease liabilities | 323 | | | 354 | |
| Accrued pension and other post-retirement benefit costs | 242 | | | 238 | |
| Investment tax credits | 132 | | | 137 | |
| Other | 102 | | | 92 | |
| Total other noncurrent liabilities | 12,843 | | | 12,849 | |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | |
| Member's Equity | 9,260 | | | 9,246 | |
| | | |
| | | |
| | | |
| Total Liabilities and Equity | $ | 33,733 | | | $ | 33,377 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 415 | | | $ | 805 | | | $ | 667 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization (including amortization of nuclear fuel) | 1,299 | | | 1,329 | | | 1,183 | |
| Equity component of AFUDC | (29) | | | (60) | | | (57) | |
| | | | | |
| | | | | |
| | | | | |
| Gains on sales of other assets | (8) | | | — | | | (9) | |
| Impairment charges | 499 | | | 12 | | | 33 | |
| Deferred income taxes | (234) | | | 197 | | | 236 | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (304) | | | (390) | | | (195) | |
| | | | | |
| Provisions for rate refunds | 2 | | | 12 | | | 122 | |
| (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | 1 | | | (6) | | | 5 | |
| Receivables | (4) | | | 21 | | | (107) | |
| Receivables from affiliated companies | 2 | | | (29) | | | (20) | |
| Inventory | 23 | | | 20 | | | 63 | |
| Other current assets | 98 | | | 101 | | | (201) | |
| Increase (decrease) in | | | | | |
| Accounts payable | (127) | | | 32 | | | 219 | |
| Accounts payable to affiliated companies | 12 | | | (75) | | | 99 | |
| Taxes accrued | 68 | | | (46) | | | (11) | |
| Other current liabilities | 157 | | | 68 | | | 46 | |
| Other assets | (207) | | | (205) | | | (465) | |
| Other liabilities | 3 | | | 37 | | | 20 | |
| Net cash provided by operating activities | 1,666 | | | 1,823 | | | 1,628 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (1,581) | | | (2,108) | | | (2,220) | |
| | | | | |
| Purchases of debt and equity securities | (1,555) | | | (842) | | | (1,236) | |
| Proceeds from sales and maturities of debt and equity securities | 1,516 | | | 810 | | | 1,206 | |
| | | | | |
| | | | | |
| | | | | |
| Other | (57) | | | (119) | | | (95) | |
| Net cash used in investing activities | (1,677) | | | (2,259) | | | (2,345) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 1,296 | | | 1,269 | | | 845 | |
| Payments for the redemption of long-term debt | (1,085) | | | (605) | | | (3) | |
| | | | | |
| Notes payable to affiliated companies | 229 | | | (228) | | | 54 | |
| | | | | |
| Distributions to parent | (400) | | | — | | | (175) | |
| | | | | |
| Other | (12) | | | (1) | | | (1) | |
| Net cash provided by financing activities | 28 | | | 435 | | | 720 | |
| Net increase (decrease) in cash and cash equivalents | 17 | | | (1) | | | 3 | |
| Cash and cash equivalents at beginning of period | 22 | | | 23 | | | 20 | |
| Cash and cash equivalents at end of period | $ | 39 | | | $ | 22 | | | $ | 23 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 301 | | | $ | 331 | | | $ | 303 | |
| Cash paid for (received from) income taxes | 123 | | | (30) | | | (112) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 149 | | | 175 | | | 220 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | |
| | | | | Member's | | | | |
| (in millions) | | | | | Equity | | | | |
| Balance at December 31, 2017 | | | | | $ | 7,949 | | | | | |
| Net income | | | | | 667 | | | | | |
| Distribution to parent | | | | | (175) | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2018 | | | | | $ | 8,441 | | | | | |
| Net income | | | | | 805 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2019 | | | | | $ | 9,246 | | | | | |
| Net income | | | | | 415 | | | | | |
| Distribution to parent | | | | | (400) | | | | | |
| | | | | | | | | |
| Other | | | | | (1) | | | | | |
| Balance at December 31, 2020 | | | | | $ | 9,260 | | | | | |
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Florida Public Service Commission (the “Commission”), which has jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $2.1 billion recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commission; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commission, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commission, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commission’s treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commission, including the settlement agreement filed with the Commission subsequent to December 31, 2020, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 2001.
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 5,188 | | | $ | 5,231 | | | $ | 5,021 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 1,737 | | | 2,012 | | | 2,085 | |
| Operation, maintenance and other | 1,131 | | | 1,034 | | | 1,025 | |
| Depreciation and amortization | 702 | | | 702 | | | 628 | |
| Property and other taxes | 381 | | | 392 | | | 374 | |
| Impairment charges | (4) | | | (36) | | | 54 | |
| Total operating expenses | 3,947 | | | 4,104 | | | 4,166 | |
| Gains on Sales of Other Assets and Other, net | 1 | | | — | | | 1 | |
| Operating Income | 1,242 | | | 1,127 | | | 856 | |
| Other Income and Expenses, net | 53 | | | 48 | | | 86 | |
| Interest Expense | 326 | | | 328 | | | 287 | |
| Income Before Income Taxes | 969 | | | 847 | | | 655 | |
| Income Tax Expense | 198 | | | 155 | | | 101 | |
| Net Income | $ | 771 | | | $ | 692 | | | $ | 554 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other Comprehensive Income (Loss), net of tax | | | | | |
| Unrealized (losses) gains on available-for-sale securities | (1) | | | 1 | | | (1) | |
| | | | | |
| | | | | |
| Other Comprehensive (Loss) Income, net of tax | (1) | | | 1 | | | (1) | |
| Comprehensive Income | $ | 770 | | | $ | 693 | | | $ | 553 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 11 | | | $ | 17 | |
| Receivables (net of allowance for doubtful accounts of $4 at 2020 and $3 at 2019) | 94 | | | 96 | |
| Receivables of VIEs (net of allowance for doubtful accounts of $10 at 2020 and $4 at 2019) | 401 | | | 341 | |
| Receivables from affiliated companies | 3 | | | — | |
| Notes receivable from affiliated companies | — | | | 173 | |
| Inventory | 464 | | | 489 | |
| Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs) | 265 | | | 419 | |
| Other (includes $39 at 2020 and 2019 related to VIEs) | 41 | | | 58 | |
| Total current assets | 1,279 | | | 1,593 | |
| Property, Plant and Equipment | | | |
| Cost | 22,123 | | | 20,457 | |
| Accumulated depreciation and amortization | (5,560) | | | (5,236) | |
| Net property, plant and equipment | 16,563 | | | 15,221 | |
| Other Noncurrent Assets | | | |
| | | |
| Regulatory assets (includes $937 at 2020 and $989 at 2019 related to VIEs) | 1,799 | | | 2,194 | |
| Nuclear decommissioning trust funds | 637 | | | 734 | |
| Operating lease right-of-use assets, net | 344 | | | 401 | |
| Other | 335 | | | 311 | |
| Total other noncurrent assets | 3,115 | | | 3,640 | |
| Total Assets | $ | 20,957 | | | $ | 20,454 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 465 | | | $ | 474 | |
| Accounts payable to affiliated companies | 85 | | | 131 | |
| Notes payable to affiliated companies | 196 | | | — | |
| Taxes accrued | 82 | | | 43 | |
| Interest accrued | 69 | | | 75 | |
| Current maturities of long-term debt (includes $305 at 2020 and $54 at 2019 related to VIEs) | 823 | | | 571 | |
| | | |
| Regulatory liabilities | 110 | | | 94 | |
| Other | 374 | | | 415 | |
| Total current liabilities | 2,204 | | | 1,803 | |
| Long-Term Debt (includes $1,002 at 2020 and $1,307 at 2019 related to VIEs) | 7,092 | | | 7,416 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 2,191 | | | 2,179 | |
| | | |
| Asset retirement obligations | 514 | | | 578 | |
| Regulatory liabilities | 658 | | | 993 | |
| Operating lease liabilities | 300 | | | 343 | |
| Accrued pension and other post-retirement benefit costs | 231 | | | 218 | |
| | | |
| Other | 209 | | | 136 | |
| Total other noncurrent liabilities | 4,103 | | | 4,447 | |
| Commitments and Contingencies | 0 | | 0 |
| | | |
| Equity | | | |
| Member's equity | 7,560 | | | 6,789 | |
| | | |
| | | |
| Accumulated other comprehensive loss | (2) | | | (1) | |
| Total equity | 7,558 | | | 6,788 | |
| Total Liabilities and Equity | $ | 20,957 | | | $ | 20,454 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 771 | | | $ | 692 | | | $ | 554 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization and accretion | 1,019 | | | 869 | | | 793 | |
| Equity component of AFUDC | (12) | | | (6) | | | (47) | |
| | | | | |
| Gains on sales of other assets | (1) | | | — | | | (1) | |
| Impairment charges | (4) | | | (36) | | | 54 | |
| Deferred income taxes | 27 | | | 180 | | | 159 | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (80) | | | (22) | | | (35) | |
| (Increase) decrease in | | | | | |
| Net realized and unrealized mark-to-market and hedging transactions | (14) | | | (33) | | | 7 | |
| Receivables | (64) | | | 26 | | | (100) | |
| Receivables from affiliated companies | (3) | | | 17 | | | (26) | |
| Inventory | 26 | | | 42 | | | 58 | |
| Other current assets | 40 | | | 156 | | | 59 | |
| Increase (decrease) in | | | | | |
| Accounts payable | 66 | | | (36) | | | (1) | |
| Accounts payable to affiliated companies | (46) | | | 40 | | | 17 | |
| Taxes accrued | 39 | | | (31) | | | 40 | |
| Other current liabilities | (7) | | | (36) | | | 82 | |
| Other assets | 85 | | | (131) | | | (429) | |
| Other liabilities | (181) | | | (213) | | | (75) | |
| Net cash provided by operating activities | 1,661 | | | 1,478 | | | 1,109 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (1,907) | | | (1,844) | | | (1,634) | |
| | | | | |
| Purchases of debt and equity securities | (4,443) | | | (669) | | | (517) | |
| Proceeds from sales and maturities of debt and equity securities | 4,495 | | | 695 | | | 563 | |
| | | | | |
| | | | | |
| Notes receivable from affiliated companies | 173 | | | (173) | | | 313 | |
| | | | | |
| Other | (103) | | | (67) | | | (65) | |
| Net cash used in investing activities | (1,785) | | | (2,058) | | | (1,340) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 495 | | | 918 | | | 988 | |
| Payments for the redemption of long-term debt | (572) | | | (262) | | | (769) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Notes payable to affiliated companies | 196 | | | (108) | | | 108 | |
| | | | | |
| Distribution to parent | — | | | — | | | (75) | |
| | | | | |
| Other | (1) | | | 13 | | | 1 | |
| Net cash provided by financing activities | 118 | | | 561 | | | 253 | |
| Net (decrease) increase in cash, cash equivalents, and restricted cash | (6) | | | (19) | | | 22 | |
| Cash, cash equivalents, and restricted cash at beginning of period | 56 | | | 75 | | | 53 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 50 | | | $ | 56 | | | $ | 75 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 321 | | | $ | 332 | | | $ | 270 | |
| Cash paid for (received from) income taxes | 138 | | | 1 | | | (120) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 214 | | | 272 | | | 258 | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Accumulated | | |
| | | | | | | Other | | |
| | | | | | | Comprehensive | | |
| | | | | | | Income (Loss) | | |
| | | | | | | Net Unrealized | | | | |
| | | | | | | Gains (Losses) on | | | | |
| | | | | | Member's | | Available-for- | | | | Total |
| (in millions) | | | | | Equity | | Sale Securities | | | | Equity |
| Balance at December 31, 2017 | | | | | $ | 5,614 | | | $ | 4 | | | | | $ | 5,618 | |
| Net income | | | | | 554 | | | — | | | | | 554 | |
| Other comprehensive loss | | | | | — | | | (1) | | | | | (1) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Distribution to parent | | | | | (75) | | | — | | | | | (75) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other(a) | | | | | 4 | | | (5) | | | | | (1) | |
| Balance at December 31, 2018 | | | | | $ | 6,097 | | | $ | (2) | | | | | $ | 6,095 | |
| Net income | | | | | 692 | | | — | | | | | 692 | |
| Other comprehensive income | | | | | — | | | 1 | | | | | 1 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balance at December 31, 2019 | | | | | $ | 6,789 | | | $ | (1) | | | | | $ | 6,788 | |
| Net income | | | | | 771 | | | — | | | | | 771 | |
| Other comprehensive loss | | | | | — | | | (1) | | | | | (1) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balance at December 31, 2020 | | | | | $ | 7,560 | | | $ | (2) | | | | | $ | 7,558 | |
(a) Amounts represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information.
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
CriticalAuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Public Utilities Commission of Ohio and by the Kentucky Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric and gas rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $650 million recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 2002.
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | | | | | |
| Regulated electric | $ | 1,405 | | | $ | 1,456 | | | $ | 1,450 | |
| Regulated natural gas | 453 | | | 484 | | | 506 | |
| Nonregulated electric and other | — | | | — | | | 1 | |
| Total operating revenues | 1,858 | | | 1,940 | | | 1,957 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power – regulated | 339 | | | 388 | | | 412 | |
| | | | | |
| Cost of natural gas | 73 | | | 95 | | | 113 | |
| Operation, maintenance and other | 463 | | | 520 | | | 480 | |
| Depreciation and amortization | 278 | | | 265 | | | 268 | |
| Property and other taxes | 324 | | | 308 | | | 290 | |
| | | | | |
| Total operating expenses | 1,477 | | | 1,576 | | | 1,563 | |
| Losses on Sales of Other Assets and Other, net | — | | | — | | | (106) | |
| Operating Income | 381 | | | 364 | | | 288 | |
| Other Income and Expenses, net | 16 | | | 24 | | | 23 | |
| Interest Expense | 102 | | | 109 | | | 92 | |
| Income From Continuing Operations Before Income Taxes | 295 | | | 279 | | | 219 | |
| Income Tax Expense From Continuing Operations | 43 | | | 40 | | | 43 | |
| Income From Continuing Operations | 252 | | | 239 | | | 176 | |
| Loss From Discontinued Operations, net of tax | — | | | (1) | | | — | |
| Net Income and Comprehensive Income | $ | 252 | | | $ | 238 | | | $ | 176 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 14 | | | $ | 17 | |
| Receivables (net of allowance for doubtful accounts of $4 at 2020 and $4 at 2019) | 98 | | | 84 | |
| Receivables from affiliated companies | 102 | | | 92 | |
| | | |
| Inventory | 110 | | | 135 | |
| | | |
| Regulatory assets | 39 | | | 49 | |
| Other | 31 | | | 21 | |
| Total current assets | 394 | | | 398 | |
| Property, Plant and Equipment | | | |
| Cost | 11,022 | | | 10,241 | |
| Accumulated depreciation and amortization | (3,013) | | | (2,843) | |
| | | |
| Net property, plant and equipment | 8,009 | | | 7,398 | |
| Other Noncurrent Assets | | | |
| Goodwill | 920 | | | 920 | |
| Regulatory assets | 610 | | | 549 | |
| Operating lease right-of-use assets, net | 20 | | | 21 | |
| | | |
| | | |
| | | |
| Other | 72 | | | 52 | |
| Total other noncurrent assets | 1,622 | | | 1,542 | |
| Total Assets | $ | 10,025 | | | $ | 9,338 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 279 | | | $ | 288 | |
| Accounts payable to affiliated companies | 68 | | | 68 | |
| Notes payable to affiliated companies | 169 | | | 312 | |
| Taxes accrued | 247 | | | 219 | |
| Interest accrued | 31 | | | 30 | |
| Current maturities of long-term debt | 50 | | | — | |
| | | |
| Asset retirement obligations | 3 | | | 1 | |
| Regulatory liabilities | 65 | | | 64 | |
| Other | 70 | | | 75 | |
| Total current liabilities | 982 | | | 1,057 | |
| Long-Term Debt | 3,014 | | | 2,594 | |
| Long-Term Debt Payable to Affiliated Companies | 25 | | | 25 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 981 | | | 922 | |
| Asset retirement obligations | 108 | | | 79 | |
| Regulatory liabilities | 748 | | | 763 | |
| Operating lease liabilities | 20 | | | 21 | |
| Accrued pension and other post-retirement benefit costs | 113 | | | 100 | |
| | | |
| | | |
| Other | 99 | | | 94 | |
| Total other noncurrent liabilities | 2,069 | | | 1,979 | |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | |
| Common stock, $8.50 par value, 120 million shares authorized; 90 million shares outstanding at 2020 and 2019 | 762 | | | 762 | |
| Additional paid-in capital | 2,776 | | | 2,776 | |
| Retained earnings | 397 | | | 145 | |
| | | |
| Total equity | 3,935 | | | 3,683 | |
| Total Liabilities and Equity | $ | 10,025 | | | $ | 9,338 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 252 | | | $ | 238 | | | $ | 176 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization and accretion | 283 | | | 269 | | | 271 | |
| Equity component of AFUDC | (7) | | | (13) | | | (11) | |
| Losses on sales of other assets | 0 | | | 0 | | | 106 | |
| | | | | |
| Deferred income taxes | 31 | | | 81 | | | 25 | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (2) | | | (8) | | | (3) | |
| Provision for rate refunds | 14 | | | 7 | | | 24 | |
| (Increase) decrease in | | | | | |
| | | | | |
| Receivables | (13) | | | 20 | | | (33) | |
| Receivables from affiliated companies | 9 | | | 22 | | | 19 | |
| Inventory | 25 | | | (9) | | | 7 | |
| Other current assets | (18) | | | (5) | | | 16 | |
| Increase (decrease) in | | | | | |
| Accounts payable | 2 | | | (17) | | | (19) | |
| Accounts payable to affiliated companies | 0 | | | (10) | | | 16 | |
| Taxes accrued | 30 | | | 17 | | | 12 | |
| Other current liabilities | 3 | | | 1 | | | 14 | |
| Other assets | (32) | | | (26) | | | (24) | |
| Other liabilities | (2) | | | (41) | | | (26) | |
| Net cash provided by operating activities | 575 | | | 526 | | | 570 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (834) | | | (952) | | | (827) | |
| | | | | |
| | | | | |
| Notes receivable from affiliated companies | (19) | | | — | | | 14 | |
| | | | | |
| Other | (48) | | | (68) | | | (89) | |
| Net cash used in investing activities | (901) | | | (1,020) | | | (902) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 467 | | | 1,003 | | | 99 | |
| Payments for the redemption of long-term debt | — | | | (551) | | | (3) | |
| Notes payable to affiliated companies | (144) | | | 38 | | | 245 | |
| | | | | |
| | | | | |
| Net cash provided by financing activities | 323 | | | 490 | | | 341 | |
| Net (decrease) increase in cash and cash equivalents | (3) | | | (4) | | | 9 | |
| Cash and cash equivalents at beginning of period | 17 | | | 21 | | | 12 | |
| Cash and cash equivalents at end of period | $ | 14 | | | $ | 17 | | | $ | 21 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 97 | | | $ | 97 | | | $ | 87 | |
| Cash received from income taxes | — | | | (37) | | | (6) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 104 | | | 109 | | | 95 | |
| Non-cash equity contribution from parent | — | | | — | | | 106 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | Additional | | Retained | | | | |
| Common | | Paid-in | | Earnings | | | | Total |
| (in millions) | Stock | | Capital | | (Deficit) | | | | Equity |
| Balance at December 31, 2017 | $ | 762 | | | $ | 2,670 | | | $ | (269) | | | | | $ | 3,163 | |
| Net income | — | | | — | | | 176 | | | | | 176 | |
| Contribution from parent | — | | | 106 | | | — | | | | | 106 | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2018 | $ | 762 | | | $ | 2,776 | | | $ | (93) | | | | | $ | 3,445 | |
| Net income | — | | | — | | | 238 | | | | | 238 | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2019 | $ | 762 | | | $ | 2,776 | | | $ | 145 | | | | | $ | 3,683 | |
| Net income | — | | | — | | | 252 | | | | | 252 | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2020 | $ | 762 | | | $ | 2,776 | | | $ | 397 | | | | | $ | 3,935 | |
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Indiana Utility Regulatory Commission (the “Commission”), which has jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $1.3 billion recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commission; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commission, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commission, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commission’s treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commission, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
Duke Energy Indiana Coal Ash Asset Retirement Obligations – Refer to Notes 3, 4, and 9 to the financial statements
Critical Audit Matter Description
Duke Energy Indiana has asset retirement obligations associated with coal ash impoundments at operating and retired coal generation facilities. These legal obligations are the result of Indiana state and federal regulations. There is significant judgment in determining the assumptions used in estimating the closure costs for each site since Duke Energy Indiana does not have approved closure plans for certain sites. Potential changes to the projected closure costs for each site as well as probability weightings for the cash flows associated with the different potential closure methods (“probability weightings”) creates estimation uncertainty. The liability for coal ash asset retirement obligations at Duke Energy Indiana was $1,140 million at December 31, 2020.
We identified the asset retirement obligations associated with coal ash impoundments at Duke Energy Indiana as a critical audit matter because of the significant management estimates and assumptions, including projected closure costs as well as the different potential closure methods. The audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to potential changes to the projected closure costs for each site as well as probability weightings for the cash flows associated with the different potential closure methods required a high degree of auditor judgment and an increased extent of effort, including the need to involve our environmental specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the underlying estimated closure costs for coal ash asset retirement obligations at Duke Energy Indiana included the following, among others:
•We tested the effectiveness of controls over management’s coal ash asset retirement obligation estimate, including those over management’s determination of the estimated closure costs and probability weightings.
•We evaluated management’s ability to accurately estimate future closure costs by comparing actual closure costs to management’s historical estimates.
•We tested the mathematical accuracy of management’s coal ash asset retirement obligation calculations, including the application of probability weightings.
•We made inquiries of internal and external legal counsel regarding the status of the legal matters associated with the probability weightings.
•We inspected the opinions from internal and external legal counsel supporting the probability weightings.
•We inspected the Company’s filings with and orders from the Indiana Department of Environmental Management, for evidence that might contradict management’s assertions regarding the estimated closure costs and probability weightings.
•With the assistance of our environmental specialists, we evaluated the reasonableness of management’s estimated closure costs by comparing the costs to actual costs incurred at comparable coal ash impoundments, underlying contracts, and publicly available industry cost data, as applicable.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 2002.
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | $ | 2,795 | | | $ | 3,004 | | | $ | 3,059 | |
| Operating Expenses | | | | | |
| Fuel used in electric generation and purchased power | 767 | | | 935 | | | 1,000 | |
| Operation, maintenance and other | 762 | | | 790 | | | 788 | |
| Depreciation and amortization | 569 | | | 525 | | | 520 | |
| Property and other taxes | 81 | | | 69 | | | 78 | |
| Impairment charges | — | | | — | | | 30 | |
| Total operating expenses | 2,179 | | | 2,319 | | | 2,416 | |
| | | | | |
| Operating Income | 616 | | | 685 | | | 643 | |
| Other Income and Expenses, net | 37 | | | 41 | | | 45 | |
| Interest Expense | 161 | | | 156 | | | 167 | |
| Income Before Income Taxes | 492 | | | 570 | | | 521 | |
| Income Tax Expense | 84 | | | 134 | | | 128 | |
| Net Income and Comprehensive Income | $ | 408 | | | $ | 436 | | | $ | 393 | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 7 | | | $ | 25 | |
| Receivables (net of allowance for doubtful accounts of $3 at 2020 and $3 at 2019) | 55 | | | 60 | |
| Receivables from affiliated companies | 112 | | | 79 | |
| | | |
| Inventory | 473 | | | 517 | |
| Regulatory assets | 125 | | | 90 | |
| Other | 37 | | | 60 | |
| Total current assets | 809 | | | 831 | |
| Property, Plant and Equipment | | | |
| Cost | 17,382 | | | 16,305 | |
| Accumulated depreciation and amortization | (5,661) | | | (5,233) | |
| | | |
| Net property, plant and equipment | 11,721 | | | 11,072 | |
| Other Noncurrent Assets | | | |
| Regulatory assets | 1,203 | | | 1,082 | |
| Operating lease right-of-use assets, net | 55 | | | 57 | |
| | | |
| Other | 253 | | | 234 | |
| Total other noncurrent assets | 1,511 | | | 1,373 | |
| Total Assets | $ | 14,041 | | | $ | 13,276 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 188 | | | $ | 201 | |
| Accounts payable to affiliated companies | 88 | | | 87 | |
| Notes payable to affiliated companies | 131 | | | 30 | |
| Taxes accrued | 62 | | | 49 | |
| Interest accrued | 51 | | | 58 | |
| Current maturities of long-term debt | 70 | | | 503 | |
| Asset retirement obligations | 168 | | | 189 | |
| Regulatory liabilities | 111 | | | 55 | |
| Other | 83 | | | 112 | |
| Total current liabilities | 952 | | | 1,284 | |
| Long-Term Debt | 3,871 | | | 3,404 | |
| Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 1,228 | | | 1,150 | |
| Asset retirement obligations | 1,008 | | | 643 | |
| Regulatory liabilities | 1,627 | | | 1,685 | |
| Operating lease liabilities | 53 | | | 55 | |
| Accrued pension and other post-retirement benefit costs | 171 | | | 148 | |
| Investment tax credits | 168 | | | 164 | |
| Other | 30 | | | 18 | |
| Total other noncurrent liabilities | 4,285 | | | 3,863 | |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | |
| Member's Equity | 4,783 | | | 4,575 | |
| | | |
| | | |
| Total Liabilities and Equity | $ | 14,041 | | | $ | 13,276 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 408 | | | $ | 436 | | | $ | 393 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation, amortization, and accretion | 572 | | | 531 | | | 524 | |
| Equity component of AFUDC | (23) | | | (18) | | | (32) | |
| | | | | |
| Impairment charges | — | | | — | | | 30 | |
| Deferred income taxes | 29 | | | 156 | | | 95 | |
| | | | | |
| | | | | |
| Payments for asset retirement obligations | (63) | | | (48) | | | (69) | |
| Provision for rate refunds | — | | | — | | | 53 | |
| (Increase) decrease in | | | | | |
| | | | | |
| Receivables | 8 | | | (8) | | | 7 | |
| Receivables from affiliated companies | 0 | | | 41 | | | 3 | |
| Inventory | 44 | | | (95) | | | 28 | |
| Other current assets | (3) | | | 76 | | | (25) | |
| Increase (decrease) in | | | | | |
| Accounts payable | (12) | | | (10) | | | 37 | |
| Accounts payable to affiliated companies | 1 | | | 4 | | | 5 | |
| Taxes accrued | 13 | | | (25) | | | (52) | |
| Other current liabilities | 6 | | | 15 | | | 14 | |
| Other assets | (68) | | | (74) | | | 26 | |
| Other liabilities | 26 | | | 16 | | | (31) | |
| Net cash provided by operating activities | 938 | | | 997 | | | 1,006 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (888) | | | (876) | | | (832) | |
| Purchases of debt and equity securities | (37) | | | (26) | | | (48) | |
| Proceeds from sales and maturities of debt and equity securities | 22 | | | 20 | | | 44 | |
| | | | | |
| Notes receivable from affiliated companies | (33) | | | — | | | — | |
| | | | | |
| Other | 48 | | | (49) | | | 18 | |
| Net cash used in investing activities | (888) | | | (931) | | | (818) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 544 | | | 485 | | | — | |
| Payments for the redemption of long-term debt | (513) | | | (213) | | | (3) | |
| Notes payable to affiliated companies | 101 | | | (137) | | | 6 | |
| | | | | |
| Distributions to parent | (200) | | | (200) | | | (175) | |
| Other | — | | | — | | | (1) | |
| Net cash used in financing activities | (68) | | | (65) | | | (173) | |
| Net (decrease) increase in cash and cash equivalents | (18) | | | 1 | | | 15 | |
| Cash and cash equivalents at beginning of period | 25 | | | 24 | | | 9 | |
| Cash and cash equivalents at end of period | $ | 7 | | | $ | 25 | | | $ | 24 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 164 | | | $ | 150 | | | $ | 162 | |
| Cash paid for (received from) income taxes | 36 | | | (6) | | | 75 | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 101 | | | 102 | | | 88 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | Member's | | | | |
| (in millions) | | | | | | | Equity | | | | |
| Balance at December 31, 2017 | | | | | | | $ | 4,121 | | | | | |
| Net income | | | | | | | 393 | | | | | |
| | | | | | | | | | | |
| Distributions to parent | | | | | | | (175) | | | | | |
| | | | | | | | | | | |
| Balance at December 31, 2018 | | | | | | | $ | 4,339 | | | | | |
| Net income | | | | | | | 436 | | | | | |
| | | | | | | | | | | |
| Distributions to parent | | | | | | | (200) | | | | | |
| | | | | | | | | | | |
| Balance at December 31, 2019 | | | | | | | $ | 4,575 | | | | | |
| Net income | | | | | | | 408 | | | | | |
| Distributions to parent | | | | | | | (200) | | | | | |
| Balance at December 31, 2020 | | | | | | | $ | 4,783 | | | | | |
See Notes to Consolidated Financial Statements
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with 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.
Critical AuditMatter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters — Impact of Rate Regulation on the Financial Statements — Refer to Notes 1 and 3 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission, the Public Service Commission of South Carolina, and the Tennessee Public Utility Commission (collectively the “Commissions”), which have jurisdiction with respect to the gas rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2020, the Company has approximately $450 million recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
◦We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
◦We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
◦We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
◦We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded on the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 25, 2021
We have served as the Company's auditor since 1951.
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Operating Revenues | | | | | |
| Regulated natural gas | $ | 1,286 | | | $ | 1,369 | | | $ | 1,365 | |
| Nonregulated natural gas and other | 11 | | | 12 | | | 10 | |
| | | | | |
| Total operating revenues | 1,297 | | | 1,381 | | | 1,375 | |
| Operating Expenses | | | | | |
| Cost of natural gas | 386 | | | 532 | | | 584 | |
| Operation, maintenance and other | 322 | | | 328 | | | 357 | |
| Depreciation and amortization | 180 | | | 172 | | | 159 | |
| Property and other taxes | 53 | | | 45 | | | 49 | |
| Impairment charges | 7 | | | — | | | — | |
| Total operating expenses | 948 | | | 1,077 | | | 1,149 | |
| | | | | |
| Operating Income | 349 | | | 304 | | | 226 | |
| Equity in earnings of unconsolidated affiliates | 9 | | | 8 | | | 7 | |
| | | | | |
| Other income and expense, net | 51 | | | 20 | | | 14 | |
| Total other income and expenses | 60 | | | 28 | | | 21 | |
| Interest Expense | 118 | | | 87 | | | 81 | |
| Income Before Income Taxes | 291 | | | 245 | | | 166 | |
| Income Tax Expense | 18 | | | 43 | | | 37 | |
| Net Income and Comprehensive Income | $ | 273 | | | $ | 202 | | | $ | 129 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2020 | | 2019 |
| ASSETS | | | |
| Current Assets | | | |
| | | |
| Receivables (net of allowance for doubtful accounts of $12 at 2020 and $6 at 2019) | $ | 250 | | | $ | 241 | |
| Receivables from affiliated companies | 10 | | | 10 | |
| Inventory | 68 | | | 72 | |
| Regulatory assets | 153 | | | 73 | |
| | | |
| Other | 20 | | | 28 | |
| Total current assets | 501 | | | 424 | |
| Property, Plant and Equipment | | | |
| Cost | 9,134 | | | 8,446 | |
| Accumulated depreciation and amortization | (1,749) | | | (1,681) | |
| Net property, plant and equipment | 7,385 | | | 6,765 | |
| Other Noncurrent Assets | | | |
| Goodwill | 49 | | | 49 | |
| Regulatory assets | 302 | | | 290 | |
| Operating lease right-of-use assets, net | 20 | | | 24 | |
| Investments in equity method unconsolidated affiliates | 88 | | | 83 | |
| Other | 270 | | | 121 | |
| Total other noncurrent assets | 729 | | | 567 | |
| Total Assets | $ | 8,615 | | | $ | 7,756 | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 230 | | | $ | 215 | |
| Accounts payable to affiliated companies | 79 | | | 3 | |
| | | |
| Notes payable to affiliated companies | 530 | | | 476 | |
| Taxes accrued | 23 | | | 24 | |
| Interest accrued | 34 | | | 33 | |
| Current maturities of long-term debt | 160 | | | 0 | |
| Regulatory liabilities | 88 | | | 81 | |
| Other | 69 | | | 67 | |
| Total current liabilities | 1,213 | | | 899 | |
| Long-Term Debt | 2,620 | | | 2,384 | |
| | | |
| Other Noncurrent Liabilities | | | |
| Deferred income taxes | 821 | | | 708 | |
| Asset retirement obligations | 20 | | | 17 | |
| Regulatory liabilities | 1,044 | | | 1,131 | |
| Operating lease liabilities | 19 | | | 23 | |
| Accrued pension and other post-retirement benefit costs | 8 | | | 3 | |
| Other | 155 | | | 148 | |
| Total other noncurrent liabilities | 2,067 | | | 2,030 | |
| Commitments and Contingencies | 0 | | 0 |
| Equity | | | |
| Common stock, 0 par value: 100 shares authorized and outstanding at 2020 and 2019 | 1,310 | | | 1,310 | |
| | | |
| Retained earnings | 1,405 | | | 1,133 | |
| | | |
| Total equity | 2,715 | | | 2,443 | |
| Total Liabilities and Equity | $ | 8,615 | | | $ | 7,756 | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
| Net income | $ | 273 | | | $ | 202 | | | $ | 129 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 182 | | | 174 | | | 161 | |
| Equity component of AFUDC | (19) | | | — | | | — | |
| | | | | |
| Impairment charges | 7 | | | — | | | — | |
| Deferred income taxes | 53 | | | 136 | | | (31) | |
| Equity in (earnings) losses from unconsolidated affiliates | (9) | | | (8) | | | (7) | |
| | | | | |
| | | | | |
| | | | | |
| Provision for rate refunds | (33) | | | 2 | | | 43 | |
| (Increase) decrease in | | | | | |
| | | | | |
| Receivables | 10 | | | 28 | | | 7 | |
| Receivables from affiliated companies | — | | | 12 | | | (15) | |
| Inventory | 3 | | | (2) | | | (4) | |
| Other current assets | (66) | | | (25) | | | 71 | |
| Increase (decrease) in | | | | | |
| Accounts payable | 16 | | | (7) | | | 15 | |
| Accounts payable to affiliated companies | 76 | | | (35) | | | 25 | |
| Taxes accrued | 3 | | | (60) | | | 65 | |
| Other current liabilities | (11) | | | 1 | | | 21 | |
| Other assets | (11) | | | 1 | | | 3 | |
| Other liabilities | 7 | | | (10) | | | (5) | |
| Net cash provided by operating activities | 481 | | | 409 | | | 478 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Capital expenditures | (901) | | | (1,053) | | | (721) | |
| Contributions to equity method investments | — | | | (16) | | | — | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other | (28) | | | (14) | | | (10) | |
| Net cash used in investing activities | (929) | | | (1,083) | | | (731) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from the issuance of long-term debt | 394 | | | 596 | | | 100 | |
| | | | | |
| Payments for the redemption of long-term debt | — | | | (350) | | | — | |
| | | | | |
| | | | | |
| Notes payable to affiliated companies | 54 | | | 278 | | | (166) | |
| | | | | |
| | | | | |
| Capital contribution from parent | — | | | 150 | | | 300 | |
| | | | | |
| | | | | |
| | | | | |
| Net cash provided by financing activities | 448 | | | 674 | | | 234 | |
| Net decrease in cash and cash equivalents | — | | | — | | | (19) | |
| Cash and cash equivalents at beginning of period | — | | | — | | | 19 | |
| Cash and cash equivalents at end of period | $ | — | | | $ | — | | | $ | — | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest, net of amount capitalized | $ | 115 | | | $ | 84 | | | $ | 79 | |
| Cash received from income taxes | (36) | | | (31) | | | (16) | |
| Significant non-cash transactions: | | | | | |
| Accrued capital expenditures | 106 | | | 109 | | | 96 | |
| | | | | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Common | | Retained | | | | Total |
| (in millions) | Stock | | Earnings | | | | Equity |
| Balance at December 31, 2017 | $ | 860 | | | $ | 802 | | | | | $ | 1,662 | |
| Net income | — | | | 129 | | | | | 129 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Contribution from parent | 300 | | | — | | | | | 300 | |
| | | | | | | |
| Balance at December 31, 2018 | $ | 1,160 | | | $ | 931 | | | | | $ | 2,091 | |
| Net income | — | | | 202 | | | | | 202 | |
| | | | | | | |
| Contribution from parent | 150 | | | — | | | | | 150 | |
| | | | | | | |
| Balance at December 31, 2019 | $ | 1,310 | | | $ | 1,133 | | | | | $ | 2,443 | |
| Net income | — | | | 273 | | | | | 273 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Other | — | | | (1) | | | | | (1) | |
| Balance at December 31, 2020 | $ | 1,310 | | | $ | 1,405 | | | | | $ | 2,715 | |
See Notes to Consolidated Financial Statements
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Index to Combined Notes To Consolidated Financial Statements
The notes to the consolidated financial statements are a combined presentation. The following accounting standards were adoptedtable indicates the registrants to which the notes apply.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Applicable Notes |
| Registrant | 1 | | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | 21 | 22 | 23 | 24 | 25 | |
| Duke Energy | • | | • | • | • | • | • | • | • | • | • | • | • | | • | • | • | • | • | • | • | • | • | • | • | • | |
| Duke Energy Carolinas | • | | • | • | • | • | • | | • | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Progress Energy | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Duke Energy Progress | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Duke Energy Florida | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Duke Energy Ohio | • | | • | • | • | • | • | | | • | • | • | | • | • | | • | • | • | | • | • | • | • | • | • | |
| Duke Energy Indiana | • | | • | • | • | • | • | | • | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
| Piedmont | • | | • | • | • | • | • | | | • | • | • | • | • | • | | • | | • | | • | • | • | • | • | • | |
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 is an energy company headquartered in Charlotte, North Carolina, subject to regulation by the FERC and other regulatory agencies listed below. Duke Energy operates in the U.S. primarily through its direct and indirect subsidiaries. Certain Duke Energy subsidiaries are also subsidiary registrants, including Duke Energy Carolinas; Progress Energy; 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 its separate Subsidiary Registrants, which along with Duke Energy, are collectively referred to as 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.Registrants.
The following new accounting standards have been issued, but have not yet been adopted byinformation in these combined notes relates to each of the Duke Energy Registrants as of December 31, 2017.
Revenue from Contracts with Customers. In May 2014,noted in 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 revenueIndex 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.
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 Toto 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 – (Continued)
include, after eliminating intercompany transactions and balances, the accounts of the Duke Energy Registrants and subsidiaries or VIEs where the respective Duke Energy Registrants have control. See Note 17 for additional information on VIEs. These Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain jointly owned generation and transmission facilities. See Note 8 for additional information on joint ownership. Substantially all of the Subsidiary Registrants' operations qualify for regulatory accounting.
Duke Energy has identified material revenue streams, which served asCarolinas is a regulated public utility primarily engaged in the basis for accounting analysisgeneration, transmission, distribution and documentationsale of electricity in portions of North Carolina and South Carolina. Duke Energy Carolinas is subject to the regulatory provisions of the impact of this guidance on revenue recognition. The accounting analysis included reviewing representative contractsNCUC, PSCSC, NRC 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 withoutFERC.
Progress Energy is 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,public utility holding company, which conducts operations through its wholly owned subsidiaries, Duke Energy does not expect material changes to the pattern of revenue recognition on the registrants. In addition,Progress and Duke Energy has monitored the activities of the powerFlorida. Progress Energy is subject to regulation by FERC 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 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.regulatory agencies listed below.
Duke Energy intends to useProgress is a regulated public utility primarily engaged in the modified retrospective methodgeneration, transmission, distribution and sale of adoption effective January 1, 2018. Under the modified retrospective methodelectricity in portions of adoption, prior year reported results are not restatedNorth Carolina 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.South Carolina. Duke Energy will utilize certain practical expedients including applying this guidanceProgress is subject to open contracts at the dateregulatory provisions of adoptionthe NCUC, PSCSC, NRC 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, FERC.
Duke Energy anticipates additional disclosures aroundFlorida is a regulated public utility primarily engaged in the nature, amount, timinggeneration, transmission, distribution and uncertaintysale of our revenues and cash flows arising from contracts with customers.electricity in portions of Florida. Duke Energy continuesFlorida is subject to evaluate what information will be most useful for usersthe regulatory provisions 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.FPSC, NRC and FERC.
Financial Instruments Classification and Measurement. In January 2016, the FASB issued revised accounting guidance for the classification and measurement of financial instruments. ChangesDuke Energy Ohio is a regulated public utility primarily engaged in the fair valuetransmission and distribution of all equity securities will be required to beelectricity 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 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 impactOperating Revenues on the Duke Energy Registrant's Consolidated Statements of Operations and Comprehensive Income as changesIncome. Operations in Kentucky are conducted through its wholly owned subsidiary, 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 PUCO, KPSC and FERC.
Duke Energy Indiana is a regulated public utility primarily engaged in the fair valuegeneration, transmission, distribution and sale of mostelectricity in portions of Indiana. Duke Energy Indiana is subject to the regulatory provisions of the Duke Energy Registrants' available-for-sale equity securities are deferred asIURC 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 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 adoptionprovisions of the lease standard on January 1, 2019. Duke Energy is currently evaluating the financial statement impact of adopting this standardNCUC, PSCSC, TPUC and is continuingFERC.
Certain prior year amounts have been reclassified 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 changeconform to the amount of cashcurrent year presentation.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
COVID-19
The COVID-19 pandemic is having a significant impact on global health and cash equivalentseconomic environments. In March 2020, the World Health Organization declared COVID-19 a global pandemic, and restricted cash explained when reconciling the beginning-of-period and end-of-period total amounts shown onfederal government proclaimed that the Consolidated Statement of Cash Flows. Prior to adoption,COVID-19 outbreak in the United States constitutes a national emergency. The Duke Energy Registrants reflect changes in restricted cash within Cash Flows from Investing Activitiesare monitoring developments closely and within Cash Flows from Operating Activities onresponding appropriately. The company incurred approximately $112 million of incremental COVID-19 costs before deferral for 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 ofyear ended December 31, 2017 will change by $147 million.
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 – (Continued)
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 be2020, 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 StatementStatements of Operations. Further, the company waived approximately $64 million of late payment fees for the year ended December 31, 2020. The company has deferred approximately $76 million of the incremental costs, which were primarily bad debt expense, personal protective equipment and cleaning supplies, and a cost component of late payment fees. See Notes 3, 6, 17, 18 and 23 for additional information as well as steps taken to mitigate the impacts to our business and customers from the COVID-19 pandemic.
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% of total Current Assets or Current Liabilities on the Duke Energy Registrants' Consolidated Balance Sheets at either December 31, 2020, or 2019.
| | | | | | | | | | | | | | | | | |
| | | December 31, |
| (in millions) | Location | | 2020 | | 2019 |
| Duke Energy | | | | | |
| | | | | |
| Other accrued liabilities | Current Liabilities | | $ | 1,455 | | | $ | 604 | |
| Accrued compensation | Current Liabilities | | 662 | | | 862 | |
| Duke Energy Carolinas | | | | | |
| Accrued compensation | Current Liabilities | | $ | 213 | | | $ | 271 | |
| Other accrued liabilities | Current Liabilities | | 178 | | | 147 | |
| Progress Energy | | | | | |
| | | | | |
| Customer deposits | Current Liabilities | | $ | 347 | | | $ | 354 | |
| | | | | |
| | | | | |
| | | | | |
| Duke Energy Florida | | | | | |
| Customer deposits | Current Liabilities | | $ | 203 | | | $ | 209 | |
| | | | | |
| Duke Energy Ohio | | | | | |
| Gas Storage | Current Assets | | $ | 21 | | | $ | 0 | |
| | | | | |
| Duke Energy Indiana | | | | | |
| Income taxes receivable | Current Assets | | $ | 9 | | | $ | 44 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Discontinued 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. For the years ended December 31, 2020, 2019 and 2018, the Income (Loss) From Discontinued Operations, net of tax on Duke Energy's Consolidated Statements of Operations is entirely attributable to controlling interest.
Noncontrolling Interest
Duke Energy maintains a controlling financial interest in certain less than wholly owned nonregulated subsidiaries. As a result, Duke Energy consolidates these subsidiaries and presents the third-party investors' portion of Duke Energy's net income (loss), net assets and comprehensive income (loss) as noncontrolling interest. Noncontrolling interest is included as a component of equity on the Consolidated Balance Sheet.
Several operating agreements of Duke Energy's subsidiaries with noncontrolling interest are subject to allocations of tax attributes and cash flows in accordance with contractual agreements that vary throughout the lives of the subsidiaries. Therefore, Duke Energy and the other investors' (the owners) interests in the subsidiaries are not fixed, and the subsidiaries apply the HLBV method in allocating income or loss and other comprehensive income or loss (all measured on a pretax basis) to the owners. The HLBV method measures the amounts that each owner would hypothetically claim at each balance sheet reporting date, including tax benefits realized by the owners, most of which is over the IRS recapture period, upon a hypothetical liquidation of the subsidiary at the net book value of its underlying assets. The change in the amount that each owner would hypothetically receive at the reporting date compared to the amount it would have received on the previous reporting date represents the amount of income or loss allocated to each owner for the reporting period.
Other operating agreements of Duke Energy's subsidiaries with noncontrolling interest allocate profit and loss based on their pro rata shares of the ownership interest in the respective subsidiary. Therefore, Duke Energy allocates net income or loss and other comprehensive income or loss of these subsidiaries to the owners based on their pro rata shares.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
During the third quarter of 2019, Duke Energy completed a sale of minority interest in a portion of certain renewable assets within the Commercial Renewables Segment for pretax proceeds to Duke Energy of $415 million. The portion of Duke Energy's commercial renewables energy portfolio sold includes 49% of 37 operating wind, solar and battery storage assets and 33% of 11 operating solar assets across the U.S. Duke Energy retained control of these assets, and, therefore, no gain or loss was recognized on the Consolidated Statements of Operations. The adoption of this guidance will result in a retrospective change to reclassifydifference between the presentationconsideration received and the carrying value of the non-service cost (benefit) componentsnoncontrolling interest claim on net assets is $466 million, net of net periodic coststax benefit of $8 million, and was recorded to Other incomeequity.
The following table presents cash received for the sale of noncontrolling interest and expenses.allocated losses to noncontrolling interest for the years ended December 31, 2020, and 2019.
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2020 | | 2019 |
| Noncontrolling Interest Capital Contributions | | | |
| Cash received for the sale of noncontrolling interest to tax equity members | $ | 426 | | | $ | 428 | |
| Cash received for the sale of noncontrolling interest to pro rata share members | — | | | 415 | |
| Total Noncontrolling Interest Capital Contributions | $ | 426 | | | $ | 843 | |
| Noncontrolling Interest Allocation of Income | | | |
| Allocated losses to noncontrolling tax equity members utilizing the HLBV method | $ | 271 | | | $ | 165 | |
| Allocated losses to noncontrolling members based on pro rata shares of ownership | 24 | | | 12 | |
| Total Noncontrolling Interest Allocated Losses | $ | 295 | | | $ | 177 | |
2021 Sale of Minority Interest in Duke Energy intends to utilizeIndiana
In January 2021, Duke Energy entered into a definitive agreement providing for the practical expedientsale of a 19.9% minority interest in Duke Energy Indiana with an affiliate of GIC, Singapore's sovereign wealth fund and an experienced investor in U.S. infrastructure. To facilitate the transaction, Duke Energy will issue and sell membership interests in Duke Energy Indiana Holdco, LLC. a newly created holding company that will own 100% of the issued and outstanding membership interests in Duke Energy Indiana. The transaction will be completed following two closings for retrospective presentation.an aggregate purchase price of approximately $2 billion. The change in net periodic costs eligible for capitalization is applicable prospectively. Since Duke Energy’s service cost componentfirst closing is expected to be greatercompleted in the second quarter of 2021 and Duke Energy will issue and sell 11.1% of the membership interests in exchange for 50% of the purchase price. Under the terms of the agreement, Duke Energy has the discretion to determine the timing of the second closing, but it will occur no later than January 2023. At 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 tosecond closing, Duke Energy will issue and sell additional membership interests such that GIC will own 19.9% of the membership interests for the remaining 50% of the purchase price. Duke Energy will continue to operate and retain control of Duke Energy Indiana and, therefore, no gain or loss is expected to be an immaterial increaserecognized in Net Income resulting from the limitationConsolidated Statements of eligible capitalizationOperations. Additionally, the transaction will be reflected within Duke Energy Corporations' stockholders' equity as a sale of net periodic costs to the service cost component, which is larger than the total net periodic costs.a noncontrolling interest.
2. ACQUISITIONS AND DISPOSITIONS
ACQUISITIONSAcquisitions
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 AcquisitionSignificant Accounting Policies
Use of Piedmont Natural GasEstimates
On October 3, 2016,In preparing financial statements that conform to GAAP, the 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 | $ | 497 |
|
| Property, plant and equipment, net | 4,714 |
|
| Goodwill | 3,353 |
|
| Other long-term assets | 804 |
|
| Total assets | 9,368 |
|
| Current liabilities, including current maturities of long-term debt | 576 |
|
| Long-term liabilities | 1,790 |
|
| Long-term debt | 2,002 |
|
| Total liabilities | 4,368 |
|
| Total purchase price | $ | 5,000 |
|
The fair value of Piedmont's assets and liabilities was determined based on significantRegistrants must make estimates and assumptions that are judgmental in nature, includingaffect the amountreported amounts of assets and timingliabilities, the reported amounts of projected future cash flows, discount rates reflecting risk inherent inrevenues and expenses and the future cash flowsdisclosure of contingent assets and market pricesliabilities at the date of long-term debt.the financial statements. Actual results could differ from those estimates.
Regulatory Accounting
The majority of Piedmont’sthe Duke Energy Registrants’ operations are subject to price regulation for the rate-setting authoritysale of electricity and natural gas by state utility commissions or FERC. When prices are set on the basis of specific costs of the NCUC, the PSCSCregulated operations and the TPUC and are accounted for pursuant to accounting guidance for regulated operations. The rate-setting and cost recovery provisions currentlyan effective franchise is in place for Piedmont’s regulated operations providesuch 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 derived from costs, includingrelative to a returncompany that does not apply regulatory accounting. As a result, regulatory assets and regulatory liabilities are recognized on investment ofthe Consolidated Balance Sheets. Regulatory assets and liabilities includedare amortized consistent with the treatment of the related cost in the ratemaking process. Regulatory assets are reviewed for recoverability each reporting period. If a regulatory asset is no longer deemed probable of recovery, the deferred cost is charged to earnings. See Note 3 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. 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. These disallowances can require judgments on allowed future rate base. Thus,recovery.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
When it becomes probable that regulated generation, transmission or distribution assets will be abandoned, the faircost 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 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.a regulatory asset if rate recovery is probable. The impairment charge for a disallowance of costs for regulated plants under construction, recently completed or abandoned is based on discounted cash flows.
The significant assetsDuke Energy Registrants utilize cost-tracking mechanisms, commonly referred to as fuel adjustment clauses or PGA clauses. These clauses allow for the recovery of fuel and liabilities for which valuation adjustments were reflected within the purchase price allocation include the acquired equity method investmentsfuel-related costs, portions of purchased power, natural gas costs and long-term debt.hedging costs through surcharges on customer rates. The difference between the fair valuecosts incurred and the pre-merger carrying valuessurcharge revenues is recorded either as an adjustment to Operating Revenues, Operating Expenses – Fuel used in electric generation or Operating Expenses – Cost 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 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.
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 – (Continued)
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, with an off-setting impact on regulatory assets or liabilities.
Cash, Cash Equivalents and Restricted Cash
All highly liquid investments with maturities of three months or less at the date of acquisition are considered cash equivalents. Duke Energy, Progress Energy and Duke Energy Florida have restricted cash balances related primarily to collateral assets, escrow deposits and VIEs. See Note 17 for additional information. Restricted cash amounts are included in 2017Other within Current Assets and Other Noncurrent Assets on the Consolidated Balance Sheets. The following table presents the components of cash, cash equivalents and restricted cash included in the Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| | | Duke | | | | Duke |
| Duke | Progress | Energy | | Duke | Progress | Energy |
| Energy | Energy | Florida | | Energy | Energy | Florida |
| Current Assets | | | | | | | |
| Cash and cash equivalents | $ | 259 | | $ | 59 | | $ | 11 | | | $ | 311 | | $ | 48 | | $ | 17 | |
| Other | 194 | | 39 | | 39 | | | 222 | | 39 | | 39 | |
| Other Noncurrent Assets | | | | | | | |
| Other | 103 | | 102 | | — | | | 40 | | 39 | | — | |
| Total cash, cash equivalents and restricted cash | $ | 556 | | $ | 200 | | $ | 50 | | | $ | 573 | | $ | 126 | | $ | 56 | |
| | | | | | | |
Inventory
Inventory related to regulated operations is valued at historical cost. Inventory related to nonregulated operations is valued at the lower of cost or market. Inventory is charged to expense or capitalized to property, plant and equipment when issued, primarily using the average cost method. Excess or obsolete inventory is written down to the lower of cost or net realizable 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, 2020, and 2019, respectively. The components of inventory are presented in the tables below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Materials and supplies | $ | 2,312 | | | $ | 785 | | | $ | 999 | | | $ | 673 | | | $ | 325 | | | $ | 78 | | | $ | 307 | | | $ | 12 | |
| Coal | 561 | | | 186 | | | 193 | | | 131 | | | 63 | | | 16 | | | 165 | | | — | |
| Natural gas, oil and other | 294 | | | 39 | | | 183 | | | 107 | | | 76 | | | 16 | | | 1 | | | 56 | |
| Total inventory | $ | 3,167 | | | $ | 1,010 | | | $ | 1,375 | | | $ | 911 | | | $ | 464 | | | $ | 110 | | | $ | 473 | | | $ | 68 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Materials and supplies | $ | 2,297 | | | $ | 768 | | | $ | 1,038 | | | $ | 686 | | | $ | 351 | | | $ | 79 | | | $ | 318 | | | $ | 5 | |
| Coal | 586 | | | 187 | | | 186 | | | 138 | | | 48 | | | 15 | | | 198 | | | — | |
| Natural gas, oil and other | 349 | | | 41 | | | 199 | | | 110 | | | 90 | | | 41 | | | 1 | | | 67 | |
| Total inventory | $ | 3,232 | | | $ | 996 | | | $ | 1,423 | | | $ | 934 | | | $ | 489 | | | $ | 135 | | | $ | 517 | | | $ | 72 | |
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Investments in Debt and Equity Securities
The Duke Energy Registrants classify investments in equity securities as FV-NI and investments in debt securities as AFS. Both categories are recorded at fair value on the Consolidated Balance Sheets. Realized and unrealized gains and losses on securities classified as FV-NI are reported through net income. Unrealized gains and losses for debt securities classified as AFS are included in AOCI until realized, unless it is determined the carrying value of an investment has a credit loss. For certain investments of regulated operations, such as substantially all of the NDTF, realized and unrealized gains and losses (including any credit losses) on debt securities are recorded as a regulatory asset or liability. 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
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 a business 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. See Note 11 for further information.
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.
RECs are used to measure compliance with renewable energy standards and are held primarily system integrationfor consumption. See Note 11 for further information.
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.
Equity Method Investment Impairments
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 whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. If 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.
Impairment assessments use a discounted cash flow income approach and include consideration of the severity and duration of any decline in the fair value of the investments. The estimated cash flows may be based on alternative expected outcomes that are probability weighted. Key inputs that involve estimates and significant management judgment include cash flow projections, selection of a discount rate, probability weighting of potential outcomes, and whether any decline in value is considered temporary.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 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.
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Duke Energy | 3.0 | % | | 3.1 | % | | 3.0 | % |
| Duke Energy Carolinas | 2.8 | % | | 2.8 | % | | 2.8 | % |
| Progress Energy | 3.2 | % | | 3.1 | % | | 2.9 | % |
| Duke Energy Progress | 3.1 | % | | 3.1 | % | | 2.9 | % |
| Duke Energy Florida | 3.3 | % | | 3.1 | % | | 3.0 | % |
| Duke Energy Ohio | 2.9 | % | | 2.6 | % | | 2.8 | % |
| Duke Energy Indiana | 3.5 | % | | 3.3 | % | | 3.3 | % |
| Piedmont | 2.3 | % | | 2.4 | % | | 2.5 | % |
In general, when the Duke Energy Registrants retire regulated property, plant and equipment, the original cost plus the cost of retirement, less salvage value and any depreciation already recognized, is charged to accumulated depreciation. However, when it becomes 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). 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 additional information.
Leases
Duke Energy determines if an arrangement is a lease at contract inception based on whether the arrangement involves the use of a physically distinct identified asset and whether Duke Energy has the right to obtain substantially all of the economic benefits from the use of the asset throughout the period as well as the right to direct the use of the asset. As a policy election, Duke Energy does not evaluate arrangements with initial contract terms of less than one year as leases.
Operating leases are included in Operating lease ROU assets, net, Other current liabilities and Operating lease liabilities on the Consolidated Balance Sheets. Finance leases are included in Property, plant and equipment, Current maturities of long-term debt and Long-Term Debt on the Consolidated Balance Sheets.
For lessee and lessor arrangements, Duke Energy has elected a policy to not separate lease and non-lease components for all asset classes. For lessor arrangements, lease and non-lease components are only combined under one arrangement and accounted for under the lease accounting framework if the non-lease components are not the predominant component of the arrangement and the lease component would be classified as an operating lease.
Nuclear Fuel
Nuclear fuel is classified as Property, Plant and Equipment on the Consolidated Balance Sheets.
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.
Allowance for Funds Used During Construction and Interest Capitalized
For regulated operations, the debt and equity costs of $71 millionfinancing 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.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
AFUDC equity, a permanent difference for income taxes, reduces the ETR when capitalized and increases the ETR when depreciated or amortized. See Note 23 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.
Asset Retirement Obligations
AROs are recognized for legal obligations associated with the retirement of property, plant and equipment. Substantially all AROs are related to combiningregulated operations. When recording an ARO, the various operationalpresent 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 probable of recovery.
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.
Accounts Payable
During 2020, Duke Energy established a supply chain finance program (the “program”) with a global financial systems ofinstitution. The program is voluntary and allows Duke Energy suppliers, at their sole discretion, to sell their receivables from Duke Energy to the financial institution at a rate that leverages Duke Energy’s credit rating and, which may result in favorable terms compared to the rate available to the supplier on their own credit rating. Suppliers participating in the program, determine at their sole discretion which invoices they will sell to the financial institution. Suppliers’ decisions on which invoices are sold do not impact Duke Energy’s payment terms, which are based on commercial terms negotiated between 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 expensesupplier regardless 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.
program participation. 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 ofcommercial terms negotiated between Duke Energy and Piedmont as ifits suppliers are consistent regardless of whether the merger had occurred as of January 1, 2015. The pro forma financial informationsupplier elects to participate in the program. Duke Energy does not include potential cost savings, intercompany revenues, Piedmont’s earnings from a certain equity method investment sold immediately priorissue any guarantees with respect to the merger or non-recurring transactionprogram and integration costs incurred bydoes not participate in negotiations between suppliers and the financial institution. Duke Energy does not have an economic interest in the supplier’s decision to participate in the program and Piedmont. The after-tax non-recurring transactionreceives no interest, fees or other benefit from the financial institution based on supplier participation in the program.
At December 31, 2020, $15 million, $1 million and integration costs incurred by$14 million of the outstanding Accounts payable balance for Duke Energy, Duke Energy Ohio and Piedmont, were $279respectively, was sold to the financial institution by our suppliers. Suppliers invoices sold to the financial institution under the program totaled $45 million, $9 million and $19$36 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. |
| | | | | | |
| | Years Ended December 31, |
| (in millions) | 2016 | 2015 |
| Operating Revenues | $ | 23,504 |
| $ | 23,570 |
|
| Net Income Attributable to Duke Energy Corporation | 2,442 |
| 2,877 |
|
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 income2020, 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 theDuke Energy Ohio and 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 informationrespectively. All activity 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.
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 – (Continued)
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: |
| | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2016 |
| | 2015 |
|
| International Energy Disposal Group | $ | (534 | ) | | $ | 157 |
|
| Midwest Generation Disposal Group | 36 |
| | 33 |
|
Other(a) | 90 |
| | (13 | ) |
| (Loss) Income from Discontinued Operations, net of tax | $ | (408 | ) | | $ | 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 processamounts due 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 agreementssuppliers who elected 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 operationsparticipate 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, whichprogram are included in (Loss) Income from Discontinued Operations, net of tax in Duke Energy's Consolidated Statements of Operations. |
| | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2016 |
| | 2015 |
|
| Operating Revenues | $ | 988 |
| | $ | 1,088 |
|
| Fuel used in electric generation and purchased power | 227 |
| | 306 |
|
| Cost of natural gas | 43 |
| | 53 |
|
| Operation, maintenance and other | 341 |
| | 334 |
|
Depreciation and amortization(a) | 62 |
| | 92 |
|
| Property and other taxes | 15 |
| | 7 |
|
Impairment charges (b) | 194 |
| | 13 |
|
| (Loss) Gains on Sales of Other Assets and Other, net | (3 | ) | | 6 |
|
| Other Income and Expenses, net | 58 |
| | 23 |
|
| Interest Expense | 82 |
| | 85 |
|
Pretax loss on disposal(c) | (514 | ) | | — |
|
(Loss) Income before income taxes(d) | (435 | ) |
| 227 |
|
Income tax expense(e)(f) | 99 |
| | 70 |
|
| (Loss) Income from discontinued operations of the International Disposal Group | $ | (534 | ) |
| $ | 157 |
|
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 – (Continued)
| |
(a) | Upon meeting the criteria for assets held for sale, beginning in the fourth quarter of 2016 depreciation expense was ceased. |
| |
(b) | 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. |
Duke Energy has elected not to separately disclose discontinued operationswithin Net cash provided by operating activities on the Consolidated Statements of Cash Flows.
Revenue Recognition
Duke Energy recognizes revenue as customers obtain control of promised goods and services in an amount that reflects consideration expected in exchange for those goods or services. Generally, the delivery of electricity and natural gas results in the transfer of control to customers at the time the commodity is delivered and the amount of revenue recognized is equal to the amount billed to each customer, including estimated volumes delivered when billings have not yet occurred. See Note 18 for further information.
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 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 following table summarizes Duke Energy'seffective 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.
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 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 discontinuedexperience.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 over the remaining life of the original instrument. 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.
Preferred Stock
Preferred stock is reviewed to determine the appropriate balance sheet classification and embedded features, such as call options, are evaluated to determine if they should be bifurcated and accounted for separately. Costs directly related to the
International Disposal Group. |
| | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2016 |
| | 2015 |
|
| Cash flows provided by (used in): | | | |
| Operating activities | $ | 204 |
| | $ | 248 |
|
| Investing activities | (434 | ) | | 177 |
|
Other Sale Related Matters
During 2017,issuance of preferred stock is recorded as a reduction of the proceeds received. The liability for the dividend is recognized when declared. The accumulated dividends on the cumulative preferred stock is recognized to net income available to Duke Energy provided certain transition services to CTGCorporation in the EPS calculation. See Note 19 for further information.
Loss Contingencies and I Squared Capital. Cash flowsEnvironmental 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 providingpast 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 3 and 4 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 transition servicesSubsidiary 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 22 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. Duke Energy also 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 20 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. Duke Energy recognizes a liability for the best estimate of its loss due to the nonperformance of the guaranteed party. This liability is recognized at the inception of a guarantee and is updated periodically. See Note 7 for further information.
Stock-Based Compensation
Stock-based compensation represents costs related to stock-based awards granted to employees and 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 21 for further information.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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. 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. For ITCs associated with nonregulated operations see “Accounting for Renewable Energy Tax Credits.”
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. Duke Energy's results of operations could be impacted if the 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 a reversal.
Tax-related interest and penalties are recorded in Interest Expense and Other Income and Expenses, net in the Consolidated Statements of Operations.
See Note 23 for further information.
Accounting for Renewable Energy Tax Credits
When Duke Energy receives ITCs on wind or solar facilities associated with its nonregulated operations, 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.
When Duke Energy receives ITCs on wind or solar facilities associated with its regulated operations, the ITC is deferred and amortized as a reduction of income tax expense over the estimated useful lives of the related properties.
Duke Energy receives PTCs on wind facilities that are recognized as electricity is produced and records related amounts as a reduction of income tax expense.
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. Taxes for which Duke Energy operates merely as a collection agent for the state and local government are accounted for on a net basis. 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.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Duke Energy | $ | 415 | | | $ | 421 | | | $ | 405 | |
| Duke Energy Carolinas | 43 | | | 39 | | | 35 | |
| Progress Energy | 249 | | | 256 | | | 241 | |
| Duke Energy Progress | 26 | | | 21 | | | 19 | |
| Duke Energy Florida | 223 | | | 235 | | | 222 | |
| Duke Energy Ohio | 96 | | | 101 | | | 105 | |
| Duke Energy Indiana | 25 | | | 23 | | | 22 | |
| Piedmont | 2 | | | 2 | | | 2 | |
Dividend Restrictions and Unappropriated Retained Earnings
Duke Energy does not materialhave any current legal, regulatory or other restrictions on paying common stock dividends to shareholders. However, if Duke Energy were to defer dividend payments on the preferred stock, the declaration of common stock dividends would be prohibited. See Note 19 for more information. Additionally, as further described in Note 3, 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 due to conditions established by regulators in conjunction with merger transaction approvals. At December 31, 2020, and 2019, an insignificant amount of Duke Energy’s consolidated Retained earnings balance represents undistributed earnings of equity method investments.
New Accounting Standards
The following new accounting standard was adopted by Duke Energy Registrants in 2020.
Credit Losses. In June 2016, the FASB issued new accounting guidance for credit losses. Duke Energy adopted the new accounting guidance for credit losses effective January 1, 2020, using the modified retrospective method of adoption, which does not require restatement of prior year results. Duke Energy did not adopt any practical expedients.
| | | | | |
| FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Duke Energy recognizes allowances for credit losses based on management's estimate of losses expected to be incurred over the lives of certain assets or guarantees. Management monitors credit quality, changes in expected credit losses and the appropriateness of the allowance for credit losses on a forward-looking basis. Management reviews the risk of loss periodically as part of the existing assessment of collectability of receivables.
Duke Energy reviews the credit quality of its counterparties as part of its regular risk management process and requires credit enhancements, such as deposits or letters of credit, as appropriate and as allowed by regulators.
Duke Energy recorded cumulative effects of changes in accounting principles related to the adoption of new credit loss standard, for allowances and credit losses of trade and other receivables, insurance receivables and financial guarantees. These amounts are included in the Condensed Consolidated Balance Sheets in Receivables, Receivables of VIEs, Other Noncurrent Assets and Other Noncurrent Liabilities. See Notes 7 and 18 for more information.
Duke Energy recorded an adjustment for the cumulative effect of a change in accounting principle due to the adoption of this standard on January 1, 2020, as shown in the table below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | | Duke | | | | Duke | | Duke | | | | | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | | | | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | | | | | Piedmont |
| Total pretax impact to Retained Earnings | $ | 120 | | | $ | 16 | | | $ | 2 | | | $ | 1 | | | $ | 1 | | | | | | | $ | 1 | |
The following new accounting standard has been issued but not yet adopted by the Duke Energy Registrants as of December 31, 2017. All2020.
Reference Rate Reform. In March 2020, the FASB issued new accounting guidance for reference rate reform. This guidance is elective and provides expedients to facilitate financial reporting for the anticipated 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 arisingaway from the period preceding consummation onLondon Inter-bank Offered Rate (LIBOR) and other interbank reference rates by the transactions, totaling approximately $78 million. end of 2021. The optional expedients are effective for modification of existing contracts or new arrangements executed between March 12, 2020, through December 31, 2022.
Duke Energy has not recorded any other liabilities, contingent liabilitiesvariable-rate debt and manages interest rate risk by entering into financial contracts including interest rate swaps that are generally indexed to LIBOR. Impacted financial arrangements extending beyond 2021 may require contractual amendment or indemnifications relatedtermination to the International Disposal Group.
2015 Midwest Generation Exit
fully adapt to a post-LIBOR environment. Duke Energy through indirect subsidiaries, completedis assessing these financial arrangements and is evaluating the saleuse of optional expedients outlined in the new accounting guidance. Alternative index provisions are also being assessed and incorporated into new financial arrangements that extend beyond 2021. The full outcome of the Midwest Generation Disposal Grouptransition away from LIBOR cannot be determined at this time, but is not expected to have a subsidiary of Dynegymaterial impact 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.financial statements.
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. |
| | | | | | | | | | | | | | | |
| | Duke Energy | | Duke Energy Ohio |
| | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
|
| Operating Revenues | $ | — |
| | $ | 543 |
| | $ | — |
| | $ | 412 |
|
Pretax Loss on disposal(a) | — |
| | (45 | ) | | — |
| | (52 | ) |
| | | | | | | | |
Income (loss) before income taxes(b) | $ | — |
| | $ | 59 |
| | $ | — |
| | $ | 44 |
|
Income tax (benefit) expense(c) | (36 | ) | | 26 |
| | (36 | ) | | 21 |
|
| Income (loss) from discontinued operations | $ | 36 |
| | $ | 33 |
| | $ | 36 |
| | $ | 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. |
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 – (Continued)
3.2. BUSINESS SEGMENTS
OperatingReportable segments are determined based on information used by the 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.interests and preferred stock dividends. 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.
The Electric Utilities and Infrastructure segment includes Duke Energy's 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 scaleutility-scale wind and solar generation assets located throughout the U.S.
The remainder of Duke Energy’s operations is presented as Other, which is primarily comprised of corporate interest expense on holding company debt, 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).company, Bison. Other also includes Duke Energy's interest in NMC. See Note 12 for additional information on the investment in NMC.
| | | | | |
| FINANCIAL STATEMENTS | BUSINESS SEGMENTS |
Business segment information is presented in the following tables. Segment assets presented exclude intercompany assets.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Electric |
| | Gas |
| | | | Total |
| | | | | | |
| | Utilities and |
| | Utilities and |
| | Commercial |
| | Reportable |
| | | | | | |
| (in millions) | Infrastructure |
| | Infrastructure |
| | Renewables |
| | Segments |
| | Other |
| | Eliminations |
| | Total |
|
| Unaffiliated Revenues | $ | 21,300 |
| | $ | 1,743 |
| | $ | 460 |
| | $ | 23,503 |
| | $ | 62 |
| | $ | — |
| | $ | 23,565 |
|
| Intersegment Revenues | 31 |
| | 93 |
| | — |
| | 124 |
| | 76 |
| | (200 | ) | | — |
|
| Total Revenues | $ | 21,331 |
| | $ | 1,836 |
| | $ | 460 |
| | $ | 23,627 |
| | $ | 138 |
| | $ | (200 | ) | | $ | 23,565 |
|
| Interest Expense | $ | 1,240 |
| | $ | 105 |
| | $ | 87 |
| | $ | 1,432 |
| | $ | 574 |
| | $ | (20 | ) | | $ | 1,986 |
|
| Depreciation and amortization | 3,010 |
| | 231 |
| | 155 |
| | 3,396 |
| | 131 |
| | — |
| | 3,527 |
|
| Equity in earnings (losses) of unconsolidated affiliates | 5 |
| | 62 |
| | (5 | ) | | 62 |
| | 57 |
| | — |
| | 119 |
|
Income tax expense (benefit)(a) | 1,355 |
| | 116 |
| | (628 | ) | | 843 |
| | 353 |
| | — |
| | 1,196 |
|
Segment income (loss)(b)(c)(d) | 3,210 |
| | 319 |
| | 441 |
| | 3,970 |
| | (905 | ) | | — |
| | 3,065 |
|
| Add back noncontrolling interest component | |
| | |
| | |
| | |
| | |
| | |
| | 5 |
|
| Loss from discontinued operations, net of tax | |
| | |
| | |
| | |
| | |
| | |
| | (6 | ) |
| Net income | |
| | |
| | |
| | |
| | |
| | |
| | $ | 3,064 |
|
| Capital investments expenditures and acquisitions | $ | 7,024 |
| | $ | 907 |
| | $ | 92 |
| | $ | 8,023 |
| | $ | 175 |
| | $ | — |
| | $ | 8,198 |
|
| Segment assets | 119,423 |
| | 11,462 |
| | 4,156 |
| | 135,041 |
| | 2,685 |
| | 188 |
| | 137,914 |
|
| |
(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. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| Electric | | Gas | | | | Total | | | | | | |
| Utilities and | | Utilities and | | Commercial | | Reportable | | | | | | |
| (in millions) | Infrastructure | | Infrastructure | | Renewables | | Segments | | Other | | Eliminations | | Total |
| Unaffiliated Revenues | $ | 21,687 | | | $ | 1,653 | | | $ | 502 | | | $ | 23,842 | | | $ | 26 | | | $ | — | | | $ | 23,868 | |
| Intersegment Revenues | 33 | | | 95 | | | — | | | 128 | | | 71 | | | (199) | | | — | |
| Total Revenues | $ | 21,720 | | | $ | 1,748 | | | $ | 502 | | | $ | 23,970 | | | $ | 97 | | | $ | (199) | | | $ | 23,868 | |
| Interest Expense | $ | 1,320 | | | $ | 135 | | | $ | 66 | | | $ | 1,521 | | | $ | 657 | | | $ | (16) | | | $ | 2,162 | |
| Depreciation and amortization | 4,068 | | | 258 | | | 199 | | | 4,525 | | | 209 | | | (29) | | | 4,705 | |
| Equity in earnings (losses) of unconsolidated affiliates | (1) | | | (2,017) | | | — | | | (2,018) | | | 13 | | | — | | | (2,005) | |
| Income tax expense (benefit) | 340 | | | (349) | | | (65) | | | (74) | | | (162) | | | — | | | (236) | |
Segment income (loss)(a)(b)(c) | 2,669 | | | (1,266) | | | 286 | | | 1,689 | | | (426) | | | — | | | 1,263 | |
| Less noncontrolling interest | | | | | | | | | | | | | 295 | |
| Add back preferred stock dividend | | | | | | | | | | | | | 107 | |
| Income from discontinued operations, net of tax | | | | | | | | | | | | | 7 | |
| Net income | | | | | | | | | | | | | $ | 1,082 | |
| Capital investments expenditures and acquisitions | $ | 7,629 | | | $ | 1,309 | | | $ | 1,219 | | | $ | 10,157 | | | $ | 264 | | | $ | — | | | $ | 10,421 | |
| Segment assets | 138,225 | | | 13,849 | | | 6,716 | | | 158,790 | | | 3,598 | | | — | | | 162,388 | |
PART II(a) Electric Utilities and Infrastructure includes $948 million of Impairment charges and a reversal of $152 million included in Regulated electric operating revenue related to the CCR Settlement Agreement filed with the NCUC. Additionally, Electric Utilities and Infrastructure includes $19 million of Impairment charges related to the Clemson University Combined Heat and Power Plant, $5 million of Impairment charges related to the gas pipeline assets and $16 million of shareholder contributions within Operations, maintenance and other related to Duke Energy Carolinas' and Duke Energy Progress' 2019 North Carolina rate cases. See Note 3 for additional information.
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –(b) Gas Utilities and Infrastructure includes $2.1 billion recorded within Equity in (losses) earnings of unconsolidated affiliates and $7 million of Impairment charges related to gas pipeline investments. See Notes 3 and 12 for additional information.
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.(c) Other includes a $98 million reversal of 2018 severance costs due to a partial settlement in the Duke Energy Carolinas' 2019 North Carolina rate case. See Note 3 and 20 for additional information.
Combined Notes To Consolidated Financial Statements – (Continued)
| | | | Year Ended December 31, 2016 | | Year Ended December 31, 2019 |
| | Electric |
| | Gas |
| | | | Total |
| | | | | | | | Electric | | Gas | | Total | |
| | Utilities and |
| | Utilities and |
| | Commercial |
| | Reportable |
| | | | | | | | Utilities and | | Utilities and | | Commercial | | Reportable | |
| (in millions) | Infrastructure |
| | Infrastructure |
| | Renewables |
| | Segments |
| | Other |
| | Eliminations |
| | Total |
| (in millions) | Infrastructure | | Infrastructure | | Renewables | | Segments | | Other | | Eliminations | | Total |
| Unaffiliated Revenues | $ | 21,336 |
| | $ | 875 |
| | $ | 484 |
| | $ | 22,695 |
| | $ | 48 |
| | $ | — |
| | $ | 22,743 |
| Unaffiliated Revenues | $ | 22,798 | | | $ | 1,770 | | | $ | 487 | | | $ | 25,055 | | | $ | 24 | | | $ | — | | | $ | 25,079 | |
| Intersegment Revenues | 30 |
| | 26 |
| | — |
| | 56 |
| | 69 |
| | (125 | ) | | — |
| Intersegment Revenues | 33 | | | 96 | | | — | | | 129 | | | 71 | | | (200) | | | — | |
| Total Revenues | $ | 21,366 |
| | $ | 901 |
| | $ | 484 |
| | $ | 22,751 |
| | $ | 117 |
| | $ | (125 | ) | | $ | 22,743 |
| Total Revenues | $ | 22,831 | | | $ | 1,866 | | | $ | 487 | | | $ | 25,184 | | | $ | 95 | | | $ | (200) | | | $ | 25,079 | |
| Interest Expense | $ | 1,136 |
| | $ | 46 |
| | $ | 53 |
| | $ | 1,235 |
| | $ | 693 |
| | $ | (12 | ) | | $ | 1,916 |
| Interest Expense | $ | 1,345 | | | $ | 117 | | | $ | 95 | | | $ | 1,557 | | | $ | 705 | | | $ | (58) | | | $ | 2,204 | |
| Depreciation and amortization | 2,897 |
| | 115 |
| | 130 |
| | 3,142 |
| | 152 |
| | — |
| | 3,294 |
| Depreciation and amortization | 3,951 | | | 256 | | | 168 | | | 4,375 | | | 178 | | | (5) | | | 4,548 | |
Equity in earnings (losses) of unconsolidated affiliates(a) | 5 |
| | 19 |
| | (82 | ) | | (58 | ) | | 43 |
| | — |
| | (15 | ) | |
| Equity in earnings (losses) of unconsolidated affiliates | | Equity in earnings (losses) of unconsolidated affiliates | 9 | | | 114 | | | (4) | | | 119 | | | 43 | | | — | | | 162 | |
| Income tax expense (benefit) | 1,672 |
| | 90 |
| | (160 | ) | | 1,602 |
| | (446 | ) | | — |
| | 1,156 |
| Income tax expense (benefit) | 785 | | | 22 | | | (115) | | | 692 | | | (173) | | | — | | | 519 | |
Segment income (loss)(b)(c) | 3,040 |
| | 152 |
| | 23 |
| | 3,215 |
| | (645 | ) | | 1 |
| | 2,571 |
| |
| Add back noncontrolling interest component | |
| | |
| | |
| | |
| | |
| | |
| | 7 |
| |
Segment income (loss)(a)(b) | | Segment income (loss)(a)(b) | 3,536 | | | 432 | | | 198 | | | 4,166 | | | (452) | | | — | | | 3,714 | |
| Less noncontrolling interest | | Less noncontrolling interest | | 177 | |
| Add back preferred stock dividend | | Add back preferred stock dividend | | 41 | |
Loss from discontinued operations, net of tax(d) | |
| | |
| | |
| | |
| | |
| | |
| | (408 | ) | | (7) | |
| Net income | |
| | |
| | |
| | |
| | |
| | |
| | $ | 2,170 |
| Net income | | $ | 3,571 | |
Capital investments expenditures and acquisitions(e) | $ | 6,649 |
| | $ | 5,519 |
| | $ | 857 |
| | $ | 13,025 |
| | $ | 190 |
| | $ | — |
| | $ | 13,215 |
| $ | 8,263 | | | $ | 1,539 | | | $ | 1,423 | | | $ | 11,225 | | | $ | 221 | | | $ | — | | | $ | 11,446 | |
| Segment assets | 114,993 |
| | 10,760 |
| | 4,377 |
| | 130,130 |
| | 2,443 |
| | 188 |
| | 132,761 |
| Segment assets | 135,561 | | | 13,921 | | | 6,020 | | | 155,502 | | | 3,148 | | | 188 | | | 158,838 | |
(a) Commercial RenewablesElectric Utilities and Infrastructure includes a pretax$27 million reduction of a prior year impairment at Citrus County CC related to the plant's cost cap. See Note 3 for additional information.
(b) Gas Utilities and Infrastructure includes an after-tax impairment charge of $71 million.$19 million for the remaining investment in Constitution. See Note 12 for additional information.
| | | | | |
(b)FINANCIAL STATEMENTS | 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.BUSINESS SEGMENTS |
| |
(c) | Other includes after-tax charges of $57 million related to cost savings initiatives. Refer to Note 19 for further information. |
| |
(d) | Includes a loss on sale of the International Disposal Group. Refer to Note 2 for further information. |
| |
(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 the Piedmont acquisition. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2015 |
| | Electric |
| | Gas |
| | | | Total |
| | | | | | |
| | Utilities and |
| | Utilities and |
| | Commercial |
| | Reportable |
| | | | | | |
| (in millions) | Infrastructure |
| | Infrastructure |
| | Renewables |
| | Segments |
| | Other |
| | Eliminations |
| | Total |
|
| Unaffiliated Revenues | $ | 21,489 |
| | $ | 536 |
| | $ | 286 |
| | $ | 22,311 |
| | $ | 60 |
| | $ | — |
| | $ | 22,371 |
|
| Intersegment Revenues | 32 |
| | 5 |
| | — |
| | 37 |
| | 75 |
| | (112 | ) | | — |
|
| Total Revenues | $ | 21,521 |
| | $ | 541 |
| | $ | 286 |
| | $ | 22,348 |
| | $ | 135 |
| | $ | (112 | ) | | $ | 22,371 |
|
| Interest Expense | $ | 1,074 |
| | $ | 25 |
| | $ | 44 |
| | $ | 1,143 |
| | $ | 393 |
| | $ | (9 | ) | | $ | 1,527 |
|
| Depreciation and amortization | 2,735 |
| | 79 |
| | 104 |
| | 2,918 |
| | 135 |
| | — |
| | 3,053 |
|
| Equity in (losses) earnings of unconsolidated affiliates | (2 | ) | | 1 |
| | (6 | ) | | (7 | ) | | 76 |
| | — |
| | 69 |
|
| Income tax expense (benefit) | 1,602 |
| | 44 |
| | (128 | ) | | 1,518 |
| | (262 | ) | | — |
| | 1,256 |
|
Segment income (loss) (a)(b)(c) | 2,819 |
| | 73 |
| | 52 |
| | 2,944 |
| | (299 | ) | | — |
| | 2,645 |
|
| Add back noncontrolling interest component | |
| | |
| | |
| | |
| | |
| | |
| | 9 |
|
Income from discontinued operations, net of tax(d) | |
| | |
| | |
| | |
| | |
| | |
| | 177 |
|
| Net income | |
| | |
| | |
| | |
| | |
| | |
| | $ | 2,831 |
|
Capital investments expenditures and acquisitions(e) | $ | 6,852 |
| | $ | 234 |
| | $ | 1,019 |
| | $ | 8,105 |
| | $ | 258 |
| | $ | — |
| | $ | 8,363 |
|
Segment assets(f) | 109,097 |
| | 2,637 |
| | 3,861 |
| | 115,595 |
| | 5,373 |
| | 188 |
| | 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. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2018 |
| Electric | | Gas | | | | Total | | | | | | |
| Utilities and | | Utilities and | | Commercial | | Reportable | | | | | | |
| (in millions) | Infrastructure | | Infrastructure | | Renewables | | Segments | | Other | | Eliminations | | Total |
| Unaffiliated Revenues | $ | 22,242 | | | $ | 1,783 | | | $ | 477 | | | $ | 24,502 | | | $ | 19 | | | $ | — | | | $ | 24,521 | |
| Intersegment Revenues | 31 | | | 98 | | | — | | | 129 | | | 70 | | | (199) | | | — | |
| Total Revenues | $ | 22,273 | | | $ | 1,881 | | | $ | 477 | | | $ | 24,631 | | | $ | 89 | | | $ | (199) | | | $ | 24,521 | |
| Interest Expense | $ | 1,288 | | | $ | 106 | | | $ | 88 | | | $ | 1,482 | | | $ | 657 | | | $ | (45) | | | $ | 2,094 | |
| Depreciation and amortization | 3,523 | | | 245 | | | 155 | | | 3,923 | | | 152 | | | (1) | | | 4,074 | |
| Equity in earnings (losses) of unconsolidated affiliates | 5 | | | 27 | | | (1) | | | 31 | | | 52 | | | — | | | 83 | |
Income tax expense (benefit)(a) | 799 | | | 78 | | | (147) | | | 730 | | | (282) | | | — | | | 448 | |
Segment income (loss)(b)(c)(d)(e) | 3,058 | | | 274 | | | 9 | | | 3,341 | | | (694) | | | — | | | 2,647 | |
| Less noncontrolling interest | | | | | | | | | | | | | 22 | |
| Income from discontinued operations, net of tax | | | | | | | | | | | | | 19 | |
| Net income | | | | | | | | | | | | | $ | 2,644 | |
| Capital investments expenditures and acquisitions | $ | 8,086 | | | $ | 1,133 | | | $ | 193 | | | $ | 9,412 | | | $ | 256 | | | $ | — | | | $ | 9,668 | |
| Segment assets | 125,364 | | | 12,361 | | | 4,204 | | | 141,929 | | | 3,275 | | | 188 | | | 145,392 | |
PART II(a) All segments include adjustments to the December 31, 2017, estimate of the income tax effects of the Tax Act. Electric Utilities and Infrastructure includes a $24 million expense, Gas Utilities and Infrastructure includes a $1 million expense, Commercial Renewables includes a $3 million benefit and Other includes a $2 million benefit. See Note 23 for additional information.
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –(b) Electric Utilities and Infrastructure includes after-tax regulatory and legislative impairment charges of $202 million related to rate case orders, settlements or other actions of regulators or legislative bodies and an after-tax impairment charge of $46 million related to the Citrus County CC at Duke Energy Florida. See Note 3 for additional information.
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.(c) Gas Utilities and Infrastructure includes an after-tax impairment charge of $42 million for the investment in Constitution. See Note 12 for additional information.
Combined Notes To(d) Commercial Renewables includes an impairment charge of $91 million, net of $2 million Noncontrolling interests, related to goodwill. See Note 11 for additional information.
(e) Other includes $65 million of after-tax costs to achieve the Piedmont merger, $144 million of after-tax severance charges related to a companywide initiative and an $82 million after-tax loss on the sale of Beckjord described below. For additional information, see Note 1 for the Piedmont merger and Note 20 for severance charges.
In February 2018, Duke Energy sold Beckjord, a nonregulated facility retired during 2014, and recorded a pretax loss of $106 million within Gains (Losses) on Sales of Other Assets and Other, net and $1 million within Operation, maintenance and other on Duke Energy's Consolidated Financial Statements – (Continued)of Operations for the year ended December 31, 2018. The sale included the transfer of coal ash basins and other real property and indemnification from any and all potential future claims related to the property, whether arising under environmental laws or otherwise.
Geographical Information
For the years ended December 31, 2017, 2016 and 2015,Substantially all assets and revenues from continuing operations are within the U.S.
Major Customers
For the year ended December 31, 2017,2020, revenues from one customer of Duke Energy Progress are $521$553 million. Duke Energy Progress has one1 reportable segment, Electric Utilities and Infrastructure. No other subsidiary registrantSubsidiary Registrant has an individual customer representing more than 10 percent10% of its revenues.
| | | | | |
| FINANCIAL STATEMENTS | BUSINESS SEGMENTS |
Products and Services
The following table summarizes revenues of the reportable segments by type. | | | | Retail |
| | Wholesale |
| | Retail |
| | | | Total |
| | Retail | | Wholesale | | Retail | | | | Total |
| (in millions) | Electric |
| | Electric |
| | Natural Gas |
| | Other |
| | Revenues |
| (in millions) | Electric | | Electric | | Natural Gas | | | Other | | Revenues |
| 2017 | | | | | | | | |
| |
| 2020 | | 2020 | | | |
| Electric Utilities and Infrastructure | $ | 18,177 |
| | $ | 2,104 |
| | $ | — |
| | $ | 1,050 |
| | $ | 21,331 |
| Electric Utilities and Infrastructure | $ | 18,898 | | | $ | 1,878 | | | $ | — | | | | $ | 944 | | | $ | 21,720 | |
| Gas Utilities and Infrastructure | — |
| | — |
| | 1,732 |
| | 104 |
| | 1,836 |
| Gas Utilities and Infrastructure | — | | | — | | | 1,691 | | | | 57 | | | 1,748 | |
| Commercial Renewables | — |
| | 375 |
| | — |
| | 85 |
| | 460 |
| Commercial Renewables | — | | | 434 | | | — | | | | 68 | | | 502 | |
| Total Reportable Segments | $ | 18,177 |
| | $ | 2,479 |
| | $ | 1,732 |
|
| $ | 1,239 |
| | $ | 23,627 |
| Total Reportable Segments | $ | 18,898 | | | $ | 2,312 | | | $ | 1,691 | | | | $ | 1,069 | | | $ | 23,970 | |
| 2016 | | | | | | | | |
| |
| 2019 | | 2019 | | | |
| Electric Utilities and Infrastructure | $ | 18,338 |
| | $ | 2,095 |
| | $ | — |
| | $ | 933 |
| | $ | 21,366 |
| Electric Utilities and Infrastructure | $ | 19,745 | | | $ | 2,231 | | | $ | — | | | | $ | 855 | | | $ | 22,831 | |
| Gas Utilities and Infrastructure | — |
| | — |
| | 871 |
| | 30 |
| | 901 |
| Gas Utilities and Infrastructure | — | | | — | | | 1,782 | | | | 84 | | | 1,866 | |
| Commercial Renewables | — |
| | 303 |
| | — |
| | 181 |
| | 484 |
| Commercial Renewables | — | | | 389 | | | — | | | | 98 | | | 487 | |
| Total Reportable Segments | $ | 18,338 |
| | $ | 2,398 |
| | $ | 871 |
|
| $ | 1,144 |
| | $ | 22,751 |
| Total Reportable Segments | $ | 19,745 | | | $ | 2,620 | | | $ | 1,782 | | | | $ | 1,037 | | | $ | 25,184 | |
| 2015 | | | | | | | | |
| |
| 2018 | | 2018 | | | |
| Electric Utilities and Infrastructure | $ | 18,695 |
| | $ | 2,014 |
| | $ | — |
| | $ | 812 |
| | $ | 21,521 |
| Electric Utilities and Infrastructure | $ | 19,013 | | | $ | 2,345 | | | $ | — | | | | $ | 915 | | | $ | 22,273 | |
| Gas Utilities and Infrastructure | — |
| | — |
| | 546 |
| | (5 | ) | | 541 |
| Gas Utilities and Infrastructure | — | | | — | | | 1,817 | | | | 64 | | | 1,881 | |
| Commercial Renewables | — |
| | 245 |
| | — |
| | 41 |
| | 286 |
| Commercial Renewables | — | | | 375 | | | — | | | | 102 | | | 477 | |
| Total Reportable Segments | $ | 18,695 |
| | $ | 2,259 |
| | $ | 546 |
|
| $ | 848 |
| | $ | 22,348 |
| Total Reportable Segments | $ | 19,013 | | | $ | 2,720 | | | $ | 1,817 | | | | $ | 1,081 | | | $ | 24,631 | |
Duke Energy Ohio
Duke Energy Ohio has two2 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 conductsBoth reportable segments conduct operations primarily through Duke Energy Ohio and its wholly owned subsidiary, Duke Energy Kentucky.
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 – (Continued)
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, allOther.
All Duke Energy Ohio assets and revenues
from continuing operations are within the U.S.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Electric |
| | Gas |
| | Total |
| | | | | | |
| | Utilities and |
| | Utilities and |
| | Reportable |
| | | | | | |
(in millions) | Infrastructure |
| | Infrastructure |
| | Segments |
| | Other |
| | Eliminations |
| | Total |
|
| Total revenues | $ | 1,373 |
| | $ | 508 |
| | $ | 1,881 |
| | $ | 42 |
| | $ | — |
| | $ | 1,923 |
|
| Interest expense | $ | 62 |
| | $ | 28 |
| | $ | 90 |
| | $ | 1 |
| | $ | — |
| | $ | 91 |
|
| Depreciation and amortization | 178 |
| | 83 |
| | 261 |
| | $ | — |
| | — |
| | 261 |
|
| Income tax expense (benefit) | 40 |
| | 39 |
| | 79 |
| | $ | (20 | ) | | — |
| | 59 |
|
| Segment income (loss) | 138 |
| | 85 |
| | 223 |
| | $ | (30 | ) | | — |
| | 193 |
|
| Loss from discontinued operations, net of tax | | | | | | | | | | | (1 | ) |
| Net income |
|
| |
|
| |
|
| |
|
| | | | $ | 192 |
|
| Capital expenditures | $ | 491 |
| | $ | 195 |
| | $ | 686 |
| | $ | — |
| | $ | — |
| | $ | 686 |
|
| Segment assets | 5,066 |
| | 2,758 |
| | 7,824 |
| | 66 |
| | (15 | ) | | 7,875 |
|
| | | | Year Ended December 31, 2016 | | Year Ended December 31, 2020 |
| | Electric |
| | Gas |
| | Total |
| | | | | | | | Electric | | Gas | | Total | |
| | Utilities and |
| | Utilities and |
| | Reportable |
| | | | | | | | Utilities and | | Utilities and | | Reportable | |
| (in millions) | Infrastructure |
| | Infrastructure |
| | Segments |
| | Other |
| | Eliminations |
| | Total |
| (in millions) | Infrastructure | | Infrastructure | | Segments | | Other | | Eliminations | | Total |
| | Total revenues | $ | 1,410 |
| | $ | 503 |
| | $ | 1,913 |
| | $ | 31 |
| | $ | — |
| | $ | 1,944 |
| Total revenues | $ | 1,405 | | | $ | 453 | | | $ | 1,858 | | | $ | — | | | $ | — | | | $ | 1,858 | |
| Interest expense | $ | 58 |
| | $ | 27 |
| | $ | 85 |
| | $ | 1 |
| | $ | — |
| | $ | 86 |
| Interest expense | $ | 85 | | | $ | 17 | | | $ | 102 | | | $ | — | | | $ | — | | | $ | 102 | |
| Depreciation and amortization | 151 |
| | 80 |
| | 231 |
| | 2 |
| | — |
| | 233 |
| Depreciation and amortization | 200 | | | 78 | | | 278 | | | — | | | — | | | 278 | |
| Income tax expense (benefit) | 55 |
| | 44 |
| | 99 |
| | (21 | ) | | — |
| | 78 |
| Income tax expense (benefit) | 19 | | | 26 | | | 45 | | | (2) | | | — | | | 43 | |
| Segment income (loss) | 154 |
| | 77 |
| | 231 |
| | (39 | ) | | — |
| | 192 |
| |
| Income from discontinued operations, net of tax | | | | | | | | | | | 36 |
| |
| Net income |
|
| |
|
| |
|
| |
|
| | | | $ | 228 |
| |
| Segment income (loss)/Net income | | Segment income (loss)/Net income | 162 | | | 96 | | | 258 | | | (6) | | | — | | | 252 | |
| | Capital expenditures | $ | 322 |
| | $ | 154 |
| | $ | 476 |
| | $ | — |
| | $ | — |
| | $ | 476 |
| Capital expenditures | $ | 548 | | | $ | 286 | | | $ | 834 | | | $ | — | | | $ | — | | | $ | 834 | |
| Segment assets | 4,782 |
| | 2,696 |
| | 7,478 |
| | 62 |
| | (12 | ) | | 7,528 |
| Segment assets | 6,615 | | | 3,380 | | | 9,995 | | | 32 | | | (2) | | | 10,025 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2015 |
| | Electric |
| | Gas |
| | Total |
| | | | | | |
| | Utilities and |
| | Utilities and |
| | Reportable |
| | | | | | |
| (in millions) | Infrastructure |
| | Infrastructure |
| | Segments |
| | Other |
| | Eliminations |
| | Total |
|
| Total revenues | $ | 1,331 |
| | $ | 541 |
| | $ | 1,872 |
| | $ | 33 |
| | $ | — |
| | $ | 1,905 |
|
| Interest expense | $ | 53 |
| | $ | 25 |
| | $ | 78 |
| | $ | 1 |
| | $ | — |
| | $ | 79 |
|
| Depreciation and amortization | 147 |
| | 79 |
| | 226 |
| | 1 |
| | — |
| | 227 |
|
| Income tax expense (benefit) | 59 |
| | 45 |
| | 104 |
| | (23 | ) | | — |
| | 81 |
|
| Segment income (loss) | 118 |
| | 73 |
| | 191 |
| | (41 | ) | | (1 | ) | | 149 |
|
| Income from discontinued operations, net of tax | | | | | | | | | | | 23 |
|
| Net income |
|
| |
|
| |
|
| |
|
| | | | $ | 172 |
|
| Capital expenditures | $ | 264 |
| | $ | 135 |
| | $ | 399 |
| | $ | — |
| | $ | — |
| | $ | 399 |
|
| Segment assets | 4,534 |
| | 2,516 |
| | 7,050 |
| | 56 |
| | (9 | ) | | 7,097 |
|
| | | | | |
| FINANCIAL STATEMENTS | BUSINESS SEGMENTS |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| Electric | | Gas | | Total | | | | | | |
| Utilities and | | Utilities and | | Reportable | | | | | | |
| (in millions) | Infrastructure | | Infrastructure | | Segments | | Other | | Eliminations | | Total |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total revenues | $ | 1,456 | | | $ | 484 | | | $ | 1,940 | | | $ | — | | | $ | — | | | $ | 1,940 | |
| Interest expense | $ | 80 | | | $ | 29 | | | $ | 109 | | | $ | — | | | $ | — | | | $ | 109 | |
| Depreciation and amortization | 182 | | | 83 | | | 265 | | | — | | | — | | | 265 | |
| Income tax expense (benefit) | 20 | | | 21 | | | 41 | | | (1) | | | — | | | 40 | |
| Segment income (loss) | 159 | | | 85 | | | 244 | | | (5) | | | — | | | 239 | |
| Loss from discontinued operations, net of tax | | | | | | | | | | | (1) | |
| Net income | | | | | | | | | | | $ | 238 | |
| Capital expenditures | $ | 680 | | | $ | 272 | | | $ | 952 | | | $ | — | | | $ | — | | | $ | 952 | |
| Segment assets | 6,188 | | | 3,116 | | | 9,304 | | | 34 | | | — | | | 9,338 | |
4. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2018 |
| Electric | | Gas | | Total | | | | | | |
| Utilities and | | Utilities and | | Reportable | | | | | | |
| (in millions) | Infrastructure | | Infrastructure | | Segments | | Other | | Eliminations | | Total |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total revenues | $ | 1,450 | | | $ | 506 | | | $ | 1,956 | | | $ | 1 | | | $ | — | | | $ | 1,957 | |
| Interest expense | $ | 67 | | | $ | 24 | | | $ | 91 | | | $ | 1 | | | $ | — | | | $ | 92 | |
| Depreciation and amortization | 183 | | | 85 | | | 268 | | | — | | | — | | | 268 | |
| Income tax expense (benefit) | 47 | | | 24 | | | 71 | | | (28) | | | — | | | 43 | |
Segment income (loss)/Net Income(a) | 186 | | | 93 | | | 279 | | | (103) | | | — | | | 176 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Capital expenditures | $ | 655 | | | $ | 172 | | | $ | 827 | | | $ | — | | | $ | — | | | $ | 827 | |
| Segment assets | 5,643 | | | 2,874 | | | 8,517 | | | 38 | | | — | | | 8,555 | |
(a) Other includes the loss on the sale of Beckjord, see discussion above.
3. 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.
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | REGULATORY MATTERS |
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. | | | | Duke Energy | | Progress Energy | | Duke Energy | | Progress Energy | |
| | December 31, | | December 31, | | December 31, | | December 31, | |
| (in millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| (in millions) | 2020 | | 2019 | | 2020 | | 2019 | |
| Regulatory Assets | | | | | | | | Regulatory Assets | | |
| AROs – coal ash | $ | 4,025 |
| | $ | 3,761 |
| | $ | 1,984 |
| | $ | 1,830 |
| AROs – coal ash | $ | 3,408 | | | $ | 4,084 | | | $ | 1,357 | | | $ | 1,843 | | |
| AROs – nuclear and other | 852 |
| | 684 |
| | 655 |
| | 569 |
| AROs – nuclear and other | 754 | | | 739 | | | 685 | | | 668 | | |
| Accrued pension and OPEB | 2,249 |
| | 2,387 |
| | 906 |
| | 882 |
| Accrued pension and OPEB | 2,317 | | | 2,391 | | | 875 | | | 897 | | |
| Retired generation facilities | 480 |
| | 534 |
| | 386 |
| | 422 |
| |
| Debt fair value adjustment | 1,197 |
| | 1,313 |
| | — |
| | — |
| |
| Net regulatory asset related to income taxes | — |
| | 894 |
| | — |
| | 231 |
| |
| Storm cost deferrals | 531 |
| | 153 |
| | 526 |
| | 148 |
| Storm cost deferrals | 1,102 | | | 1,399 | | | 893 | | | 1,214 | | |
| Nuclear asset securitized balance, net | 1,142 |
| | 1,193 |
| | 1,142 |
| | 1,193 |
| Nuclear asset securitized balance, net | 991 | | | 1,042 | | | 991 | | | 1,042 | | |
| Debt fair value adjustment | | Debt fair value adjustment | 950 | | | 1,019 | | | — | | | — | | |
| Retired generation facilities | | Retired generation facilities | 417 | | | 331 | | | 363 | | | 266 | | |
| Post-in-service carrying costs (PISCC) and deferred operating expenses | | Post-in-service carrying costs (PISCC) and deferred operating expenses | 402 | | | 329 | | | 51 | | | 33 | | |
| Deferred asset – Lee and Harris COLA | | Deferred asset – Lee and Harris COLA | 356 | | | 388 | | | 32 | | | 38 | | |
| Hedge costs deferrals | 234 |
| | 217 |
| | 94 |
| | 91 |
| Hedge costs deferrals | 351 | | | 356 | | | 148 | | | 129 | | |
| Derivatives – natural gas supply contracts | 142 |
| | 187 |
| | — |
| | — |
| |
| Demand side management (DSM)/Energy efficiency (EE) | 530 |
| | 407 |
| | 281 |
| | 278 |
| |
| Grid modernization | 39 |
| | 65 |
| | — |
| | — |
| |
| Advanced metering infrastructure (AMI) | | Advanced metering infrastructure (AMI) | 311 | | | 338 | | | 102 | | | 114 | | |
| Demand side management (DSM)/Energy Efficiency (EE) | | Demand side management (DSM)/Energy Efficiency (EE) | 288 | | | 343 | | | 241 | | | 241 | | |
| Vacation accrual | 213 |
| | 196 |
| | 42 |
| | 38 |
| Vacation accrual | 221 | | | 214 | | | 42 | | | 41 | | |
| Deferred fuel and purchased power | 507 |
| | 156 |
| | 349 |
| | 111 |
| Deferred fuel and purchased power | 213 | | | 528 | | | 162 | | | 305 | | |
| COR settlement | | COR settlement | 128 | | | 133 | | | 33 | | | 35 | | |
| NCEMPA deferrals | | NCEMPA deferrals | 124 | | | 72 | | | 124 | | | 72 | | |
| Nuclear deferral | 119 |
| | 226 |
| | 35 |
| | 134 |
| Nuclear deferral | 123 | | | 107 | | | 35 | | | 40 | | |
| Post-in-service carrying costs (PISCC) and deferred operating expenses | 366 |
| | 413 |
| | 38 |
| | 42 |
| |
| Transmission expansion obligation | 46 |
| | 71 |
| | — |
| | — |
| |
| Derivatives – natural gas supply contracts | | Derivatives – natural gas supply contracts | 122 | | | 117 | | | — | | | — | | |
| CEP deferral | | CEP deferral | 117 | | | 76 | | | — | | | — | | |
| Amounts due from customers | | Amounts due from customers | 110 | | | 36 | | | — | | | — | | |
| Qualifying facility contract buyouts | | Qualifying facility contract buyouts | 107 | | | 121 | | | 107 | | | 121 | | |
| Customer connect project | | Customer connect project | 105 | | | 65 | | | 55 | | | 37 | | |
| Manufactured gas plant (MGP) | 91 |
| | 99 |
| | — |
| | — |
| Manufactured gas plant (MGP) | 104 | | | 102 | | | — | | | — | | |
| Advanced metering infrastructure (AMI) | 362 |
| | 218 |
| | 150 |
| | — |
| |
| NCEMPA deferrals | 53 |
| | 51 |
| | 53 |
| | 51 |
| |
| East Bend deferrals | 45 |
| | 32 |
| | — |
| | — |
| |
| ABSAT, coal ash basin closure | | ABSAT, coal ash basin closure | 98 | | | 65 | | | 27 | | | 15 | | |
| Deferred pipeline integrity costs | 54 |
| | 36 |
| | — |
| | — |
| Deferred pipeline integrity costs | 92 | | | 79 | | | — | | | — | | |
| Amounts due from customers | 64 |
| | 66 |
| | — |
| | — |
| |
| Deferred severance charges | | Deferred severance charges | 86 | | | — | | | 29 | | | — | | |
| Incremental COVID-19 expenses | | Incremental COVID-19 expenses | 76 | | | — | | | 23 | | | — | | |
| | Other | 538 |
| | 542 |
| | 110 |
| | 103 |
| Other | 589 | | | 544 | | | 158 | | | 141 | | |
| Total regulatory assets | 13,879 |
| | 13,901 |
|
| 6,751 |
|
| 6,123 |
| Total regulatory assets | 14,062 | | | 15,018 | | | 6,533 | | | 7,292 | | |
| Less: current portion | 1,437 |
| | 1,023 |
| | 741 |
| | 401 |
| Less: current portion | 1,641 | | | 1,796 | | | 758 | | | 946 | | |
| Total noncurrent regulatory assets | $ | 12,442 |
| | $ | 12,878 |
|
| $ | 6,010 |
|
| $ | 5,722 |
| Total noncurrent regulatory assets | $ | 12,421 | | | $ | 13,222 | | | $ | 5,775 | | | $ | 6,346 | | |
| Regulatory Liabilities | | | | | | | | Regulatory Liabilities | | | |
| Net regulatory liability related to income taxes | | Net regulatory liability related to income taxes | $ | 7,368 | | | $ | 7,872 | | | $ | 2,411 | | | $ | 2,595 | | |
| Costs of removal | $ | 5,968 |
| | $ | 5,613 |
| | $ | 2,537 |
| | $ | 2,198 |
| Costs of removal | 5,883 | | | 5,756 | | | 2,666 | | | 2,561 | | |
| ARO – nuclear and other | 806 |
| | 461 |
| | — |
| | — |
| |
| Net regulatory liability related to income taxes | 8,113 |
| | — |
| | 2,802 |
| | — |
| |
| AROs – nuclear and other | | AROs – nuclear and other | 1,512 | | | 1,100 | | | — | | | — | | |
| Provision for rate refunds | | Provision for rate refunds | 344 | | | 370 | | | 123 | | | 123 | | |
| Accrued pension and OPEB | | Accrued pension and OPEB | 177 | | | 176 | | | — | | | — | | |
| Amounts to be refunded to customers | 10 |
| | 45 |
| | — |
| | — |
| Amounts to be refunded to customers | 51 | | | 34 | | | — | | | — | | |
| Storm reserve | 20 |
| | 83 |
| | — |
| | 60 |
| |
| Accrued pension and OPEB | 146 |
| | 174 |
| | — |
| | — |
| |
| Deferred fuel and purchased power | 47 |
| | 192 |
| | 1 |
| | 81 |
| Deferred fuel and purchased power | 18 | | | 1 | | | — | | | 1 | | |
| Other | 622 |
| | 722 |
| | 179 |
| | 245 |
| Other | 1,053 | | | 739 | | | 491 | | | 275 | | |
| Total regulatory liabilities | 15,732 |
| | 7,290 |
| | 5,519 |
| | 2,584 |
| Total regulatory liabilities | 16,406 | | | 16,048 | | | 5,691 | | | 5,555 | | |
| Less: current portion | 402 |
| | 409 |
| | 213 |
| | 189 |
| Less: current portion | 1,377 | | | 784 | | | 640 | | | 330 | | |
| Total noncurrent regulatory liabilities | $ | 15,330 |
| | $ | 6,881 |
| | $ | 5,306 |
| | $ | 2,395 |
| Total noncurrent regulatory liabilities | $ | 15,029 | | | $ | 15,264 | | | $ | 5,051 | | | $ | 5,225 | | |
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.
| | | | | |
| FINANCIAL STATEMENTS | REGULATORY MATTERS |
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.
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 – (Continued)
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)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 isassets are expected to be recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 2122 for additional detail.
Retired generation facilities. Represents amounts to be recovered for facilities that have been retired and are probable of recovery.
Debt fair value adjustment. Purchase accounting adjustments recorded 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 extraordinarymajor 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.
HedgeDebt fair value adjustment. Purchase accounting adjustments recorded 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.
Retired generation facilities. Represents amounts to be recovered for facilities that have been retired and are probable of recovery.
Post-in-service carrying costs (PISCC) and other deferrals. Amounts relate to unrealized gains and losses on derivatives recorded as a regulatory asset or liability, respectively, until the contracts are settled.
Derivatives – natural gas supply contracts.deferred operating expenses. 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.
Deferred asset – Lee and Harris COLA. Represents deferred costs incurred for the canceled Lee and Harris nuclear projects.
Hedge costs deferrals. Amounts relate to unrealized gains and losses on derivatives recorded as a regulatory asset or liability, respectively, until the contracts are settled.
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 future recovery of net book value of electromechanical meters that have been replaced with AMI meters at Duke Energy Indiana.
DSM/EE. Deferred costs related to various DSM and EE programs recoverable through various mechanisms.
Vacation accrual. Generally Represents vacation entitlement, which is generally recovered within onein the following year.
Deferred fuel and purchased power. Represents certain energy-related costs that are recoverable or refundable as approved by the applicable regulatory body.
COR settlement. Represents approved COR settlements that are being amortized over the average remaining lives, at the time of approval, of the associated assets.
NCEMPA deferrals. Represents retail allocated cost deferrals and returns associated with the additional ownership interest in assets acquired from NCEMPA in 2015.
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 carryingDerivatives – natural gas supply contracts. Represents costs and deferred operating expenses.for certain long-dated, fixed quantity forward gas supply contracts, which are recoverable through PGA clauses.
CEP deferral. Represents deferred depreciation, PISCC and deferred property tax for Duke Energy Ohio Gas capital assets for the Capital Expenditure Program (CEP).
Amounts due from customers. Relates primarily to margin decoupling and IMR recovery mechanisms.
Qualifying facility contract buyouts. Represents termination payments for regulatory recovery through the capacity clause.
Customer connect project. Represents incremental operating expenses as well asand 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 obligationsdeferred amounts related to Duke Energy Ohio’s withdrawal from Midcontinent Independent System Operator, Inc. (MISO).the deployment of the new customer information system known as the Customer Connect Project.
MGP. Represents remediation costs incurred at former MGP sites and the deferral of costs to be incurred at theDuke Energy Ohio's East End and West End sites through 2019.sites.
AMI. ABSAT, coal ash basin closure. 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 deferralsdepreciation and returns associated with Ash Basin Strategic Action Team (ABSAT) capital assets related to converting the additional ownership interest in assets acquiredash handling system from NCEMPA in 2015.wet to dry.
East Bend deferrals. Represents both deferred operating expenses and 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.
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| FINANCIAL STATEMENTS | REGULATORY MATTERS |
Deferred pipeline integrity costs. Represents pipeline integrity management costs in compliance with federal regulations recovered through a rider mechanism.
Deferred severance charges. Represents costs incurred for employees separation from Duke Energy.
Incremental COVID-19 expenses. Representsincremental costs related to ensuring continuity and quality of service in a safe manner during the COVID-19 pandemic.
Net regulatory liability related to income taxes. Amounts due from customers. Relatesfor all registrants include regulatory liabilities related primarily to margin decoupling and IMR recovery mechanisms. impacts from the Tax Act. See Note 23 for additional information. Amounts have no immediate impact on rate base as regulatory assets are offset by deferred tax liabilities.
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 – (Continued)
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.
Provisions for rate refunds. Represents estimated amounts due to customers based on recording interim rates subject to refund.
Amounts to be refunded to customers. Represents required rate reductions to retail customers by the applicable regulatory body.
Storm reserve. Amounts are used to offset future incurred costs for 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 parentParent 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.
Duke Energy Progress and Duke Energy Florida also have restrictions 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, 2017.2020.
Duke Energy Indiana has certain dividend restrictions as a result of the agreement entered in January 2021 to sell a minority interest to GIC. Duke Energy Indiana will not declare a dividend prior to the first closing, which is expected to be completed in the second quarter of 2021, and will declare dividends between the first closing and the second closing, which is required to be completed no later than January 2023, in accordance with the sale agreement. See additional information in Note 1.
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 percentnot a material amount of Duke Energy's and Progress Energy's net assets at December 31, 2017.2020.
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 percent30% of total capital.
Duke Energy Kentucky is required to pay dividends solely out of retained earnings and to maintain a minimum of 35 percent35% 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.
| | | | | |
| FINANCIAL STATEMENTS | REGULATORY MATTERS |
RATE-RELATED INFORMATION
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.
Duke Energy Carolinas and Duke Energy Progress
PART II2021 Coal Ash Settlement
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 – (Continued)
All Registrants
Tax Act Impacts
On DecemberJanuary 22, 2021, Duke Energy Carolinas and Duke Energy Progress entered into the Coal Combustion Residuals Settlement Agreement (the “CCR Settlement Agreement”) with the North Carolina Public Staff (Public Staff), the North Carolina Attorney General’s Office and the Sierra Club (collectively, the "Settling Parties"), which was filed with the NCUC on January 25, 2021. The CCR Settlement Agreement resolves all coal ash prudence and cost recovery issues in connection with 2019 rate cases filed by Duke Energy Carolinas and Duke Energy Progress with the NCUC, as well as the equitable sharing issue on remand from the 2017 President Trump signed the Tax Act into law, which, among other provisions, reduces the maximum federal corporate income taxDuke Energy Carolinas and Duke Energy Progress North Carolina rate from 35 percent to 21 percent, effective January 1, 2018. Ascases as a result of the Tax Act, the Subsidiary Registrants revalued their deferred tax assetsDecember 11, 2020, North Carolina Supreme Court opinion. The settlement also provides clarity on coal ash cost recovery in North Carolina for Duke Energy Carolinas 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 forDuke Energy Progress through January 2030 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.February 2030 (the "Term"), respectively.
Duke Energy Carolinas and Duke Energy Progress agreed not to seek recovery of approximately $1 billion of systemwide deferred coal ash expenditures, but will retain the ability to earn a debt and equity return during the amortization period, which shall be five years in the pending 2019 North Carolina rate cases and will be set by the NCUC in future rate case proceedings. The equity return and the amortization period on deferred coal ash costs under the 2017 Duke Energy Carolinas and Duke Energy Progress North Carolina rate cases will remain unaffected. The equity return on deferred coal ash costs under the 2019 North Carolina rate cases and future rate cases in North Carolina will be set at 150 basis points lower than the authorized return on equity then in effect, with a capital structure composed of 48% debt and 52% equity. Duke Energy Carolinas and Duke Energy Progress retain the ability to earn a full WACC return during the deferral period, which is the period from when costs are incurred until they are recovered in rates.
Ash Basin Closure Costs DeferralThe Settling Parties agreed that execution by Duke Energy Carolinas and Duke Energy Progress of a settlement agreement between themselves and the NCDEQ dated December 31, 2019, (the “DEQ Settlement”) and the coal ash management plans included therein or subsequently approved by DEQ are reasonable and prudent. The Settling Parties retain the right to challenge the reasonableness and prudence of actions taken by Duke Energy Carolinas and Duke Energy Progress and costs incurred to implement the scope of work agreed upon in the DEQ Settlement, after February 1, 2020, and March 1, 2020, for Duke Energy Carolinas and Duke Energy Progress, respectively. The Settling Parties further agreed to waive rights through the Term to challenge the reasonableness or prudence of Duke Energy Carolinas’ and Duke Energy Progress’ historical coal ash management practices, and to waive the right to assert any arguments that future coal ash costs, including financing costs, shall be shared between either company and customers through equitable sharing or any other rate base or return adjustment that shares the revenue requirement burden of coal ash costs not otherwise disallowed due to imprudence.
The Settling Parties agreed to a sharing arrangement for future coal ash insurance litigation proceeds between Duke Energy Carolinas and Duke Energy Progress and North Carolina customers, if achieved.
The settlement is subject to the review and approval of the NCUC. The Settling Parties requested an expedited review by the NCUC and anticipate an order on the pending 2019 North Carolina rate cases for Duke Energy Carolinas and Duke Energy Progress by the second quarter of 2021. On January 29, 2021, Duke Energy Carolinas and Duke Energy Progress filed joint motions with the Settling Parties seeking approval of the CCR Settlement Agreement, along with supporting testimony and exhibits from Duke Energy Carolinas and Duke Energy Progress. On February 5, 2021, the Public Staff filed testimony and exhibits supporting the CCR Settlement Agreement.
As a result of the CCR Settlement Agreement, Duke Energy Carolinas and Duke Energy Progress recorded a pretax charge of approximately $454 million and $494 million, respectively, in the fourth quarter of 2020 to Impairment charges and a reversal of approximately $50 million and $102 million, respectively, to Regulated electric operating revenues on the respective Consolidated Statements of Operations.
COVID-19 Filings
North Carolina
On March 10, 2020, Governor Roy Cooper declared a state of emergency due to the COVID-19 pandemic. On March 19, 2020, the NCUC issued an order directing that utilities under its jurisdiction suspend disconnections for nonpayment of utility bills during the state of emergency and allow for customers to enter into payment arrangements to pay off arrearages accumulated during the state of emergency after the end of the state of emergency. Additionally, to help mitigate the financial impacts of the COVID-19 pandemic on their customers, on March 19, 2020, Duke Energy Carolinas and Duke Energy Progress filed a request with the NCUC seeking authorization to waive: (1) any late payment charges incurred by a residential or nonresidential customer, effective March 21, 2020; (2) the application of fees for checks returned for insufficient funds for residential and nonresidential customers; (3) the reconnection charge when a residential or nonresidential customer seeks to have service restored for those customers whose service was recently disconnected for nonpayment and to work with customers regarding the other requirements to restore service, including re-establishment of credit; and (4) the fees and charges associated with the use of credit cards or debit cards to pay residential electric utility bills, effective March 21, 2020. The NCUC granted the companies’ request on March 20, 2020.
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| FINANCIAL STATEMENTS | REGULATORY MATTERS |
On July 29, 2020, the NCUC issued its Order Lifting Disconnection Moratorium and Allowing Collection of Arrearages Pursuant to Special Repayment Plans. The order contained the following: (1) public utilities may resume customer disconnections due to nonpayment for bills first rendered on or after September 1, 2020, after appropriate notice; (2) the late fee moratorium will continue through the end of the state of emergency or until further order of the Commission; (3) Duke Energy utilities may reinstate fees for checks returned for insufficient funds as well as transaction fees for use of credit cards or debit cards for bills first rendered on or after September 1, 2020; and (4) no sooner than September 1, 2020, the collection of past-due or delinquent accounts accrued up to and including August 31, 2020, may proceed subject to conditions. Duke Energy Carolinas and Duke Energy Progress resumed normal billing practices as of October 1, 2020, with the exception of the billing of late payment charges. Customers were notified of the resumption of normal billing practices, the option of deferred payment arrangements and where to find assistance, if necessary. Service disconnections for nonpayment for residential customers resumed on November 2, 2020.
Duke Energy Carolinas and Duke Energy Progress filed a joint petition on August 7, 2020, with the NCUC for deferral treatment of incremental costs and waived customer fees due to the COVID-19 pandemic. Comments on the joint petition were filed on November 5, 2020, and reply comments were filed on November 30, 2020. Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of this matter.
South Carolina
On March 13, 2020, Governor Henry McMaster declared a state of emergency due to the COVID-19 pandemic. The governor also issued a letter on March 14, 2020, to the ORS Executive Director regarding the suspension of disconnection of essential utility services for nonpayment. On March 18, 2020, the PSCSC issued an order approving such waivers, and also approved waivers for regulations related to late fees and reconnect fees. The PSCSC's order also required utilities to track the financial impacts of actions taken pursuant to such waivers for possible reporting to the PSCSC.
On May 13, 2020, the ORS filed a letter with the PSCSC that included a request from Governor McMaster that utilities proceed with developing and implementing plans for phasing in normal business operations. On May 14, 2020, the PSCSC conditionally vacated the regulation waivers regarding termination of service and suspension of disconnect fees. Prior to termination, utilities are to refer past-due customers to local organizations for assistance and/or deferred payment arrangements. Duke Energy Carolinas and Duke Energy Progress filed a report on June 30, 2020, as required by PSCSC order, reporting revenue impact, costs and savings related to COVID-19 to date. On August 14, 2020, Duke Energy Carolinas and Duke Energy Progress filed a joint petition with the PSCSC for approval of an accounting order to defer incremental COVID-19 related costs incurred through June 30, 2020, and for the ongoing months during the duration of the COVID-19 pandemic. The deferral request did not include lost revenues. Updates on cost impacts were filed on September 30, 2020, and included financial impacts through the end of August 2020. On October 16, 2020, the ORS requested the PSCSC delay taking formal action on the deferral request until the ORS and any intervenors complete discovery. The PSCSC issued an order on October 21, 2020, to grant additional time to complete discovery until January 20, 2021, and to establish a procedural schedule. Updates on cost impacts were filed on December 30, 2016,2020, and included financial impacts through November 30, 2020. On January 15, 2021, ORS requested the PSCSC suspend the dates for the ORS report and public hearing. The ORS conferred with the companies regarding the status of the docket, and the parties mutually agreed that recently enacted federal laws addressing COVID-19 aid and recovery should be studied before further action is taken in this docket. On January 27, 2021, the PSCSC voted to grant the ORS request to suspend the virtual public hearing. ORS is to file its report on or before March 29, 2021.
On August 17, 2020, Duke Energy Carolinas and Duke Energy Progress filed an update on their planned return to normal operations during the COVID-19 pandemic. Normal billing practices resumed in South Carolina as of October 1, 2020, and service disconnections for nonpayment resumed on October 12, 2020. Customers were notified of the resumption of normal billing practices, the option of payment arrangements and where to find assistance, if necessary. Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of this matter.
2020 North Carolina Storm Securitization Filings
On October 26, 2020, Duke Energy Carolinas and Duke Energy Progress filed a joint petition with the NCUC, seeking an accounting order authorizing deferral of certain costs incurredas agreed to in connection with federal and state environmental remediation requirements related topartial settlements reached in 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 in2019 North Carolina. Initial comments were received in March 2017, and reply comments were filed on April 19, 2017. The NCUC has consolidatedCarolina Rate Cases for Duke Energy Carolinas'Carolinas and Duke Energy Progress’ coal ash deferral requests intoProgress, seeking authorization for the financing of the costs of each utility's storm recovery activities required as a result of Hurricane Florence, Hurricane Michael, Hurricane Dorian and Winter Storm Diego. Specifically, Duke Energy Carolinas and Duke Energy Progress requested that the NCUC find that their respective general rate case docketsstorm recovery costs and related financing costs are appropriately financed by debt secured by storm recovery property, and that the Commission issue financing orders by which each utility may accomplish such financing using a securitization structure. On January 27, 2021, Duke Energy Carolinas, Duke Energy Progress and the Public Staff filed an Agreement and Stipulation of Partial Settlement, which is subject to review and approval of the NCUC, resolving certain accounting issues, including agreement to support an 18- to 20-year bond period. The total revenue requirement over a proposed 20-year bond period for decision. See "2017 North Carolina Rate Case" sections belowthe storm recovery charges is approximately $287 million for additional discussion.Duke Energy Carolinas and $920 million for Duke Energy Progress. A remote evidentiary hearing ended on January 29, 2021, and on February 1, 2021, the NCUC granted a motion by Duke Energy Carolinas and Duke Energy Progress for a temporary 30-day waiver of the 135-day time frame for the NCUC to issue orders on the joint petition, extending the deadline for the NCUC to issue an order to no later than April 9, 2021. Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of this matter.
| | | | | |
| FINANCIAL STATEMENTS | REGULATORY MATTERS |
Duke Energy Carolinas
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Duke Energy Carolinas' Consolidated Balance Sheets. | | | | December 31, | | Earns/Pays | Recovery/Refund | | December 31, | | Earns/Pays | Recovery/Refund |
| (in millions) | 2017 |
| 2016 |
| | a Return | Period Ends | (in millions) | 2020 | 2019 | | a Return | Period Ends |
Regulatory Assets(a) | | | Regulatory Assets(a) | |
| AROs - coal ash | $ | 1,645 |
| $ | 1,536 |
| | (i) | (b) | |
| AROs - nuclear and other | — |
| 9 |
| | |
| Accrued pension and OPEB | 410 |
| 481 |
| | (j) | |
| AROs – coal ash | | AROs – coal ash | $ | 1,414 | | $ | 1,696 | | | (h) | (b) |
| Accrued pension and OPEB(c) | | Accrued pension and OPEB(c) | 427 | | 477 | | | Yes | (i) |
| Storm cost deferrals | | Storm cost deferrals | 205 | | 178 | | | Yes | (b) |
| Retired generation facilities(c) | 29 |
| 39 |
| | X | 2023 | Retired generation facilities(c) | 11 | | 16 | | | Yes | 2023 |
Net regulatory asset related to income taxes(d) | — |
| 484 |
| | |
PISCC(c) | | PISCC(c) | 32 | | 33 | | | Yes | (b) |
| Deferred asset – Lee COLA | | Deferred asset – Lee COLA | 324 | | 350 | | | | (b) |
Hedge costs deferrals(c) | 109 |
| 93 |
| | X | 2041 | Hedge costs deferrals(c) | 174 | | 198 | | | Yes | 2041 |
| AMI | | AMI | 154 | | 166 | | | Yes | (b) |
| DSM/EE | 210 |
| 122 |
| | (h) | DSM/EE | 46 | | 100 | | | (g) |
| Vacation accrual | 83 |
| 76 |
| | (e) | 2018 | Vacation accrual | 84 | | 80 | | | 2021 |
| Deferred fuel and purchased power | 140 |
| — |
| | (f) | 2018 | Deferred fuel and purchased power | 42 | | 222 | | | (e) | 2022 |
| COR settlement | | COR settlement | 95 | | 98 | | | Yes | (b) |
| | Nuclear deferral | 84 |
| 92 |
| | 2019 | Nuclear deferral | 88 | | 67 | | | | 2022 |
PISCC(c) | 35 |
| 70 |
| | X | (b) | |
| AMI | 185 |
| 172 |
| | X | (b) | |
| | Customer connect project | | Customer connect project | 50 | | 28 | | | Yes | (b) |
| | ABSAT, coal ash basin closure | | ABSAT, coal ash basin closure | 71 | | 50 | | | Yes | (b) |
| | Deferred severance charges | | Deferred severance charges | 57 | | — | | | | 2022 |
| Incremental COVID-19 expenses | | Incremental COVID-19 expenses | 31 | | — | | | Yes | (b) |
| | Other | 222 |
| 223 |
| | (b) | Other | 164 | | 151 | | | | (b) |
| Total regulatory assets | 3,152 |
| 3,397 |
| | Total regulatory assets | 3,469 | | 3,910 | | |
| Less: current portion | 299 |
| 238 |
| | Less: current portion | 473 | | 550 | | |
| Total noncurrent regulatory assets | $ | 2,853 |
| $ | 3,159 |
| | Total noncurrent regulatory assets | $ | 2,996 | | $ | 3,360 | | |
Regulatory Liabilities(a) | | | Regulatory Liabilities(a) | |
Net regulatory liability related to income taxes(d) | | Net regulatory liability related to income taxes(d) | $ | 2,874 | | $ | 3,060 | | | (b) |
Costs of removal(c) | $ | 2,054 |
| $ | 2,015 |
| | X | (g) | Costs of removal(c) | 1,975 | | 1,936 | | | Yes | (f) |
| ARO - nuclear and other | 806 |
| 461 |
| | (b) | |
Net regulatory liability related to income taxes(d) | 3,028 |
| — |
| | (b) | |
Storm reserve(c) | 20 |
| 22 |
| | (b) | |
| Accrued pension and OPEB | 44 |
| 46 |
| | (j) | |
| AROs – nuclear and other | | AROs – nuclear and other | 1,512 | | 1,100 | | | (b) |
Provision for rate refunds(c) | | Provision for rate refunds(c) | 170 | | 175 | | | Yes | |
Accrued pension and OPEB(c) | | Accrued pension and OPEB(c) | 32 | | 39 | | | Yes | (i) |
| | Deferred fuel and purchased power | 46 |
| 105 |
| | (f) | 2018 | Deferred fuel and purchased power | 18 | | — | | | (e) | 2020 |
| Other | 359 |
| 352 |
| | (b) | Other | 427 | | 368 | | | (b) |
| Total regulatory liabilities | 6,357 |
| 3,001 |
| | Total regulatory liabilities | 7,008 | | 6,678 | | |
| Less: current portion | 126 |
| 161 |
| | Less: current portion | 473 | | 255 | | |
| Total noncurrent regulatory liabilities | $ | 6,231 |
| $ | 2,840 |
| | Total noncurrent regulatory liabilities | $ | 6,535 | | $ | 6,423 | | |
(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) Included in rate base.
(d) Includes regulatory liabilities related to the change in the federal tax rate as a result of the Tax Act and the change in the North Carolina tax rate, both discussed in Note 23. Portions are included in rate base.
(e) 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.
(f) Recovered over the life of the associated assets.
(g) Includes incentives on DSM/EE investments and is recovered through an annual rider mechanism.
(h) Earns a debt and equity return on coal ash expenditures for North Carolina and South Carolina retail customers as permitted by various regulatory orders.
(i) Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 22 for additional detail.
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 – (Continued)
| | | | | |
(a)FINANCIAL STATEMENTS | Regulatory assets and liabilities are excluded from rate base unless otherwise noted.REGULATORY MATTERS |
| |
(b) | The expected recovery or refund period varies or has not been determined. |
| |
(c) | Included in rate base. |
| |
(d) | Includes regulatory liabilities related to the change in the North Carolina tax rate discussed in Note 22. |
| |
(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) | Includes incentives on DSM/EE investments and is recovered through an annual rider mechanism. |
| |
(i) | Earns a debt return on coal ash expenditures for North Carolina and South Carolina retail customers. |
| |
(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. |
2017 North Carolina Rate Case
On August 25, 2017, Duke Energy Carolinas filed an application with the NCUC for a rate increase for retail customers of approximately $647 million. On February 28, 2018, Duke Energy Carolinas and the Public Staff filed an Agreement and Stipulation of Partial Settlement resolving certain portions of the proceeding. Terms of the settlement included a return on equity of 9.9% and a capital structure of 52% equity and 48% debt. On June 22, 2018, the NCUC issued an order approving the Stipulation of Partial Settlement and requiring a revenue reduction. As a result of the June 22, 2018, order, Duke Energy Carolinas recorded a pretax charge of approximately $150 million which represents an approximate 13.6 percent increase in annual base revenues.to Impairment charges and Operation, maintenance and other on the Consolidated Statements of Operations. The rate increase is driven by capital investments subsequentcharge was primarily related to the previous base rate case, including grid improvement projects, AMI, investments in customerdenial of a return on the Lee Nuclear Project and the assessment of a $70 million cost of service technologies,penalty by reducing the annual recovery of deferred coal ash costs by $14 million per year over a five-year recovery period.
The North Carolina Attorney General and other parties separately filed Notices of complying with coal combustion residuals (CCR) regulations andAppeal to the North Carolina Coal Ash Management Act of 2014 (Coal Ash Act)Supreme Court. The North Carolina Supreme Court consolidated the Duke Energy Carolinas and recovery of costs related to licensing and development of the William States Lee III Nuclear Station (Lee Nuclear Station) discussed below.Duke Energy Progress appeals. On January 23, 2018,December 11, 2020, the North Carolina Supreme Court issued an opinion on the consolidated appeals of the 2018 Duke Energy Carolinas and Duke Energy Progress rate case orders which affirmed, in part, and reversed and remanded, in part, the NCUC’s decisions. In the Opinion, the court upheld the NCUC's decision to include coal ash costs in the cost of service, as well as the NCUC’s discretion to allow a return on the unamortized balance of coal ash costs. The court also remanded to the NCUC a single issue to consider the assessment of support for the Public Staff’s equitable sharing argument. In response to a NCUC order seeking comments on the proposed procedure on remand, on January 11, 2021, Duke Energy Carolinas, Duke Energy Progress, the Public Staff, the North Carolina Attorney General, Sierra Club and Carolina Industrial Group for Fair Utility Rates II and III filed testimony recommending an overalljoint comments proposing that the NCUC not hold additional evidentiary hearings, but instead rely upon existing records in the 2017 North Carolina rate decrease of approximately $290 million. An evidentiary hearing is scheduled to begincases, or in the alternative the records in the 2019 North Carolina rate cases, in deciding the issue on February 27, 2018,remand. On January 22, 2021, Duke Energy Carolinas and Duke Energy Progress entered into the CCR Settlement Agreement with the Settling Parties, which was filed with the NCUC on January 25, 2021. For information on a decision and revised customer rates are expected by mid-2018.proposed settlement pending before the NCUC, see "2021 Coal Ash Settlement." Duke Energy Carolinas cannot predict the outcome of this matter.
FERC Formula2019 North Carolina Rate MatterCase
On July 31, 2017, Piedmont Municipal Power Agency (PMPA) filed a complaint with FERC againstSeptember 30, 2019, Duke Energy Carolinas alleging thatfiled an application with the NCUC for a net rate increase for retail customers of approximately $291 million, which represented an approximate 6% increase in annual base revenues. The gross rate case revenue increase request was $445 million, which was offset by an EDIT rider of $154 million to return to customers North Carolina and federal EDIT resulting from recent reductions in corporate tax rates. The request for a rate increase was driven by major capital investments subsequent to the previous base rate case, coal ash pond closure costs, accelerated coal plant depreciation and deferred 2018 storm costs. Duke Energy Carolinas misappliedrequested rates be effective no later than August 1, 2020. The NCUC established a procedural schedule with an evidentiary hearing to begin on March 23, 2020. On March 16, 2020, in consideration of public health and safety as a result of the formula rate under the purchase power agreement (PPA) between the parties by including regulatory amortization in its rates without FERC approval.COVID-19 pandemic, Duke Energy Carolinas disagreedfiled a motion with PMPA as it believed it was properly applying its FERC filed rate. On February 15, 2018, FERCthe NCUC seeking a suspension of the procedural schedule in the rate case, including issuing discovery requests, and postponement of the evidentiary hearing for 60 days. Also on March 16, 2020, the NCUC issued an Order Postponing Hearing and Addressing Procedural Matters, which postponed the evidentiary hearing until further order ruling in favor of PMPA and orderedby the Commission.
On March 25, 2020, Duke Energy Carolinas and the Public Staff filed an Agreement and Stipulation of Partial Settlement, which is subject to refundreview and approval of the NCUC, resolving certain issues in the base rate proceeding. Major components of the settlement included:
•Removal of deferred storm costs from the rate case;
•Filing a petition seeking to PMPA all amounts improperly collected undersecuritize the PPA. Resolutiondeferred storm costs within 120 days of a commission order in this matter is not expectedrate case regarding the reasonableness and prudency of the storm costs;
•Agreement of certain assumptions to be material.demonstrate the quantifiable benefits to customers of a securitization financing; and
Lincoln County Combustion Turbine•Agreement on certain accounting matters, including recovery of employee incentives, severance, aviation costs and executive compensation.
On December 7, 2017,May 6, 2020, Duke Energy Carolinas, Duke Energy Progress and the Public Staff filed a joint motion requesting that the NCUC issue an order scheduling one consolidated evidentiary hearing to consider the companies’ applications for net rate increases. On June 17, 2020, the NCUC issued an order approvingadopting procedures for the expert witness hearings to take place in three phases: (1) a Certificate of Public Convenience and Necessity (CPCN) forhearing on issues common to both rate cases conducted remotely; (2) a hearing on Duke Energy Carolinas' proposed 402-megawatt (MW) simple cycle, advanced combustion turbine natural gas-fueled electric generating unit atCarolinas specific rate case issues, followed immediately by; (3) a hearing on Duke Energy Progress specific rate case issues. On July 24, 2020, Duke Energy Carolinas filed its existing Lincoln County site. The CPCN also includes constructionrequest for approval of related transmissionits notice to customers required to implement temporary rates. On July 27, 2020, Duke Energy Carolinas filed a joint motion with Duke Energy Progress and natural gas pipeline interconnection facilities. Construction is scheduledthe Public Staff notifying the Commission that the parties reached a joint partial settlement with the Public Staff. Also, on July 27, 2020, Duke Energy Carolinas filed a letter stating that it intended to begin in 2018 with an extended commissioning and validation period from 2020-2024 and an estimated commercial operation date in 2024. As a conditionupdate its temporary rates calculation to reflect the terms of the partial settlement.
On July 31, 2020, Duke Energy Carolinas and the Public Staff filed a Second Agreement and Stipulation of Partial Settlement (Second Partial Settlement), which is subject to review and approval of the NCUC, resolving certain remaining issues in the base rate proceeding. Major components of the Second Partial Settlement included:
•A return on equity of 9.6% and a capital structure of 52% equity and 48% debt;
•Agreement on amortization over a five-year period for unprotected federal EDIT flowbacks to customers;
•Agreement on the inclusion of plant in service and other revenue requirement updates through May 31, 2020, subject to Public Staff review. Annual revenue requirement associated with the May 31 update is estimated at $45 million; and
•Settlement to allow the deferral of costs for certain grid projects placed in service between June 1, 2020, and December 31, 2022, totaling $0.8 billion.
| | | | | |
| FINANCIAL STATEMENTS | REGULATORY MATTERS |
The remaining items litigated at hearing included recovery of deferred coal ash compliance costs that are subject to asset retirement obligation accounting, implementation of new depreciation rates and the amortization period of the loss on the hydro station sale.
On August 4, 2020, Duke Energy Carolinas filed an amended motion for approval of its amended notice to customers, seeking to exercise its statutory right to implement temporary rates subject to refund on or after August 24, 2020. The revenue requirement to be recovered, subject to refund, through the temporary rates is based on and consistent with the base rate component of the Second Partial Settlement with the Public Staff and excludes the items to be litigated noted above. Duke Energy Carolinas will not seek recoverybegin the amortization or implementation of costs associated withthese items until a final order is issued in the project until itrate case and new base rates are implemented. These items will also be excluded when determining whether a refund of amounts collected through these temporary rates is placed into commercial operation.
Advanced Metering Infrastructure Deferral
On July 12, 2016, the PSCSC issued an accounting order forneeded. In addition, Duke Energy Carolinas also seeks authorization to deferplace a temporary decrement EDIT Rider into effect, concurrent with the financial effectstemporary base rate change. The temporary rate changes are not final rates and remain subject to the NCUC's determination of depreciation expense incurred for the installation of AMI meters, the carrying costs on the investment at its weighted average cost of capital (WACC)just and the carrying costs on the deferred costs at its WACC notreasonable rates to exceed $45 million. The decision also allowsbe charged by Duke Energy Carolinas to continue to depreciateon a permanent basis. The NCUC approved the non-AMI meters to be replaced. Current retailAugust 4, 2020 amended temporary rates will not change as a result ofmotion on August 6, 2020, and temporary rates went into effect on August 24, 2020.
The Duke Energy Carolinas evidentiary hearing concluded on September 18, 2020, and post-hearing filings were made with the decision and the ability of interestedNCUC from all parties to challenge the reasonableness of expenditures in subsequent proceedings is not limited.
William States Lee Combined Cycle Facility
by November 4, 2020. On April 9, 2014, the PSCSC grantedJanuary 22, 2021, Duke Energy Carolinas and 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.Progress entered into the CCR Settlement Agreement with the Settling Parties, which was filed with the NCUC on January 25, 2021. Duke Energy Carolinas began construction in July 2015 and estimates a costexpects the NCUC to build of $600 million forissue an order on its share ofnet rate increase by the facility, including allowance for funds used during construction (AFUDC). The project is expected to be commercially available in the firstsecond 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 to2021. For information on a proposed solar facility prior to granting approval ofsettlement pending before 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.
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 – (Continued)
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.see "2021 Coal Ash Settlement." Duke Energy Carolinas cannot predict the outcome of this matter.
2018 South Carolina Rate Case
On November 8, 2018, Duke Energy Carolinas filed an application with the PSCSC for a rate increase for retail customers of approximately $168 million.
After hearings in March 2019, the PSCSC issued an order on May 21, 2019, which included a return on equity of 9.5% and a capital structure of 53% equity and 47% debt. The order also included the following material components:
•Approval of cancellation of the Lee Nuclear Project, with Duke Energy Carolinas maintaining the Combined Operating License;
•Approval of recovery of $125 million (South Carolina retail portion) of Lee Nuclear Project development costs (including AFUDC through December 2017) over a 12-year period, but denial of a return on the deferred balance of costs;
•Approval of recovery of $96 million of coal ash costs over a five-year period with a return at Duke Energy Carolinas' WACC;
•Denial of recovery of $115 million of certain coal ash costs deemed to be related to the Coal Ash Act and incremental to the federal CCR rule;
•Approval of a $66 million decrease to base rates to reflect the change in ongoing tax expense, primarily the reduction in the federal income tax rate from 35% to 21%;
•Approval of a $45 million decrease through the EDIT Rider to return EDIT resulting from the federal tax rate change and deferred revenues since January 2018 related to the change, to be returned in accordance with the Average Rate Assumption Method (ARAM) for protected EDIT, over a 20-year period for unprotected EDIT associated with Property, Plant and Equipment, over a five-year period for unprotected EDIT not associated with Property, Plant and Equipment and over a five-year period for the deferred revenues; and
•Approval of a $17 million decrease through the EDIT Rider related to reductions in the North Carolina state income tax rate from 6.9% to 2.5% to be returned over a five-year period.
As a result of the order, revised customer rates were effective June 1, 2019. On May 31, 2019, Duke Energy Carolinas filed a Petition for Rehearing or Reconsideration of that order contending substantial rights of Duke Energy Carolinas were prejudiced by unlawful, arbitrary and capricious rulings by the PSCSC on certain issues presented in the proceeding. On June 19, 2019, the PSCSC issued a Directive denying Duke Energy Carolinas' request to rehear or reconsider the Commission's rulings on certain issues presented in the proceeding including coal ash remediation and disposal costs, return on equity and the recovery of a return on deferred operation and maintenance expenses. An order detailing the Commission's decision in the Directive was issued on October 18, 2019. Duke Energy Carolinas filed a notice of appeal on November 15, 2019, with the Supreme Court of South Carolina. On November 20, 2019, the South Carolina Energy Users Committee filed a Notice of Appeal and the ORS filed a Notice of Cross Appeal with the Supreme Court of South Carolina. On February 12, 2020, Duke Energy Carolinas and the ORS filed a joint motion to extend briefing schedule deadlines, which was approved by the Supreme Court of South Carolina on February 20, 2020. On March 10, 2020, the ORS filed a consent motion requesting withdrawal of their appeal, which was granted by the Supreme Court of South Carolina on April 30, 2020. Initial briefs were filed on April 21, 2020, which included the South Carolina Energy User's Committee brief arguing that the PSCSC erred in allowing Duke Energy Carolinas' recovery of costs related to the Lee Nuclear Station. Response briefs were filed on July 6, 2020, and reply briefs were filed on August 11, 2020. Oral arguments have not yet been scheduled by the Supreme Court of South Carolina. Based on legal analysis and the filing of the appeal, Duke Energy Carolinas has not recorded an adjustment for its deferred coal ash costs in this matter. Duke Energy Carolinas cannot predict the outcome of this matter.
| | | | | |
| FINANCIAL STATEMENTS | REGULATORY MATTERS |
Duke Energy Progress
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Duke Energy Progress' Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | |
| December 31, | | Earns/Pays | Recovery/Refund |
| (in millions) | 2020 | 2019 | | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
| AROs – coal ash | $ | 1,347 | | $ | 1,834 | | | (h) | (b) |
| AROs – nuclear and other | 683 | | 509 | | | | (c) |
| Accrued pension and OPEB | 393 | | 423 | | | | (k) |
Storm cost deferrals(d) | 785 | | 801 | | | Yes | (b) |
| | | | | |
| | | | | |
| Retired generation facilities | 189 | | 83 | | | Yes | (b) |
| PISCC and deferred operating expenses | 51 | | 33 | | | Yes | 2054 |
| Deferred asset – Harris COLA | 32 | | 38 | | | | (b) |
| Hedge costs deferrals | 89 | | 85 | | | | (b) |
| AMI | 57 | | 61 | | | Yes | (b) |
DSM/EE(e) | 224 | | 216 | | | (i) | (i) |
| Vacation accrual | 42 | | 41 | | | | 2021 |
| Deferred fuel and purchased power | 158 | | 266 | | | (f) | 2022 |
| COR settlement | 33 | | 35 | | | Yes | (e) |
| NCEMPA deferrals | 124 | | 72 | | | (g) | 2042 |
| Nuclear deferral | 35 | | 40 | | | | 2022 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Customer connect project | 25 | | 17 | | | Yes | (b) |
| | | | | |
| ABSAT, coal ash basin closure | 27 | | 15 | | | Yes | (b) |
| | | | | |
| Deferred severance charges | 29 | | — | | | | 2022 |
| Incremental COVID-19 expenses | 23 | | — | | | Yes | (b) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other | 122 | | 109 | | | | (b) |
| Total regulatory assets | 4,468 | | 4,678 | | | | |
| Less: current portion | 492 | | 526 | | | | |
| Total noncurrent regulatory assets | $ | 3,976 | | $ | 4,152 | | | | |
Regulatory Liabilities(a) | | | | | |
Net regulatory liability related to income taxes(l) | $ | 1,662 | | $ | 1,802 | | | | (b) |
| Costs of removal | 2,666 | | 2,294 | | | Yes | (j) |
| | | | | |
| Provision for rate refunds | 123 | | 123 | | | Yes | |
| | | | | |
| | | | | |
| | | | | |
| Other | 473 | | 249 | | | | (b) |
| Total regulatory liabilities | 4,924 | | 4,468 | | | | |
| Less: current portion | 530 | | 236 | | | | |
| Total noncurrent regulatory liabilities | $ | 4,394 | | $ | 4,232 | | | | |
(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) South Carolina storm costs are included in rate base.
(e) Included in rate base.
(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) South Carolina retail allocated costs are earning a return.
(h) Earns a debt and equity return on coal ash expenditures for North Carolina and South Carolina retail customers as permitted by various regulatory orders.
(i) Includes incentives on DSM/EE investments and is recovered through an annual rider mechanism.
(j) Recovered over the life of the associated assets.
(k) Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 22 for additional detail.
(l) Includes regulatory liabilities related to the change in the federal tax rate as a result of the Tax Act and the change in the North Carolina tax rate, both discussed in Note 23. Portions are included in rate base.
|
| | | | | | | | | |
| | December 31, | | Earns/Pays | Recovery/Refund |
| (in millions) | 2017 |
| 2016 |
| | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
| AROs - coal ash | $ | 1,975 |
| $ | 1,822 |
| | (i) | (b) |
| AROs - nuclear and other | 359 |
| 275 |
| | | (c) |
| Accrued pension and OPEB | 430 |
| 423 |
| | | (l) |
| Retired generation facilities | 170 |
| 165 |
| | X | 2023 |
| Net regulatory asset related to income taxes | — |
| 7 |
| | | (d) |
Storm cost deferrals(e) | 150 |
| 148 |
| | X | (b) |
| Hedge costs deferrals | 64 |
| 66 |
| | | (b) |
DSM/EE(f) | 264 |
| 263 |
| | (j) | 2018 |
| Vacation accrual | 42 |
| 38 |
| | | 2018 |
| Deferred fuel and purchased power | 130 |
| 24 |
| | (g) | 2018 |
| Nuclear deferral | 35 |
| 38 |
| | | 2019 |
| PISCC and deferred operating expenses | 38 |
| 42 |
| | X | 2054 |
| AMI | 75 |
| — |
| | | (b) |
| NCEMPA deferrals | 53 |
| 51 |
| | (h) | 2042 |
| Other | 74 |
| 69 |
| | | (b) |
| Total regulatory assets | 3,859 |
| 3,431 |
| | | |
| Less: current portion | 352 |
| 188 |
| | | |
| Total noncurrent regulatory assets | $ | 3,507 |
| $ | 3,243 |
| | | |
Regulatory Liabilities(a) | | | | | |
| Costs of removal | $ | 2,122 |
| $ | 1,840 |
| | X | (k) |
| Net regulatory liability related to income taxes | 1,854 |
| — |
| | | (b) |
| Deferred fuel and purchased power | 1 |
| 64 |
| | (g) | 2018 |
| Other | 161 |
| 200 |
| | | (b) |
| Total regulatory liabilities | 4,138 |
| 2,104 |
| | | |
| Less: current portion | 139 |
| 158 |
| | | |
| Total noncurrent regulatory liabilities | $ | 3,999 |
| $ | 1,946 |
| | | |
| | | | | |
(a)FINANCIAL STATEMENTS | Regulatory assets and liabilities are excluded from rate base unless otherwise noted.REGULATORY MATTERS |
| |
(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) | Included in rate base. |
| |
(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. |
| |
(i) | Earns a debt return on coal ash expenditures for North Carolina and South Carolina retail customers. |
| |
(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. |
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 – (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 Progresswas subsequently 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.million. 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.proceeding. Terms of the settlement includeincluded a return on equity of 9.9 percent9.9% and a capital structure of 52 percent52% equity and 48 percent48% debt. On February 23, 2018, the NCUC issued an order approving the stipulation. The order also impacted certain amounts that were similarly recorded on Duke Energy Carolinas' Consolidated Balance Sheets. As a result of the settlement, in 2017order, Duke Energy Progress and Duke Energy Carolinas recorded pretax charges totaling approximately $25of $68 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$14 million, respectively, in the first quarter of 2018.2018 to Impairment charges, Operation, maintenance and other and Interest Expense on the Consolidated Statements of Operations. The Public Staff, the North Carolina Attorney General and the Sierra Club filed notices of appeal to the North Carolina Supreme Court.
The North Carolina Supreme Court consolidated the Duke Energy Carolinas and Duke Energy Progress appeals. On December 11, 2020, the North Carolina Supreme Court issued an opinion on the consolidated appeals of the 2018 Duke Energy Carolinas and Duke Energy Progress rate case orders which affirmed, in part, and reversed and remanded, in part, the NCUC’s decisions. In the Opinion, the court upheld the NCUC's decision to include coal ash costs in the cost of service, as well as the NCUC’s discretion to allow a return on the unamortized balance of coal ash costs. The court also remanded to the NCUC a single issue to consider the assessment of support for the Public Staff’s equitable sharing argument. In response to a NCUC order seeking comments on the proposed procedure on remand, on January 11, 2021, Duke Energy Carolinas, Duke Energy Progress, the Public Staff, the North Carolina Attorney General, Sierra Club and Carolina Industrial Group for Fair Utility Rates II and III filed joint comments proposing that the NCUC not hold additional evidentiary hearings, but instead rely upon existing records in the 2017 North Carolina rate cases or in the alternative the records in the 2019 North Carolina rate cases, in deciding the issue on remand. On January 22, 2021, Duke Energy Progress and Duke Energy Carolinas entered into the CCR Settlement Agreement with the Settling Parties, which was filed with the NCUC on January 25, 2021. For information on the proposed settlement pending before the NCUC, see "2021 Coal Ash Settlement." Duke Energy Progress cannot predict the outcome of this matter.
Storm Cost Deferral Filings2019 North Carolina Rate Case
On December 16, 2016,October 30, 2019, Duke Energy Progress filed an application with the NCUC for a net rate increase for retail customers of approximately $464 million, which represented an approximate 12.3% increase in annual base revenues. The gross rate case revenue increase request was $586 million, which was offset by riders of $122 million, primarily an EDIT rider of $120 million to return to customers North Carolina and federal EDIT resulting from recent reductions in corporate tax rates. The request for rate increase was driven by major capital investments subsequent to the previous base rate case, coal ash pond closure costs, accelerated coal plant depreciation and deferred 2018 storm costs. Duke Energy Progress seeks to defer and recover incremental Hurricane Dorian storm costs in this proceeding and requests rates be effective no later than September 1, 2020. As a result of the COVID-19 pandemic, on March 24, 2020, the NCUC suspended the procedural schedule and postponed the previously scheduled evidentiary hearing on this matter indefinitely. On April 7, 2020, the NCUC issued an order partially resuming the procedural schedule requiring intervenors to file direct testimony on April 13, 2020. Public Staff filed supplemental direct testimony on April 23, 2020. Duke Energy Progress filed rebuttal testimony on May 4, 2020.
On June 2, 2020, Duke Energy Progress and the Public Staff filed an Agreement and Stipulation of Partial Settlement, which is subject to review and approval of the NCUC, resolving certain issues in the base rate proceeding. Major components of the settlement included:
•Removal of deferred storm costs from the rate case;
•Filing a petition seeking to securitize the deferred storm costs within 120 days of a commission order in this rate case regarding the reasonableness and prudency of the storm costs;
•Agreement of certain assumptions to demonstrate the quantifiable benefits to customers of a securitization financing;
•Agreement that the Asheville CC project is complete and in service and agreement on the amount to be included in rate base; and
•Agreement on certain accounting matters, including recovery of employee incentives, severance, aviation costs and executive compensation.
On May 6, 2020, Duke Energy Progress, Duke Energy Carolinas and the Public Staff filed a joint motion requesting that the NCUC issue an order scheduling one consolidated evidentiary hearing to consider the companies’ applications for net rate increases. On June 17, 2020, the NCUC issued an order adopting procedures for the expert witness hearings to take place in three phases: (1) a hearing on issues common to both rate cases conducted remotely; (2) a hearing on Duke Energy Carolinas specific rate case issues, followed immediately by; (3) a hearing on Duke Energy Progress specific rate case issues. On July 27, 2020, Duke Energy Progress filed a petitionjoint motion with Duke Energy Carolinas and the Public Staff notifying the Commission that the parties reached a joint partial settlement with the Public Staff.
On July 31, 2020, Duke Energy Progress and the Public Staff filed a Second Agreement and Stipulation of Partial Settlement (Second Partial Settlement), which is subject to review and approval of the NCUC, resolving certain remaining issues in the base rate proceeding. Major components of the Second Partial Settlement included:
•A return on equity of 9.6% and a capital structure of 52% equity and 48% debt;
•Agreement on amortization over a five-year period for unprotected federal EDIT flowbacks to customers;
•Agreement on the inclusion of plant in service and other revenue requirement updates through May 31, 2020, subject to Public Staff review. Annual revenue requirement associated with the May 31 update is estimated at $25 million; and
•Settlement to allow the deferral of costs for certain grid projects placed in service between June 1, 2020, and December 31, 2022, of $0.5 billion.
| | | | | |
| FINANCIAL STATEMENTS | REGULATORY MATTERS |
The remaining items litigated at hearing included recovery of deferred coal ash compliance costs that are subject to asset retirement obligation accounting and implementation of new depreciation rates.
On August 7, 2020, Duke Energy Progress filed a motion for approval of notice required to implement temporary rates, seeking to exercise its statutory right to implement temporary rates subject to refund on or after September 1, 2020. The revenue requirement to be recovered subject to refund through the temporary rates is based on and consistent with the terms of the base rate component of the settlement agreements with the Public Staff and excludes items to be litigated noted above. Duke Energy Progress will not begin the amortization or implementation of these items until a final determination is issued in the rate case and new base rates are implemented. These items will also be excluded when determining whether a refund of amounts collected through these temporary rates is needed. In addition, Duke Energy Progress also seeks authorization to place a temporary decrement EDIT Rider into effect, concurrent with the temporary base rate change. The temporary rate changes are not final rates and remain subject to the NCUC's determination of the just and reasonable rates to be charged by Duke Energy Progress on a permanent basis. The NCUC approved the August 7, 2020 temporary rates motion on August 11, 2020, and temporary rates went into effect on September 1, 2020.
The Duke Energy Progress evidentiary hearing concluded on October 6, 2020, and post-hearing filings were filed with the NCUC requestingfrom all parties by December 4, 2020. On January 22, 2021, Duke Energy Progress and Duke Energy Carolinas entered into the CCR Settlement Agreement with the Settling Parties, which was filed with the NCUC on January 25, 2021. Duke Energy Progress expects the NCUC to issue an order on its net rate increase by the second quarter of 2021. For information on a proposed settlement pending before the NCUC, see "2021 Coal Ash Settlement." Duke Energy Progress cannot predict the outcome of this matter.
Hurricane Dorian
Hurricane Dorian reached the Carolinas in September 2019 as a Category 2 hurricane making landfall within Duke Energy Progress’ service territory. Total estimated incremental operation and maintenance expenses incurred to repair and restore the system are approximately $168 million with an additional $4 million in capital investments made for restoration efforts. Approximately $145 million and $179 million of the operation and maintenance expenses are deferred in Regulatory assets within Other Noncurrent Assets on the Consolidated Balance Sheets as of December 31, 2020, and December 31, 2019, respectively. A request for an accounting order to defer certainincremental storm costs incurredassociated with Hurricane Dorian was included 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 ProgressOctober 30, 2019, general rate case docket for decision. See "2017filing with the NCUC. Terms of the June 2, 2020, Agreement and Stipulation of Partial Settlement removed incremental storm costs from the general rate case. A petition seeking to securitize these costs, along with costs from Hurricane Florence, Hurricane Michael and Winter Storm Diego, was filed on October 26, 2020, with the NCUC. For information on the securitization filing, see "2020 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.Storm Securitization Filings." Duke Energy Progress cannot predict the outcome of this matter.
On December 16, 2016,February 7, 2020, a petition was filed with the PSCSC in the 2019 storm deferrals docket requesting deferral of approximately $22 million in operation and maintenance expenses to an existing storm deferral balance previously approved by the PSCSC. The PSCSC voted to approve the request on March 4, 2020, and issued a final order on April 7, 2020. On July 1, 2020, Duke Energy Progress filed a petitionsupplemental true up reducing the actual costs to $17 million.
2018 South Carolina Rate Case
On November 8, 2018, Duke Energy Progress filed an application with the PSCSC requestingfor a rate increase for retail customers of approximately $59 million.
After hearings in April 2019, the PSCSC issued an accounting order on May 21, 2019, which included a return on equity of 9.5% and a capital structure of 53% equity and 47% debt. The order also included the following material components:
•Approval of recovery of $4 million of coal ash costs over a five-year period with a return at Duke Energy Progress' WACC;
•Denial of recovery of $65 million of certain coal ash costs deemed to defer certain costs incurredbe related to repairsthe Coal Ash Act and restorationincremental to the federal CCR rule;
•Approval of service following Hurricane Matthew. The final estimatea $17 million decrease to base rates to reflect the change in ongoing tax expense, primarily the reduction in the federal income tax rate from 35% to 21%;
•Approval of incrementala $12 million decrease through the EDIT Tax Savings Rider resulting from the federal tax rate change and deferred revenues since January 2018 related to the change, to be returned in accordance with ARAM for protected EDIT, over a 20-year period for unprotected EDIT associated with Property, Plant and Equipment, over a five-year period for unprotected EDIT not associated with Property, Plant and Equipment and over a three-year period for the deferred revenues; and
•Approval of a $12 million increase due to the expiration of EDIT related to reductions in the North Carolina state income tax rate from 6.9% to 2.5%.
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| FINANCIAL STATEMENTS | REGULATORY MATTERS |
As a result of the order, revised customer rates were effective June 1, 2019. On May 31, 2019, Duke Energy Progress filed a Petition for Rehearing or Reconsideration of that order contending substantial rights of Duke Energy Progress were prejudiced by unlawful, arbitrary and capricious rulings by the PSCSC on certain issues presented in the proceeding. On June 19, 2019, the PSCSC issued a Directive denying Duke Energy Progress' request to rehear or reconsider the Commission's rulings on certain issues presented in the proceeding including coal ash remediation and disposal costs, return on equity and the recovery of a return on deferred operation and maintenance expenses, but allowing additional litigation-related costs. As a result of the Directive allowing litigation-related costs, customer rates were revised effective July 1, 2019. An order detailing the Commission's decision in the Directive was issued on October 18, 2019. Duke Energy Progress filed a notice of appeal on November 15, 2019, with the Supreme Court of South Carolina. The ORS filed a Notice of Cross Appeal on November 20, 2019. On February 12, 2020, Duke Energy Progress and capital coststhe ORS filed a joint motion to extend briefing schedule deadlines, which was approximately $74 million. In January 2017,approved by the PSCSC approvedSupreme Court of South Carolina on February 20, 2020. On March 10, 2020, the deferral requestORS filed a consent motion requesting withdrawal of their appeal, which was granted by the Supreme Court of South Carolina on April 30, 2020. Initial briefs were filed on April 21, 2020. Response briefs were filed on July 6, 2020, and issued an accounting order. Asreply briefs were filed on August 11, 2020. Oral arguments have not yet been scheduled by the Supreme Court of December 31, 2017,South Carolina. Based on legal analysis and the filing of the appeal, Duke Energy Progress has approximately $73 million includednot recorded an adjustment for its deferred coal ash costs 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.this matter. Duke Energy Progress amortized approximately $18.5 million fromcannot predict the costoutcome 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.this matter.
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 ofretired the 376-MW Asheville coal-fired plant on January 29, 2020, at which time the net book value, including associated ash basin closure costs, of $385$214 million and $492 million are included inwas transferred from Generation facilities to be retired, net to Regulatory assets within Current Assets and Other Noncurrent Assets on Duke Energy Progress'the Consolidated Balance Sheets as ofSheets.
On December 31, 2017,27, 2019, Asheville Combined Cycle Unit 5 Combustion Turbine and 2016, respectively.
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 – (Continued)
Shearon Harris Nuclear Plant Expansion
In 2006,Unit 6 Steam Turbine Generator and the common systems that serve combined cycle units went into commercial operation. Duke Energy Progress selected a site at Harris to evaluate for possible future nuclear expansion.placed the Unit 7 Combustion Turbine into commercial operation in simple-cycle mode on January 15, 2020. The Unit 8 Steam Turbine Generator went into commercial operation on April 5, 2020. 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 MayJune 2, 2013,2020, Duke Energy Progress filed a letterrequest with the NRC requestingPSCSC for an accounting order for the NRC to suspend its review activities associateddeferral of post-in-service costs incurred in connection 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’ shareaddition 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 ofAsheville combined-cycle generating plant. The petition requested the settlement agreement for the 2017 North Carolina Rate Case discussed above,PSCSC issue an accounting order authorizing Duke Energy Progress will amortizeto defer post-in-service costs including the regulatory asset overAsheville combined-cycle’s depreciation expense, property taxes, incremental operations and maintenance expenses and carrying costs at WACC of approximately $8 million annually. On June 17, 2020, the PSCSC voted to approve the petition and issued its final order on July 6, 2020.
On October 8, 2018, Duke Energy Progress filed an eight-year period.application with the NCUC for a CPCN to construct the Hot Springs Microgrid Solar and Battery Storage Facility, which was approved with certain conditions on May 10, 2019. A hearing to update the NCUC on the status of the project was held on March 5, 2020. Construction began in May 2020 with commercial operation expected to begin in October 2021.
On July 27, 2020, Duke Energy Progress filed an application with the NCUC for a CPCN to construct the Woodfin Solar Facility, a 5-MW solar generating facility to be constructed on a closed landfill in Buncombe County. The settlement is subject to NCUC approval.expert hearing was held on November 18, 2020. Duke Energy Progress cannot predict the outcome of this matter.
FERC Return on Equity Complaints
On October 11, 2019, NCEMPA filed a complaint at the FERC against Duke Energy Progress pursuant to Section 206 of the Federal Power Act (FPA), alleging that the 11% stated return on equity (ROE) component contained in the demand formula rate in the Full Requirements Power Purchase Agreement (FRPPA) between NCEMPA and Duke Energy Progress is unjust and unreasonable. On July 16, 2020, the FERC set this matter for hearing and settlement judge procedures and established a refund effective date of October 11, 2019. In its order setting the matter for settlement, the FERC allowed for the consideration of variations to the base transmission-related ROE methodology developed in its Order No. 569-A, through the introduction of “specific facts and circumstances” involving issues specific to the case. It is Duke Energy Progress’ view that, in consideration of the specific facts and circumstances of risks under the provisions of the FRPPA, the stated 11% ROE is just and reasonable. The parties are currently in FERC settlement procedures. Duke Energy Progress cannot predict the outcome of this matter.
On October 16, 2020, NCEMC filed a complaint at the FERC against Duke Energy Progress pursuant to Section 206 of the FPA, alleging that the 11% stated ROE component in the demand formula rate in the Power Supply and Coordination Agreement between NCEMC and Duke Energy Progress is unjust and unreasonable. Under FPA Section 206, the earliest refund effective date that the FERC can establish is the date of the filing of the complaint. Duke Energy Progress responded to the complaint on November 20, 2020, demonstrating that the 11% ROE is just and reasonable for the service provided. The parties have filed additional pleadings. The FERC has not issued an order, and there is no deadline for the FERC to act. Duke Energy Progress cannot predict the outcome of this matter.
| | | | | |
| FINANCIAL STATEMENTS | REGULATORY MATTERS |
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.
| | | | | | | | | | | | | | | | | |
| December 31, | | Earns/Pays | Recovery/Refund |
| (in millions) | 2020 | 2019 | | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
AROs – coal ash(c) | $ | 10 | | $ | 9 | | | | (b) |
AROs – nuclear and other(c) | 2 | | 159 | | | Yes | (b) |
Accrued pension and OPEB(c) | 482 | | 474 | | | Yes | (g) |
Storm cost deferrals(c) | 108 | | 413 | | | (e) | (b) |
| Nuclear asset securitized balance, net | 991 | | 1,042 | | | | 2036 |
| | | | | |
Retired generation facilities(c) | 174 | | 183 | | | Yes | (b) |
| | | | | |
| | | | | |
| Hedge costs deferrals | 59 | | 44 | | | Yes | 2038 |
AMI(c) | 45 | | 53 | | | Yes | 2032 |
DSM/EE(c) | 17 | | 25 | | | Yes | 2025 |
| | | | | |
| Deferred fuel and purchased power | 4 | | 39 | | | (f) | 2022 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Qualifying facility contract buyouts | 107 | | 121 | | | Yes | 2034 |
| Customer connect project | 30 | | 20 | | | | 2037 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other | 35 | | 31 | | | (d) | (b) |
| Total regulatory assets | 2,064 | | 2,613 | | | | |
| Less: current portion | 265 | | 419 | | | | |
| Total noncurrent regulatory assets | $ | 1,799 | | $ | 2,194 | | | | |
Regulatory Liabilities(a) | | | | | |
Net regulatory liability related to income taxes(c) | $ | 749 | | $ | 793 | | | | (b) |
Costs of removal(c) | — | | 267 | | | (d) | (b) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Deferred fuel and purchased power(c) | — | | 1 | | | (f) | |
| Other | 19 | | 26 | | | (d) | (b) |
| Total regulatory liabilities | 768 | | 1,087 | | | | |
| Less: current portion | 110 | | 94 | | | | |
| Total noncurrent regulatory liabilities | $ | 658 | | $ | 993 | | | | |
(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) Included in rate base.
(d) Certain costs earn/pay a return.
(e) Earns a debt return/interest once collections begin.
(f) Earns commercial paper rate.
(g) Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 22 for additional detail.
COVID-19 Filings
In March 2020, Governor Ron DeSantis directed the State Health Officer of Florida to declare a public health emergency in Florida related to the COVID-19 pandemic. The governor also issued an Executive Order on March 9, 2020, in which he declared a state of emergency in Florida and directed the Director of the Division of Emergency Management to implement the state’s Comprehensive Emergency Management Plan. On March 19, 2020, Duke Energy Florida filed a request to modify its tariff to allow it to waive late fees for customers, and on April 6, 2020, the FPSC issued an order approving the request. Duke Energy Florida had already voluntarily waived reconnect fees and credit card fees and ceased disconnecting customers for nonpayment. On April 2, 2020, Duke Energy Florida filed a petition with the FPSC to accelerate a $78 million fuel cost refund to customers in the month of May 2020. Typically, the refund would be made over the course of 2021. The FPSC approved the petition on April 28, 2020. Duke Energy Florida resumed normal billing practices as of August 24, 2020, with the exception of the billing of late payment charges. Customers were notified of the resumption of normal billing practices, the option of deferred payment arrangements and where to find assistance, if necessary. Service disconnections for nonpayment for residential customers resumed on October 5, 2020.
2021 Settlement Agreement
On January 14, 2021, Duke Energy Florida filed a Settlement Agreement (the “Settlement”) with the FPSC. The parties to the Settlement include Duke Energy Florida, the Office of Public Counsel (OPC), the Florida Industrial Power Users Group, White Springs Agricultural Chemicals, Inc. d/b/a PCS Phosphate and NUCOR Steel Florida, Inc. (collectively, the “Parties”).
|
| | | | | | | | | |
| | December 31, | | Earns/Pays | Recovery/Refund |
| (in millions) | 2017 |
| 2016 |
| | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
AROs - coal ash(c) | $ | 9 |
| $ | 8 |
| | X | (b) |
AROs - nuclear and other(c) | 296 |
| 294 |
| | X | (b) |
Accrued pension and OPEB(c) | 476 |
| 458 |
| | X | (h) |
Retired generation facilities(c) | 216 |
| 257 |
| | X | (b) |
Net regulatory asset related to income taxes(c) | — |
| 224 |
| | X | (d) |
Storm cost deferrals(c) | 376 |
| — |
| | (f) | 2021 |
| Nuclear asset securitized balance, net | 1,142 |
| 1,193 |
| | | 2036 |
| Hedge costs deferrals | 30 |
| 25 |
| | | 2018 |
DSM/EE(c) | 17 |
| 15 |
| | X | 2018 |
Deferred fuel and purchased power(c) | 219 |
| 87 |
| | (g) | 2019 |
| Nuclear deferral | — |
| 96 |
| | | |
AMI(c) | 75 |
| — |
| | X | 2032 |
| Other | 36 |
| 36 |
| | | (b) |
| Total regulatory assets | 2,892 |
| 2,693 |
| | | |
| Less: current portion | 389 |
| 213 |
| | | |
| Total noncurrent regulatory assets | $ | 2,503 |
| $ | 2,480 |
| | | |
Regulatory Liabilities(a) | | | | | |
Costs of removal(c) | $ | 415 |
| $ | 358 |
| | (e) | (b) |
Net regulatory liability related to income taxes(c) | 948 |
| — |
| | | (b) |
Storm reserve(c) | — |
| 60 |
| | | |
Deferred fuel and purchased power(c) | — |
| 17 |
| | (g) | |
| Other | 18 |
| 44 |
| | | (b) |
| Total regulatory liabilities | 1,381 |
| 479 |
| | | |
| Less: current portion | 74 |
| 31 |
| | | |
| Total noncurrent regulatory liabilities | $ | 1,307 |
| $ | 448 |
| | | |
| | | | | |
(a)FINANCIAL STATEMENTS | Regulatory assets and liabilities are excluded from rate base unless otherwise noted.REGULATORY MATTERS |
| |
(b) | The expected recovery or refund period varies or has not been determined. |
| |
(c) | Included in rate base. |
| |
(d) | Recovery over the life of the associated assets. |
| |
(e) | Certain costs earn a return. |
| |
(f) | Earns a debt return/interest once collections begin. |
| |
(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. |
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 – (Continued)
Pursuant to the Settlement, the Parties agreed to a base rate stay-out provision that expires year-end 2024; however, Duke Energy Florida is allowed an increase to its base rates of an incremental $67 million in 2022, $49 million in 2023 and $79 million in 2024, subject to adjustment in the event of tax reform during the years 2021, 2022 and 2023. The Parties also agreed to a return on equity (“ROE”) band of 8.85% to 10.85% with a midpoint of 9.85% based on a capital structure of 53% equity and 47% debt. The ROE band can be increased by 25 basis points if the average 30-year U.S. Treasury rate increases 50 basis points or more over a six-month period in which case the midpoint ROE would rise from 9.85% to 10.10%. Duke Energy Florida will also be able to retain the DOE award of $173 million for spent nuclear fuel, which is expected to be received in 2022, in order to mitigate customer rates over the term of the Settlement. In return, Duke Energy Florida will be able to recognize the $173 million into earnings from 2022 through 2024.
In addition to these terms, the Settlement contains provisions related to the accelerated depreciation of Crystal River Units 4-5, the approval of approximately $1 billion in future investments in new cost effective solar power, the implementation of a new Electric Vehicle Charging Station Program and the deferral and recovery of costs in connection with the implementation of Duke Energy Florida’s Vision Florida program, which explores various emerging non-carbon emitting generation technology, distributed technologies and resiliency projects, among other things. The Settlement also resolves remaining unrecovered storm costs for hurricanes Dorian and Michael.
The Settlement is subject to the review and approval of the FPSC, which may occur in the second quarter of 2021. If the FPSC approves the Settlement, the new rates will be effective January 1, 2022, with subsequent base rate increases effective January 1, 2023, and January 1, 2024. Duke Energy Florida cannot predict the outcome of this matter.
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 on April 30, 2019, to recover $223 million of estimated retail incremental storm restoration costs for Hurricanes IrmaHurricane Michael, consistent with the provisions in the 2017 Settlement, 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 the petition on June 11, 2019. The FPSC also approved allowing Duke Energy Florida's motionFlorida to approve a stipulation that would applyuse the tax savings resulting from the Tax Act towardto recover these storm costs in lieu of implementing a storm surcharge.
2017 Second Revised and Restated Settlement Agreement
Approved storm costs are currently expected to be fully recovered by approximately year-end 2021. 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 in22, 2019, 2020 and 2021, as well as base rate increases for solar generation. In addition to 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 seekingfor approval of actual retail recoverable storm restoration costs related to includeHurricane Michael in the amount of $191 million plus interest. On May 19, 2020, Duke Energy Florida filed a supplemental true up reducing the actual retail recoverable storm restoration costs related to Hurricane Michael by approximately $3 million, resulting in a total request to recover $188 million actual retail recoverable storm restoration costs, plus interest. On November 12, 2020, Duke Energy Florida and OPC requested a 90 day abatement to engage in discussions to narrow the issues being litigated. The Prehearing Officer approved this request on November 16, 2020, and ordered Duke Energy Florida and OPC to update the commission on their discussions by February 12, 2021. Approximately $80 million and $204 million of these costs are included in Regulatory assets within Current Assets and Other Noncurrent Assets on the Consolidated Balance Sheets as of December 31, 2020, and December 31, 2019, respectively.
Duke Energy Florida filed a petition with the FPSC on December 19, 2019, to recover $169 million of estimated retail incremental storm restoration costs for Hurricane Dorian, consistent with the provisions in the 2017 Settlement and the FPSC approved the petition on February 24, 2020. Approximately $167 million of these costs are included in Regulatory assets within Current Assets and Other Noncurrent Assets on the Consolidated Balance Sheets as of December 31, 2019, representing recoverable costs under the FPSC’s storm rule and Duke Energy Florida's OATT formula rates. The amount at December 31, 2020 was immaterial. The final actual amount of $145 million was filed on September 30, 2020. Pursuant to the 2021 Settlement Agreement filed for FPSC approval on January 14, 2021, all matters regarding storm cost recovery relating to hurricanes Michael and Dorian have been resolved.
Clean Energy Connection
On July 1, 2020, Duke Energy Florida petitioned the FPSC for approval of a voluntary solar program. The program consists of 10 new solar generating facilities with combined capacity of approximately 750 MW. The program allows participants to support cost-effective solar development in Florida by paying a subscription fee based on per kilowatt-subscriptions and receiving a credit on their bill based on the actual generation associated with their portion of the solar portfolio. The estimated cost of the 10 new solar generation facilities is approximately $1 billion over the next four years, and this investment will be included in base rates offset by the revenue requirementfrom the subscription fees. The credits will be included for recovery in the fuel cost recovery clause. A remote hearing was held on November 17, 2020, and post-hearing briefs were filed with the FPSC from all parties by December 9, 2020. The FPSC voted to approve the program on January 5, 2021, and issued its written order on January 26, 2021.
Crystal River Unit 3 Accelerated Decommissioning Filing
On May 29, 2019, Duke Energy Florida entered into a Chiller Uprate Project (Uprate Project) atDecommissioning Services Agreement for the Hinesaccelerated decommissioning of Crystal River Unit 3 located in Citrus County, Florida, with ADP CR3, LLC and ADP SF1, LLC, each of which is a wholly owned subsidiary of Accelerated Decommissioning Partners, LLC (ADP), a joint venture between NorthStar Group Services, Inc. and Orano USA LLC. The agreement will allow for completion of the decommissioning of Crystal River Unit 3 by 2027, rather than 2074 as originally planned. Duke Energy Complex.Florida will also sell and assign the spent nuclear fuel, storage canisters, high-level waste and existing dry spent fuel storage installation and certain related assets, together with certain associated liabilities and obligations to ADP SF1, LLC. Duke Energy Florida expects that the assets of the Nuclear Decommissioning Trust Fund as of December 31, 2020, will be sufficient to cover the contract price. 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,U.S. Nuclear Regulatory Commission approved the transaction on April 1, 2020, and the FPSC issued an order approving the revenue requirement, which was included in base rates for the first billing cycle of April 2017.transaction on August 27, 2020. The transaction closed on October 1, 2020.
| | | | | |
| FINANCIAL STATEMENTS | REGULATORY MATTERS |
Citrus County Combined Cycle FacilityCC
On October 2, 2014,Construction of 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 at2015 with an estimated cost of $1.5 billion, including AFUDC. Both units came online in the fourth quarter of 2018. 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 violationultimate cost of the waiting period for the Hart-Scott-Rodino Antitrust Improvements Act of 1976 related to the purchase of the Osprey Energy Center, LLC, whichfacility 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 continueestimated 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.
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 – (Continued)
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$1.6 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 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 obligationImpairment charges on Duke Energy’s Consolidated Statements of Operations of $60 million in 2014the fourth quarter of 2018 for the termination ofoverrun. In the EPC. This liability was recorded within Other in Other Noncurrent Liabilities with an offset primarily to Regulatory assets on the Consolidated Balance Sheets.year ended December 31, 2019, Duke Energy Florida is allowedrecorded a $36 million reduction to recover reasonable and prudent EPC cancellation costs from its retail customers. On May 1, 2017, Duke Energy Florida filedthe prior year impairment due to a request withdecrease in the FPSC to recover approximately $82 million of Levy Nuclear Project costs from retail customers in 2018. As partcost estimate of the 2017 Settlement discussed above, Duke Energy Florida is no longer seeking recovery of costsCitrus County CC, primarily related to the Levy Nuclear Project andsettlement agreement with Fluor, 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 byEPC contractor. This adjustment reduced 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 valueestimated cost of the assets from retail customers through the Capacity Cost Recovery Clause.facility to $1.5 billion.
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 – (Continued)
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.
| | | | | | | | | | | | | | | | | |
| December 31, | | Earns/Pays | Recovery/Refund |
| (in millions) | 2020 | 2019 | | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
| AROs – coal ash | $ | 22 | | $ | 16 | | | Yes | (b) |
| | | | | |
| Accrued pension and OPEB | 149 | | 155 | | | | (g) |
| Storm cost deferrals | 4 | | 7 | | | | 2023 |
| | | | | |
| | | | | |
| | | | | |
PISCC and deferred operating expenses(c) | 16 | | 17 | | | Yes | 2083 |
| | | | | |
| Hedge costs deferrals | 7 | | 6 | | | | (b) |
| AMI | 36 | | 40 | | | | (b) |
| DSM/EE | 1 | | 2 | | | (f) | (e) |
| Vacation accrual | 6 | | 5 | | | | 2021 |
| Deferred fuel and purchased power | — | | 1 | | | | 2021 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| CEP deferral | 117 | | 76 | | | Yes | (b) |
| | | | | |
| | | | | |
| | | | | |
| MGP | 104 | | 102 | | | | (b) |
| | | | | |
| Deferred pipeline integrity costs | 21 | | 17 | | | Yes | (b) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other | 166 | | 154 | | | | (b) |
| Total regulatory assets | 649 | | 598 | | | | |
| Less: current portion | 39 | | 49 | | | | |
| Total noncurrent regulatory assets | $ | 610 | | $ | 549 | | | | |
Regulatory Liabilities(a) | | | | | |
| Net regulatory liability related to income taxes | $ | 628 | | $ | 654 | | | | (b) |
| Costs of removal | 68 | | 86 | | | | (d) |
| | | | | |
| Provision for rate refunds | 45 | | 31 | | | | (b) |
| Accrued pension and OPEB | 17 | | 16 | | | | (g) |
| | | | | |
| | | | | |
| Other | 55 | | 40 | | | | (b) |
| Total regulatory liabilities | 813 | | 827 | | | | |
| Less: current portion | 65 | | 64 | | | | |
| Total noncurrent regulatory liabilities | $ | 748 | | $ | 763 | | | | |
(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) Included in rate base.
(d) Recovery over the life of the associated assets.
(e) Recovered via a rider mechanism.
(f) Includes incentives on DSM/EE investments.
(g) Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 22 for additional detail.
|
| | | | | | | | | |
| | December 31, | | Earns/Pays | Recovery/Refund |
| (in millions) | 2017 |
| 2016 |
| | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
| AROs - coal ash | $ | 17 |
| $ | 12 |
| | X | (b) |
| Accrued pension and OPEB | 139 |
| 135 |
| | | (g) |
Net regulatory asset related to income taxes(c) | — |
| 63 |
| | | (d) |
| Storm cost deferrals | 5 |
| 5 |
| | | (b) |
| Hedge costs deferrals | 6 |
| 7 |
| | | (b) |
| DSM/EE | 18 |
| 6 |
| | (f) | (e) |
| Grid modernization | 39 |
| 65 |
| | X | (e) |
| Vacation accrual | 5 |
| 4 |
| | | 2018 |
| Deferred fuel and purchased power | — |
| 5 |
| | | |
PISCC and deferred operating expenses(c) | 19 |
| 20 |
| | X | 2083 |
| Transmission expansion obligation | 50 |
| 71 |
| | | (e) |
| MGP | 91 |
| 99 |
| | | (b) |
| AMI | 6 |
| — |
| | | (b) |
| East Bend deferrals | 45 |
| 32 |
| | X | (b) |
| Deferred pipeline integrity costs | 12 |
| 7 |
| | X | (b) |
| Other | 42 |
| 26 |
| | | (b) |
| Total regulatory assets | 494 |
| 557 |
| | | |
| Less: current portion | 49 |
| 37 |
| | | |
| Total noncurrent regulatory assets | $ | 445 |
| $ | 520 |
| | | |
Regulatory Liabilities(a) | | | | | |
| Costs of removal | $ | 189 |
| $ | 212 |
| | | (d) |
| Net regulatory liability related to income taxes | 688 |
| — |
| | | (b) |
| Accrued pension and OPEB | 16 |
| 19 |
| | | (g) |
| Deferred fuel and purchased power | — |
| 6 |
| | | |
| Other | 34 |
| 20 |
| | | (b) |
| Total regulatory liabilities | 927 |
| 257 |
| | | |
| Less: current portion | 36 |
| 21 |
| | | |
| Total noncurrent regulatory liabilities | $ | 891 |
| $ | 236 |
| | | |
| | | | | |
(a)FINANCIAL STATEMENTS | Regulatory assets and liabilities are excluded from rate base unless otherwise noted.REGULATORY MATTERS |
| |
(b) | The expected recovery or refund period varies or has not been determined. |
| |
(c) | Included in rate base. |
| |
(d) | Recovery over the life of the associated assets. |
| |
(e) | Recovered via a rider mechanism. |
| |
(f) | Includes incentives on DSM/EE investments. |
| |
(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. |
Duke Energy Ohio COVID-19 Filings
In response to the COVID-19 pandemic, on March 9, 2020, Governor Mike DeWine declared a state of emergency in the state of Ohio. The PUCO issued an order directing utilities to cease disconnections for nonpayment and waive late payment and reconnection fees and to minimize direct customer contact. The PUCO also directed utilities to maintain flexible payment plans and tariff interpretations to assist customers during this crisis and to seek any regulatory waivers, if necessary. In response, Duke Energy Ohio ceased all disconnections except for safety-related concerns and waived late payment and reconnection fees. On March 19, 2020, Duke Energy Ohio filed its compliance plan with the PUCO and sought waiver of several regulations to minimize direct customer contact. On May 4, 2020, Duke Energy Ohio filed a motion to suspend payment rules to enable proactive outreach to residential customers offering additional options for managing their utility bills. PUCO found the proposal to address the state of emergency and the accompanying waivers reasonable and directed Duke Energy Ohio to work with the PUCO Staff on a comprehensive plan for resumption of activities and operations, to be filed 45 days before resumption of activities. The transition plan to resume normal operations to pre-COVID-19 levels was filed on June 26, 2020, and approved by the PUCO on July 29, 2020. Pursuant to the transition plan, suspended work and activities resumed beginning August 10, 2020, and disconnections resumed on September 8, 2020, for nonresidential customers and October 5, 2020, for residential customers.
On April 16, 2020, Duke Energy Ohio filed an application for a Reasonable Arrangement to temporarily lower the minimum bill for demand-metered commercial and industrial customers. On June 17, 2020, the PUCO denied Duke Energy Ohio's application for a reasonable arrangement and ordered Duke Energy Ohio to work with the PUCO Staff on payment arrangements for impacted nonresidential customers.
On May 11, 2020, Duke Energy Ohio filed with the PUCO a request seeking deferral of incremental costs incurred, as well as specific miscellaneous lost revenues using existing uncollectible riders already in place for both electric and natural gas operations. Duke Energy Ohio would subsequently file for rider recovery at a later date. On June 17, 2020, the PUCO approved Duke Energy Ohio’s deferral application. The Commission denied the accrual of carrying costs and ordered Duke Energy Ohio to also track potential savings experienced as a result of COVID-19.
Duke Energy Kentucky Rate CaseCOVID-19
On September 1, 2017,In response to the COVID-19 pandemic, on March 6, 2020, Governor Andy Beshear declared a state of emergency in the commonwealth of Kentucky. The KPSC issued an order directing utilities to cease disconnections for nonpayment and waive late payment fees. The KPSC also directed utilities to maintain flexible payment plans and tariff interpretations to assist customers during this crisis and to seek any regulatory waivers, if necessary. In response, Duke Energy Kentucky filed a rate case withceased all disconnections except for safety-related concerns and waived late payment and reconnection fees. On September 21, 2020, the KPSC requestingissued an increase in electric base ratesorder ending the disconnection moratorium for residential and nonresidential customers effective no earlier than October 20, 2020. Utilities are required to offer residential customers a default payment plan for any arrearages accumulated through the October 2020 billing cycle. Assessment 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 operationslate payment charges for nonresidential customers resumed beginning October 20, 2020, 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.resumed for residential customers after December 31, 2020. Duke Energy Kentucky anticipates that rates will go into effect in mid-April 2018. Duke Energy Kentucky cannot predictis following the outcome of this matter.
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 – (Continued)
order, as clarified on September 30, 2020, by the KPSC.
2017 Electric Security Plan Filing
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 byESP. On April 13, 2018, Duke Energy Ohio, along with certain intervenors, filed a Stipulation and Recommendation (Stipulation) with the PUCO resolving that the term of the ESP would be from June 1, 2018, to May 31, 2024. Terms of the ESP include2025, and included continuation of market-based customer rates through competitive procurement processes for generation, continuation and expansion of existing rider mechanisms and proposedapproved 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,September 13, 2019, and September 16, 2019, Interstate Gas Supply/Retail Supply Association and the Ohio Consumers' Counsel (OCC), respectively, filed appeals to the Supreme Court of Ohio claiming the PUCO’s order was in error. On March 13, 2020, the Supreme Court of Ohio dismissed OCC's appeal. On April 22, 2020, the Supreme Court of Ohio dismissed all remaining appeals of the PUCO's December 19, 2018 order approving the procedural schedule was suspended to facilitate ongoing settlement discussions. Stipulation. The case has been resolved.
Electric Base Rate Case
Duke Energy Ohio cannot predictfiled with the outcomePUCO an electric distribution base rate case application and supporting testimony in March 2017. Duke Energy Ohio requested an estimated annual increase of this matter.
Woodsdale Station Fuel System Filing
approximately $15 million and a return on equity of 10.4%. On June 9, 2015,April 13, 2018, Duke Energy Ohio, along with certain intervenors, filed the FERC ruledStipulation with the PUCO including a $19 million decrease in favorannual base distribution revenue with a return on equity unchanged from the current rate of PJM Interconnection, LLC (PJM)9.84% based upon a capital structure of 50.75% equity and 49.25% debt. Upon approval of new rates, Duke Energy Ohio's rider for recovering its initial SmartGrid implementation ended as these costs would be recovered through base rates. The Stipulation also renewed 14 existing riders, some of which were included in Duke Energy Ohio's ESP, and added two new riders including the Enhanced Service Reliability Rider to recover vegetation management costs not included in base rates, up to $10 million per year (operation and maintenance only) and the Power Future Initiatives Rider (formerly PowerForward Rider) to recover costs incurred to enhance the customer experience and further transform the grid (operation and maintenance and capital). In addition to the changes in revenue attributable to the Stipulation, Duke Energy Ohio’s capital-related riders, including the Distribution Capital Investments Rider, began to reflect the lower federal income tax rate associated with the Tax Act with updates to customers’ bills beginning April 1, 2018. This change reduced electric revenue by approximately $20 million on a revised Tariffan annualized basis. On December 19, 2018, the PUCO approved the Stipulation without material modification. New base rates were implemented effective January 2, 2019. On September 13, 2019, and Reliability Assurance Agreement including implementationSeptember 16, 2019, Interstate Gas Supply/Retail Supply Association and the OCC, respectively, filed appeals to the Supreme Court of a Capacity Performance (CP) proposal and to amend sectionsOhio claiming the PUCO’s order was in error. On March 13, 2020, the Supreme Court of Ohio dismissed the OCC's appeal. On April 22, 2020, the Supreme Court of Ohio dismissed all remaining appeals 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. OnPUCO's December 21, 2017, the KPSC issued an19, 2018 order approving Duke Energy Kentucky's request for a CPCN to construct an ultra-low sulfur diesel backup fuel system for the Woodsdale Station.Stipulation. 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.case has been resolved.
| | | | | |
| FINANCIAL STATEMENTS | REGULATORY MATTERS |
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,Rider PSR 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 seekingsought deferral authority for net costs incurred from April 1, 2017, until the new rates under Rider PSR arewere put into effect. Various intervenors have filed motions to dismiss or stay the proceeding andOn April 13, 2018, Duke Energy Ohio, along with certain intervenors, filed a Stipulation with the PUCO resolving numerous issues including those related to Rider PSR. The Stipulation activated Rider PSR for recovery of net costs incurred from January 1, 2018, through May 2025. On December 19, 2018, the PUCO approved the Stipulation without material modification. The PSR rider became effective April 1, 2019. On September 13, 2019, and September 16, 2019, Interstate Gas Supply/Retail Supply Association and the OCC filed appeals to the Supreme Court of Ohio claiming the PUCO’s order was in error. On March 13, 2020, the Supreme Court of Ohio dismissed OCC's appeal. On April 22, 2020, the Supreme Court of Ohio dismissed all remaining appeals of the PUCO's December 19, 2018 order approving the Stipulation. The case has opposed these filings.been resolved.
On July 23, 2019, House Bill 6 (HB 6) was signed into law that became effective January 1, 2020. Among other things, the bill allows for funding through a rider mechanism referred to as the Clean Air Fund (Rider CAF), of two nuclear generating facilities located in Northern Ohio owned by Energy Harbor (f/k/a FirstEnergy Solutions), repeal of energy efficiency mandates and recovery of prudently incurred costs, net of any revenues, for Ohio investor-owned utilities that are participants under the OVEC power agreement. The recovery is through a non-bypassable rider that replaced any existing recovery mechanism approved by the PUCO and will remain in place through 2030. As such, Duke Energy Ohio created the Legacy Generation Rider (Rider LGR) that replaced Rider PSR effective January 1, 2020. The amounts recoverable from customers are subject to an annual cap, with incremental costs that exceed such cap eligible for deferral and recovery subject to review. See Note 1317 for additional discussion of Duke Energy Ohio's ownership interest in OVEC. In July 2020, legislation to repeal HB 6 was proposed in both the Ohio House and Senate, with subsequent hearings to receive witness testimony. On December 21, 2020, the Franklin County Circuit Court issued an injunction against the PUCO’s Order that approved the nuclear plant funding through Rider CAF set to become effective on January 1, 2021. On December 28, 2020, in a separate proceeding, the Ohio Supreme Court, ordered a temporary stay on the implementation of Rider CAF. Duke Energy Ohio is not impacted by any changes in Rider CAF. The General Assembly’s session ended without addressing HB 6. Duke Energy Ohio cannot predict the outcome of this matter.
East Bend Coal Ash Basin FilingTax Act – Ohio
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
21, 2018, Duke Energy Ohio filed with the PUCO an electric distributionapplication to change its base rate case applicationtariffs and supporting testimony in March 2017.establish a new rider to implement the benefits of the Tax Act for natural gas customers. Duke Energy Ohio requested an estimated annual increasecommission approval to implement the changes and rider effective April 1, 2019. The new rider will flow through to customers the benefit of approximately $15 millionthe lower statutory federal tax rate from 35% to 21% since January 1, 2018, all future benefits of the lower tax rates and a return on equityfull refund of 10.4 percent.deferred income taxes collected at the higher tax rates in prior years. Deferred income taxes subject to normalization rules will be refunded consistent with federal law and deferred income taxes not subject to normalization rules will be refunded over a 10-year period. The application also includes requests to continue certain current riders and establish new riders. On September 26, 2017, the PUCO staff filedestablished 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 and testimony was suspended to facilitate ongoing settlement discussions. Duke Energy Ohio expects rates will go into effect the second quarter of 2018.filed on July 31, 2019. An evidentiary hearing occurred on August 7, 2019. Initial briefs were filed on September 11, 2019. Reply briefs were filed on September 25, 2019. Duke Energy Ohio cannot predict the outcome of this matter.
Energy Efficiency Cost Recovery
On February 26, 2020, the PUCO issued an order directing utilities to wind down their demand-side management programs by September 30, 2020, and to terminate the programs by December 31, 2020, in response to changes in Ohio law that eliminated Ohio's energy efficiency mandates. On March 27, 2020, Duke Energy Ohio filed an Application for Rehearing seeking clarification on the final true up and reconciliation process after 2020. On April 22, 2020, the PUCO granted rehearing for further consideration. The PUCO issued two orders on November 18, 2020, on the application for rehearing. The first order was a Third Entry on Rehearing on the Duke Energy Ohio portfolio holding the cost cap previously imposed was unlawful, a shared savings cap of $8 million pretax should be imposed and lost distribution revenues could not be recovered after December 31, 2020. The second order directs all utilities set the rider to zero effective January 1, 2021, and to file a separate application for final reconciliation of all energy efficiency costs prior to December 31, 2020. On December 18, 2020, Duke Energy Ohio filed an application for rehearing. On January 13, 2021, the application for rehearing was granted for further consideration. Duke Energy Ohio cannot predict the outcome of this matter.
On October 9, 2020, Duke Energy Ohio filed an application to implement a voluntary efficiency program portfolio to commence on January 1, 2021. The application proposes a mechanism for recovery of program costs and a benefit associated with avoided transmission and distribution costs. The application remains under review. As of January 1, 2021, Duke Energy Ohio suspended its energy efficiency programs due to changes in Ohio law. Duke Energy Ohio cannot predict the outcome of this matter.
| | | | | |
| FINANCIAL STATEMENTS | REGULATORY MATTERS |
Natural Gas Pipeline Extension
Duke Energy Ohio is proposing to install a new natural gas pipeline (the Central Corridor Project) 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 tocurrently estimates the pipeline route. If approved,development costs and construction activities will range from $163 million to $245 million in direct costs (excluding overheads and AFUDC) and that construction of the pipeline extension is expected to be completed before the 2020/20212021/2022 winter season. The proposed project involvesAn evidentiary hearing for a Certificate of Environmental Compatibility and Public Need concluded on April 11, 2019. On November 21, 2019, the installation of a natural gas line and is estimatedOhio Power Siting Board (OPSB) approved Duke Energy Ohio's application subject to cost approximately $110 million, excluding AFUDC.
Advanced Metering Infrastructure
41 conditions on construction. Applications for rehearing were filed by several stakeholders on December 23, 2019, arguing that the OPSB approval was incorrect. On February 20, 2020, the OPSB denied the rehearing requests. On April 25, 2016,15, 2020, Joint Appellants filed a notice of appeal at the Supreme Court of Ohio of the OPSB’s decision approving 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 theOhio’s Central Corridor application. On May 25, 2017,June 4, 2020, the KPSC issued an orderOPSB filed a motion to approve the stipulation with certain modifications. On June 1, 2017, Duke Energy Kentucky filed its acceptancedismiss claims raised by one of the modifications. The deploymentJoint Appellants and on August 5, 2020, the Supreme Court 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 assetsdismissed one of the Joint Appellants from the appeal. Joint Appellants filed their merit briefs on its Consolidated Balance Sheets at December 31, 2017, for the book value of existing meter equipment.
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 – (Continued)
Accelerated Natural Gas Service Line Replacement Rider
August 26, 2020. Appellee briefs were filed October 15, 2020. Appellants' briefs were filed on November 24, 2020. On January 20, 2015,September 22, 2020, Duke Energy Ohio filed an application with the OPSB for approval of an accelerated natural gas service line replacement program (ASRP). Underto amend the ASRP, Duke Energy Ohio proposedcertificated pipeline route due to replace certain natural gas service lineschanges in the route negotiated with property owners and municipalities. The staff report was filed on an accelerated basis over a 10-year period. Duke Energy Ohio also proposedDecember 21, 2020, recommending approval subject to complete preliminary surveythree conditions that reaffirm previous conditions, and investigation work related to natural gas service lines that are customer ownedprovide guidance regarding local permitting 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.construction supervision.. 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,December 23, 2020, Duke Energy Ohio filed an applicationa letter indicating its acceptance of these conditions if required by the OPSB. On January 21, 2021, the OPSB approved the amended filing with the recommended conditions. On January 27, 2021, the Ohio Supreme Court set oral argument for recoveryMarch 31, 2021. Duke Energy Ohio cannot predict the outcome of programthis matter.
MGP Cost Recovery
As part of its 2012 natural gas base rate case, Duke Energy Ohio has approval to defer and recover costs lost distribution revenue and performance incentives related to environmental remediation at two sites (East End and West End) that housed former MGP operations. Duke Energy Ohio has collected approximately $55 million in environmental remediation costs incurred between 2009 through 2012 through Rider MGP, which is currently suspended. Duke Energy Ohio has made annual applications with the PUCO to recover its energy efficiency and peak demand reduction programs. These programs are undertaken to complyincremental remediation costs consistent with environmental mandates set forththe PUCO’s directive in Ohio law. The PUCO approved Duke Energy Ohio’s application but found2012 natural gas base rate case. To date, the PUCO has not ruled on Duke Energy Ohio’s annual applications for the calendar years 2013 through 2019. On September 28, 2018, the staff of the PUCO issued a report recommending a disallowance of approximately $12 million of the $26 million in MGP remediation costs incurred between 2013 through 2017 that staff believes are not eligible for recovery. Staff interprets the PUCO’s 2012 Order granting Duke Energy Ohio was not permittedrecovery of MGP remediation as limiting the recovery to use banked energy savings from previous years in order to calculatework directly on the amount of allowed incentive. This conclusion represented a changeEast End and West End sites. On October 30, 2018, Duke Energy Ohio filed reply comments objecting to the cost recovery mechanism that had been agreed upon by intervenorsstaff’s recommendations and approvedexplaining, among other things, the obligation Duke Energy Ohio has under Ohio law to remediate all areas impacted by the PUCOformer MGPs and not just physical property that housed the former plants and equipment. On March 29, 2019, Duke Energy Ohio filed its annual application to recover incremental remediation expense for the calendar year 2018 seeking recovery of approximately $20 million in previous cases. The PUCO grantedremediation costs. On July 12, 2019, the applicationsstaff recommended a disallowance of approximately $11 million for rehearing filedwork that staff believes occurred in areas not authorized for recovery. Additionally, staff recommended that any discussion pertaining to Duke Energy Ohio's recovery of ongoing MGP costs should be directly tied to or netted against insurance proceeds collected by Duke Energy OhioOhio. An evidentiary hearing concluded on November 21, 2019. Initial briefs were filed on January 17, 2020, 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.reply briefs were filed on February 14, 2020. Duke Energy Ohio cannot predict the outcome of this matter.
On June 15, 2016,March 31, 2020, Duke Energy Ohio filed anits annual application to recover incremental remediation expense for approvalthe calendar year 2019 seeking recovery of approximately $39 million in remediation costs incurred during 2019. On July 23, 2020, the staff recommended a three-year energy efficiency and peak demand reduction portfoliodisallowance of programs. A stipulation and modified stipulation were filed on December 22, 2016, and January 27, 2017, respectively. Underapproximately $4 million for work the termsstaff believes occurred in areas not authorized for recovery. Additionally, the staff recommended insurance proceeds, net of the stipulations, which included support for deferral authority of alllitigation costs and a cap on shared savings incentives,attorney fees, should be reimbursed to customers and not be held by Duke Energy Ohio offered its energy efficiencyuntil all investigation and peak demand reduction programs throughout 2017. On February 3, 2017,remediation is complete. Duke Energy Ohio filed for deferral authority of its costs incurredcomments in 2017 in respect of its proposed energy efficiencyresponse to the staff report on August 21, 2020, 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 millionintervenor comments were filed 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.9, 2020. Duke Energy Ohio cannot predict the outcome of this matter.
2014 Electric Security Plan
In April 2015,The 2012 PUCO order also contained conditional deadlines for completing the PUCO modifiedMGP environmental remediation and approved Duke Energy Ohio's proposed electric security plan (ESP), with a three-year term and an effective datethe deferral 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 requestremediation costs at the MGP sites. Subsequent to include Duke Energy Ohio's entitlement to generation from OVEC in the rider at this time; however, the order, allows Duke Energy Ohiothe deadline was extended to submit additional information to request recovery in the future.December 31, 2019. On May 4, 2015,10, 2019, Duke Energy Ohio filed an application requesting a continuation of its existing deferral authority for rehearing requestingMGP remediation that must occur after December 31, 2019. On July 12, 2019, staff recommended the PUCO to modify or amend certain aspectsCommission deny the deferral authority request. On September 13, 2019, intervenor comments were filed opposing Duke Energy Ohio's request for continuation of the order. On May 28, 2015, the PUCO granted all applications for rehearingexisting deferral authority and on October 2, 2019, Duke Energy Ohio filed in the case for future consideration.reply comments. Duke Energy Ohio cannot predict the outcome of the appeals in this matter.
2012 Natural GasDuke Energy Kentucky Electric Base Rate Case/MGP Cost RecoveryCase
On November 13, 2013,September 3, 2019, Duke Energy Kentucky filed a rate case with the PUCOKPSC requesting an increase in electric base rates of approximately $46 million. On January 31, 2020, Duke Energy Kentucky filed rebuttal testimony updating its rate increase request to approximately $44 million. Hearings concluded on February 20, 2020, and briefing was completed March 20, 2020. On April 27, 2020, the KPSC issued an orderits decision approving a settlement of$24 million increase for 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.Kentucky with a 9.25% return on equity. The PUCO order also authorizedKPSC denied Duke Energy Ohio to continue deferring MGP environmental investigationKentucky’s major storm deferral mechanism and remediation costs incurred subsequent to 2012EV and to submit annual filings to adjust the MGP riderbattery storage pilots. The KPSC approved Duke Energy Kentucky’s Green Source Advantage tariff. New customer rates were effective on May 1, 2020. On May 18, 2020, Duke Energy Kentucky filed its motion for future costs. Intervening parties appealed this decision to the Ohio Supreme Courtrehearing and on June 29, 2017,4, 2020, the Ohio Supreme Courtmotion was granted in part and denied in part by the KPSC. On October 16, 2020, the KPSC issued its decision affirmingan Order on Rehearing authorizing an additional $4 million increase in revenue requirement bringing the PUCO order. Appellants filed a request for reconsideration, which was denied on September 27, 2017. This matter is now final.
total authorized revenue requirement increase to $28 million. Revised customer rates took effect in November 2020. 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.case has been resolved.
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)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.
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | REGULATORY MATTERS |
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 in Other within Other in Current liabilitiesLiabilities 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, 2017,2020, and 2016, $502019, $37 million and $71$40 million, respectively, are recorded in Regulatory assets on Duke Energy Ohio's Consolidated Balance Sheets, respectively.Sheets. | | | | | | Provisions/ |
| | Cash |
| | | | Provisions/ | | Cash | |
| (in millions) | December 31, 2016 |
| | Adjustments |
| | Reductions |
| | December 31, 2017 |
| (in millions) | December 31, 2019 | | Adjustments | | Reductions | | December 31, 2020 |
| Duke Energy Ohio | $ | 90 |
| | $ | (20 | ) | | $ | (4 | ) | | $ | 66 |
| Duke Energy Ohio | $ | 54 | | | $ | (1) | | | $ | (3) | | | $ | 50 | |
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 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.
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 – (Continued)
Duke Energy Indiana
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Duke Energy Indiana's Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | |
| December 31, | | Earns/Pays | Recovery/Refund |
| (in millions) | 2020 | 2019 | | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
| AROs – coal ash | $ | 615 | | $ | 529 | | | Yes | (b) |
| | | | | |
| Accrued pension and OPEB | 245 | | 243 | | | | (e) |
| | | | | |
| | | | | |
| | | | | |
Retired generation facilities(c) | 43 | | 49 | | | Yes | 2030 |
PISCC and deferred operating expenses(c) | 303 | | 246 | | | Yes | (b) |
| | | | | |
| Hedge costs deferrals | 22 | | 23 | | | | (b) |
| AMI | 19 | | 18 | | | | 2031 |
| | | | | |
| Vacation accrual | 12 | | 12 | | | | 2021 |
| Deferred fuel and purchased power | 9 | | — | | | | 2021 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other | 60 | | 52 | | | | (b) |
| Total regulatory assets | 1,328 | | 1,172 | | | | |
| Less: current portion | 125 | | 90 | | | | |
| Total noncurrent regulatory assets | $ | 1,203 | | $ | 1,082 | | | | |
Regulatory Liabilities(a) | | | | | |
| Net regulatory liability related to income taxes | $ | 956 | | $ | 1,008 | | | | (b) |
| Costs of removal | 599 | | 599 | | | | (d) |
| | | | | |
| | | | | |
| Accrued pension and OPEB | 100 | | 90 | | | | (e) |
| Amounts to be refunded to customers | 17 | | — | | | | (b) |
| | | | | |
| Other | 66 | | 43 | | | | (b) |
| Total regulatory liabilities | 1,738 | | 1,740 | | | | |
| Less: current portion | 111 | | 55 | | | | |
| Total noncurrent regulatory liabilities | $ | 1,627 | | $ | 1,685 | | | | |
(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) Included in rate base.
(d) Refunded over the life of the associated assets.
(e) Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 22 for additional detail.
COVID-19 Filing
In response to the COVID-19 pandemic, on March 6, 2020, Governor Eric Holcomb declared a public health disaster emergency in the state of Indiana, which is currently still in effect. At that time, Duke Energy Indiana had already voluntarily suspended all disconnections and waived late payment fees and check return fees. The utility also waived credit card fees for residential customers. The Executive Order requiring utilities in the state to suspend disconnection of utility service expired July 1, 2020.
|
| | | | | | | | | |
| | December 31, | | Earns/Pays | Recovery/Refund |
| (in millions) | 2017 |
| 2016 |
| | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
| AROs - coal ash | $ | 380 |
| $ | 276 |
| | | (b) |
| Accrued pension and OPEB | 197 |
| 222 |
| | | (g) |
Retired generation facilities(c) | 65 |
| 73 |
| | X | 2025 |
| Net regulatory asset related to income taxes | — |
| 119 |
| | | (d) |
| Hedge costs deferrals | 25 |
| 26 |
| | | (b) |
| DSM/EE | 21 |
| — |
| | (e) | (e) |
| Vacation accrual | 11 |
| 10 |
| | | 2018 |
| Deferred fuel and purchased power | 18 |
| 40 |
| | | 2018 |
PISCC and deferred operating expenses(c) | 274 |
| 281 |
| | X | (b) |
Gasification services agreement buyout(f) | — |
| 8 |
| | | |
AMI(c) | 21 |
| 46 |
| | X | (b) |
| Other | 131 |
| 121 |
| | | (b) |
| Total regulatory assets | 1,143 |
| 1,222 |
| | | |
| Less: current portion | 165 |
| 149 |
| | | |
| Total noncurrent regulatory assets | $ | 978 |
| $ | 1,073 |
| | | |
Regulatory Liabilities(a) | | | | | |
| Costs of removal | $ | 644 |
| $ | 660 |
| | | (d) |
| Net regulatory liability related to income taxes | 998 |
| — |
| | | (b) |
| Amounts to be refunded to customers | 10 |
| 45 |
| | | 2018 |
| Accrued pension and OPEB | 64 |
| 72 |
| | | (g) |
| Other | 31 |
| 11 |
| | | (b) |
| Total regulatory liabilities | 1,747 |
| 788 |
| | | |
| Less: current portion | 24 |
| 40 |
| | | |
| Total noncurrent regulatory liabilities | $ | 1,723 |
| $ | 748 |
| | | |
| | | | | |
(a)FINANCIAL STATEMENTS | Regulatory assets and liabilities are excluded from rate base unless otherwise noted.REGULATORY MATTERS |
| |
(b) | The expected recovery or refund period varies or has not been determined. |
| |
(c) | Included in rate base. |
| |
(d) | Recovery over the life of the associated assets. |
| |
(e) | Includes incentives on DSM/EE investments and is recovered through a tracker mechanism over a two-year period. |
| |
(f) | The IURC authorized Duke Energy Indiana to recover costs incurred to buy out a gasification services agreement, including carrying costs through 2017. |
| |
(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. |
Coal Combustion Residual Plan
On March 17, 2016,May 8, 2020, Duke Energy Indiana, along with other Indiana utilities, filed a request with the IURC a request for approval of its first group of federally mandated CCR rule compliance projects (Phase I CCR Compliance Projects) to complydeferral treatment for costs and revenue reductions associated with the EPA's CCR rule.COVID-19 pandemic. The projectsutilities requested initial deferral approval 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 providesJuly 2020, with individual subdockets 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 areeach utility to be capped at $365 million, plus actual AFUDC. Costs above the cap would be consideredestablished for consideration of utility-specific cost and revenue impacts, cost recovery in the next rate case. Terms of the settlement agreement also require Duke Energy Indiana to perform certain reportingtiming and groundwater monitoring.customer payment plans. On May 24, 2017, the IURC approved the settlement agreement.
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 – (Continued)
Edwardsport Integrated Gasification Combined Cycle Plant
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, 2017,29, 2020, the IURC issued an order upholdingin Phase 1 wherein it extended the original decision, finding that an estimatedisconnection moratorium for jurisdictional utilities until August 14, 2020, along with requiring six-month payment arrangements, waiver of impactlate fees, reconnection fees, convenience fees and deposits. The IURC permitted jurisdictional utilities to use regulatory accounting for any impacts associated with the prohibition on customer ratesutility disconnections, waiver or exclusion of certain utility fees (i.e., late fees, convenience fees, deposits, and reconnection fees), the use of expanded payment arrangements to aid customers, and for COVID-19 related uncollectible and incremental bad debt expense. The IURC did not permit recovery of lost revenues due to load reduction or carrying costs. In Phase 2 filings, individual utilities may choose to request regulatory accounting for other COVID-19 related operation and maintenance costs wherein evidence of the federal income tax in-service determination was reasonable.
FERC Transmission Return on Equity Complaint
Customer groups have filed withimpact of any costs or offsetting savings can be presented and considered in an evidentiary hearing. On August 12, 2020, the FERC complaints against MISOIURC issued a supplemental order extending the requirement for six-month payment arrangements and its transmission-owning members, includingwaiver of certain customer fees for another 60 days but did not extend the disconnect moratorium. As such, Duke Energy Indiana alleging, among other things,resumed service disconnections for nonpayment in mid-September 2020. Normal billing practices resumed in mid-October 2020, except 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 flowshas committed to provide extended payment arrangements into 2021 and financial position.
Grid Infrastructure Improvement Plan
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 orderswaive credit card 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 topay station fees for residential 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.
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 – (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 Customers were notified of the settlement included Duke Energy Indiana paying $29 million for back damages. Additionally,resumption of normal billing practices, 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 recoveryoption of the settlement amount through Duke Energy Indiana's fuel clause. The IURC order has been appealeddeferred payment arrangements and where to the Indiana Court of Appeals.find assistance, if necessary. Duke Energy Indiana cannot predict the outcome of this matter.
2019 Indiana Rate Case
On July 2, 2019, Duke Energy Indiana filed a general rate case with the IURC for a rate increase for retail customers of approximately $395 million. The rebuttal case, filed on December 4, 2019, updated the requested revenue requirement to result in a 15.6% or $396 million average retail rate increase, including the impacts of the Utility Receipts Tax. Hearings concluded on February 7, 2020. On June 29, 2020, the IURC issued the order in the rate case approving a revenue increase of $146 million before certain adjustments and ratemaking refinements. The order provided for an overall cost of capital of 5.7% based on a 9.7% return on equity and a 53% equity component of the capital structure, and approved Duke Energy Indiana's requested forecasted rate base of $10.2 billion as of December 31, 2020, including the Edwardsport Integrated Gasification Combined Cycle (IGCC) Plant. The IURC reduced Duke Energy Indiana's request by slightly more than $200 million, when accounting for the utility receipts tax and other adjustments. Approximately 50% of the reduction is due to a prospective change in depreciation and use of regulatory asset for the end-of-life inventory at retired generating plants, approximately 20% is due to the approved 9.7% return on equity versus requested 10.4% and approximately 20% is related to miscellaneous earnings neutral adjustments. Step one rates are estimated to be approximately 75% of the total and became effective on July 30, 2020. Step two rates are estimated to be the remaining 25% of the total rate increase and will be implemented in mid-2021. Several groups filed notices of appeal of the IURC order on July 29, 2020. Appellate briefs were filed on October 14, 2020, focusing on three issues: wholesale sales allocations, coal ash basin cost recovery and the Edwardsport IGCC operating and maintenance expense level approved. The appeal was fully briefed in January 2021, and a decision is expected in the first or second quarter of 2021. Duke Energy Indiana cannot predict the outcome of this matter.
2020 Indiana Coal Ash Recovery Case
In Duke Energy Indiana’s rate case, the IURC approved coal ash basin closure costs expended through 2018 including financing costs as a regulatory asset and included in rate base. The IURC opened a subdocket to deal with the post-2018 coal ash related expenditures. Duke Energy Indiana filed testimony on April 15, 2020, in the coal ash subdocket requesting recovery for the post-2018 coal ash basin closure costs for plans that have been approved by the Indiana Department of Environmental Management as well as continuing deferral, with carrying costs, on the balance. An evidentiary hearing was held on September 14, 2020, and the parties have agreed on a delayed briefing schedule that allows for the Indiana Rate Case appeal to proceed. Briefing will be completed by mid-May 2021. Duke Energy Indiana cannot predict the outcome of this matter.
| | | | | |
| FINANCIAL STATEMENTS | REGULATORY MATTERS |
Piedmont
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Piedmont's Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | |
| December 31, | | Earns/Pays | Recovery/Refund |
| (in millions) | 2020 | 2019 | | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
| | | | | |
| AROs – nuclear and other | $ | 20 | | $ | 16 | | | | (d) |
Accrued pension and OPEB(c) | 88 | | 90 | | | | (f) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Vacation accrual | 12 | | 12 | | | | 2021 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Derivatives – natural gas supply contracts(e) | 122 | | 117 | | | | |
| | | | | |
| Amounts due from customers | 110 | | 36 | | | Yes | (b) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Deferred pipeline integrity costs(c) | 71 | | 62 | | | | 2023 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other | 32 | | 30 | | | | (b) |
| Total regulatory assets | 455 | | 363 | | | | |
| Less: current portion | 153 | | 73 | | | | |
| Total noncurrent regulatory assets | $ | 302 | | $ | 290 | | | | |
Regulatory Liabilities(a) | | | | | |
| Net regulatory liability related to income taxes | $ | 499 | | $ | 555 | | | | (b) |
| Costs of removal | 575 | | 574 | | | | (d) |
| | | | | |
| Provision for rate refunds | 6 | | 41 | | | Yes | |
Accrued pension and OPEB(c) | 3 | | 3 | | | | (f) |
| Amounts to be refunded to customers | 34 | | 34 | | | Yes | (b) |
| | | | | |
| Other | 15 | | 5 | | | | (b) |
| Total regulatory liabilities | 1,132 | | 1,212 | | | | |
| Less: current portion | 88 | | 81 | | | | |
| Total noncurrent regulatory liabilities | $ | 1,044 | | $ | 1,131 | | | | |
(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) Included in rate base.
(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 22 for additional detail.
COVID-19 Filings
North Carolina
On March 10, 2020, Governor Roy Cooper declared a state of emergency due to the COVID-19 pandemic. On March 19, 2020, the NCUC issued on order directing that utilities under its jurisdiction suspend disconnections for nonpayment of utility bills during the state of emergency and allow for customers to enter into payment arrangements to pay off arrearages accumulated during the state of emergency after the end of the state of emergency. Additionally, to help mitigate the financial impacts of the COVID-19 pandemic on their customers, on March 19, 2020, Piedmont filed a request with the NCUC seeking authorization to waive: (1) any late payment charges incurred by a residential or nonresidential customer, effective March 21, 2020; (2) the application of fees for checks returned for insufficient funds for residential and nonresidential customers; (3) the reconnection charge when a residential or nonresidential customer seeks to have service restored for those customers whose service was recently disconnected for nonpayment and to work with customers regarding the other requirements to restore service, including re-establishment of credit; and (4) the fees and charges associated with the use of credit cards or debit cards to pay residential electric utility bills, effective March 21, 2020. The NCUC granted Piedmont’s request on March 20, 2020.
On July 29, 2020, the NCUC issued its Order Lifting Disconnection Moratorium and Allowing Collection of Arrearages Pursuant to Special Repayment Plans. The order contained the following: (1) public utilities may resume customer disconnections due to nonpayment for bills first rendered on or after September 1, 2020, after appropriate notice; (2) the late fee moratorium will continue through the end of the state of emergency or until further order of the commission; (3) Duke Energy utilities may reinstate fees for checks returned for insufficient funds as well as transaction fees for use of credit cards or debit cards for bills first rendered on or after September 1, 2020; and (4) no sooner than September 1, 2020, the collection of past-due or delinquent accounts accrued up to and including August 31, 2020, may proceed subject to conditions.
Normal billing practices resumed as of October 1, 2020, with the exception of billing of late payment charges. Service disconnections for nonpayment resumed on November 4, 2020. Customers were notified of the resumption of normal billing practices, the option of payment arrangements and where to find assistance, if necessary. The NCUC's moratorium for the billing of late payment charges is still in effect until further order from the NCUC. Piedmont cannot predict the outcome of this matter.
|
| | | | | | | | | |
| | December 31, | | Earns/Pays | Recovery/Refund |
| (in millions) | 2017 |
| 2016 |
| | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
| AROs - other | $ | 15 |
| $ | 14 |
| | | (d) |
Accrued pension and OPEB(c) | 91 |
| 166 |
| | | (f) |
| Derivatives - gas supply contracts | 142 |
| 187 |
| | | (e) |
Vacation accrual(c) | 10 |
| 13 |
| | | 2018 |
Deferred pipeline integrity costs(c) | 42 |
| 36 |
| | | 2018 |
| Amount due from customers | 64 |
| 66 |
| | X | (b) |
| Other | 14 |
| 15 |
| | | (b) |
| Total regulatory assets | 378 |
| 497 |
| | | |
| Less: current portion | 95 |
| 124 |
| | | |
| Total noncurrent regulatory assets | $ | 283 |
| $ | 373 |
| | | |
Regulatory Liabilities(a) | | | | | |
| Costs of removal | $ | 544 |
| $ | 528 |
| | | (d) |
| Net regulatory liability related to income taxes | 597 |
| 80 |
| | | (b) |
| Other | 3 |
| — |
| | | (b) |
| Total regulatory liabilities | 1,144 |
| 608 |
| | | |
| Less: current portion | 3 |
| — |
| | | |
| Total noncurrent regulatory liabilities | $ | 1,141 |
| $ | 608 |
| | | |
| | | | | |
(a)FINANCIAL STATEMENTS | Regulatory assets and liabilities are excluded from rate base unless otherwise noted.REGULATORY MATTERS |
| |
(b) | The expected recovery or refund period varies or has not been determined. |
| |
(c) | Included in rate base. |
| |
(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
On March 13, 2020, Governor Henry McMaster declared a state of emergency due to the COVID-19 pandemic. The governor also issued a letter on March 14, 2020, to the ORS Executive Director regarding the suspension of disconnection of essential utility services for nonpayment. On March 18, 2020, the PSCSC issued an order approving such waivers, and also approved waivers for regulations related to late fees and reconnect fees. The PSCSC's order also required utilities to track the financial impacts of actions taken pursuant to such waivers for possible reporting to the PSCSC.
On May 13, 2020, the ORS filed a letter with the PSCSC that included a request from Governor McMaster that utilities proceed with developing and implementing plans for phasing in normal business operations. On May 14, 2020, the PSCSC conditionally vacated the regulation waivers regarding termination of service and suspension of disconnect fees. Prior to termination, utilities are to refer past-due customers to local organizations for assistance and/or deferred payment arrangements. Piedmont filed a report on June 30, 2020, as required by PSCSC order, reporting revenue impact, costs and savings related to COVID-19 to date. Updates on cost impacts were filed on September 30, 2020, and on December 31, 2020, and included financial impacts through the end of August 2020, and the end of November 2020, respectively.
On September 30, 2020, Piedmont filed an update on its planned return to normal operations during the COVID-19 pandemic. Normal billing practices resumed as of October 1, 2020, and service disconnections for nonpayment resumed on November 4, 2020. Customers were notified of the resumption of normal billing practices, the option of payment arrangements and where to find assistance, if necessary.
Tennessee
On March 12, 2020, Governor Bill Lee declared a state of emergency due to the COVID-19 pandemic. In an effort to help mitigate the financial impacts of the COVID-19 pandemic on their customers, on March 20, 2020, Piedmont filed a request with the TPUC seeking authorization to waive, effective March 21, 2020: (1) any late payment charges incurred by a residential or nonresidential customer; (2) the application of fees for checks returned for insufficient funds for residential and nonresidential customers; and (3) the reconnection charge when a residential or nonresidential customer seeks to have service restored for those customers whose service was recently disconnected for nonpayment and to work with customers regarding the other requirements to restore service, including re-establishment of credit. The TPUC granted Piedmont’s request by Order issued March 31,2020. The Order also stated that customers were not relieved of their obligation to pay for utility services received.
The TPUC held its regularly scheduled Commission Conference electronically on August 10, 2020, and on September 16, 2020, issued an Order Lifting Suspension of Disconnections of Service for Lack of Payment with Conditions, effective August 29, 2020. The conditions relate to required customer communications, payment plan options for past-due amounts and ongoing reporting to the TPUC. Potential recovery of costs related to the COVID-19 pandemic may be considered in future, individual docketed proceedings.
On October 15, 2020, Piedmont filed a report on its planned return to normal operations during the COVID-19 pandemic. Normal billing practices resumed as of October 1, 2020, and service disconnections for nonpayment resumed on November 4, 2020. Customers were notified of the resumption of normal billing practices, the option of payment arrangements and where to find assistance, if necessary.
2020 Tennessee Rate Stabilization Adjustment FilingCase
In June 2017,On July 2, 2020, Piedmont filed an application with the TPUC, its first general rate case in Tennessee in nine years, for a rate increase for retail customers of approximately $30 million, which represents an approximate 15% increase in annual revenues. The rate increase is driven by significant infrastructure upgrade investments since its previous rate case. Approximately half of the plant additions being added to rate base are categories of capital investment not covered under the IMR mechanism, which was approved in 2013. Piedmont amended its requested increase to approximately $26 million in December 2020. As authorized under Tennessee law, Piedmont implemented interim rates on January 2, 2021, at the level requested in its adjusted request. A settlement reached with the Tennessee Consumer Advocate in mid-January was filed with the PSCSCTPUC on February 2, 2021. The settlement results in an increase of revenues of approximately $16 million and a ROE of 9.8%. At a hearing on February 16, 2021, the TPUC voted to accept the settlement, with new rates effective January 2, 2021. Piedmont must refund customers the difference between bills previously rendered under the Southinterim rates and such bills if rendered under approved rates, plus interest.
2021 North Carolina Rate Stabilization ActCase
On February 19, 2021, Piedmont filed notice with the NCUC of its quarterly monitoring report for the 12-month period endingintent to file a general rate case on or about 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 its22, 2021. Piedmont’s last general rate case. case in North Carolina was filed in April 2019, with rates effective November 2019.
2019 North Carolina Rate Case
On October 4, 2017,April 1, 2019, Piedmont filed an application with the PSCSC approved a settlement agreement betweenNCUC, its first general rate case in North Carolina in six years. On August 13, 2019, Piedmont, the Public Staff, and two groups representing industrial customers filed an Agreement and Stipulation Settlement resolving issues in the SC Office of Regulatory Staff. Terms of the settlementbase rate proceeding, which included implementation of rates for the 12-month period beginning November 2017 with a return on equity of 10.2 percent.9.7% and a capital structure of 52% equity and 48% debt. Other major components of the Stipulation included:
•An annual increase in revenues of $109 million before consideration of riders associated with federal and state tax reform;
•A decrease through a rider mechanism of $23 million per year to return unprotected federal EDIT over a five-year period and deferred revenues related to the federal rate reduction of $37 million to be returned over one year;
•A decrease through a rider mechanism of $21 million per year related to reductions in the North Carolina state income tax rate to be returned over a three-year period;
•An overall cap on net revenue increase of $83 million. This will impact Piedmont beginning November 1, 2022, only if the company does not file another general rate case in the interim;
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | REGULATORY MATTERS |
•Continuation of the IMR mechanism; and
North Carolina•Establishment of a new deferral mechanism for certain Distribution Integrity Management Rider FilingsProgram (DIMP) operations and maintenance expenses incurred effective November 1, 2019, and thereafter.
InOn October 2017, Piedmont filed a petition with the NCUC under the 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, 2017,31, 2019, the NCUC approved the requested rate adjustment.
In May 2017, Piedmont filed,Stipulation and the NCUC approved, a petition under the IMR mechanism to collect an additional $11.6 million in annual revenues,revised customer rates were effective June 2017, based on the eligible capital investments closed to integrity and safety projects over the six-month period ending March 31, 2017.November 1, 2019.
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, LLC
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), was planned to be 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 Energyindirectly owns a 47 percent47% interest, which is accounted for as an equity method investment through its Gas Utilities and Infrastructure segment. Southern Company Gas maintains a 5 percent interest. See Notes 12 and 17
On April 15, 2020, the United States District Court for additional information related to Duke Energy's ownership interest.
Duke Energy Carolinas, Duke Energy Progress and Piedmont, among others, will be customersthe District of Montana granted partial summary judgment in favor 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 agreementplaintiffs 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 theNorthern Plains Resource Council v. U.S. Army Corps of Engineers national water quality permit(USACE) (Northern Plains), vacating USACE’s Nationwide Permit 12 (NWP 12) and Virginia issued a conditional water quality permit subjectremanding it to completionUSACE for consultation under the Endangered Species Act (ESA) of additional studies1973. In Northern Plains, the court ruled that NWP 12 was unlawful because USACE did not consult under the ESA with the U.S. Fish and stormwater plans. In early 2018,Wildlife Service and/or National Marine Fisheries Service prior to NWP 12’s reissuance in 2017. Because NWP 12 has been vacated and its application enjoined, USACE currently has suspended verification of any new or pending applications under NWP 12 until further court action clarifies 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 Pipelinesituation.
On May 4, 2015, Duke Energy acquired28, 2020, the U.S. Court of Appeals for the Ninth Circuit issued a 7.5 percent ownership interest in Sabal Trail Transmission, LLC (Sabal Trail) from Spectra Energy Partners, LP, a masterruling that 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 venturethe NWP 12 vacatur 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 customersenergy infrastructure projects. In July 2020, the Supreme Court 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 FERCUnited States issued an order grantingallowing other new oil and gas pipeline projects to use 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 OctoberNWP 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.
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 – (Continued)
On September 21, 2016, intervenors filed anprocess pending appeal of FERC's CPCN orders to the U.S. Court of Appeals for the DistrictNinth Circuit; however, that did not decrease the uncertainty associated with an eventual ruling. Together, these rulings indicated that the timeline to reinstate the necessary water crossing permits for ACP would likely cause further delays and cost increases.
On July 5, 2020, Dominion Energy, Inc. announced a sale of Columbia Circuit (D.C. Circuit Courtsubstantially all 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 orderits gas transmission and remanded the case to FERC. In responsestorage segment assets, operations core 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, theACP 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.project.
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 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 deniedcreated by the U.S. Court of Appeals. In January 2018, Constitution petitionedNWP 12 rulings, the Supreme Court ofpotential impact on 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 datecost and schedule for the project, duethe ongoing legal challenges and the risk of additional legal challenges and delays through the construction period and Dominion’s decision to sell substantially all of its gas transmission and storage segment assets, Duke Energy's Board of Directors and management decided that it was not prudent to continue to invest in the project. On July 5, 2020, Duke Energy and Dominion announced the cancellation of the ACP pipeline project.
As a result, Duke Energy recorded pretax charges to earnings of approximately $2.1 billion for the year ended December 31, 2020, within Equity in (losses) earnings of unconsolidated affiliates on the Duke Energy Consolidated Statements of Operations. The tax benefit associated with this cancellation was $393 million and is recorded in Income Tax Expense (Benefit) Expense on the Duke Energy Consolidated Statements of Operations. Additional charges of less than $20 million are expected to be recorded within the next three years as ACP incurs obligations to exit operations.
As part of the pretax charges to earnings of approximately $2.1 billion, Duke Energy has liabilities related to the NYDSEC's denialcancellation of the water quality certification.ACP pipeline project of $928 million and $8 million within Other Current Liabilities and Other Noncurrent Liabilities, respectively, in the Gas Utilities and Infrastructure segment. The Constitution partners remain committedliability represents Duke Energy's obligation of approximately $860 million to the projectfund ACP's outstanding debt and are evaluating next steps$76 million to move the project forward. Duke Energy cannot predict the outcome of this matter.
Since April 2016, with the actions of the NYSDEC, Constitution stoppedsatisfy remaining ARO requirements to restore construction and discontinued capitalization of future development costs until the project's uncertainty is resolved.sites.
See Notes 127 and 1712 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 withregarding 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.transaction.
Potential Coal Plant Retirements
The Subsidiary Registrants periodically file Integrated Resource Plans (IRP)integrated resource plans (IRPs) 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 FloridaNorth Carolina and Indiana earlier than their current estimated useful lives. Duke Energy continues to evaluate the potential need to retire these coal-fired generating facilities earlier than the current estimated useful lives primarily because facilities doand plans to seek regulatory recovery for amounts that would not have the requisite emission control equipment to meet EPA regulations recently approved or proposed.
be otherwise recovered when any of these assets are retired.
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | REGULATORY MATTERS |
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.retirement. Dollar amounts in the table below are included in Net property, plant and equipment on the Consolidated Balance Sheets as of December 31, 2017,2020, and exclude capitalized asset retirement costs. | | | | | | | | | Remaining Net |
| | | Remaining Net | |
| | Capacity |
| | Book Value |
| | Capacity | | | Book Value | |
| | (in MW) |
| | (in millions) |
| | (in MW) | | | (in millions) | |
| Duke Energy Carolinas | | | | Duke Energy Carolinas | | | | |
Allen Steam Station Units 1-3(a) | 585 |
| | $ | 163 |
| Allen Steam Station Units 1-3(a) | 604 | | | | $ | 113 | | |
| Progress Energy and Duke Energy Florida | | | | |
Crystal River Units 1 and 2(b) | 873 |
| | 107 |
| |
Allen Steam Station Units 4-5(b) | | Allen Steam Station Units 4-5(b) | 526 | | | | 338 | | |
Cliffside Unit 5(b) | | Cliffside Unit 5(b) | 546 | | | | 350 | | |
| Duke Energy Progress | | Duke Energy Progress | | | | |
Mayo Unit 1(b) | | Mayo Unit 1(b) | 746 | | | | 676 | | |
Roxboro Units 3-4(b) | | Roxboro Units 3-4(b) | 1,409 | | | | 484 | | |
| Duke Energy Florida | | Duke Energy Florida | | | | |
Crystal River Units 4-5(c) | | Crystal River Units 4-5(c) | 1,430 | | | | 1,696 | | |
| Duke Energy Indiana | | | | Duke Energy Indiana | | | | |
Gallagher Units 2 and 4(c) | 280 |
| | 127 |
| |
Gallagher Units 2 and 4(d) | | Gallagher Units 2 and 4(d) | 280 | | | | 102 | | |
Gibson Units 1-5(e) | | Gibson Units 1-5(e) | 2,845 | | | | 1,866 | | |
Cayuga Units 1-2(e) | | Cayuga Units 1-2(e) | 1,005 | | | | 777 | | |
| Total Duke Energy | 1,738 |
| | $ | 397 |
| Total Duke Energy | 9,391 | | | | $ | 6,402 | | |
| |
(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(a) As part of the 2015 resolution of a lawsuit involving alleged New Source Review violations, Duke Energy Carolinas must retire Allen Steam Station Units 1 through 3 by December 31, 2024. The long-term energy options considered in the IRP could result in retirement of these units earlier than their current estimated useful lives. Unit 3 with a capacity of 270 MW and a net book value of $26 million at December 31, 2020, is expected to be retired in March 2021.
(b) These units are included in the "WesternIRP filed by Duke Energy Carolinas Modernization Plan" discussion aboveand Duke Energy Progress in North Carolina and South Carolina on September 1, 2020. The long-term energy options considered in the IRP could result in retirement of these units earlier than their current estimated useful lives. In 2019, Duke Energy Carolinas and Duke Energy Progress filed North Carolina rate cases that included depreciation studies that accelerate end-of-life dates for detailsthese plants. A decision by NCUC is expected by the end of the first quarter 2021.
(c) On January 14, 2021, Duke Energy Florida filed a settlement agreement with the FPSC, which proposed depreciation rates reflecting retirement dates for Duke Energy Florida's last 2 coal-fired generating facilities, Crystal River Units 4-5, eight years ahead of schedule in 2034 rather than in 2042, in support of Duke Energy's carbon reduction goals. A request for the FPSC to hold a hearing has been made and a decision by the FPSC is expected in the second quarter 2021.
(d) Duke Energy Progress' planned retirements.Indiana committed to either retire or stop burning coal at Gallagher Units 2 and 4 by December 31, 2022, as part of the 2016 settlement of Edwardsport IGCC matters. In February 2021, upon approval by MISO of a new retirement date, Duke Energy Indiana determined it would modify the retirement date to June 1, 2021.
(e) On July 1, 2019, Duke Energy Indiana filed its 2018 IRP with the IURC. The 2018 IRP included scenarios evaluating the potential retirement of coal-fired generating units at Gibson and Cayuga. The rate case filed July 2, 2019, included proposed depreciation rates reflecting retirement dates from 2026 to 2038. The depreciation rates reflecting these updated retirement dates were approved by the IURC as part of the rate case order issued on June 29, 2020. 5.
4. 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 4,3, 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.
| | | | | |
| FINANCIAL STATEMENTS | COMMITMENTS AND CONTINGENCIES |
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).Catawba. McGuire and Catawba each have two2 reactors. Oconee has three3 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 one1 reactor. Brunswick has two2 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 onsiteon-site 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.
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 – (Continued)
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$13.8 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 FloridaProgress have purchased the maximum reasonably available private primary nuclear liability insurance as required by law, which is $450 million per station. Duke Energy Florida has purchased $100 million primary nuclear liability insurance in compliance with the law.
Excess Liability Program
This program provides $13$13.3 billion of coverage per incident through the Price-Anderson Act’s mandatory industrywideindustry-wide excess secondary financial protection program of risk pooling. This amount is the product of potential cumulative retrospective premium assessments of $127$138 million times the current 10297 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$20.5 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$1.8 billion.
Each nuclear facility has accident property damage, nuclear accident 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.
| | | | | |
| FINANCIAL STATEMENTS | COMMITMENTS AND CONTINGENCIES |
NEIL’s Accidental Outage policy provides some coverage, such assimilar to 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 percent100% of the availableapplicable weekly limits for 52 weeks and 80 percent80% of the availableapplicable weekly limits for up to the next 110 weeks. Coverage is provided until these availableapplicable weekly periods are met, where the accidental outage policy limit will not exceed $490 million for McGuire and Catawba, $462$434 million for Harris, $420 million for Brunswick, $448 million for Harris, $434$392 million for Oconee and $378$336 million for Robinson. NEIL sublimits the accidental outage recovery up 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$156 million, $96$93 million and $1 million, respectively. Duke Energy Carolinas' maximum assessment amount includes 100 percent100% 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 regulationslaws regarding air and water quality, hazardous and solid waste disposal, coal ash and other environmental matters. These regulationslaws 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.
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 – (Continued)
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. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
| Balance at December 31, 2014 | $ | 92 |
| | $ | 10 |
| | $ | 17 |
| | $ | 5 |
| | $ | 12 |
| | $ | 54 |
| | $ | 10 |
|
| Provisions/adjustments | 11 |
| | 1 |
| | 4 |
| | — |
| | 4 |
| | 1 |
| | 5 |
|
| Cash reductions | (9 | ) | | (1 | ) | | (4 | ) | | (2 | ) | | (2 | ) | | (1 | ) | | (3 | ) |
| Balance at December 31, 2015 | 94 |
| | 10 |
| | 17 |
| | 3 |
| | 14 |
| | 54 |
| | 12 |
|
| Provisions/adjustments | 19 |
| | 4 |
| | 7 |
| | 2 |
| | 4 |
| | 7 |
| | 1 |
|
| Cash reductions | (15 | ) | | (4 | ) | | (6 | ) | | (2 | ) | | (4 | ) | | (2 | ) | | (3 | ) |
| Balance at December 31, 2016 | 98 |
| | 10 |
| | 18 |
| | 3 |
| | 14 |
| | 59 |
| | 10 |
|
| Provisions/adjustments | 8 |
| | 3 |
| | 3 |
| | 2 |
| | 2 |
| | 3 |
| | (4 | ) |
| Cash reductions | (25 | ) | | (3 | ) | | (6 | ) | | (2 | ) | | (4 | ) | | (15 | ) | | (1 | ) |
| Balance at December 31, 2017 | $ | 81 |
| | $ | 10 |
| | $ | 15 |
| | $ | 3 |
| | $ | 12 |
| | $ | 47 |
| | $ | 5 |
|
| | | | | | | | | | | | | | |
| (in millions) | December 31, 2020 | | December 31, 2019 | |
| Reserves for Environmental Remediation | | | | |
| Duke Energy | $ | 75 | | | $ | 58 | | |
| Duke Energy Carolinas | 19 | | | 11 | | |
| Progress Energy | 19 | | | 16 | | |
| Duke Energy Progress | 6 | | | 4 | | |
| Duke Energy Florida | 12 | | | 9 | | |
| Duke Energy Ohio | 22 | | | 19 | | |
| Duke Energy Indiana | 6 | | | 4 | | |
| Piedmont | 10 | | | 8 | | |
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 | $ | 56 |
|
| Duke Energy Carolinas | 19 |
|
| Duke Energy Ohio | 30 |
|
| Piedmont | 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.
| | | | | |
| (in millions) | |
| Duke Energy | $ | 25 | |
| Duke Energy Carolinas | 12 | |
| |
| |
| |
| Duke Energy Ohio | 4 | |
| |
| Piedmont | 2 | |
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | COMMITMENTS AND CONTINGENCIES |
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.
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 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.
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 – (Continued)
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 the North Carolina SuperiorBusiness Court against various insurance providers. The lawsuit seeks payment for coal ash-relatedash 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 SouthSouth Carolina. Fact discovery has been completed. The parties filed dispositive pretrial motions relating to key legal issues on December 4, 2020. Hearings on these motions are scheduled to begin on February 24, 2021, and trial is scheduled for January 24, 2022. 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
NTE Carolinas recorded a charge in December 2015 for this penalty. II, LLC Litigation
In March 2016, Duke Energy Carolinas filed an appeal of this penalty. On September 23, 2016,November 2017, Duke Energy Carolinas entered into a settlementstandard FERC large generator interconnection agreement (LGIA) with the NCDEQ, without admission of liability, under whichNTE Carolinas II, LLC (NTE), a company that proposed to build a combined-cycle natural gas plant in Rockingham County, North Carolina. On September 6, 2019, Duke Energy Carolinas agreedfiled a lawsuit in Mecklenburg County Superior Court against NTE for breach of contract and alleging that NTE's failure to pay benchmark payments for Duke Energy Carolinas' transmission system upgrades required under the interconnection agreement constituted a paymenttermination 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.
NCDEQ State Enforcement Actions
In the first quarter of 2013, Southern Environmental Law Center (SELC) sent notices of intent to sueinterconnection agreement. Duke Energy Carolinas and Duke Energy Progress relatedis seeking a monetary judgment against NTE because NTE failed to alleged Clean Water Act (CWA) violations from coal ash basins at two of their coal-fired power plantsmake multiple milestone payments. The lawsuit was moved to federal court 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, SELCNTE filed a motion to dismiss the appeal. Duke Energy Carolinas'Carolinas’ complaint and Duke Energy Progress’ opening appellate briefs were filed on October 12, 2017,brought counterclaims alleging anti-competitive conduct 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,state 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.
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.statutes. Duke Energy Carolinas filed a motion to dismiss on February 5, 2018.NTE's counterclaims.
On May 21, 2020, in response to a NTE petition challenging Duke Energy Carolina's termination of the LGIA, FERC issued a ruling (i) that it has exclusive jurisdiction to determine whether a transmission provider may terminate a LGIA, (ii) FERC approval is required to terminate a conforming LGIA if objected to by the interconnection customer, and (iii) Duke Energy may not announce the termination of a conforming LGIA unless FERC has approved the termination.
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 – (Continued)
ItOn August 17, 2020, the court denied both NTE’s and Duke Energy Carolinas’ Motion to Dismiss. The parties are in active discovery and trial is not possible to predict whetherscheduled for June 20, 2022. Duke Energy Carolinas or Duke Energy Progress will incur any liability or to estimatecannot predict 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 numberoutcome 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.this matter.
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, 2017,2020, there were 161145 asserted claims for non-malignant cases with the cumulative relief sought of up to $42$39 million and 5456 asserted claims for malignant cases with the cumulative relief sought of up to $16$20 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$572 million and $512$604 million at December 31, 2017,2020, and 2016,2019, 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 lossDuke Energy Carolinas' best estimate for current and future asbestos claims through 2037,2040 and are recorded on an undiscounted basis and incorporate anticipated inflation.basis. 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 20372040 related to such potential claims. It is possible Duke Energy Carolinas may incur asbestos liabilities in excess of the recorded reserves.
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 – (Continued)
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$714 million in excess of the self-insured retention. Receivables for insurance recoveries were $585$704 million and $587$742 million at December 31, 2017,2020, and 2016,2019, respectively. These amounts are classified in Other within Other 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.
As described in Note 1, Duke Energy adopted the new guidance for credit losses effective January 1, 2020, using the modified retrospective method of adoption, which does not require restatement of prior year reported results. The reserve for credit losses for insurance receivables for the asbestos-related injuries and damages based on adoption of the new standard is $15 million for Duke Energy and Duke Energy Carolinas as of December 31, 2020. The insurance receivable is evaluated based on the risk of default and the historical losses, current conditions and expected conditions around collectability. Management evaluates the risk of default annually based on payment history, credit rating and changes in the risk of default from credit agencies.
| | | | | |
| FINANCIAL STATEMENTS | COMMITMENTS AND CONTINGENCIES |
Duke Energy Progress and Duke Energy Florida
Spent Nuclear Fuel Matters
On October 16, 2014,June 18, 2018, Duke Energy Progress and Duke Energy Florida sued the U.S. in the U.S. Court of Federal Claims.Claims for damages incurred for the period 2014 through 2018. 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.storage in the amount of $100 million and $200 million for Duke Energy Progress and Duke Energy Florida, asserted damagesrespectively. Discovery is ongoing and a trial is expected to occur in 2021.
Duke Energy Florida
Power Purchase Dispute Arbitration
Duke Energy Florida, on behalf of its customers, entered into a PPA for the period January 1, 2011, through December 31, 2013,purchase of $48 millionfirm capacity and $25 million, respectively. On November 17, 2017,energy from a qualifying facility under the Court awardedPublic Utilities Regulatory Policies Act of 1978. Duke Energy ProgressFlorida determined the qualifying facility did not perform in accordance with the PPA, and Duke Energy Florida $48 millionterminated the PPA. The qualifying facility counterparty filed a confidential American Arbitration Association (AAA) arbitration demand, challenging the termination of the PPA and $21 million, respectively, subject to appeal. No appeals were filed and Duke Energy Progress andseeking damages. Duke Energy Florida will recognizedenies liability and is vigorously defending the recoveries inarbitration claim.
The final arbitration hearing occurred during the first quarterweek of 2018. Claims for all periods through 2013 haveDecember 7, 2020. An arbitral award has not yet been resolved. Additional claims will be filed in 2018.
issued. 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 ProgressFlorida cannot predict the outcome of this matter.
Duke Energy FloridaIndiana
Class-Action LawsuitCoal Ash Basin Closure Plan Appeal
On February 22, 2016,January 27, 2020, Hoosier Environmental Council filed a lawsuit was filed inPetition for Administrative Review with the U.S. District Court forIndiana Office of Environmental Adjudication (the court) challenging the Southern DistrictIndiana Department of Florida on behalf of a putative classEnvironmental Management’s December 10, 2019, partial approval 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 ofIndiana’s ash pond closure plan. On March 11, 2020, Duke Energy FloridaIndiana filed a Motion to Dismiss. On May 5, 2020, the court denied the motion. The parties have completed discovery and FP&L aswill now prepare to file dispositive motions. Summary judgment briefing will be completed by March 30, 2021. If these claims survive dispositive motions, 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.hearing is scheduled for April 26, 2021. 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 FloridaIndiana 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 Junematter. See Note 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.
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 – (Continued)
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.information.
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.
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
The Duke Energy Registrants are involved in other legal, tax and regulatory 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. Reserves are classified on the Consolidated Balance Sheets in Other within Other Noncurrent Liabilities and Accounts payable and Other within Current Liabilities. The reasonably possible range of loss in excess of recorded reserves is not material, other than as described above. | | | | December 31, | | December 31, |
(in millions) | 2017 |
| | 2016 |
| (in millions) | 2020 | | 2019 |
| Reserves for Legal Matters | | | | Reserves for Legal Matters | | | |
| Duke Energy | $ | 88 |
| | $ | 98 |
| Duke Energy | $ | 68 | | | $ | 62 | |
| Duke Energy Carolinas | 30 |
| | 23 |
| Duke Energy Carolinas | 2 | | | 2 | |
| Progress Energy | 55 |
| | 59 |
| Progress Energy | 61 | | | 55 | |
| Duke Energy Progress | 13 |
| | 14 |
| Duke Energy Progress | 13 | | | 12 | |
| Duke Energy Florida | 24 |
| | 28 |
| Duke Energy Florida | 28 | | | 22 | |
| Duke Energy Ohio | — |
| | 4 |
| |
| | Piedmont | 2 |
| | 2 |
| Piedmont | 1 | | | 1 | |
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 unlimiteduncapped 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.
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 – (Continued)
See Note 7 for more information.
Purchase Obligations
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.
| | | | | |
| FINANCIAL STATEMENTS | COMMITMENTS AND CONTINGENCIES |
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. | | | | | | Minimum Purchase Amount at December 31, 2017 | | | | Minimum Purchase Amount at December 31, 2020 |
| | Contract | | | | | | | | | | | | | | | | Contract | |
| (in millions) | Expiration | | 2018 |
| | 2019 |
| | 2020 |
| | 2021 |
| | 2022 |
| | Thereafter |
| | Total |
| (in millions) | Expiration | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total |
Duke Energy Progress(a) | 2019-2031 | | $ | 68 |
| | $ | 68 |
| | $ | 51 |
| | $ | 52 |
| | $ | 30 |
| | $ | 239 |
| | $ | 508 |
| Duke Energy Progress(a) | 2025-2032 | | $ | 66 | | | $ | 73 | | | $ | 66 | | | $ | 67 | | | $ | 69 | | | $ | 69 | | | $ | 410 | |
Duke Energy Florida(b) | 2021-2043 | | 357 |
| | 374 |
| | 394 |
| | 378 |
| | 376 |
| | 770 |
| | 2,649 |
| Duke Energy Florida(b) | 2023-2025 | | 335 | | | 354 | | | 374 | | | 262 | | | 91 | | | — | | | 1,416 | |
Duke Energy Ohio(c)(d) | | Duke Energy Ohio(c)(d) | 2022 | | 130 | | | 55 | | | — | | | — | | | — | | | — | | | 185 | |
(a) Contracts represent between 15 percent and 100 percenteither 100% of net plant output or vary.
(b) Contracts represent 100% of net plant output.
(b)(c) Contracts represent between 81 percent1% and 100 percent11% of net plant output.
(d) Excludes PPA with OVEC. See Note 17 for additional information.
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 upup to 1915 years. The time periods for fixed payments under natural gas supply contracts are up to threesix years. The time period for the natural gas supply purchase commitments is up to 1511 years.
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, 2017.2020.
| | | | | | | | | | | |
| (in millions) | Duke Energy | Duke Energy Ohio | Piedmont |
| 2021 | $ | 311 | | $ | 41 | | $ | 270 | |
| 2022 | 270 | | 28 | | 242 | |
| 2023 | 197 | | 20 | | 177 | |
| 2024 | 139 | | 17 | | 122 | |
| 2025 | 125 | | 14 | | 111 | |
| Thereafter | 662 | | 60 | | 602 | |
| Total | $ | 1,704 | | $ | 180 | | $ | 1,524 | |
5. LEASES
|
| | | | | | | | | |
| (in millions) | Duke Energy | Duke Energy Ohio | Piedmont |
| 2018 | $ | 314 |
| $ | 37 |
| $ | 277 |
|
| 2019 | 280 |
| 28 |
| 252 |
|
| 2020 | 252 |
| 25 |
| 227 |
|
| 2021 | 249 |
| 26 |
| 223 |
|
| 2022 | 226 |
| 11 |
| 215 |
|
| Thereafter | 1,121 |
| 3 |
| 1,118 |
|
| Total | $ | 2,442 |
| $ | 130 |
| $ | 2,312 |
|
Operating and Capital Lease Commitments
TheAs part of its operations, Duke Energy Registrants leaseleases certain aircraft, space on communication towers, industrial equipment, fleet vehicles, fuel transportation (barges and railcars), land and office buildings, railcars, vehicles, computer equipment and other property and equipment withspace under various terms and expiration dates. Additionally, Duke Energy Carolinas, Duke Energy Progress has a capital leaseand Duke Energy Indiana have finance leases related to firm natural gas pipeline transportation capacity. Duke Energy Progress and Duke Energy Florida have entered into certain purchased power agreements,PPAs, which are classified as finance and operating leases.
Duke Energy has certain lease agreements, which include variable lease payments that are based on the usage of an asset. These variable lease payments are not included in the measurement of the ROU assets or operating lease liabilities on the Consolidated capitalizedFinancial Statements.
Certain Duke Energy lease obligationsagreements include options for renewal and early termination. The intent to renew a lease varies depending on the lease type and asset. Renewal options that are classifiedreasonably certain to be exercised are included in the lease measurements. The decision to terminate a lease early is dependent on various economic factors. No termination options have been included in any of the lease measurements.
Duke Energy Carolinas entered into a sale-leaseback arrangement in December 2019, to construct and occupy an office tower. The lease agreement was evaluated as Long-Term Debt or Other within Current Liabilitiesa sale-leaseback of real estate and it was determined that the transaction did not qualify for sale-leaseback accounting. As a result, the transaction is being accounted for as a financing. For this transaction, Duke Energy Carolinas will continue to record the real estate on the Consolidated Balance Sheets. AmortizationSheets within Property, Plant and Equipment as if it were the legal owner and will continue to recognize depreciation expense over the estimated useful life. In addition, a liability will be recorded for the failed sale-leaseback obligation within Long-Term Debt on the Consolidated Balance Sheets, with the monthly lease payments commencing after the construction phase being split between interest expense and principal pay down of assets recorded under capitalthe debt.
| | | | | |
| FINANCIAL STATEMENTS | LEASES |
Duke Energy operates various renewable energy projects and sells the generated output to utilities, electric cooperatives, municipalities and commercial and industrial customers through long-term PPAs. In certain situations, these PPAs and the associated renewable energy projects qualify as operating leases. Rental income from these leases is includedaccounted for as Nonregulated electric and other revenues in Depreciationthe Consolidated Statements of Operations. There are no minimum lease payments as all payments are contingent based on actual electricity generated by the renewable energy projects. Contingent lease payments were $275 million, $264 million and amortization$268 million for the years ended December 31, 2020, 2019, and 2018, respectively. Renewable energy projects owned by Duke Energy and accounted for as operating leases had a cost basis of $3,335 million and $3,349 million and accumulated depreciation of $848 million and $721 million at December 31, 2020, and 2019, respectively. These assets are principally classified as nonregulated electric generation and transmission assets.
Piedmont has certain agreements with Duke Energy Carolinas for the construction and transportation of natural gas pipelines to supply its natural gas plant needs. Piedmont accounts for these pipeline lateral contracts as sales-type leases since the present value of the sum of the lease payments equals the fair value of the assets. These pipeline lateral assets owned by Piedmont had a current net investment basis of $2 million and $4 million as of December 31, 2020, and 2019, respectively, and a long-term net investment basis of $205 million and $70 million as of December 31, 2020, and 2019, respectively. These assets are classified in Other, within Current Assets and Other Noncurrent Assets, respectively, on Piedmont's Consolidated Balance Sheets. Duke Energy Carolinas accounts for the contracts as finance leases. The activity for these contracts is eliminated in consolidation at Duke Energy.
The following tables present the components of lease expense.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Operating lease expense(a) | $ | 283 | | | $ | 53 | | | $ | 162 | | | $ | 72 | | | $ | 90 | | | $ | 11 | | | $ | 19 | | | $ | 7 | |
Short-term lease expense(a) | 4 | | | — | | | 2 | | | 1 | | | 1 | | | 0 | | | 1 | | | 0 | |
Variable lease expense(a) | 30 | | | 13 | | | 13 | | | 5 | | | 8 | | | 0 | | | 1 | | | 1 | |
| Finance lease expense | | | | | | | | | | | | | | | |
Amortization of leased assets(b) | 119 | | | 8 | | | 24 | | | 6 | | | 18 | | | 0 | | | 1 | | | 0 | |
Interest on lease liabilities(c) | 61 | | | 30 | | | 44 | | | 37 | | | 7 | | | 0 | | | 0 | | | 0 | |
| Total finance lease expense | 180 | | | 38 | | | 68 | | | 43 | | | 25 | | | 0 | | | 1 | | | — | |
| Total lease expense | $ | 497 | | | $ | 104 | | | $ | 245 | | | $ | 121 | | | $ | 124 | | | $ | 11 | | | $ | 22 | | | $ | 8 | |
(a) Included in Operations, maintenance and other or, for barges and railcars, Fuel used in electric generation and purchased power on the Consolidated Statements of Operations.
(b) Included in Depreciation and amortization on the Consolidated Statements of Operations.
(c) Included in Interest Expense on the Consolidated Statements of Operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Operating lease expense(a) | $ | 292 | | | $ | 47 | | | $ | 161 | | | $ | 69 | | | $ | 92 | | | $ | 11 | | | $ | 20 | | | $ | 5 | |
Short-term lease expense(a) | 16 | | | 5 | | | 9 | | | 4 | | | 5 | | | 1 | | | 2 | | | — | |
Variable lease expense(a) | 47 | | | 22 | | | 22 | | | 16 | | | 6 | | | — | | | 1 | | | 1 | |
| Finance lease expense | | | | | | | | | | | | | | | |
Amortization of leased assets(b) | 111 | | | 6 | | | 21 | | | 5 | | | 16 | | | 1 | | | 0 | | | — | |
Interest on lease liabilities(c) | 61 | | | 15 | | | 42 | | | 33 | | | 9 | | | 0 | | | 1 | | | 0 | |
| Total finance lease expense | 172 | | | 21 | | | 63 | | | 38 | | | 25 | | | 1 | | | 1 | | | 0 | |
| Total lease expense | $ | 527 | | | $ | 95 | | | $ | 255 | | | $ | 127 | | | $ | 128 | | | $ | 13 | | | $ | 24 | | | $ | 6 | |
(a) Included in Operations, maintenance and other or, for barges and railcars, Fuel used in electric generation and purchased power on the Consolidated Statements of Operations.
(b) Included in Depreciation and amortization on the Consolidated Statements of Operations.
(c) Included in Interest Expense on the Consolidated Statements of Operations.
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | LEASES |
The following tables presenttable presents rental expense for operating leases.leases, as reported under the former lease standard. These amounts are included in Operation, maintenance and other and Fuel used in electric generation and purchased power on the Consolidated Statements of Operations. |
| | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
|
| Duke Energy | $ | 241 |
| | $ | 242 |
| | $ | 313 |
|
| Duke Energy Carolinas | 44 |
| | 45 |
| | 41 |
|
| Progress Energy | 130 |
| | 140 |
| | 230 |
|
| Duke Energy Progress | 75 |
| | 68 |
| | 149 |
|
| Duke Energy Florida | 55 |
| | 72 |
| | 81 |
|
| Duke Energy Ohio | 15 |
| | 16 |
| | 13 |
|
| Duke Energy Indiana | 23 |
| | 23 |
| | 20 |
|
|
| | | | | | | | | | | | | | | |
| | Year Ended | | Two Months Ended | | Years Ended October 31, |
| (in millions) | December 31, 2017 | | December 31, 2016 | | 2016 |
| | 2015 |
|
| Piedmont | $ | 7 |
| | $ | 1 |
| | $ | 5 |
| | $ | 5 |
|
| | | | | | | |
| Year Ended | | |
| (in millions) | December 31, 2018 | | |
| Duke Energy | $ | 268 | | | |
| Duke Energy Carolinas | 49 | | | |
| Progress Energy | 143 | | | |
| Duke Energy Progress | 75 | | | |
| Duke Energy Florida | 68 | | | |
| Duke Energy Ohio | 13 | | | |
| Duke Energy Indiana | 21 | | | |
| Piedmont | 11 | | | |
| | | |
The following table presents future minimumoperating lease maturities and a reconciliation of the undiscounted cash flows to operating lease liabilities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| 2021 | $ | 229 | | | $ | 24 | | | $ | 99 | | | $ | 44 | | | $ | 55 | | | $ | 2 | | | $ | 5 | | | $ | 5 | |
| 2022 | 212 | | | 22 | | | 95 | | | 40 | | | 55 | | | 2 | | | 4 | | | 5 | |
| 2023 | 202 | | | 20 | | | 95 | | | 41 | | | 54 | | | 2 | | | 4 | | | 5 | |
| 2024 | 186 | | | 14 | | | 95 | | | 41 | | | 54 | | | 2 | | | 4 | | | 5 | |
| 2025 | 162 | | | 10 | | | 85 | | | 31 | | | 54 | | | 2 | | | 4 | | | 5 | |
| Thereafter | 870 | | | 51 | | | 376 | | | 252 | | | 124 | | | 20 | | | 59 | | | — | |
| Total operating lease payments | 1,861 | | | 141 | | | 845 | | | 449 | | | 396 | | | 30 | | | 80 | | | 25 | |
| Less: present value discount | (344) | | | (24) | | | (149) | | | (95) | | | (54) | | | (9) | | | (24) | | | (2) | |
Total operating lease liabilities(a) | $ | 1,517 | | | $ | 117 | | | $ | 696 | | | $ | 354 | | | $ | 342 | | | $ | 21 | | | $ | 56 | | | $ | 23 | |
(a) Certain operating lease payments
under operating leases, which at inception had a non-cancelable term of more than one year.include renewal options that are reasonably certain to be exercised. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| Piedmont |
|
| 2018 | $ | 233 |
| | $ | 36 |
| | $ | 133 |
| | $ | 77 |
| | $ | 56 |
| | $ | 20 |
| | $ | 22 |
| $ | 6 |
|
| 2019 | 203 |
| | 29 |
| | 126 |
| | 72 |
| | 54 |
| | 12 |
| | 14 |
| 5 |
|
| 2020 | 183 |
| | 25 |
| | 117 |
| | 62 |
| | 55 |
| | 10 |
| | 10 |
| 5 |
|
| 2021 | 150 |
| | 19 |
| | 97 |
| | 48 |
| | 49 |
| | 7 |
| | 8 |
| 6 |
|
| 2022 | 135 |
| | 16 |
| | 90 |
| | 42 |
| | 48 |
| | 4 |
| | 5 |
| 6 |
|
| Thereafter | 882 |
| | 52 |
| | 525 |
| | 344 |
| | 181 |
| | 5 |
| | 7 |
| 16 |
|
| Total | $ | 1,786 |
| | $ | 177 |
| | $ | 1,088 |
| | $ | 645 |
| | $ | 443 |
| | $ | 58 |
| | $ | 66 |
| $ | 44 |
|
The following table presents future minimumfinance lease payments under capital leases.maturities and a reconciliation of the undiscounted cash flows to finance lease liabilities. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
| 2018 | $ | 168 |
| | $ | 13 |
| | $ | 46 |
| | $ | 21 |
| | $ | 25 |
| | $ | 3 |
| | $ | 2 |
|
| 2019 | 169 |
| | 13 |
| | 45 |
| | 20 |
| | 25 |
| | 1 |
| | 1 |
|
| 2020 | 174 |
| | 13 |
| | 47 |
| | 21 |
| | 26 |
| | — |
| | 1 |
|
| 2021 | 176 |
| | 8 |
| | 45 |
| | 22 |
| | 25 |
| | — |
| | 1 |
|
| 2022 | 169 |
| | 8 |
| | 45 |
| | 21 |
| | 24 |
| | — |
| | 1 |
|
| Thereafter | 745 |
| | 109 |
| | 323 |
| | 227 |
| | 95 |
| | — |
| | 38 |
|
| Minimum annual payments | 1,601 |
| | 164 |
| | 551 |
| | 332 |
| | 220 |
| | 4 |
| | 44 |
|
| Less: amount representing interest | (601 | ) | | (103 | ) | | (283 | ) | | (192 | ) | | (91 | ) | | — |
| | (33 | ) |
| Total | $ | 1,000 |
| | $ | 61 |
| | $ | 268 |
| | $ | 140 |
| | $ | 129 |
| | $ | 4 |
| | $ | 11 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| | | Duke | | | | Duke | | Duke | | | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | | | Indiana | | |
| 2021 | $ | 186 | | | $ | 38 | | | $ | 68 | | | $ | 43 | | | $ | 25 | | | | | $ | 1 | | | |
| 2022 | 173 | | | 38 | | | 68 | | | 43 | | | 25 | | | | | 1 | | | |
| 2023 | 174 | | | 38 | | | 68 | | | 43 | | | 25 | | | | | 1 | | | |
| 2024 | 119 | | | 38 | | | 52 | | | 43 | | | 9 | | | | | 1 | | | |
| 2025 | 51 | | | 38 | | | 48 | | | 43 | | | 5 | | | | | 1 | | | |
| Thereafter | 762 | | | 502 | | | 481 | | | 475 | | | 6 | | | | | 26 | | | |
| Total finance lease payments | 1,465 | | | 692 | | | 785 | | | 690 | | | 95 | | | | | 31 | | | |
| Less: amounts representing interest | (620) | | | (398) | | | (408) | | | (394) | | | (14) | | | | | (21) | | | |
| Total finance lease liabilities | $ | 845 | | | $ | 294 | | | $ | 377 | | | $ | 296 | | | $ | 81 | | | | | $ | 10 | | | |
| | | | | |
| FINANCIAL STATEMENTS | LEASES |
The following tables contain additional information related to leases.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Classification | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Assets | | | | | | | | | | | | | | | | |
| Operating | Operating lease ROU assets, net | $ | 1,524 | | | $ | 110 | | | $ | 690 | | | $ | 346 | | | $ | 344 | | | $ | 20 | | | $ | 55 | | | $ | 20 | |
| Finance | Net property, plant and equipment | 797 | | | 312 | | | 416 | | | 297 | | | 119 | | | — | | | 7 | | | — | |
| Total lease assets | | $ | 2,321 | | | $ | 422 | | | $ | 1,106 | | | $ | 643 | | | $ | 463 | | | $ | 20 | | | $ | 62 | | | $ | 20 | |
| Liabilities | | | | | | | | | | | | | | | | |
| Current | | | | | | | | | | | | | | | | |
| Operating | Other current liabilities | $ | 177 | | | $ | 20 | | | $ | 73 | | | $ | 31 | | | $ | 42 | | | $ | 1 | | | $ | 3 | | | $ | 4 | |
| Finance | Current maturities of long-term debt | 129 | | | 5 | | | 26 | | | 7 | | | 19 | | | — | | | — | | | — | |
| Noncurrent | | | | | | | | | | | | | | | | |
| Operating | Operating lease liabilities | 1,340 | | | 97 | | | 623 | | | 323 | | | 300 | | | 20 | | | 53 | | | 19 | |
| Finance | Long-Term Debt | 716 | | | 289 | | | 351 | | | 289 | | | 62 | | | — | | | 10 | | | — | |
| Total lease liabilities | | $ | 2,362 | | | $ | 411 | | | $ | 1,073 | | | $ | 650 | | | $ | 423 | | | $ | 21 | | | $ | 66 | | | $ | 23 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 |
| | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Classification | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Assets | | | | | | | | | | | | | | | | |
| Operating | Operating lease ROU assets, net | $ | 1,658 | | | $ | 123 | | | $ | 788 | | | $ | 387 | | | $ | 401 | | | $ | 21 | | | $ | 57 | | | $ | 24 | |
| Finance | Net property, plant and equipment | 926 | | | 198 | | | 443 | | | 308 | | | 135 | | | — | | | 7 | | | — | |
| Total lease assets | | $ | 2,584 | | | $ | 321 | | | $ | 1,231 | | | $ | 695 | | | $ | 536 | | | $ | 21 | | | $ | 64 | | | $ | 24 | |
| Liabilities | | | | | | | | | | | | | | | | |
| Current | | | | | | | | | | | | | | | | |
| Operating | Other current liabilities | $ | 208 | | | $ | 27 | | | $ | 95 | | | $ | 37 | | | $ | 58 | | | $ | 1 | | | $ | 3 | | | $ | 4 | |
| Finance | Current maturities of long-term debt | 119 | | | 7 | | | 24 | | | 6 | | | 18 | | | — | | | — | | | — | |
| Noncurrent | | | | | | | | | | | | | | | | |
| Operating | Operating lease liabilities | 1,432 | | | 102 | | | 697 | | | 354 | | | 343 | | | 21 | | | 55 | | | 23 | |
| Finance | Long-Term Debt | 850 | | | 172 | | | 381 | | | 301 | | | 80 | | | — | | | 10 | | | — | |
| Total lease liabilities | | $ | 2,609 | | | $ | 308 | | | $ | 1,197 | | | $ | 698 | | | $ | 499 | | | $ | 22 | | | $ | 68 | | | $ | 27 | |
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | LEASES |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Cash paid for amounts included in the measurement of lease liabilities(a) | | | | | | | | | | | | | | | |
| Operating cash flows from operating leases | $ | 271 | | | $ | 31 | | | $ | 124 | | | $ | 52 | | | $ | 72 | | | $ | 2 | | | $ | 6 | | | $ | 5 | |
| Operating cash flows from finance leases | 61 | | | 30 | | | 44 | | | 37 | | | 7 | | | — | | | — | | | — | |
| Financing cash flows from finance leases | 119 | | | 8 | | | 24 | | | 6 | | | 18 | | | — | | | 1 | | | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Lease assets obtained in exchange for new lease liabilities (non-cash) | | | | | | | | | | | | | | | |
Operating(b) | $ | 116 | | | $ | 17 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1 | | | $ | — | |
| Finance | 125 | | | 125 | | | — | | | — | | | — | | | — | | | — | | | — | |
(a) No amounts were classified as investing cash flows from operating leases for the year ended December 31, 2020.
(b) Does not include ROU assets recorded as a result of the adoption of the new lease standard.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Cash paid for amounts included in the measurement of lease liabilities(a) | | | | | | | | | | | | | | | |
| Operating cash flows from operating leases | $ | 285 | | | $ | 34 | | | $ | 131 | | | $ | 53 | | | $ | 78 | | | $ | 2 | | | $ | 7 | | | $ | 7 | |
| Operating cash flows from finance leases | 61 | | | 15 | | | 42 | | | 33 | | | 9 | | | — | | | 1 | | | — | |
| Financing cash flows from finance leases | 111 | | | 6 | | | 21 | | | 5 | | | 16 | | | 1 | | | — | | | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Lease assets obtained in exchange for new lease liabilities (non-cash) | | | | | | | | | | | | | | | |
Operating(b) | $ | 194 | | | $ | 44 | | | $ | 30 | | | $ | 30 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1 | |
| Finance | 251 | | | 76 | | | 175 | | | 175 | | | — | | | — | | | — | | | — | |
(a) No amounts were classified as investing cash flows from operating leases for the year ended December 31, 2019.
(b) Does not include ROU assets recorded as a result of the adoption of the new lease standard.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Weighted average remaining lease term (years) | | | | | | | | | | | | | | | |
| Operating leases | 10 | | 9 | | 10 | | 12 | | 8 | | 17 | | 18 | | 5 |
| Finance leases | 13 | | 19 | | 15 | | 17 | | 11 | | — | | | 25 | | — | |
Weighted average discount rate(a) | | | | | | | | | | | | | | | |
| Operating leases | 3.8 | % | | 3.4 | % | | 3.8 | % | | 3.9 | % | | 3.8 | % | | 4.2 | % | | 4.2 | % | | 3.6 | % |
| Finance leases | 8.4 | % | | 11.6 | % | | 11.9 | % | | 12.4 | % | | 8.2 | % | | 0 | % | | 11.9 | % | | 0 | % |
(a) The discount rate is calculated using the rate implicit in a lease if it is readily determinable. Generally, the rate used by the lessor is not provided to Duke Energy and in these cases the incremental borrowing rate is used. Duke Energy will typically use its fully collateralized incremental borrowing rate as of the commencement date to calculate and record the lease. The incremental borrowing rate is influenced by the lessee’s credit rating and lease term and as such may differ for individual leases, embedded leases or portfolios of leased assets.
| | | | | |
| FINANCIAL STATEMENTS | LEASES |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Weighted average remaining lease term (years) | | | | | | | | | | | | | | | |
| Operating leases | 11 | | 9 | | 10 | | 12 | | 8 | | 17 | | 18 | | 6 |
| Finance leases | 13 | | 19 | | 16 | | 18 | | 11 | | — | | | 26 | | — | |
Weighted average discount rate(a) | | | | | | | | | | | | | | | |
| Operating leases | 3.9 | % | | 3.5 | % | | 3.8 | % | | 3.9 | % | | 3.8 | % | | 4.2 | % | | 4.1 | % | | 3.6 | % |
| Finance leases | 8.1 | % | | 11.8 | % | | 11.9 | % | | 12.4 | % | | 8.3 | % | | 0 | % | | 11.9 | % | | 0 | % |
(a) The discount rate is calculated using the rate implicit in a lease if it is readily determinable. Generally, the rate used by the lessor is not provided to Duke Energy and in these cases the incremental borrowing rate is used. Duke Energy will typically use its fully collateralized incremental borrowing rate as of the commencement date to calculate and record the lease. The incremental borrowing rate is influenced by the lessee’s credit rating and lease term and as such may differ for individual leases, embedded leases or portfolios of leased assets.
6. DEBT AND CREDIT FACILITIES
Summary of Debt and Related Terms
The following tables summarize outstanding debt.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| Weighted | | | | | | | | | |
| Average | | | Duke | | Duke | Duke | Duke | Duke | |
| Interest | | Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
| (in millions) | Rate | | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Unsecured debt, maturing 2021-2078 | 3.71 | % | | $ | 23,669 | | $ | 1,150 | | $ | 3,150 | | $ | 700 | | $ | 350 | | $ | 1,180 | | $ | 403 | | $ | 2,800 | |
| Secured debt, maturing 2021-2052 | 2.67 | % | | 4,270 | | 543 | | 1,584 | | 252 | | 1,332 | | — | | — | | — | |
First mortgage bonds, maturing 2021-2050(a) | 4.00 | % | | 29,177 | | 10,008 | | 14,100 | | 7,875 | | 6,225 | | 1,850 | | 3,219 | | — | |
Finance leases, maturing 2022-2051(b) | 6.96 | % | | 845 | | 294 | | 377 | | 296 | | 81 | | — | | 10 | | — | |
| | | | | | | | | | |
Tax-exempt bonds, maturing 2027-2041(c) | 0.75 | % | | 477 | | — | | 48 | | 48 | | — | | 77 | | 352 | | — | |
Notes payable and commercial paper(d) | 0.51 | % | | 3,407 | | — | | — | | — | | — | | — | | — | | — | |
| Money pool/intercompany borrowings | | | 0 | | 806 | | 3,119 | | 445 | | 196 | | 194 | | 281 | | 530 | |
| Fair value hedge carrying value adjustment | | | 4 | | 4 | | — | | — | | — | | — | | — | | — | |
Unamortized debt discount and premium, net(e) | | | 1,217 | | (20) | | (31) | | (19) | | (11) | | (29) | | (18) | | (5) | |
Unamortized debt issuance costs(f) | | | (330) | | (62) | | (113) | | (44) | | (62) | | (14) | | (25) | | (15) | |
| Total debt | 3.62 | % | | $ | 62,736 | | $ | 12,723 | | $ | 22,234 | | $ | 9,553 | | $ | 8,111 | | $ | 3,258 | | $ | 4,222 | | $ | 3,310 | |
| Short-term notes payable and commercial paper | | | (2,873) | | — | | — | | — | | — | | — | | — | | — | |
| Short-term money pool/intercompany borrowings | | | — | | (506) | | (2,969) | | (295) | | (196) | | (169) | | (131) | | (530) | |
Current maturities of long-term debt(g) | | | (4,238) | | (506) | | (1,426) | | (603) | | (823) | | (50) | | (70) | | (160) | |
Total long-term debt(g) | | | $ | 55,625 | | $ | 11,711 | | $ | 17,839 | | $ | 8,655 | | $ | 7,092 | | $ | 3,039 | | $ | 4,021 | | $ | 2,620 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | Weighted |
| | | | | | | | | |
| | Average |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| | Interest |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
| (in millions) | Rate |
| | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
| Unsecured debt, maturing 2018-2073 | 4.17 | % | | $ | 20,409 |
| $ | 1,150 |
| $ | 3,950 |
| $ | — |
| $ | 550 |
| $ | 900 |
| $ | 411 |
| $ | 2,050 |
|
| Secured debt, maturing 2018-2037 | 3.15 | % | | 4,458 |
| 450 |
| 1,757 |
| 300 |
| 1,457 |
| — |
| — |
| — |
|
First mortgage bonds, maturing 2018-2047(a) | 4.51 | % | | 23,529 |
| 7,959 |
| 11,801 |
| 6,776 |
| 5,025 |
| 1,100 |
| 2,669 |
| — |
|
Capital leases, maturing 2018-2051(b) | 4.55 | % | | 1,000 |
| 61 |
| 269 |
| 139 |
| 129 |
| 5 |
| 11 |
| — |
|
Tax-exempt bonds, maturing 2019-2041(c) | 3.23 | % | | 941 |
| 243 |
| 48 |
| 48 |
| — |
| 77 |
| 572 |
| — |
|
Notes payable and commercial paper(d) | 1.57 | % | | 2,788 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Money pool/intercompany borrowings | | | — |
| 404 |
| 955 |
| 390 |
| — |
| 54 |
| 311 |
| 364 |
|
| Fair value hedge carrying value adjustment | | | 6 |
| 6 |
| — |
| — |
| — |
| — |
| — |
| — |
|
Unamortized debt discount and premium, net(e) | | | 1,582 |
| (19 | ) | (30 | ) | (16 | ) | (10 | ) | (33 | ) | (9 | ) | (1 | ) |
Unamortized debt issuance costs(f) | | | (271 | ) | (47 | ) | (108 | ) | (40 | ) | (56 | ) | (7 | ) | (21 | ) | (12 | ) |
| Total debt | 4.09 | % | | $ | 54,442 |
| $ | 10,207 |
| $ | 18,642 |
| $ | 7,597 |
| $ | 7,095 |
| $ | 2,096 |
| $ | 3,944 |
| $ | 2,401 |
|
| Short-term notes payable and commercial paper | | | (2,163 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Short-term money pool/intercompany borrowings | | | — |
| (104 | ) | (805 | ) | (240 | ) | — |
| (29 | ) | (161 | ) | (364 | ) |
Current maturities of long-term debt(g) | | | (3,244 | ) | (1,205 | ) | (771 | ) | (3 | ) | (768 | ) | (3 | ) | (3 | ) | (250 | ) |
Total long-term debt(g) |
| | $ | 49,035 |
| $ | 8,898 |
| $ | 17,066 |
| $ | 7,354 |
| $ | 6,327 |
| $ | 2,064 |
| $ | 3,780 |
| $ | 1,787 |
|
| | | | | |
(a)FINANCIAL STATEMENTS | Substantially all electric utility property is mortgaged under mortgage bond indentures.DEBT AND CREDIT FACILITIES |
(a)Substantially all electric utility property is mortgaged under mortgage bond indentures.
(b)Duke Energy includes $24 million and $341 million of finance lease purchase accounting adjustments related to Duke Energy Progress and Duke Energy Florida, respectively, related to PPAs that are not accounted for as finance leases in their respective financial statements because of grandfathering provisions in GAAP.
(c)Substantially all tax-exempt bonds are secured by first mortgage bonds, letters of credit or the Master Credit Facility.
(d)Includes $625 million 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 23 days.
(e)Duke Energy includes $1,196 million and $117 million in purchase accounting adjustments related to Progress Energy and Piedmont, respectively.
(f)Duke Energy includes $33 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 |
| Weighted | | | | | | | | | |
| Average | | | Duke | | Duke | Duke | Duke | Duke | |
| Interest | | Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
| (in millions) | Rate | | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Unsecured debt, maturing 2020-2078 | 4.02 | % | | $ | 22,477 | | $ | 1,150 | | $ | 3,650 | | $ | 700 | | $ | 350 | | $ | 1,110 | | $ | 405 | | $ | 2,399 | |
| Secured debt, maturing 2020-2052 | 3.30 | % | | 4,537 | | 544 | | 1,722 | | 335 | | 1,387 | | — | | — | | — | |
First mortgage bonds, maturing 2020-2049(a) | 4.13 | % | | 27,977 | | 9,557 | | 13,800 | | 7,575 | | 6,225 | | 1,449 | | 3,169 | | — | |
Finance leases, maturing 2022-2051(b) | 6.60 | % | | 969 | | 179 | | 405 | | 307 | | 98 | | — | | 10 | | — | |
| | | | | | | | | | |
Tax-exempt bonds, maturing 2022-2041(c) | 2.90 | % | | 730 | | 243 | | 48 | | 48 | | — | | 77 | | 362 | | — | |
Notes payable and commercial paper(d) | 1.98 | % | | 3,588 | | — | | — | | — | | — | | — | | — | | — | |
| Money pool/intercompany borrowings | | | — | | 329 | | 1,970 | | 216 | | — | | 337 | | 180 | | 476 | |
| Fair value hedge carrying value adjustment | | | 5 | | 5 | | — | | — | | — | | — | | — | | — | |
Unamortized debt discount and premium, net(e) | | | 1,294 | | (23) | | (29) | | (17) | | (11) | | (30) | | (19) | | (2) | |
Unamortized debt issuance costs(f) | | | (316) | | (55) | | (111) | | (40) | | (62) | | (12) | | (20) | | (13) | |
| Total debt | 3.92 | % | | $ | 61,261 | | $ | 11,929 | | $ | 21,455 | | $ | 9,124 | | $ | 7,987 | | $ | 2,931 | | $ | 4,087 | | $ | 2,860 | |
| Short-term notes payable and commercial paper | | | (3,135) | | — | | — | | — | | — | | — | | — | | — | |
| Short-term money pool/intercompany borrowings | | | — | | (29) | | (1,821) | | (66) | | — | | (312) | | (30) | | (476) | |
Current maturities of long-term debt(g) | | | (3,141) | | (458) | | (1,577) | | (1,006) | | (571) | | — | | (503) | | — | |
Total long-term debt(g) | | | $ | 54,985 | | $ | 11,442 | | $ | 18,057 | | $ | 8,052 | | $ | 7,416 | | $ | 2,619 | | $ | 3,554 | | $ | 2,384 | |
(a) Substantially all electric utility property is mortgaged under mortgage bond indentures.
(b) Duke Energy includes $44 million and $419 million of finance lease purchase accounting adjustments related to Duke Energy Progress and Duke Energy Florida, respectively, related to PPAs that are not accounted for as finance leases in their respective financial statements because of grandfathering provisions in GAAP.
(c) Substantially all tax-exempt bonds are secured by first mortgage bonds, letters of credit or the Master Credit Facility.
(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 programs was 14 days.
(e) Duke Energy includes $1,275 million and $137 million in purchase accounting adjustments related to Progress Energy and Piedmont, respectively.
(f) Duke Energy includes $37 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.
| | | | | |
(b)FINANCIAL STATEMENTS | 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.DEBT AND CREDIT FACILITIES |
| |
(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. |
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 – (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Weighted |
| | | | | | | | | |
| | Average |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| | Interest |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
| (in millions) | Rate |
| | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
| Unsecured debt, maturing 2017-2073 | 4.30 | % | | $ | 17,812 |
| $ | 1,150 |
| $ | 3,551 |
| $ | — |
| $ | 150 |
| $ | 810 |
| $ | 415 |
| $ | 1,835 |
|
| Secured debt, maturing 2017-2037 | 2.60 | % | | 3,909 |
| 425 |
| 1,819 |
| 300 |
| 1,519 |
| — |
| — |
| — |
|
First mortgage bonds, maturing 2017-2046(a) | 4.61 | % | | 21,879 |
| 7,410 |
| 10,800 |
| 6,425 |
| 4,375 |
| 1,000 |
| 2,669 |
| — |
|
Capital leases, maturing 2018-2051(b) | 4.48 | % | | 1,100 |
| 22 |
| 285 |
| 142 |
| 143 |
| 7 |
| 11 |
| — |
|
Tax-exempt bonds, maturing 2017-2041(c) | 2.84 | % | | 1,053 |
| 355 |
| 48 |
| 48 |
| — |
| 77 |
| 572 |
| — |
|
Notes payable and commercial paper(d) | 1.01 | % | | 3,112 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Money pool/intercompany borrowings(e) | | | — |
| 300 |
| 1,902 |
| 150 |
| 297 |
| 41 |
| 150 |
| — |
|
| Fair value hedge carrying value adjustment | | | 6 |
| 6 |
| — |
| — |
| — |
| — |
| — |
| — |
|
Unamortized debt discount and premium, net(f) | | | 1,753 |
| (20 | ) | (31 | ) | (16 | ) | (10 | ) | (28 | ) | (9 | ) | (1 | ) |
Unamortized debt issuance costs(g) | | | (242 | ) | (45 | ) | (104 | ) | (38 | ) | (52 | ) | (7 | ) | (22 | ) | (13 | ) |
| Total debt | 4.07 | % | | $ | 50,382 |
| $ | 9,603 |
| $ | 18,270 |
| $ | 7,011 |
| $ | 6,422 |
| $ | 1,900 |
| $ | 3,786 |
| $ | 1,821 |
|
| Short-term notes payable and commercial paper | | | (2,487 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Short-term money pool/intercompany borrowings | | | — |
| — |
| (729 | ) | — |
| (297 | ) | (16 | ) | — |
| — |
|
Current maturities of long-term debt(h) | | | (2,319 | ) | (116 | ) | (778 | ) | (452 | ) | (326 | ) | (1 | ) | (3 | ) | (35 | ) |
Total long-term debt(h) |
| | $ | 45,576 |
| $ | 9,487 |
| $ | 16,763 |
| $ | 6,559 |
| $ | 5,799 |
| $ | 1,883 |
| $ | 3,783 |
| $ | 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) | Maturity Date | | Interest Rate |
| | December 31, 2017 |
| (in millions) | Maturity Date | | Interest Rate | | December 31, 2020 |
| Unsecured Debt | | | | | |
Unsecured Debt(a) | | Unsecured Debt(a) | |
| | Duke Energy (Parent) | | Duke Energy (Parent) | May 2021 | | 0.721 | % | (b) | $ | 500 | |
| Piedmont | | Piedmont | June 2021 | | 4.240 | % | | 160 | |
| Duke Energy (Parent) | June 2018 | | 6.250 | % | | $ | 250 |
| Duke Energy (Parent) | September 2021 | | 3.550 | % | | 500 | |
| Duke Energy (Parent) | June 2018 | | 2.100 | % | | 500 |
| Duke Energy (Parent) | September 2021 | | 1.800 | % | | 750 | |
| Piedmont | December 2018 | | 2.286 | % | (b) | 250 |
| |
| Duke Energy Florida | | Duke Energy Florida | November 2021 | | 0.482 | % | (b) | 200 | |
| Secured Debt | | Secured Debt | |
| Duke Energy Florida | | Duke Energy Florida | April 2021 | | 0.972 | % | (b) | 250 | |
| First Mortgage Bonds | | | | | First Mortgage Bonds | |
| Duke Energy Carolinas | January 2018 | | 5.250 | % | | 400 |
| Duke Energy Carolinas | June 2021 | | 3.900 | % | | 500 | |
| Duke Energy Carolinas | April 2018 | | 5.100 | % | | 300 |
| |
| Duke Energy Florida | June 2018 | | 5.650 | % | | 500 |
| Duke Energy Florida | August 2021 | | 3.100 | % | | 300 | |
| Duke Energy Carolinas | November 2018 | | 7.000 | % | | 500 |
| |
Other(a) | | | | 544 |
| |
| Duke Energy Progress | | Duke Energy Progress | September 2021 | | 3.000 | % | | 500 | |
| Duke Energy Progress | | Duke Energy Progress | September 2021 | | 8.625 | % | | 100 | |
Other(c) | | Other(c) | | 478 | |
| Current maturities of long-term debt | | | | $ | 3,244 |
| Current maturities of long-term debt | | $ | 4,238 | |
(a) During October 2020, Progress Energy early retired $500 million of unsecured debt with an original maturity of January 15, 2021.
PART II(b) Debt has a floating interest rate.
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –(c) Includes finance lease obligations, amortizing debt and small bullet maturities.
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) | Includes capital lease obligations, amortizing debt and small bullet maturities. |
| |
(b) | Debt has a floating interest rate. |
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 and debt issuance costs for the Subsidiary Registrants. | | | | December 31, 2017 | | December 31, 2020 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | | | | Duke | | Duke | | Duke | | Duke | | Duke | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | | | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | |
| (in millions) | Energy(a) |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
| (in millions) | Energy(a) | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| 2018 | $ | 3,244 |
| | $ | 1,205 |
| | $ | 771 |
| | $ | 3 |
| | $ | 768 |
| | $ | 3 |
| | $ | 3 |
| | $ | 250 |
| |
| 2019 | 3,563 |
| | 6 |
| | 2,191 |
| | 903 |
| | 490 |
| | 548 |
| | 61 |
| | — |
| |
| 2020 | 3,699 |
| | 906 |
| | 871 |
| | 304 |
| | 568 |
| | — |
| | 502 |
| | — |
| |
| 2021 | 3,760 |
| | 502 |
| | 1,472 |
| | 602 |
| | 371 |
| | 48 |
| | 69 |
| | 159 |
| 2021 | $ | 4,238 | | | $ | 506 | | | $ | 1,426 | | | $ | 603 | | | $ | 823 | | | $ | 50 | | | $ | 70 | | | $ | 160 | |
| 2022 | 3,010 |
| | 302 |
| | 1,176 |
| | 653 |
| | 74 |
| | 23 |
| | 243 |
| | — |
| 2022 | 4,905 | | | 721 | | | 1,736 | | | 1,208 | | | 78 | | | — | | | 84 | | | — | |
| 2023 | | 2023 | 3,356 | | | 1,008 | | | 638 | | | 561 | | | 77 | | | 325 | | | 3 | | | 45 | |
| 2024 | | 2024 | 1,344 | | | 9 | | | 76 | | | 10 | | | 66 | | | — | | | 4 | | | 40 | |
| 2025 | | 2025 | 3,153 | | | 310 | | | 725 | | | 661 | | | 64 | | | 270 | | | 154 | | | 205 | |
| Thereafter | 33,271 |
| | 7,182 |
| | 11,356 |
| | 4,892 |
| | 4,824 |
| | 1,445 |
| | 2,905 |
| | 1,628 |
| Thereafter | 41,983 | | | 9,745 | | | 14,802 | | | 6,274 | | | 6,878 | | | 2,486 | | | 3,818 | | | 2,350 | |
| Total long-term debt, including current maturities | $ | 50,547 |
|
| $ | 10,103 |
|
| $ | 17,837 |
|
| $ | 7,357 |
|
| $ | 7,095 |
|
| $ | 2,067 |
|
| $ | 3,783 |
| | $ | 2,037 |
| Total long-term debt, including current maturities | $ | 58,979 | | | $ | 12,299 | | | $ | 19,403 | | | $ | 9,317 | | | $ | 7,986 | | | $ | 3,131 | | | $ | 4,133 | | | $ | 2,800 | |
| |
(a) | Excludes $1,732 million in purchase accounting adjustments related to the Progress Energy merger and the Piedmont acquisition. |
(a) Excludes $1,346 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.
| | | | | |
| FINANCIAL STATEMENTS | DEBT AND CREDIT FACILITIES |
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 termlong-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. |
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| | Duke |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
| (in millions) | Energy |
| | Carolinas |
| | Progress |
| | Ohio |
| | Indiana |
|
| Tax-exempt bonds | $ | 312 |
| | $ | — |
| | $ | — |
| | $ | 27 |
| | $ | 285 |
|
Commercial paper(a) | 625 |
| | 300 |
| | 150 |
| | 25 |
| | 150 |
|
| Total | $ | 937 |
|
| $ | 300 |
| | $ | 150 |
|
| $ | 52 |
|
| $ | 435 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| | Duke |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
| (in millions) | Energy |
| | Carolinas |
| | Progress |
| | Ohio |
| | Indiana |
|
| Tax-exempt bonds | $ | 347 |
| | $ | 35 |
| | $ | — |
| | $ | 27 |
| | $ | 285 |
|
Commercial paper(a) | 625 |
| | 300 |
| | 150 |
| | 25 |
| | 150 |
|
| Total | $ | 972 |
|
| $ | 335 |
|
| $ | 150 |
| | $ | 52 |
|
| $ | 435 |
|
| |
(a) | Progress Energy amounts are equal to Duke Energy Progress amounts. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | | Duke | | Duke | | Duke | | Duke |
| Duke | | Energy | | Energy | | Energy | | Energy |
| (in millions) | Energy | | Carolinas | | Progress | | Ohio | | Indiana |
| Tax-exempt bonds | $ | 312 | | | $ | — | | | $ | — | | | $ | 27 | | | $ | 285 | |
Commercial paper(a) | 625 | | | 300 | | | 150 | | | 25 | | | 150 | |
| | | | | | | | | |
| Total | $ | 937 | | | $ | 300 | | | $ | 150 | | | $ | 52 | | | $ | 435 | |
PART II | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 |
| | | Duke | | Duke | | Duke | | Duke |
| Duke | | Energy | | Energy | | Energy | | Energy |
| (in millions) | Energy | | Carolinas | | Progress | | Ohio | | Indiana |
| Tax-exempt bonds | $ | 312 | | | $ | — | | | $ | — | | | $ | 27 | | | $ | 285 | |
Commercial paper(a) | 625 | | | 300 | | | 150 | | | 25 | | | 150 | |
| | | | | | | | | |
| Total | $ | 937 | | | $ | 300 | | | $ | 150 | | | $ | 52 | | | $ | 435 | |
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –(a) Progress Energy amounts are equal to Duke Energy Progress amounts.
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). |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, 2017 |
| | | | | | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| | Maturity | | Interest |
| | Duke |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
| Issuance Date | Date | | Rate |
| | Energy |
| | (Parent) |
| | Carolinas |
| | Progress |
| | Florida |
| | Ohio |
|
| Unsecured Debt | | | | | | | | | | | | | | | |
April 2017(a) | April 2025 | | 3.364 | % | | $ | 420 |
| | $ | 420 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
June 2017(b) | June 2020 | | 2.100 | % | | 330 |
| | 330 |
| | — |
| | — |
| | — |
| | — |
|
August 2017(c) | August 2022 | | 2.400 | % | | 500 |
| | 500 |
| | — |
| | — |
| | — |
| | — |
|
August 2017(c) | August 2027 | | 3.150 | % | | 750 |
| | 750 |
| | — |
| | — |
| | — |
| | — |
|
August 2017(c) | August 2047 | | 3.950 | % | | 500 |
| | 500 |
| | — |
| | — |
| | — |
| | — |
|
December 2017(d) | December 2019 | (k) | 2.100 | % | | 400 |
| | — |
| | — |
| | — |
| | 400 |
| | — |
|
| Secured Debt | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | |
February 2017(e) | June 2034 | | 4.120 | % | | 587 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
August 2017(f) | December 2036 | | 4.110 | % | | 233 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| First Mortgage Bonds | | |
| |
|
| | | | | | | |
| | |
January 2017(g) | January 2020 | | 1.850 | % | | 250 |
| | — |
| | — |
| | — |
| | 250 |
| | — |
|
January 2017(g) | January 2027 | | 3.200 | % | | 650 |
| | — |
| | — |
| | — |
| | 650 |
| | — |
|
March 2017(h) | June 2046 | | 3.700 | % | | 100 |
| | — |
| | — |
| | — |
| | — |
| | 100 |
|
September 2017(i) | September 2020 | | 1.500 | % | (l) | 300 |
| | — |
| | — |
| | 300 |
| | — |
| | — |
|
September 2017(i) | September 2047 | | 3.600 | % | | 500 |
| | — |
| | — |
| | 500 |
| | — |
| | — |
|
November 2017(j) | December 2047 | | 3.700 | % | | 550 |
| | — |
| | 550 |
| | — |
| | — |
| | — |
|
| Total issuances | | | | | $ | 6,070 |
| | $ | 2,500 |
|
| $ | 550 |
| | $ | 800 |
| | $ | 1,300 |
| | $ | 100 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, 2020 |
| | | | | | | Duke | | Duke | | Duke | | Duke | | Duke | | Duke | | |
| Maturity | | Interest | | Duke | | Energy | | Energy | | Energy | | Energy | | Energy | | Energy | | |
| Issuance Date | Date | | Rate | | Energy | | (Parent) | | Carolinas | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Unsecured Debt | | | | | | | | | | | | | | | | | | | |
May 2020(a) | Jun 2030 | | 2.450 | % | | $ | 500 | | | $ | 500 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
May 2020(b) | Jun 2050 | | 3.350 | % | | 400 | | | — | | | — | | | — | | | — | | | — | | | — | | | 400 | |
August 2020(c) | Feb 2022 | | 0.400 | % | (d) | 700 | | | — | | | — | | | 700 | | | — | | | — | | | — | | | — | |
September 2020(e) | Sep 2025 | | 0.900 | % | | 650 | | | 650 | | | — | | | — | | | — | | | — | | | — | | | — | |
September 2020(e) | Jun 2030 | | 2.450 | % | | 350 | | | 350 | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| First Mortgage Bonds | | | | | | | | | | | | | | | | | | |
January 2020(f) | Feb 2030 | | 2.450 | % | | 500 | | | — | | | 500 | | | — | | | — | | | — | | | — | | | — | |
January 2020(f) | Aug 2049 | | 3.200 | % | | 400 | | | — | | | 400 | | | — | | | — | | | — | | | — | | | — | |
March 2020(g) | Apr 2050 | | 2.750 | % | | 550 | | | — | | | — | | | — | | | — | | | — | | | 550 | | | — | |
May 2020(b) | Jun 2030 | | 2.125 | % |
| 400 | | | — | | | — | | | — | | | — | | | 400 | | | — | | | — | |
June 2020(b) | Jun 2030 | | 1.750 | % | | 500 | | | — | | | — | | | — | | | 500 | | | — | | | — | | | — | |
August 2020(h) | Aug 2050 | | 2.500 | % | | 600 | | | — | | | — | | | 600 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | |
| Total issuances | | | | | $ | 5,550 | | | $ | 1,500 | | | $ | 900 | | | $ | 1,300 | | | $ | 500 | | | $ | 400 | | | $ | 550 | | | $ | 400 | |
| |
(a) | Proceeds were used to refinance $400 million of unsecured debt at maturity and to repay a portion of outstanding commercial paper. |
| |
(b) | (a)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. |
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 – (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, 2016 |
| | | | | | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| | Maturity | | Interest |
| | Duke |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
| Issuance Date | Date | | Rate |
| | Energy |
| | (Parent) |
| | Carolinas |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
| Unsecured Debt | | | | | | | | | | | | | | | | | |
April 2016(a) | April 2023 | | 2.875 | % | | $ | 350 |
| | $ | 350 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
August 2016(b) | September 2021 | | 1.800 | % | | 750 |
| | 750 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
August 2016(b) | September 2026 | | 2.650 | % | | 1,500 |
| | 1,500 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
August 2016(b) | September 2046 | | 3.750 | % | | 1,500 |
| | 1,500 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Secured Debt | | | | | | | | | | | | | | |
|
| | |
June 2016(c) | March 2020 | | 1.196 | % | | 183 |
| | — |
| | — |
| | — |
| | 183 |
| | — |
| | — |
|
June 2016(c) | September 2022 | | 1.731 | % | | 150 |
| | — |
| | — |
| | — |
| | 150 |
| | — |
| | — |
|
June 2016(c) | September 2029 | | 2.538 | % | | 436 |
| | — |
| | — |
| | — |
| | 436 |
| | — |
| | — |
|
June 2016(c) | March 2033 | | 2.858 | % | | 250 |
| | — |
| | — |
| | — |
| | 250 |
| | — |
| | — |
|
June 2016(c) | September 2036 | | 3.112 | % | | 275 |
| | — |
| | — |
| | — |
| | 275 |
| | — |
| | — |
|
August 2016(d) | June 2034 | | 2.747 | % | (i) | 228 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
August 2016(d) | June 2020 | | 2.747 | % | (i) | 105 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| First Mortgage Bonds | | | | | | | | | | | | | | |
|
| | |
March 2016(e) | March 2023 | | 2.500 | % | | 500 |
| | — |
| | 500 |
| | — |
| | — |
| | — |
| | — |
|
March 2016(e) | March 2046 | | 3.875 | % | | 500 |
| | — |
| | 500 |
| | — |
| | — |
| | — |
| | — |
|
May 2016(f) | May 2046 | | 3.750 | % | | 500 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 500 |
|
June 2016(e) | June 2046 | | 3.700 | % | | 250 |
| | — |
| | — |
| | — |
| | — |
| | 250 |
| | — |
|
September 2016(g) | October 2046 | | 3.400 | % | | 600 |
| | — |
| | — |
| | — |
| | 600 |
| | — |
| | — |
|
September 2016(e) | October 2046 | | 3.700 | % | | 450 |
| | — |
| | — |
| | 450 |
| | — |
| | — |
| | — |
|
November 2016(h) | December 2046 | | 2.950 | % | | 600 |
| | — |
| | 600 |
| | — |
| | — |
| | — |
| | — |
|
| Total issuances | | | | | $ | 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. |
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 – (Continued)
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$500 million borrowing made under Piedmont's commercial paper programDuke Energy (Parent) revolving credit facility in March 2020, and for general corporate purposes.
Available(b)Debt issued to repay short-term debt and for general corporate purposes.
(c)Debt issued to repay $700 million term loan due December 2020.
(d)Debt issuance has a floating interest rate.
(e)Debt issued to repay a portion of outstanding commercial paper, to repay a portion of Duke Energy (Parent)'s outstanding $1.7 billion term loan due March 2021 and for general corporate purposes.
(f)Debt issued to repay at maturity $450 million first mortgage bonds due June 2020 and for general corporate purposes.
(g)Debt issued to repay at maturity $500 million first mortgage bonds due July 2020 and to pay down short-term debt.
(h)Debt issued to repay at maturity $300 million first mortgage bonds due September 2020 and for general corporate purposes.
| | | | | |
| FINANCIAL STATEMENTS | DEBT AND CREDIT FACILITIES |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, 2019 |
| | | | | | | Duke | | Duke | | Duke | | Duke | | Duke | | Duke | | |
| Maturity | | Interest | | Duke | | Energy | | Energy | | Energy | | Energy | | Energy | | Energy | | |
| Issuance Date | Date | | Rate | | Energy | | (Parent) | | Carolinas | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Unsecured Debt | | | | | | | | | | | | | | | | | | | |
March 2019(a) | Mar 2022 | | 2.538 | % | (b) | $ | 300 | | | $ | 300 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
March 2019(a) | Mar 2022 | | 3.227 | % | | 300 | | | 300 | | | — | | | — | | | — | | | — | | | — | | | — | |
May 2019(e) | Jun 2029 | | 3.500 | % | | 600 | | | — | | | — | | | — | | | — | | | — | | | — | | | 600 | |
June 2019(a) | Jun 2029 | | 3.400 | % | | 600 | | | 600 | | | — | | | — | | | — | | | — | | | — | | | — | |
June 2019(a) | Jun 2049 | | 4.200 | % | | 600 | | | 600 | | | — | | | — | | | — | | | — | | | — | | | — | |
July 2019(g) | Jul 2049 | | 4.320 | % | | 40 | | | — | | | — | | | — | | | — | | | 40 | | | — | | | — | |
September 2019(g) | Oct 2025 | | 3.230 | % | | 95 | | | — | | | — | | | — | | | — | | | 95 | | | — | | | — | |
September 2019(g) | Oct 2029 | | 3.560 | % | | 75 | | | — | | | — | | | — | | | — | | | 75 | | | — | | | — | |
November 2019(h) | Nov 2021 | | 2.167 | % | (b) | 200 | | | — | | | — | | | — | | | 200 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| First Mortgage Bonds | | | | | | | | | | | | | | | | | | |
January 2019(c) | Feb 2029 | | 3.650 | % | | 400 | | | — | | | — | | | — | | | — | | | 400 | | | — | | | — | |
January 2019(c) | Feb 2049 | | 4.300 | % | | 400 | | | — | | | — | | | — | | | — | | | 400 | | | — | | | — | |
March 2019(d) | Mar 2029 | | 3.450 | % | | 600 | | | — | | | — | | | 600 | | | — | | | — | | | — | | | — | |
August 2019(a) | Aug 2029 | | 2.450 | % | | 450 | | | — | | | 450 | | | — | | | — | | | — | | | — | | | — | |
August 2019(a) | Aug 2049 | | 3.200 | % | | 350 | | | — | | | 350 | | | — | | | — | | | — | | | — | | | — | |
September 2019(f) | Oct 2049 | | 3.250 | % | | 500 | | | — | | | — | | | — | | | — | | | — | | | 500 | | | — | |
November 2019(i) | Dec 2029 | | 2.500 | % | | 700 | | | — | | | — | | | — | | | 700 | | | — | | | — | | | — | |
| Total issuances | | | | | $ | 6,210 | | | $ | 1,800 | | | $ | 800 | | | $ | 600 | | | $ | 900 | | | $ | 1,010 | | | $ | 500 | | | $ | 600 | |
(a)Debt issued to pay down short-term debt and for general corporate purposes.
(b)Debt issuance has a floating interest rate.
(c)Debt issued to repay at maturity $450 million first mortgage bonds due April 2019, pay down short-term debt and for general corporate purposes.
(d)Debt issued to fund eligible green energy projects in the Carolinas.
(e)Debt issued to repay in full the outstanding $350 million Piedmont unsecured term loan due September 2019, pay down short-term debt and for general corporate purposes.
(f)Debt issued to retire $150 million of pollution control bonds, pay down short-term debt and for general corporate purposes.
(g)Debt issued to repay at maturity $100 million debentures due October 2019, pay down short-term debt and for general corporate purposes.
(h)Debt issued to fund storm restoration costs and for general corporate purposes.
(i)Debt issued to reimburse the payment of existing and new Eligible Green Expenditures in Florida.
AVAILABLE CREDIT FACILITIES
Master Credit FacilitiesFacility
In March 2017,2020, Duke Energy amended its existing $8 billion 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, 2022.2025. 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 a specified sublimitssublimit 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 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.
| | | | | |
| FINANCIAL STATEMENTS | DEBT AND CREDIT FACILITIES |
The table below includes the current borrowing sublimits and available capacity under these credit facilities.
| | | | December 31, 2017 | | | | December 31, 2020 |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | Duke |
| | Duke |
| | | | | Duke | | Duke | | Duke | | Duke | | Duke | | Duke | |
| | Duke |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | | | Duke | | Energy | | Energy | | Energy | | Energy | | Energy | | Energy | |
| (in millions) | Energy |
| | (Parent) |
| | Carolinas |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
| (in millions) | Energy | | (Parent) | | Carolinas | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Facility size(a) | $ | 8,000 |
| | $ | 2,850 |
| | $ | 1,350 |
| | $ | 1,250 |
| | $ | 800 |
| | $ | 450 |
| | $ | 600 |
| | $ | 700 |
| Facility size(a) | $ | 8,000 | | | $ | 2,650 | | | $ | 1,475 | | | $ | 1,250 | | | $ | 800 | | | $ | 625 | | | $ | 600 | | | $ | 600 | |
| Reduction to backstop issuances | | | | | | | | | | | | | | | | Reduction to backstop issuances | |
Commercial paper(b) | (1,799 | ) | | (561 | ) | | (371 | ) | | (314 | ) | | — |
| | (45 | ) | | (260 | ) | | (248 | ) | Commercial paper(b) | (2,239) | | | — | | | (736) | | | (407) | | | (179) | | | (176) | | | (257) | | | (484) | |
| Outstanding letters of credit | (63 | ) | | (54 | ) | | (4 | ) | | (2 | ) | | (1 | ) | | — |
| | — |
| | (2 | ) | Outstanding letters of credit | (40) | | | (34) | | | (4) | | | (2) | | | — | | | — | | | — | | | — | |
| Tax-exempt bonds | (81 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (81 | ) | | — |
| Tax-exempt bonds | (81) | | | — | | | — | | | — | | | — | | | — | | | (81) | | | — | |
| Coal ash set-aside | (500 | ) | | — |
| | (250 | ) | | (250 | ) | | — |
| | — |
| | — |
| | — |
| |
| | Available capacity | $ | 5,557 |
|
| $ | 2,235 |
|
| $ | 725 |
|
| $ | 684 |
|
| $ | 799 |
|
| $ | 405 |
|
| $ | 259 |
| | $ | 450 |
| Available capacity | $ | 5,640 | | | $ | 2,616 | | | $ | 735 | | | $ | 841 | | | $ | 621 | | | $ | 449 | | | $ | 262 | | | $ | 116 | |
| |
(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(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.
Term Loan Facility
In June 2017,response to market volatility and ongoing liquidity impacts from COVID-19, in March 2020, Duke Energy (Parent) entered into a three-year $1.0$1.5 billion, 364-day Term Loan Credit Agreement, borrowing the full $1.5 billion available on March 19, 2020. The term loan contained a provision for increasing the amount available for borrowing by up to $500 million. Duke Energy (Parent) exercised this provision on March 27, 2020, borrowing an additional $188 million. Proceeds were used to reduce outstanding commercial paper and for general corporate purposes. The loan was repaid by Duke Energy (Parent) as of December 31, 2020. Refer to Note 1 for additional information on the COVID-19 pandemic.
Three-Year Revolving Credit Facility
Duke Energy (Parent) has a $1 billion revolving credit facility. The facility (the Three Year Revolver).had an initial termination date of June 2020, but in May 2019, Duke Energy extended the termination date of the facility to May 2022. Borrowings under this facility will be used for general corporate purposes.
As of December 31, 2017,2020, $500 million has been drawn under the Three Year Revolver.this facility. This balance is classified as Long-Term DebtLong-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. During the first quarter of 2020, an additional $500 million was drawn under this facility to manage liquidity impacts from COVID-19. The additional $500 million was paid down during the second quarter of 2020. The terms and conditions of the Three Year Revolverfacility are generally consistent with those governing Duke Energy's Master Credit Facility.
PiedmontDuke Energy Progress Term Loan Facility
In June 2017, PiedmontDecember 2018, Duke Energy Progress entered into an 18-montha two-year term loan facility with commitments totaling $250 million (the Piedmont Term Loan).$700 million. Borrowings under the facility will bewere used for general corporate purposes.
to pay storm-related costs, pay down commercial paper and to partially finance an upcoming bond maturity. As of December 31, 2017,2019, the entire $250$700 million hashad been drawn under the Piedmont Term Loan. This balance isterm loan and was classified as Long-Term DebtCurrent maturities of long-term debt on Piedmont'sDuke Energy Progress' Consolidated Balance Sheets. The terms and conditions of the Piedmont Term Loan are generally consistent with those governingIn August 2020, Duke Energy's Master Credit Facility.Energy Progress repaid its $700 million two-year term loan facility.
Other Debt Matters
In September 2016,2019, Duke Energy filed a Registration statement (Form S-3)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, including preferred stock, 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 and preferred stock by Duke Energy.
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 – (Continued)
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, 2017,2020, and 20162019, was $986$1,168 million and $1,090$1,049 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.
| | | | | |
| FINANCIAL STATEMENTS | DEBT AND CREDIT FACILITIES |
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.
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 percent65% for each borrower, excluding Piedmont, and 70 percent70% 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, 2017,2020, 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, 2017,2020, and 2016,2019, Duke Energy had loans outstanding of $701$817 million, including $38$35 million at Duke Energy Progress and $661$777 million, including $39$36 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 Noncurrent Assets on the Consolidated Balance Sheets.
7. GUARANTEES AND INDEMNIFICATIONS
Duke Energy and Progress Energy havehas various financial and performance guarantees and indemnifications with non-consolidated entities, which are issued in the normal course of business. As discussed below, these contracts include performance guarantees, stand-bystandby letters of credit, debt guarantees surety bonds and indemnifications. Duke Energy and Progress Energy enterenters into these arrangements to facilitate commercial transactions with third parties by enhancing the value of the transaction to the third party. At December 31, 2017,2020, Duke Energy and Progress Energy dodoes not believe conditions are likely for significant performance under these guarantees.guarantees, except for ACP as described below. 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 previously wholly owned 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, 2017,2020, the maximum potential amount of future payments associated with these guarantees was $205were $56 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.
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 – (Continued)
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. In July 2020, ACP reduced the size of the credit facility to $1.9 billion. Duke Energy's maximum exposure to loss under the terms of the guarantee is limited to 47 percent$860 million as of December 31, 2020. This amount represents 47% of the outstanding borrowings under the credit facility.
Duke Energy recognized the $860 million within Other Current Liabilities on the Consolidated Balance Sheets at December 31, 2020, of which $95 million was previously recognized due the adoption of new guidance for credit losses effective January 1, 2020. See Notes 3 and 12 for more information. The remaining reserve for credit losses for financial guarantees of $4 million at December 31, 2020, is included within Other Noncurrent Liabilities on the Duke Energy's Consolidated Balance Sheets. Management considers financial guarantees for evaluation under this standard based on the anticipated amount outstanding at the time of default. The reserve for credit losses is based on the evaluation of the contingent components of financial guarantees. Management evaluates the risk of default, exposure and length of time remaining in the period for each contract.
In addition to the Spectra Capital and ACP revolving credit facility which was $312 millionguarantees above, 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. 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 these entities. The maximum potential amount of future payments required under these guarantees as of December 31, 2017.
2020, was $56 million of which $53 million expire between 2021 and 2030, with the remaining performance guarantees having no contractual expiration. Additionally, certain guarantees have uncapped maximum potential payments; however, Duke Energy has guaranteed certain issuersdoes not believe these guarantees will have a material effect on its results 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 partyoperations, cash flows 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.financial position.
Duke Energy uses bank-issued stand-bystandby 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, 2017,2020, Duke Energy had issued a total of $449$566 million in letters of credit, which expire between 20182021 and 2022.2023. The unused amount under these letters of credit was $66$76 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$11 million and $13$23 million as of December 31, 2017,2020, and 2016,2019, 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.
| | | | | |
| FINANCIAL STATEMENTS | JOINT OWNERSHIP OF GENERATING AND TRANSMISSION FACILITIES |
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. |
| | | | | | | | | | | | | | |
| | December 31, 2017 |
| | | | | | | | Construction |
|
| | Ownership |
| | Property, Plant |
| | Accumulated |
| | Work in |
|
| (in millions except for ownership interest) | Interest |
| | and Equipment |
| | Depreciation |
| | Progress |
|
| Duke Energy Carolinas | |
| | | | | | |
Catawba Nuclear Station (units 1 and 2)(a) | 19.25 | % | | $ | 927 |
| | $ | 651 |
| | $ | 19 |
|
Lee Combined Combustion Station(b) | 86.67 | % | | — |
| | — |
| | 552 |
|
| Duke Energy Ohio | | | |
| | |
| | |
|
Transmission facilities(c) | Various |
| | 89 |
| | 63 |
| | 1 |
|
| Duke Energy Indiana | |
| | |
| | |
| | |
|
Gibson Station (unit 5)(d) | 50.05 | % | | 348 |
| | 162 |
| | 9 |
|
Vermillion Generating Station(e) | 62.5 | % | | 155 |
| | 120 |
| | — |
|
Transmission and local facilities(d) | Various |
| | 4,672 |
| | 1,739 |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | | | | | | Construction |
| Ownership | | Property, Plant | | Accumulated | | Work in |
| (in millions except for ownership interest) | Interest | | and Equipment | | Depreciation | | Progress |
| Duke Energy Carolinas | | | | | | | |
Catawba (units 1 and 2)(a) | 19.25 | % | | $ | 1,017 | | | $ | 518 | | | $ | 23 | |
W.S. Lee CC(b) | 87.27 | % | | 632 | | | 49 | | | 1 | |
| Duke Energy Indiana | | | | | | | |
Gibson (unit 5)(c) | 50.05 | % | | 447 | | | 199 | | | 4 | |
Vermillion(d) | 62.50 | % | | 174 | | | 101 | | | 1 | |
Transmission and local facilities(c) | Various | | 5,817 | | | 1,508 | | | 150 | |
| |
(a) | Jointly owned with North Carolina Municipal Power Agency Number 1, NCEMC and Piedmont Municipal Power Agency. |
| |
(b) | Jointly owned with NCEMC. |
| |
(c) | Jointly owned with America Electric Power Generation Resources and The Dayton Power and Light Company. |
| |
(d) | Jointly owned with Wabash Valley Power Association, Inc. (WVPA) and Indiana Municipal Power Agency. |
| |
(e) | Jointly owned with WVPA. |
(a) Jointly owned with North Carolina Municipal Power Agency Number 1, NCEMC and PMPA. (b) Jointly owned with NCEMC.
(c) Jointly owned with WVPA and IMPA.
(d) 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’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.
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 – (Continued)
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 43 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. | | | | December 31, 2017 | | December 31, 2020 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | | | | Duke | | Duke | | Duke | | Duke | | Duke | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | | | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Decommissioning of nuclear power facilities(a) | $ | 5,371 |
| | $ | 1,944 |
| | $ | 3,246 |
| | $ | 2,564 |
| | $ | 681 |
| | $ | — |
| | $ | — |
| | $ | — |
| Decommissioning of nuclear power facilities(a) | $ | 6,845 | | | $ | 2,695 | | | $ | 4,101 | | | $ | 3,642 | | | $ | 459 | | | $ | — | | | $ | — | | | $ | — | |
| Closure of ash impoundments | 4,525 |
| | 1,629 |
| | 2,094 |
| | 2,075 |
| | 19 |
| | 39 |
| | 763 |
| | — |
| Closure of ash impoundments | 5,778 | | | 2,597 | | | 1,973 | | | 1,950 | | | 23 | | | 67 | | | 1,140 | | | — | |
Other(b) | 279 |
| | 37 |
| | 74 |
| | 34 |
| | 42 |
| | 45 |
| | 18 |
| | 15 |
| |
| Other | | Other | 381 | | | 58 | | | 75 | | | 43 | | | 32 | | | 44 | | | 36 | | | 20 | |
| Total asset retirement obligation | $ | 10,175 |
| | $ | 3,610 |
| | $ | 5,414 |
| | $ | 4,673 |
| | $ | 742 |
| | $ | 84 |
| | $ | 781 |
|
| $ | 15 |
| Total asset retirement obligation | $ | 13,004 | | | $ | 5,350 | | | $ | 6,149 | | | $ | 5,635 | | | $ | 514 | | | $ | 111 | | | $ | 1,176 | | | $ | 20 | |
| Less: current portion | 689 |
| | 337 |
| | 295 |
| | 295 |
| | — |
| | 3 |
| | 54 |
| | — |
| |
| Less: Current portion | | Less: Current portion | 718 | | | 264 | | | 283 | | | 283 | | | — | | | 3 | | | 168 | | | — | |
| Total noncurrent asset retirement obligation | $ | 9,486 |
| | $ | 3,273 |
| | $ | 5,119 |
| | $ | 4,378 |
| | $ | 742 |
| | $ | 81 |
| | $ | 727 |
|
| $ | 15 |
| Total noncurrent asset retirement obligation | $ | 12,286 | | | $ | 5,086 | | | $ | 5,866 | | | $ | 5,352 | | | $ | 514 | | | $ | 108 | | | $ | 1,008 | | | $ | 20 | |
| |
(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. |
(a) Duke Energy amount includes purchase accounting adjustments related to the merger with Progress Energy.
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.
| | | | | |
| FINANCIAL STATEMENTS | ASSET RETIREMENT OBLIGATIONS |
The following table summarizes information about the most recent site-specific nuclear decommissioning cost studies. Decommissioning costs
in the table below are stated in
20132018 or
20142019 dollars, depending on the year of the cost study, and include costs to decommission plant components not subject to radioactive contamination.
|
| | | | | | | | | |
| | Annual Funding |
| | Decommissioning |
| | |
| (in millions) | Requirement(a) |
| | Costs(a)(b) |
| | Year of Cost Study |
| Duke Energy | $ | 14 |
| | $ | 8,150 |
|
| 2013 and 2014 |
| Duke Energy Carolinas | — |
| | 3,420 |
|
| 2013 |
| Duke Energy Progress | 14 |
| | 3,550 |
|
| 2014 |
| Duke Energy Florida | — |
| | 1,180 |
|
| 2013 |
| | | | | | | | | | | | | | | | | |
| Annual Funding | | Decommissioning | | |
| (in millions) | Requirement(a) | | Costs(a) | | Year of Cost Study |
| Duke Energy | $ | 27 | | | $ | 9,105 | | | 2018 or 2019 |
Duke Energy Carolinas(b)(c) | — | | | 4,365 | | | 2018 |
Duke Energy Progress(d) | 27 | | | 4,181 | | | 2019 |
Duke Energy Florida(e) | — | | | 559 | | | N/A |
| |
(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. |
(a) Amounts for Progress Energy equal the sum of Duke Energy Progress and Duke Energy Florida.
(b) Decommissioning cost for Duke Energy Carolinas reflects its ownership interest in jointly owned reactors. Other joint owners are responsible for decommissioning costs related to their interest in the reactors.
(c) Duke Energy Carolinas' site-specific nuclear decommissioning cost study completed in 2018 was filed with the NCUC and PSCSC in 2019. A new funding study was also completed and filed with the NCUC and PSCSC in 2019.
(d) Duke Energy Progress' site-specific nuclear decommissioning cost study completed in 2019 was filed with the NCUC and PSCSC in March 2020. Duke Energy Progress also completed a funding study, which was filed with the NCUC and PSCSC in July 2020.
(e) During 2019, Duke Energy Florida reached an agreement to transfer decommissioning work for Crystal River Unit 3 to a third party and decommissioning costs are based on the agreement with this third party rather than a cost study. Regulatory approval was received from the NRC and the FPSC in April 2020 and August 2020, respectively. See Note 3 for more information.
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).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.
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 – (Continued)
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 decommissioningentered into an agreement with a third party to decommission 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 3.3 and is excluded from the table below. See Note 16 for additional information related to the fair value of the Duke Energy Registrants' NDTFs. | | | | December 31, | | December 31, |
| (in millions) | 2017 | | 2016 | (in millions) | 2020 | | 2019 |
| Duke Energy | $ | 5,864 |
| | $ | 5,099 |
| Duke Energy | $ | 7,726 | | | $ | 6,766 | |
| Duke Energy Carolinas | 3,321 |
| | 2,882 |
| Duke Energy Carolinas | 4,381 | | | 3,837 | |
| Duke Energy Progress | 2,543 |
| | 2,217 |
| Duke Energy Progress | 3,345 | | | 2,929 | |
Nuclear Operating Licenses
Operating licenses for nuclear units are potentially subject to extension. The following table includes the current expiration of nuclear operating licenses. | | | | | |
| Unit | Year of Expiration |
| Duke Energy Carolinas | |
| Catawba Units 1 and 2 | 2043 |
| |
Unit | Year of Expiration |
Duke Energy Carolinas | |
Catawba Units 1 and 2 | 2043 |
| McGuire Unit 1 | 2041 |
| McGuire Unit 2 | 2043 |
| Oconee Units 1 and 2 | 2033 |
| |
| Oconee Unit 3 | 2034 |
| Duke Energy Progress | |
| Brunswick Unit 1 | 2036 |
| Brunswick Unit 2 | 2034 |
| Harris | 2046 |
| Robinson | 2030 |
| |
| |
| | | | | |
| FINANCIAL STATEMENTS | ASSET RETIREMENT OBLIGATIONS |
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. During 2019, Duke Energy Florida has requestedentered into an agreement for the NRC terminate the operating license foraccelerated decommissioning of Crystal River Unit 3. Regulatory approval was received from the NRC and the FPSC in April 2020 and August 2020, respectively. See Note 3 as it permanently ceased operation in February 2013. In January 2018, Crystal River Unit 3 reached a SAFSTOR status.for more information.
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.
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 – (Continued)
The ARO amount recorded on the Consolidated Balance Sheets is based upon estimated closure costs for impacted ash impoundments. The amount 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.plans. 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 20172020 and 2016.2019.
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 43 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 43 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.
The following tables present changes in the liability associated with AROs.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Balance at December 31, 2018 | $ | 10,467 | | | $ | 3,949 | | | $ | 5,411 | | | $ | 4,820 | | | $ | 591 | | | $ | 93 | | | $ | 722 | | | $ | 19 | |
| | | | | | | | | | | | | | | |
Accretion expense(a) | 508 | | | 235 | | | 252 | | | 227 | | | 25 | | | 3 | | | 28 | | | 1 | |
Liabilities settled(b) | (895) | | | (329) | | | (499) | | | (460) | | | (39) | | | (12) | | | (54) | | | — | |
| Liabilities incurred in the current year | 25 | | | 18 | | | 7 | | | — | | | 7 | | | — | | | — | | | — | |
Revisions in estimates of cash flows(c) | 3,213 | | | 1,861 | | | 1,300 | | | 1,306 | | | (6) | | | (4) | | | 136 | | | (3) | |
| Balance at December 31, 2019 | 13,318 | | | 5,734 | | | 6,471 | | | 5,893 | | | 578 | | | 80 | | | 832 | | | 17 | |
| | | | | | | | | | | | | | | |
Accretion expense(a) | 542 | | | 258 | | | 246 | | | 225 | | | 21 | | | 4 | | | 33 | | | 1 | |
Liabilities settled(b) | (724) | | | (198) | | | (451) | | | (358) | | | (93) | | | (2) | | | (74) | | | — | |
| Liabilities incurred in the current year | 22 | | | — | | | 5 | | | — | | | 5 | | | — | | | — | | | — | |
Revisions in estimates of cash flows(d) | (154) | | | (444) | | | (122) | | | (125) | | | 3 | | | 29 | | | 385 | | | 2 | |
| Balance at December 31, 2020 | $ | 13,004 | | | $ | 5,350 | | | $ | 6,149 | | | $ | 5,635 | | | $ | 514 | | | $ | 111 | | | $ | 1,176 | | | $ | 20 | |
(a) Substantially all accretion expense for the years ended December 31, 2020, and 2019, relates to Duke Energy’s regulated operations and has been deferred in accordance with regulatory accounting treatment.
(b) Amounts primarily relate to ash impoundment closures and nuclear decommissioning.
(c) Amounts primarily relate to increases in closure estimates for certain ash impoundments as a result of the NCDEQ's April 1, 2019, Order and the related settlement agreement dated December 31, 2019.
(d) Primarily relates to decreases due to revised basin closure cost estimates, partially offset by increases related to new closure plan approvals, post closure maintenance and beneficiation costs. Duke Energy Indiana estimates also include the impacts of closure estimates for certain ash impoundments due to the impact of Hoosier Environmental Council’s petition filed with the court challenging the Indiana Department of Environmental Management’s partial approval of Duke Energy Indiana’s ash pond closure plan. See Note 4 for more information on Hoosier Environmental Council's petition. The incremental amount recorded represents the discounted cash flows for estimated closure costs based upon the probability weightings of the potential closure methods as evaluated on a site-by-site basis.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
| Balance at December 31, 2015 | $ | 10,249 |
| | $ | 3,918 |
| | $ | 5,369 |
| | $ | 4,567 |
| | $ | 802 |
| | $ | 125 |
| | $ | 525 |
|
Acquisitions(a) | 22 |
| | — |
| | 2 |
| | — |
| | 2 |
| | — |
| | — |
|
Accretion expense(b) | 400 |
| | 187 |
| | 230 |
| | 194 |
| | 35 |
| | 5 |
| | 24 |
|
Liabilities settled(c) | (613 | ) | | (287 | ) | | (272 | ) | | (212 | ) | | (60 | ) | | (5 | ) | | (49 | ) |
| Liabilities incurred in the current year | 51 |
| | — |
| | 3 |
| | 3 |
| | — |
| | — |
| | 29 |
|
| Revisions in estimates of cash flows | 502 |
| | 77 |
| | 143 |
| | 145 |
| | (1 | ) | | (48 | ) | | 337 |
|
| Balance at December 31, 2016 | 10,611 |
|
| 3,895 |
|
| 5,475 |
|
| 4,697 |
|
| 778 |
|
| 77 |
|
| 866 |
|
Accretion expense(b) | 435 |
| | 184 |
| | 228 |
| | 195 |
| | 33 |
| | 3 |
| | 32 |
|
Liabilities settled(c) | (619 | ) | | (282 | ) | | (270 | ) | | (204 | ) | | (65 | ) | | (7 | ) | | (49 | ) |
Liabilities incurred in the current year(d) | 51 |
| | 5 |
| | — |
| | — |
| | — |
| | 7 |
| | 29 |
|
| Revisions in estimates of cash flows | (303 | ) | | (192 | ) | | (19 | ) | | (15 | ) | | (4 | ) | | 4 |
| | (97 | ) |
| Balance at December 31, 2017 | $ | 10,175 |
|
| $ | 3,610 |
|
| $ | 5,414 |
|
| $ | 4,673 |
|
| $ | 742 |
|
| $ | 84 |
|
| $ | 781 |
|
| | | | | |
(a)FINANCIAL STATEMENTS | Duke Energy amount relates to the Piedmont acquisition. See Note 2 for additional information.PROPERTY, PLANT AND EQUIPMENT |
| |
(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. |
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 – (Continued)
|
| | | | |
| (in millions) | | Piedmont |
| Balance at October 31, 2015 | | $ | 20 |
|
| Accretion expense | | 1 |
|
| Liabilities settled | | (7 | ) |
| Liabilities incurred in the current year | | 6 |
|
| Revisions in estimates of cash flows | | (6 | ) |
| Balance at October 31, 2016 | | 14 |
|
| Liabilities settled | | (1 | ) |
| Liabilities incurred in the current year | | 1 |
|
| Balance at December 31, 2016 | | 14 |
|
| Accretion expense | | 1 |
|
| Liabilities settled | | (8 | ) |
| Liabilities incurred in the current year | | 8 |
|
| Balance at December 31, 2017 | | $ | 15 |
|
10. PROPERTY, PLANT AND EQUIPMENT
The following tables summarize the property, plant and equipment for Duke Energy and its subsidiary registrants. | | | | December 31, 2017 | | December 31, 2020 |
| | Estimated | | | | | | | | | | | | | | | | | | Average | |
| | Useful | | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | | | Remaining | | Duke | | Duke | | Duke | | Duke | | Duke | |
| | Life | | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | | | Useful Life | | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | |
| (in millions) | (Years) | | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont | (in millions) | (Years) | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Land | | $ | 1,559 |
| | $ | 467 |
| | $ | 767 |
| | $ | 424 |
| | $ | 343 |
| | $ | 134 |
| | $ | 111 |
| | $ | 41 |
| Land | | $ | 2,046 | | | $ | 536 | | | $ | 908 | | | $ | 463 | | | $ | 445 | | | $ | 171 | | | $ | 118 | | | $ | 279 | |
| Plant – Regulated | | | | | | | | | | | | | | | | | Plant – Regulated | |
| Electric generation, distribution and transmission | 8-100 | | 93,687 |
| | 35,657 |
| | 39,419 |
| | 24,502 |
| | 14,917 |
| | 4,870 |
| | 13,741 |
| | — |
| Electric generation, distribution and transmission | 39 | | 117,107 | | | 44,059 | | | 50,785 | | | 31,375 | | | 19,410 | | | 6,255 | | | 16,008 | | | — | |
| Natural gas transmission and distribution | 12-80 | | 8,292 |
| | — |
| | — |
| | — |
| | — |
| | 2,559 |
| | — |
| | 5,733 |
| Natural gas transmission and distribution | 54 | | 10,799 | | | — | | | — | | | — | | | — | | | 3,136 | | | — | | | 7,663 | |
| Other buildings and improvements | 15-100 | | 1,936 |
| | 647 |
| | 652 |
| | 316 |
| | 336 |
| | 243 |
| | 240 |
| | 154 |
| Other buildings and improvements | 36 | | 2,038 | | | 740 | | | 459 | | | 197 | | | 262 | | | 374 | | | 300 | | | 165 | |
| Plant – Nonregulated | | | | | | | | | | | | | | | | | | Plant – Nonregulated | | |
Electric generation, distribution and transmission(a) | 5-30 | | 4,273 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Electric generation, distribution and transmission | | Electric generation, distribution and transmission | 27 | | 5,444 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other buildings and improvements | 25-35 | | 465 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Other buildings and improvements | 10 | | 519 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Nuclear fuel | | | 3,680 |
| | 2,120 |
| | 1,560 |
| | 1,560 |
| | — |
| | — |
| | — |
| | — |
| Nuclear fuel | | 3,284 | | | 1,837 | | | 1,447 | | | 1,447 | | | — | | | — | | | — | | | — | |
| Equipment | 3-55 | | 2,122 |
| | 402 |
| | 555 |
| | 416 |
| | 139 |
| | 348 |
| | 169 |
| | 266 |
| Equipment | 15 | | 2,608 | | | 620 | | | 759 | | | 498 | | | 261 | | | 385 | | | 238 | | | 122 | |
| Construction in process | | | 6,995 |
| | 2,614 |
| | 3,059 |
| | 1,434 |
| | 1,625 |
| | 350 |
| | 416 |
| | 231 |
| Construction in process | | 6,645 | | | 1,645 | | | 2,013 | | | 709 | | | 1,304 | | | 407 | | | 409 | | | 581 | |
| Other | 3-40 | | 4,498 |
| | 1,032 |
| | 1,311 |
| | 931 |
| | 370 |
| | 228 |
| | 271 |
| | 300 |
| Other | 14 | | 5,090 | | | 1,203 | | | 1,521 | | | 1,070 | | | 441 | | | 294 | | | 309 | | | 324 | |
Total property, plant and equipment(b)(e) | | 127,507 |
| | 42,939 |
| | 47,323 |
| | 29,583 |
| | 17,730 |
| | 8,732 |
| | 14,948 |
| | 6,725 |
| |
Total accumulated depreciation – regulated(c)(d)(e) | | (39,742 | ) | | (15,063 | ) | | (15,857 | ) | | (10,903 | ) | | (4,947 | ) | | (2,691 | ) | | (4,662 | ) | | (1,479 | ) | |
Total property, plant and equipment(a)(e) | | Total property, plant and equipment(a)(e) | | 155,580 | | | 50,640 | | | 57,892 | | | 35,759 | | | 22,123 | | | 11,022 | | | 17,382 | | | 9,134 | |
Total accumulated depreciation – regulated(b)(c) | | Total accumulated depreciation – regulated(b)(c) | | (46,216) | | | (17,453) | | | (18,368) | | | (12,801) | | | (5,560) | | | (3,013) | | | (5,661) | | | (1,749) | |
Total accumulated depreciation – nonregulated(d)(e) | | (1,795 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Total accumulated depreciation – nonregulated(d)(e) | | (2,611) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Generation facilities to be retired, net | | 421 |
| | — |
| | 421 |
| | 421 |
| | — |
| | — |
| | — |
| | — |
| Generation facilities to be retired, net | | 29 | | | — | | | 29 | | | 29 | | | — | | | — | | | — | | | — | |
| Total net property, plant and equipment | | $ | 86,391 |
|
| $ | 27,876 |
|
| $ | 31,887 |
|
| $ | 19,101 |
|
| $ | 12,783 |
|
| $ | 6,041 |
| | $ | 10,286 |
| | $ | 5,246 |
| Total net property, plant and equipment | | $ | 106,782 | | | $ | 33,187 | | | $ | 39,553 | | | $ | 22,987 | | | $ | 16,563 | | | $ | 8,009 | | | $ | 11,721 | | | $ | 7,385 | |
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 – (Continued)
| |
(a) | Includes a pretax impairment charge of $58 million on a wholly owned non-contracted wind project. See discussion below. |
| |
(b) | Includes capitalized leases of $1,294 million, $81 million, $272 million, $139 million, $133 million, $80 million and $35(a) Includes finance leases of $832 million, $335 million, $416 million, $297 million, $119 million and $10 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. |
| |
(c) | 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. |
| |
(d) | 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. |
| |
(e) | 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. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Estimated | | | | | | | | | | | | | | | | |
| | Useful | | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | Life | | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
| (in millions) | (Years) | | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
| Land | | | $ | 1,501 |
| | $ | 432 |
| | $ | 735 |
| | $ | 393 |
| | $ | 342 |
| | $ | 150 |
| | $ | 106 |
| | $ | 39 |
|
| Plant – Regulated | | | | | | | | | | | | | | | | | |
| Electric generation, distribution and transmission | 8-100 | | 89,864 |
| | 34,515 |
| | 37,596 |
| | 23,683 |
| | 13,913 |
| | 4,593 |
| | 13,160 |
| | — |
|
| Natural gas transmission and distribution | 12-67 | | 7,738 |
| | — |
| | — |
| | — |
| | — |
| | 2,456 |
| | — |
| | 5,282 |
|
| Other buildings and improvements | 15-100 | | 1,692 |
| | 502 |
| | 634 |
| | 293 |
| | 341 |
| | 211 |
| | 197 |
| | 148 |
|
| Plant – Nonregulated | | | | | | | | | | | | | | | | | |
| Electric generation, distribution and transmission | 5-30 | | 4,298 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other buildings and improvements | 25-35 | | 421 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Nuclear fuel | | | 3,572 |
| | 2,092 |
| | 1,480 |
| | 1,480 |
| | — |
| | — |
| | — |
| | — |
|
| Equipment | 3-38 | | 1,941 |
| | 358 |
| | 505 |
| | 378 |
| | 127 |
| | 338 |
| | 156 |
| | 260 |
|
| Construction in process | | | 6,186 |
| | 2,324 |
| | 2,708 |
| | 1,329 |
| | 1,379 |
| | 206 |
| | 396 |
| | 210 |
|
| Other | 5-40 | | 4,184 |
| | 904 |
| | 1,206 |
| | 863 |
| | 332 |
| | 172 |
| | 226 |
| | 235 |
|
Total property, plant and equipment(a)(d) | | | 121,397 |
| | 41,127 |
| | 44,864 |
| | 28,419 |
| | 16,434 |
| | 8,126 |
| | 14,241 |
| | 6,174 |
|
Total accumulated depreciation – regulated(b)(c)(d) | | | (37,831 | ) | | (14,365 | ) | | (15,212 | ) | | (10,561 | ) | | (4,644 | ) | | (2,579 | ) | | (4,317 | ) | | (1,360 | ) |
Total accumulated depreciation – nonregulated(c)(d) | | | (1,575 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Generation facilities to be retired, net | | | 529 |
| | — |
| | 529 |
| | 529 |
| | — |
| | — |
| | — |
| | — |
|
| Total net property, plant and equipment | | | $ | 82,520 |
| | $ | 26,762 |
| | $ | 30,181 |
| | $ | 18,387 |
| | $ | 11,790 |
| | $ | 5,547 |
| | $ | 9,924 |
| | $ | 4,814 |
|
| |
(a) | 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. |
| |
(b) | 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. |
| |
(c) | 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. |
| |
(d) | 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. |
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 – (Continued)
During the year ended December 31, 2017, Duke Energy, recorded a pretax impairment chargeDuke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana, respectively, primarily within Plant – Regulated. The Progress Energy, Duke Energy Progress and Duke Energy Florida amounts are net of $69$141 million, on a wholly owned non-contracted wind project. The impairment was recorded within Impairment charges on Duke Energy’s Consolidated Statements$24 million and $117 million, respectively, of Operations. $58accumulated amortization of finance leases.
(b) Includes $1,832 million, $1,010 million, $822 million and $822 million of the impairment related toaccumulated amortization of nuclear fuel at Duke Energy, Duke Energy Carolinas, Progress Energy and Duke Energy Progress, respectively.
(c) Includes accumulated amortization of finance leases of $12 million, $23 million and $3 million at Duke Energy, Duke Energy Carolinas and Duke Energy Indiana, respectively.
(d) Includes accumulated amortization of finance leases of $23 million at Duke Energy.
(e) Includes gross property, plant and equipment cost of consolidated VIEs of $6,394 million and $11accumulated depreciation of consolidated VIEs of $1,242 million at Duke Energy.
In 2020, Duke Energy evaluated recoverability of its renewable merchant plants principally located in the impairment related to a net intangible asset; see Note 11 for additional information. The charge representsElectric Reliability Council of Texas West market and in 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 primarilyPJM West market 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, primarily driven by lowlower forecasted natural gas prices, additionalprices. Duke Energy determined that the assets were not impaired because the carrying value of $210 million approximates the aggregate estimated future undiscounted cash flows. A continued decline in energy market pricing would likely result in a future impairment. Duke Energy retained 51% ownership interest in these facilities following the 2019 transaction to sell a minority interest in certain renewable generation placed in serviceassets. See Note 1 for further information.
| | | | | |
| FINANCIAL STATEMENTS | PROPERTY, PLANT AND EQUIPMENT |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| Average | | | | | | | | | | | | | | | | |
| Remaining | | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Useful Life | | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | (Years) | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Land | | | $ | 2,091 | | | $ | 520 | | | $ | 884 | | | $ | 449 | | | $ | 435 | | | $ | 150 | | | $ | 117 | | | $ | 388 | |
| Plant – Regulated | | | | | | | | | | | | | | | | | |
| Electric generation, distribution and transmission | 39 | | 111,739 | | | 42,723 | | | 48,142 | | | 30,018 | | | 18,124 | | | 5,838 | | | 15,032 | | | — | |
| Natural gas transmission and distribution | 54 | | 9,839 | | | — | | | — | | | — | | | — | | | 2,892 | | | — | | | 6,947 | |
| Other buildings and improvements | 32 | | 1,810 | | | 714 | | | 401 | | | 162 | | | 239 | | | 269 | | | 278 | | | 148 | |
| Plant – Nonregulated | | | | | | | | | | | | | | | | | |
| Electric generation, distribution and transmission | 28 | | 5,103 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other buildings and improvements | 9 | | 488 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Nuclear fuel | | | 3,253 | | | 1,891 | | | 1,362 | | | 1,362 | | | — | | | — | | | — | | | — | |
| Equipment | 13 | | 2,313 | | | 546 | | | 665 | | | 452 | | | 213 | | | 319 | | | 205 | | | 128 | |
| Construction in process | | | 6,102 | | | 1,389 | | | 2,149 | | | 1,114 | | | 1,035 | | | 504 | | | 381 | | | 531 | |
| Other | 13 | | 4,916 | | | 1,139 | | | 1,467 | | | 1,046 | | | 411 | | | 269 | | | 292 | | | 304 | |
Total property, plant and equipment(a)(e) | | | 147,654 | | | 48,922 | | | 55,070 | | | 34,603 | | | 20,457 | | | 10,241 | | | 16,305 | | | 8,446 | |
Total accumulated depreciation – regulated(b)(c) | | | (43,419) | | | (16,525) | | | (17,159) | | | (11,915) | | | (5,236) | | | (2,843) | | | (5,233) | | | (1,681) | |
Total accumulated depreciation – nonregulated(d)(e) | | | (2,354) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Generation facilities to be retired, net | | | 246 | | | — | | | 246 | | | 246 | | | — | | | — | | | — | | | — | |
| Total net property, plant and equipment | | | $ | 102,127 | | | $ | 32,397 | | | $ | 38,157 | | | $ | 22,934 | | | $ | 15,221 | | | $ | 7,398 | | | $ | 11,072 | | | $ | 6,765 | |
(a) Includes finance leases of $952 million, $211 million, $443 million, $308 million, $135 million, and lack$10 million at Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana, respectively, primarily within Plant – Regulated. The Progress Energy, Duke Energy Progress and Duke Energy Florida amounts are net of significant load growth.$143 million, $17 million and $126 million, respectively, of accumulated amortization of finance leases.
(b) Includes $1,807 million, $1,082 million, $725 million and $725 million of accumulated amortization of nuclear fuel at Duke Energy, Duke Energy Carolinas, Progress Energy and Duke Energy Progress, respectively.
(c) Includes accumulated amortization of finance leases of $6 million, $13 million, and $3 million at Duke Energy, Duke Energy Carolinas and Duke Energy Indiana, respectively.
(d) Includes accumulated amortization of finance leases of $20 million at Duke Energy.
(e) Includes gross property, plant and equipment cost of consolidated VIEs of $5,747 million and accumulated depreciation of consolidated VIEs of $1,041 million at Duke Energy.
The following tables present capitalized interest, which includes the debt component of AFUDC.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Duke Energy | $ | 112 | | | $ | 159 | | | $ | 161 | |
| Duke Energy Carolinas | 28 | | | 30 | | | 35 | |
| Progress Energy | 17 | | | 31 | | | 51 | |
| Duke Energy Progress | 12 | | | 28 | | | 26 | |
| Duke Energy Florida | 5 | | | 3 | | | 25 | |
| Duke Energy Ohio | 26 | | | 22 | | | 17 | |
| Duke Energy Indiana | 10 | | | 26 | | | 27 | |
| Piedmont | 8 | | | 26 | | | 17 | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
|
| Duke Energy | $ | 128 |
| | $ | 100 |
| | $ | 98 |
|
| Duke Energy Carolinas | 45 |
| | 38 |
| | 38 |
|
| Progress Energy | 45 |
| | 31 |
| | 24 |
|
| Duke Energy Progress | 21 |
| | 17 |
| | 20 |
|
| Duke Energy Florida | 24 |
| | 14 |
| | 4 |
|
| Duke Energy Ohio | 10 |
| | 8 |
| | 10 |
|
| Duke Energy Indiana | 9 |
| | 7 |
| | 6 |
|
|
| | | | | | | | | | | | | | | |
| | Year Ended | | Two Months Ended | | Years Ended October 31, |
| (in millions) | December 31, 2017 | | December 31, 2016 | | 2016 |
| | 2015 |
|
| Piedmont | $ | 12 |
| | $ | 2 |
| | $ | 12 |
| | $ | 11 |
|
Operating Leases | | | | | |
| FINANCIAL STATEMENTS | GOODWILL AND INTANGIBLE ASSETS |
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 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.
11. GOODWILL AND INTANGIBLE ASSETS
GoodwillGOODWILL
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, 2020, and 2019.
| | | | | | | | | | | | | | | | | | | | | | | |
| Electric Utilities | | Gas Utilities | | Commercial | | |
| (in millions) | and Infrastructure | | and Infrastructure | | Renewables | | Total |
| Goodwill Balance at December 31, 2019 | $ | 17,379 | | | $ | 1,924 | | | $ | 122 | | | $ | 19,425 | |
| Accumulated impairment charges | — | | | — | | | (122) | | | (122) | |
| Goodwill balance at December 31, 2019, adjusted for accumulated impairment charges | $ | 17,379 | | | $ | 1,924 | | | $ | — | | | $ | 19,303 | |
| | | | | | | |
| Goodwill Balance at December 31, 2020 | $ | 17,379 | | | $ | 1,924 | | | $ | 122 | | | $ | 19,425 | |
| Accumulated impairment charges | — | | | — | | | (122) | | | (122) | |
| Goodwill balance at December 31, 2020, adjusted for accumulated impairment charges | $ | 17,379 | | | $ | 1,924 | | | $ | — | | | $ | 19,303 | |
(a) Duke Energy evaluated the recoverability of goodwill during 2018 and 2017 and 2016.recorded impairment charges of $93 million and $29 million, respectively, related to the Commercial Renewables reporting unit included in Impairment charges on Duke Energy's Consolidated Statements of Operations. The fair value of the reporting unit was determined based on the income approach and market approach in 2018 and 2017, respectively. See "Goodwill Impairment Testing" below for the results of the 2020 goodwill impairment test.
|
| | | | | | | | | | | | | | | |
| | Electric Utilities |
| | Gas Utilities |
| | Commercial |
| | |
| (in millions) | and Infrastructure |
| | and Infrastructure |
| | Renewables |
| | Total |
|
| Goodwill Balance at December 31, 2016 | $ | 17,379 |
| | $ | 1,924 |
| | $ | 122 |
| | $ | 19,425 |
|
Accumulated impairment charges(a) | — |
| | — |
| | (29 | ) | | (29 | ) |
| 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$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, 2017,2020, and 2016.2019.
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 – (Continued)
Progress Energy
Progress Energy's Goodwill is included in the Electric Utilities and Infrastructure operating segment and there are no0 accumulated impairment charges.
Piedmont
Piedmont's Goodwill is included in the Gas Utilities and Infrastructure operating segment and there are no0 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.
Goodwill Impairment Testing
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,As 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.
analysis, 0 goodwill impairment charges were recorded in 2020.
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | GOODWILL AND INTANGIBLE ASSETS |
INTANGIBLE ASSETS
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, 20172020, and 2016. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
| Emission allowances | $ | 19 |
| | $ | 1 |
| | $ | 5 |
| | $ | 2 |
| | $ | 3 |
| | $ | — |
| | $ | 13 |
| | $ | — |
|
| Renewable energy certificates | 148 |
| | 38 |
| | 107 |
| | 107 |
| | — |
| | 3 |
| | — |
| | — |
|
| Natural gas, coal and power contracts | 24 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 24 |
| | — |
|
| Renewable operating and development projects | 79 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other | 6 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
|
| Total gross carrying amounts | 276 |
| | 39 |
| | 112 |
| | 109 |
| | 3 |
| | 3 |
| | 37 |
| | 3 |
|
| Accumulated amortization – natural gas, coal and power contracts | (19 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (19 | ) | | — |
|
| Accumulated amortization – renewable operating and development projects | (22 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Accumulated amortization – other | (5 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3 | ) |
| Total accumulated amortization | (46 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (19 | ) | | (3 | ) |
| Total intangible assets, net | $ | 230 |
|
| $ | 39 |
|
| $ | 112 |
|
| $ | 109 |
|
| $ | 3 |
|
| $ | 3 |
|
| $ | 18 |
| | $ | — |
|
| | | | December 31, 2016 | | | | December 31, 2020 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | | | | Duke | | Duke | | Duke | | Duke | | Duke | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | | | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Emission allowances | $ | 19 |
| | $ | 1 |
| | $ | 6 |
| | $ | 2 |
| | $ | 4 |
| | $ | — |
| | $ | 13 |
| | $ | — |
| Emission allowances | $ | 8 | | | $ | — | | | $ | 5 | | | $ | 2 | | | $ | 3 | | | $ | — | | | $ | 2 | | | $ | — | |
| Renewable energy certificates | 125 |
| | 36 |
| | 84 |
| | 84 |
| | — |
| | 4 |
| | — |
| | — |
| Renewable energy certificates | 196 | | | 65 | | | 130 | | | 130 | | | — | | | 1 | | | — | | | — | |
| Natural gas, coal and power contracts | 24 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 24 |
| | — |
| Natural gas, coal and power contracts | 24 | | | — | | | — | | | — | | | — | | | — | | | 24 | | | — | |
| Renewable operating and development projects | 97 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Renewable operating and development projects | 107 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other | 6 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| Other | 20 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total gross carrying amounts | 271 |
| | 37 |
| | 90 |
| | 86 |
| | 4 |
| | 4 |
| | 37 |
| | 3 |
| Total gross carrying amounts | 355 | | | 65 | | | 135 | | | 132 | | | 3 | | | 1 | | | 26 | | | — | |
| Accumulated amortization – natural gas, coal and power contracts | (17 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (17 | ) | | — |
| Accumulated amortization – natural gas, coal and power contracts | (23) | | | — | | | — | | | — | | | — | | | — | | | (23) | | | — | |
| Accumulated amortization – renewable operating and development projects | (23 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Accumulated amortization – renewable operating and development projects | (34) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Accumulated amortization – other | (5 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3 | ) | Accumulated amortization – other | (3) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total accumulated amortization | (45 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (17 | ) | | (3 | ) | Total accumulated amortization | (60) | | | — | | | — | | | — | | | — | | | — | | | (23) | | | — | |
| Total intangible assets, net | $ | 226 |
|
| $ | 37 |
|
| $ | 90 |
|
| $ | 86 |
|
| $ | 4 |
|
| $ | 4 |
|
| $ | 20 |
| | $ | — |
| Total intangible assets, net | $ | 295 | | | $ | 65 | | | $ | 135 | | | $ | 132 | | | $ | 3 | | | $ | 1 | | | $ | 3 | | | $ | — | |
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. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Emission allowances | $ | 18 | | | $ | — | | | $ | 5 | | | $ | 2 | | | $ | 3 | | | $ | — | | | $ | 12 | | | $ | — | |
| Renewable energy certificates | 172 | | | 53 | | | 118 | | | 118 | | | — | | | 1 | | | — | | | — | |
| Natural gas, coal and power contracts | 24 | | | — | | | — | | | — | | | — | | | — | | | 24 | | | — | |
| Renewable operating and development projects | 89 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other | 2 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total gross carrying amounts | 305 | | | 53 | | | 123 | | | 120 | | | 3 | | | 1 | | | 36 | | | — | |
| Accumulated amortization – natural gas, coal and power contracts | (21) | | | — | | | — | | | — | | | — | | | — | | | (21) | | | — | |
| Accumulated amortization – renewable operating and development projects | (34) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Accumulated amortization – other | (1) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total accumulated amortization | (56) | | | — | | | — | | | — | | | — | | | — | | | (21) | | | — | |
| Total intangible assets, net | $ | 249 | | | $ | 53 | | | $ | 123 | | | $ | 120 | | | $ | 3 | | | $ | 1 | | | $ | 15 | | | $ | — | |
Amortization Expense
The following table presents amortizationAmortization expense amounts for natural gas, coal and power contracts, renewable operating projects and other intangible assets. |
| | | | | | | | | | | |
| | December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
|
| Duke Energy | $ | 7 |
| | $ | 6 |
| | $ | 5 |
|
| Duke Energy Indiana | 1 |
| | 1 |
| | 1 |
|
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 – (Continued)
The table below showsassets are immaterial for the years ended December 31, 2020, 2019 and 2018, and are expected amortization expenseto be immaterial 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.2020. |
| | | | | | | | | | | | | | | | | | | |
| (in millions) | 2018 |
| | 2019 |
| | 2020 |
| | 2021 |
| | 2022 |
|
| Duke Energy | $ | 3 |
| | $ | 2 |
| | $ | 2 |
| | $ | 2 |
| | $ | 2 |
|
| Duke Energy Indiana | 1 |
| | — |
| | — |
| | — |
| | — |
|
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.
| | | | | |
| FINANCIAL STATEMENTS | INVESTMENTS IN UNCONSOLIDATED AFFILIATES |
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.
| | | | Years Ended December 31, | | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2020 | | 2019 | | 2018 |
| | | | Equity in |
| | | | Equity in |
| | Equity in |
| | | Equity in | | | Equity in | | | Equity in |
| (in millions) | Investments |
| | earnings |
| | Investments |
| | earnings |
| | earnings |
| (in millions) | Investments | | earnings | | Investments | | earnings | | Investments | | earnings |
| Electric Utilities and Infrastructure | $ | 89 |
| | $ | 5 |
| | $ | 93 |
| | $ | 5 |
| | $ | (2 | ) | Electric Utilities and Infrastructure | $ | 105 | | | $ | (1) | | | $ | 122 | | | $ | 9 | | | $ | 97 | | | $ | 6 | |
| Gas Utilities and Infrastructure | 763 |
| | 62 |
| | 566 |
| | 19 |
| | 1 |
| Gas Utilities and Infrastructure | 215 | | | (2,017) | | | 1,388 | | | 114 | | | 1,003 | | | 27 | |
| Commercial Renewables | 190 |
| | (5 | ) | | 185 |
| | (82 | ) | | (6 | ) | Commercial Renewables | 534 | | | — | | | 314 | | | (4) | | | 201 | | | (1) | |
| Other | 133 |
| | 57 |
| | 81 |
| | 43 |
| | 76 |
| Other | 107 | | | 13 | | | 112 | | | 43 | | | 108 | | | 51 | |
| Total | $ | 1,175 |
|
| $ | 119 |
|
| $ | 925 |
|
| $ | (15 | ) |
| $ | 69 |
| Total | $ | 961 | | | $ | (2,005) | | | $ | 1,936 | | | $ | 162 | | | $ | 1,409 | | | $ | 83 | |
During the years ended December 31, 2017, 20162020, 2019 and 2015,2018, Duke Energy received distributions from equity investments of $13$37 million, $31$55 million and $104$108 million, respectively, which are included in Other assets within Cash Flows from Operating Activities on the Consolidated Statements of Cash Flows. During the yearyears ended December 31, 2017,2020, 2019 and 2018, Duke Energy received distributions from equity investments of $281$133 million, $11 million and $137 million, respectively, which are included in Return of investment capital within Cash Flows from Investing Activities on the Consolidated Statements of Cash Flows.
During the yearyears ended December 31, 2017, the two months ended December 31, 2016,2020, 2019 and the years ended October 31, 2016, and 2015,2018, Piedmont received distributions from equity investments of $4$2 million, $1 million $26 million and $25$1 million, respectively, which are included in Other assets within Cash Flows from Operating Activities and $2 million, $1 million, $18$4 million and $2$3 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 interest50% interests in Duke-American Transmission Co. (DATC)both DATC and in Pioneer, Transmission, LLC (Pioneer), which build, own and operate electric transmission facilities in North America.
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 – (Continued)
Gas Utilities and Infrastructure
The table below outlines Duke Energy's ownership interests in natural gas pipeline companies and natural gas storage facilities. |
| | | | | | | | | | |
| | | | Investment Amount (in millions) |
| | Ownership | | December 31, | | December 31, |
| Entity Name | Interest | | 2017 | | 2016 |
| Pipeline Investments | | | | | |
Atlantic Coast Pipeline, LLC(a) | 47 | % | | $ | 397 |
| | $ | 265 |
|
| Sabal Trail Transmission, LLC | 7.5 | % | | 219 |
| | 140 |
|
Constitution Pipeline, LLC(a) | 24 | % | | 81 |
| | 82 |
|
Cardinal Pipeline Company, LLC(b) | 21.49 | % | | 11 |
| | 16 |
|
| Storage Facilities | | | | | |
Pine Needle LNG Company, LLC(b) | 45 | % | | 13 |
| | 16 |
|
Hardy Storage Company, LLC(b) | 50 | % | | 42 |
| | 47 |
|
Total Investments(c) | | | $ | 763 |
| | $ | 566 |
|
| | | | | | | | | | | | | | | | | | |
| | | Investment Amount (in millions) | |
| Ownership | | December 31, | |
| Entity Name | Interest | | 2020 | | 2019 | |
Pipeline Investments(a) | | | | | | |
ACP(b) | 47 | % | | $ | — | | | $ | 1,179 | | |
| Sabal Trail | 7.5 | % | | 120 | | | 121 | | |
| | | | | | |
Cardinal(c) | 21.49 | % | | 9 | | | 9 | | |
| Storage Facilities | | | | | | |
Pine Needle(c) | 45 | % | | 27 | | | 28 | | |
Hardy Storage(c) | 50 | % | | 56 | | | 51 | | |
| Other | 29.68 | % | | 3 | | | — | | |
Total Investments(d) | | | $ | 215 | | | $ | 1,388 | | |
| |
(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. |
In October 2017, Duke Energy entered into a guarantee agreement to support its sharerecorded OTTIs of the ACP revolving credit facility. See Note 7 for additional information. As a result of the financing, ACP returned capital of $265$25 million to Duke Energy.
Piedmont sold its 15 percent membership interest in SouthStar on October 3, 2016, for $160and $55 million resulting in an after tax gain of $81 million during the year ended October 31, 2016. Piedmont'swithin Equity in Earnings in SouthStar was $19 million(losses) earnings of unconsolidated affiliates on Duke Energy's Consolidated Statements of Operations for the years ended OctoberDecember 31, 2016,2019, and 2015.2018, respectively, to completely impair its 24% ownership interest in Constitution.
For regulatory matters and other information on(b) In 2020, Duke Energy determined it would no longer continue its investment in the construction of the ACP Sabal Trailpipeline. See Notes 3 and Constitution investments, see Notes 47 for further information.
(c) Piedmont owns the Cardinal, Pine Needle and 17.Hardy Storage investments.
(d) Duke Energy includes purchase accounting adjustments related to Piedmont.
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 was part of Equity Method Investments
a sale of minority interest in a certain portion of renewable assets in 2019. See Note 1 for more information on the sale. Prior to the sale, Duke Energy evaluated its investmenthad a 50% interest in Constitution for OTTI asDS Cornerstone, LLC. After the sale, Duke Energy has a 26% interest in the investment.
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,2020, Duke Energy did not recognize any impairment charge incompleted its acquisition of 70 distributed fuel cell projects from Bloom Energy Corporation, which approximates 43 MW of capacity serving commercial and industrial customers across the year ended December 31, 2017. However, due to the FERC’s January 2018 ruling and the resulting increase in uncertainty,U.S. Duke Energy is evaluatingnot 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 amountprimary beneficiary of the investment, net of salvage valuedistributed fuel cell portfolio and any cash and working capital returned. For additional information on the Constitution investment, see Note 4.does not consolidate these assets.
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.
| | | | | |
| FINANCIAL STATEMENTS | INVESTMENTS IN UNCONSOLIDATED AFFILIATES |
Other
Duke Energy ownshas a 17.5 percent17.5% indirect economic ownership interest and 25% board representation and voting rights interest in NMC, which owns and operates a methanol and MTBE business in Jubail, Saudi Arabia.
Significant Subsidiaries
For the year ended December 31, 2020, Duke Energy's economic ownership interest decreased from 25 percent to 17.5 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 accountedACP met the requirements of S-X Rule 4-08(g) to provide summarized financial information. The following table provides summary information for ACP as required under S-X Rule 1-02(bb) for the equity methodcomparative periods in Duke Energy's consolidated balance sheets and consolidated statements of accounting.operations.
| | | | | | | | | | | | | | | | | |
| | | December 31, |
| (in millions) | | | 2020 | | 2019 |
| Current assets | | | $ | 43 | | | $ | 17 | |
| Noncurrent assets | | | 93 | | | 4,091 | |
| Current liabilities | | | 1,965 | | | 37 | |
| Noncurrent liabilities | | | 167 | | | 1,760 | |
| | | | | |
| Membership interests | | | (1,996) | | | 2,311 | |
| | | | | |
| Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Net revenues | $ | 0 | | | $ | — | | | $ | — | |
| Operating loss | (4,612) | | | (5) | | | (6) | |
| | | | | |
| Net (loss) income | (4,512) | | | 246 | | | 138 | |
| | | | | |
| Net (loss) income attributable to Duke Energy | $ | (2,121) | | | $ | 116 | | | $ | 65 | |
| | | | | |
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. | | | | | |
| FINANCIAL STATEMENTS | RELATED PARTY TRANSACTIONS |
Combined Notes To Consolidated Financial Statements – (Continued)
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.
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Duke Energy Carolinas | | | | | |
Corporate governance and shared service expenses(a) | $ | 753 | | | $ | 841 | | | $ | 985 | |
Indemnification coverages(b) | 20 | | | 20 | | | 22 | |
Joint Dispatch Agreement (JDA) revenue(c) | 25 | | | 60 | | | 84 | |
JDA expense(c) | 114 | | | 186 | | | 207 | |
Intercompany natural gas purchases(d) | 15 | | | 15 | | | 15 | |
| Progress Energy | | | | | |
Corporate governance and shared service expenses(a) | $ | 715 | | | $ | 778 | | | $ | 906 | |
Indemnification coverages(b) | 36 | | | 37 | | | 34 | |
JDA revenue(c) | 114 | | | 186 | | | 207 | |
JDA expense(c) | 25 | | | 60 | | | 84 | |
Intercompany natural gas purchases(d) | 75 | | | 76 | | | 78 | |
| Duke Energy Progress | | | | | |
Corporate governance and shared service expenses(a) | $ | 420 | | | $ | 462 | | | $ | 577 | |
Indemnification coverages(b) | 17 | | | 15 | | | 13 | |
JDA revenue(c) | 114 | | | 186 | | | 207 | |
JDA expense(c) | 25 | | | 60 | | | 84 | |
Intercompany natural gas purchases(d) | 75 | | | 76 | | | 78 | |
| Duke Energy Florida | | | | | |
Corporate governance and shared service expenses(a) | $ | 295 | | | $ | 316 | | | $ | 329 | |
Indemnification coverages(b) | 19 | | | 22 | | | 21 | |
| Duke Energy Ohio | | | | | |
Corporate governance and shared service expenses(a) | $ | 326 | | | $ | 354 | | | $ | 374 | |
Indemnification coverages(b) | 4 | | | 4 | | | 5 | |
| Duke Energy Indiana | | | | | |
Corporate governance and shared service expenses(a) | $ | 401 | | | $ | 412 | | | $ | 405 | |
Indemnification coverages(b) | 8 | | | 7 | | | 7 | |
| Piedmont | | | | | |
Corporate governance and shared service expenses(a) | $ | 140 | | | $ | 138 | | | $ | 170 | |
Indemnification coverages(b) | 3 | | | 3 | | | 2 | |
Intercompany natural gas sales(d) | 90 | | | 91 | | | 93 | |
Natural gas storage and transportation costs(e) | 23 | | | 23 | | | 25 | |
(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.
(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 Operating Revenues, and Duke Energy Carolinas and Duke Energy Progress record the related purchases as a component of Fuel used in electric generation and purchased power on their respective Consolidated Statements of Operations and Comprehensive Income. These intercompany revenues and expenses are eliminated in consolidation.
(e)Piedmont has related party transactions as a customer of its equity method investments in Pine Needle, Hardy Storage, and Cardinal natural gas storage and transportation facilities. These expenses are included in Cost of natural gas on Piedmont's Consolidated Statements of Operations and Comprehensive Income.
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
|
| Duke Energy Carolinas | | | | | |
Corporate governance and shared service expenses(a) | $ | 858 |
| | $ | 831 |
| | $ | 914 |
|
Indemnification coverages(b) | 23 |
| | 22 |
| | 24 |
|
JDA revenue(c) | 49 |
| | 38 |
| | 51 |
|
JDA expense(c) | 145 |
| | 156 |
| | 183 |
|
Intercompany natural gas purchases(d) | 9 |
| | 2 |
| | — |
|
| Progress Energy | | | | | |
Corporate governance and shared service expenses(a) | $ | 736 |
| | $ | 710 |
| | $ | 712 |
|
Indemnification coverages(b) | 38 |
| | 35 |
| | 38 |
|
JDA revenue(c) | 145 |
| | 156 |
| | 183 |
|
JDA expense(c) | 49 |
| | 38 |
| | 51 |
|
Intercompany natural gas purchases(d) | 77 |
| | 19 |
| | — |
|
| Duke Energy Progress | | | | | |
Corporate governance and shared service expenses(a) | $ | 438 |
| | $ | 397 |
| | $ | 403 |
|
Indemnification coverages(b) | 15 |
| | 14 |
| | 16 |
|
JDA revenue(c) | 145 |
| | 156 |
| | 183 |
|
JDA expense(c) | 49 |
| | 38 |
| | 51 |
|
Intercompany natural gas purchases(d) | 77 |
| | 19 |
| | — |
|
| Duke Energy Florida | | | | | |
Corporate governance and shared service expenses(a) | $ | 298 |
| | $ | 313 |
| | $ | 309 |
|
Indemnification coverages(b) | 23 |
| | 21 |
| | 22 |
|
| Duke Energy Ohio | | | | | |
Corporate governance and shared service expenses(a) | $ | 363 |
| | $ | 356 |
| | $ | 342 |
|
Indemnification coverages(b) | 5 |
| | 5 |
| | 6 |
|
| Duke Energy Indiana | | | | | |
Corporate governance and shared service expenses(a) | $ | 370 |
| | $ | 366 |
| | $ | 349 |
|
Indemnification coverages(b) | 8 |
| | 8 |
| | 9 |
|
| Piedmont | | | | | |
Corporate governance and shared service expenses(a) | $ | 50 |
| | | | |
Indemnification coverages(b)
| 2 |
| | | | |
Intercompany natural gas sales(d)
| 86 |
| | | | |
| | | | | |
(a)FINANCIAL STATEMENTS | 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.RELATED PARTY TRANSACTIONS |
| |
(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. |
| |
(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. |
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 – (Continued)
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 forare incurred in the years ended December 31, 2017, 2016ordinary course of business and 2015.are eliminated in consolidation.
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.
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. |
| | | | | | | | | | | | | |
| | | Year Ended December 31, | Two Months Ended December 31, | Years Ended October 31, |
| (in millions) | Type of expense | 2017 | 2016 | 2016 | 2015 |
| Cardinal | Transportation Costs | $ | 8 |
| $ | 2 |
| $ | 9 |
| $ | 9 |
|
| Pine Needle | Natural Gas Storage Costs | 8 |
| 2 |
| 11 |
| 11 |
|
| Hardy Storage | Natural Gas Storage Costs | 9 |
| 2 |
| 9 |
| 9 |
|
| Total | | $ | 25 |
| $ | 6 |
| $ | 29 |
| $ | 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.
| | | | | | | | | | | | | | | | | | | | | | | |
| Duke | | Duke | Duke | Duke | Duke | |
| Energy | Progress | Energy | Energy | Energy | Energy | |
| (in millions) | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| December 31, 2020 | | | | | | | |
| Intercompany income tax receivable | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 9 | | $ | 10 | |
| Intercompany income tax payable | 31 | | 33 | | 46 | | 35 | | 2 | | — | | — | |
| | | | | | | |
| December 31, 2019 | | | | | | | |
| Intercompany income tax receivable | $ | — | | $ | 125 | | $ | 28 | | $ | — | | $ | 9 | | $ | 28 | | $ | 13 | |
| Intercompany income tax payable | 5 | | — | | — | | 2 | | — | | — | | — | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| | Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
| (in millions) | Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
| December 31, 2017 | | | | | | | |
| Intercompany income tax receivable | $ | — |
| $ | 168 |
| $ | — |
| $ | 44 |
| $ | 22 |
| $ | — |
| $ | 7 |
|
| Intercompany income tax payable | 44 |
| — |
| 21 |
| — |
| — |
| 35 |
| — |
|
| | | | | | | | |
| December 31, 2016 | | | | | | | |
| Intercompany income tax receivable | $ | 1 |
| $ | — |
| $ | — |
| $ | 37 |
| $ | — |
| $ | — |
| $ | — |
|
| Intercompany income tax payable | — |
| 37 |
| 90 |
| — |
| 1 |
| 3 |
| 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 swapsderivatives 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 certain fixed-rate debt issuances, a series of forward-starting interest rate swaps or Treasury locks 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.
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 – (Continued)
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 gainsGains and losses reclassified out of AOCI for the years ended December 31, 2017,2020, 2019 and 2016.2018, were not material. Duke Energy's interest rate derivatives designated as hedges include interest rate swaps used to hedge existing debt within the Commercial Renewables business.segment and forward-starting interest rate swaps not accounted for under regulatory accounting.
Undesignated Contracts
Undesignated contracts primarily include contracts not designated as a hedge because they are accounted for under regulatory accounting andor 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,Expense on the 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 theRegistrant's Consolidated Statements of Operations for the year ended December 31, 2016. See Note 2 for additional information related to the Piedmont acquisition.and Comprehensive Income.
| | | | | |
| FINANCIAL STATEMENTS | DERIVATIVES AND HEDGING |
The following tables show notional amounts of outstanding derivatives related to interest rate risk.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
|
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
|
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
|
Cash flow hedges(a) | $ | 660 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Undesignated contracts | 927 |
| | 400 |
| | 500 |
| | 250 |
| | 250 |
| | 27 |
|
| Total notional amount | $ | 1,587 |
| | $ | 400 |
| | $ | 500 |
| | $ | 250 |
| | $ | 250 |
| | $ | 27 |
|
| | | | December 31, 2016 | | December 31, 2020 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | | Duke | | Duke | | Duke | | Duke |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio |
Cash flow hedges(a) | $ | 750 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
| Cash flow hedges | | Cash flow hedges | $ | 632 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Undesignated contracts | 927 |
| | 400 |
| | 500 |
| | 250 |
| | 250 |
| | 27 |
| Undesignated contracts | 1,177 | | | 400 | | | 750 | | | 750 | | | — | | | 27 | |
| Total notional amount | $ | 1,677 |
| | $ | 400 |
| | $ | 500 |
| | $ | 250 |
| | $ | 250 |
| | $ | 27 |
| |
Total notional amount(a) | | Total notional amount(a) | $ | 1,809 | | | $ | 400 | | | $ | 750 | | | $ | 750 | | | $ | — | | | $ | 27 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| | | Duke | | | | Duke | | Duke | | Duke |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio |
| Cash flow hedges | $ | 993 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Undesignated contracts | 1,277 | | | 450 | | | 800 | | | 250 | | | 550 | | | 27 | |
Total notional amount(a) | $ | 2,270 | | | $ | 450 | | | $ | 800 | | | $ | 250 | | | $ | 550 | | | $ | 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. |
(a) Duke Energy includes amounts related to consolidated VIEs of $632 million in cash flow hedges as of December 31, 2020, and $693 million in cash flow hedges as of December 31, 2019.
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. To manage risk associated with commodity prices, the Duke Energy Registrants may enter into long-term power purchase or sales contracts and long-term natural gas supply agreements.
Cash Flow Hedges
For derivatives designated as hedging the exposure to variable cash flows of a future transaction, referred to as a cash flow hedge, 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. Gains and losses reclassified out of accumulated other comprehensive income (loss) for the year ended December 31, 2020, 2019 and 2018, were not material. Duke Energy’s commodity derivatives designated as hedges include long-term electricity sales in the Commercial Renewables segment.
Undesignated Contracts
For the Subsidiary Registrants, bulk power electricity and coal and natural gas purchases flow through fuel adjustment clauses, formula basedformula-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.
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 – (Continued)
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. |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | |
| | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Indiana |
| | Piedmont |
|
| Electricity (gigawatt-hours) | 34 |
| | — |
| | — |
| | — |
| | — |
| | 34 |
| | — |
|
| Natural gas (millions of dekatherms) | 770 |
| | 105 |
| | 183 |
| | 133 |
| | 50 |
| | 2 |
| | 480 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | |
| | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Indiana |
| | Piedmont |
|
| Electricity (gigawatt-hours) | 147 |
| | — |
| | — |
| | — |
| | — |
| | 147 |
| | — |
|
| Natural gas (millions of dekatherms) | 890 |
| | 91 |
| | 269 |
| | 118 |
| | 151 |
| | 1 |
| | 529 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| | | Duke | | | | Duke | | | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | | | Energy | | Energy | | |
| Energy | | Carolinas | | Energy | | Progress | | | | Ohio | | Indiana | | Piedmont |
Electricity (GWh)(a) | 35,409 | | | — | | | — | | | — | | | | | 2,559 | | | 10,802 | | | — | |
| Natural gas (millions of Dth) | 678 | | | 145 | | | 158 | | | 158 | | | | | — | | | 2 | | | 373 | |
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | DERIVATIVES AND HEDGING |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| | | Duke | | | | Duke | | | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | | | Energy | | Energy | | |
| Energy | | Carolinas | | Energy | | Progress | | | | Ohio | | Indiana | | Piedmont |
| Electricity (GWh) | 15,858 | | | — | | | — | | | — | | | | | 1,887 | | | 13,971 | | | — | |
| Natural gas (millions of Dth) | 704 | | | 130 | | | 160 | | | 160 | | | | | — | | | 3 | | | 411 | |
(a) Duke Energy includes 22,048 GWh that relates to cash flow hedges.
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 | | December 31, 2017 |
| | | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
| (in millions) | | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
| Commodity Contracts | | | | | | | | | | | | | | | | |
| Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Current | | $ | 34 |
| | $ | 2 |
| | $ | 2 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | 27 |
| | $ | 2 |
|
| Noncurrent | | 1 |
| | — |
| | 1 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
|
| Total Derivative Assets – Commodity Contracts | | $ | 35 |
| | $ | 2 |
| | $ | 3 |
| | $ | 2 |
| | $ | 1 |
| | $ | 1 |
| | $ | 27 |
| | $ | 2 |
|
| Interest Rate Contracts | | | | | | | | | | | | | | | | |
| Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Current | | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Noncurrent | | 15 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total Derivative Assets – Interest Rate Contracts | | $ | 16 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
| | $ | — |
|
| Total Derivative Assets | | $ | 51 |
| | $ | 2 |
| | $ | 3 |
| | $ | 2 |
| | $ | 1 |
| | $ | 1 |
| | $ | 27 |
| | $ | 2 |
|
| | | Derivative Liabilities | | December 31, 2017 | |
| Derivative Assets | | Derivative Assets | | December 31, 2020 |
| | | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | | | Duke | | Duke | | Duke | | Duke | | Duke | |
| | | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | | | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | |
| (in millions) | | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
| (in millions) | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Commodity Contracts | | | | | | | | | | | | | | | | | Commodity Contracts | |
| | Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | | Not Designated as Hedging Instruments | |
| Current | | $ | 36 |
| | $ | 6 |
| | $ | 18 |
| | $ | 8 |
| | $ | 10 |
| | $ | — |
| | $ | — |
| | $ | 11 |
| Current | | $ | 30 | | | $ | 14 | | | $ | 9 | | | $ | 9 | | | $ | — | | | $ | 1 | | | $ | 6 | | | $ | 1 | |
| Noncurrent | | 146 |
| | 4 |
| | 10 |
| | 4 |
| | — |
| | — |
| | — |
| | 131 |
| Noncurrent | | 13 | | | 6 | | | 6 | | | 6 | | | — | | | — | | | — | | | — | |
| Total Derivative Liabilities – Commodity Contracts | | $ | 182 |
| | $ | 10 |
| | $ | 28 |
| | $ | 12 |
| | $ | 10 |
| | $ | — |
| | $ | — |
| | $ | 142 |
| |
| Total Derivative Assets – Commodity Contracts | | Total Derivative Assets – Commodity Contracts | | $ | 43 | | | $ | 20 | | | $ | 15 | | | $ | 15 | | | $ | — | | | $ | 1 | | | $ | 6 | | | $ | 1 | |
| Interest Rate Contracts | | | | | | | | | | | | | | | | | Interest Rate Contracts | |
| Designated as Hedging Instruments | | | | | | | | | | | | | | | | | |
| Current | | $ | 29 |
| | $ | 25 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
| Noncurrent | | 6 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| | Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | | Not Designated as Hedging Instruments | |
| Current | | 1 |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| Current | | $ | 18 | | | $ | 0 | | | $ | 18 | | | $ | 18 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Noncurrent | | 12 |
| | — |
| | 7 |
| | 6 |
| | 2 |
| | 4 |
| | — |
| | — |
| |
| Total Derivative Liabilities – Interest Rate Contracts | | $ | 48 |
| | $ | 25 |
| | $ | 8 |
| | $ | 6 |
| | $ | 2 |
| | $ | 5 |
| | $ | — |
| | $ | — |
| |
| Total Derivative Liabilities | | $ | 230 |
| | $ | 35 |
| | $ | 36 |
| | $ | 18 |
| | $ | 12 |
| | $ | 5 |
| | $ | — |
| | $ | 142 |
| |
| | Total Derivative Assets – Interest Rate Contracts | | Total Derivative Assets – Interest Rate Contracts | | $ | 18 | | | $ | 0 | | | $ | 18 | | | $ | 18 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | Total Derivative Assets | | Total Derivative Assets | | $ | 61 | | | $ | 20 | | | $ | 33 | | | $ | 33 | | | $ | — | | | $ | 1 | | | $ | 6 | | | $ | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative Liabilities | | December 31, 2020 |
| | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Commodity Contracts | | | | | | | | | | | | | | | | |
| Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Current | | $ | 14 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Noncurrent | | 70 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Current | | $ | 30 | | | $ | 13 | | | $ | 2 | | | $ | 2 | | | $ | — | | | $ | — | | | $ | 1 | | | $ | 15 | |
| Noncurrent | | 137 | | | 3 | | | 27 | | | 12 | | | — | | | — | | | — | | | 107 | |
| Total Derivative Liabilities – Commodity Contracts | | $ | 251 | | | $ | 16 | | | $ | 29 | | | $ | 14 | | | $ | — | | | $ | — | | | $ | 1 | | | $ | 122 | |
| Interest Rate Contracts | | | | | | | | | | | | | | | | |
| Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Current | | $ | 15 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Noncurrent | | 48 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Current | | 5 | | | 4 | | | — | | | — | | | — | | | 1 | | | — | | | — | |
| Noncurrent | | 5 | | | — | | | — | | | — | | | — | | | 5 | | | — | | | — | |
| Total Derivative Liabilities – Interest Rate Contracts | | $ | 73 | | | $ | 4 | | | $ | — | | | $ | — | | | $ | — | | | $ | 6 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total Derivative Liabilities | | $ | 324 | | | $ | 20 | | | $ | 29 | | | $ | 14 | | | $ | — | | | $ | 6 | | | $ | 1 | | | $ | 122 | |
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | DERIVATIVES AND HEDGING |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative Assets | | December 31, 2019 |
| | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Commodity Contracts | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Current | | $ | 17 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 3 | | | $ | 13 | | | $ | 1 | |
| Noncurrent | | 1 | | | — | | | — | | | — | | | — | | | 1 | | | — | | | — | |
| Total Derivative Assets – Commodity Contracts | | $ | 18 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 4 | | | $ | 13 | | | $ | 1 | |
| Interest Rate Contracts | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Current | | 6 | | | — | | | 6 | | | — | | | 6 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | |
| Total Derivative Assets – Interest Rate Contracts | | $ | 6 | | | $ | — | | | $ | 6 | | | $ | — | | | $ | 6 | | | $ | — | | | $ | — | | | $ | — | |
| Equity Securities Contracts | | | | | | | | | | | | | | | | |
| Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Current | | $ | 1 | | | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | |
| Total Derivative Assets – Equity Securities Contracts | | $ | 1 | | | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | |
| Total Derivative Assets | | $ | 25 | | | $ | — | | | $ | 7 | | | $ | — | | | $ | 7 | | | $ | 4 | | | $ | 13 | | | $ | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative Liabilities | | December 31, 2019 |
| | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Commodity Contracts | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Current | | $ | 67 | | | $ | 33 | | | $ | 26 | | | $ | 26 | | | $ | — | | | $ | — | | | $ | 1 | | | $ | 7 | |
| Noncurrent | | 156 | | | 10 | | | 37 | | | 22 | | | — | | | — | | | — | | | 110 | |
| Total Derivative Liabilities – Commodity Contracts | | $ | 223 | | | $ | 43 | | | $ | 63 | | | $ | 48 | | | $ | — | | | $ | — | | | $ | 1 | | | $ | 117 | |
| Interest Rate Contracts | | | | | | | | | | | | | | | | |
| Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Current | | $ | 19 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Noncurrent | | 21 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Current | | 8 | | | 6 | | | 1 | | | 1 | | | — | | | 1 | | | — | | | — | |
| Noncurrent | | 5 | | | — | | | — | | | — | | | — | | | 5 | | | — | | | — | |
| Total Derivative Liabilities – Interest Rate Contracts | | $ | 53 | | | $ | 6 | | | $ | 1 | | | $ | 1 | | | $ | — | | | $ | 6 | | | $ | — | | | $ | — | |
| Equity Securities Contracts | | | | | | | | | | | | | | | | |
| Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Current | | $ | 24 | | | $ | — | | | $ | 24 | | | $ | — | | | $ | 24 | | | $ | — | | | $ | — | | | $ | — | |
| Total Derivative Liabilities – Equity Securities Contracts | | $ | 24 | | | $ | — | | | $ | 24 | | | $ | — | | | $ | 24 | | | $ | — | | | $ | — | | | $ | — | |
| Total Derivative Liabilities | | $ | 300 | | | $ | 49 | | | $ | 88 | | | $ | 49 | | | $ | 24 | | | $ | 6 | | | $ | 1 | | | $ | 117 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative Assets | | December 31, 2016 |
| | | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
| (in millions) | | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
| Commodity Contracts | | | | | | | | | | | | | | | | |
| Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Current | | $ | 108 |
| | $ | 23 |
| | $ | 61 |
| | $ | 35 |
| | $ | 26 |
| | $ | 4 |
| | $ | 16 |
| | $ | 3 |
|
| Noncurrent | | 32 |
| | 10 |
| | 21 |
| | 10 |
| | 11 |
| | 1 |
| | — |
| | — |
|
| Total Derivative Assets – Commodity Contracts | | $ | 140 |
| | $ | 33 |
| | $ | 82 |
| | $ | 45 |
| | $ | 37 |
| | $ | 5 |
| | $ | 16 |
|
| $ | 3 |
|
| Interest Rate Contracts | | | | | | | | | | | | | | | | |
| Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Noncurrent | | $ | 19 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Current | | 3 |
| | — |
| | 3 |
| | 1 |
| | 2 |
| | — |
| | — |
| | — |
|
| Total Derivative Assets – Interest Rate Contracts | | $ | 22 |
| | $ | — |
| | $ | 3 |
| | $ | 1 |
| | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Total Derivative Assets | | $ | 162 |
| | $ | 33 |
| | $ | 85 |
| | $ | 46 |
| | $ | 39 |
| | $ | 5 |
| | $ | 16 |
| | $ | 3 |
|
193
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative Liabilities | | December 31, 2016 |
| | | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
| (in millions) | | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
| Commodity Contracts | | | | | | | | | | | | | | | | |
| Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Current | | $ | 43 |
| | $ | — |
| | $ | 12 |
| | $ | — |
| | $ | 12 |
| | $ | — |
| | $ | 2 |
| | $ | 35 |
|
| Noncurrent | | 166 |
| | 1 |
| | 7 |
| | 1 |
| | — |
| | — |
| | — |
| | 152 |
|
| Total Derivative Liabilities – Commodity Contracts | | $ | 209 |
| | $ | 1 |
| | $ | 19 |
| | $ | 1 |
| | $ | 12 |
| | $ | — |
| | $ | 2 |
| | $ | 187 |
|
| Interest Rate Contracts | | | | | | | | | | | | | | | | |
| Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Current | | $ | 8 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Noncurrent | | 8 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| Current | | 1 |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
|
| Noncurrent | | 26 |
| | 15 |
| | 6 |
| | 6 |
| | — |
| | 5 |
| | — |
| | — |
|
| Total Derivative Liabilities – Interest Rate Contracts | | $ | 43 |
| | $ | 15 |
| | $ | 6 |
| | $ | 6 |
| | $ | — |
| | $ | 6 |
| | $ | — |
| | $ | — |
|
| Total Derivative Liabilities | | $ | 252 |
| | $ | 16 |
| | $ | 25 |
| | $ | 7 |
| | $ | 12 |
| | $ | 6 |
| | $ | 2 |
| | $ | 187 |
|
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | DERIVATIVES AND HEDGING |
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 Grossgross 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 | | December 31, 2017 | | |
| | | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
| (in millions) | | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
| Current | | | | | | | | | | | | | | | | |
| Gross amounts recognized | | $ | 35 |
| | $ | 2 |
| | $ | 2 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | 27 |
| | $ | 2 |
|
| Gross amounts offset | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net amounts presented in Current Assets: Other | | $ | 35 |
|
| $ | 2 |
|
| $ | 2 |
|
| $ | 1 |
|
| $ | 1 |
|
| $ | 1 |
|
| $ | 27 |
| | $ | 2 |
|
| Noncurrent | | | | | | | | | | | | | | | | |
| Gross amounts recognized | | $ | 16 |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Gross amounts offset | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net amounts presented in Other Noncurrent Assets: Other | | $ | 16 |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | Derivative Liabilities | | December 31, 2017 | | | |
| Derivative Assets | | Derivative Assets | | December 31, 2020 | |
| | | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | | | Duke | | Duke | | Duke | | Duke | | Duke | |
| | | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | | | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | |
| (in millions) | | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
| (in millions) | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Current | | | | | | | | | | | | | | | | | Current | |
| Gross amounts recognized | | $ | 66 |
| | $ | 31 |
| | $ | 19 |
| | $ | 8 |
| | $ | 10 |
| | $ | 1 |
| | $ | — |
| | $ | 11 |
| Gross amounts recognized | | $ | 48 | | | $ | 14 | | | $ | 27 | | | $ | 27 | | | $ | — | | | $ | 1 | | | $ | 6 | | | $ | 1 | |
| Gross amounts offset | | (3 | ) | | (2 | ) | | (2 | ) | | (2 | ) | | — |
| | — |
| | — |
| | — |
| Gross amounts offset | | (3) | | | (2) | | | (2) | | | (2) | | | — | | | — | | | — | | | — | |
| Net amounts presented in Current Liabilities: Other | | $ | 63 |
| | $ | 29 |
| | $ | 17 |
| | $ | 6 |
| | $ | 10 |
| | $ | 1 |
| | $ | — |
| | $ | 11 |
| |
| Net amounts presented in Current Assets: Other | | Net amounts presented in Current Assets: Other | | $ | 45 | | | $ | 12 | | | $ | 25 | | | $ | 25 | | | $ | — | | | $ | 1 | | | $ | 6 | | | $ | 1 | |
| Noncurrent | | | | | | | | | | | | | | | | | Noncurrent | |
| Gross amounts recognized | | $ | 164 |
| | $ | 4 |
| | $ | 17 |
| | $ | 10 |
| | $ | 2 |
| | $ | 4 |
| | $ | — |
| | $ | 131 |
| Gross amounts recognized | | $ | 13 | | | $ | 6 | | | $ | 6 | | | $ | 6 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Gross amounts offset | | (1 | ) | | — |
| | (1 | ) | | (1 | ) | | — |
| | — |
| | — |
| | — |
| Gross amounts offset | | (5) | | | (1) | | | (4) | | | (4) | | | — | | | — | | | — | | | — | |
| Net amounts presented in Other Noncurrent Liabilities: Other | | $ | 163 |
| | $ | 4 |
| | $ | 16 |
| | $ | 9 |
| | $ | 2 |
| | $ | 4 |
| | $ | — |
| | $ | 131 |
| |
| Net amounts presented in Other Noncurrent Assets: Other | | Net amounts presented in Other Noncurrent Assets: Other | | $ | 8 | | | $ | 5 | | | $ | 2 | | | $ | 2 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative Liabilities | | December 31, 2020 | | |
| | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Current | | | | | | | | | | | | | | | | |
| Gross amounts recognized | | $ | 64 | | | $ | 17 | | | $ | 2 | | | $ | 2 | | | $ | 0 | | | $ | 1 | | | $ | 1 | | | $ | 15 | |
| Gross amounts offset | | (3) | | | (2) | | | (2) | | | (2) | | | 0 | | | 0 | | | 0 | | | 0 | |
| Net amounts presented in Current Liabilities: Other | | $ | 61 | | | $ | 15 | | | $ | — | | | $ | — | | | $ | 0 | | | $ | 1 | | | $ | 1 | | | $ | 15 | |
| Noncurrent | | | | | | | | | | | | | | | | |
| Gross amounts recognized | | $ | 260 | | | $ | 3 | | | $ | 27 | | | $ | 12 | | | $ | 0 | | | $ | 5 | | | $ | 0 | | | $ | 107 | |
| Gross amounts offset | | (5) | | | (1) | | | (4) | | | (4) | | | 0 | | | 0 | | | 0 | | | 0 | |
| Net amounts presented in Other Noncurrent Liabilities: Other | | $ | 255 | | | $ | 2 | | | $ | 23 | | | $ | 8 | | | $ | 0 | | | $ | 5 | | | $ | 0 | | | $ | 107 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative Assets | | December 31, 2019 |
| | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Current | | | | | | | | | | | | | | | | |
| Gross amounts recognized | | $ | 24 | | | $ | — | | | $ | 7 | | | $ | — | | | $ | 7 | | | $ | 3 | | | $ | 13 | | | $ | 1 | |
| Gross amounts offset | | (1) | | | — | | | (1) | | | — | | | (1) | | | — | | | — | | | — | |
| Net amounts presented in Current Assets: Other | | $ | 23 | | | $ | — | | | $ | 6 | | | $ | — | | | $ | 6 | | | $ | 3 | | | $ | 13 | | | $ | 1 | |
| Noncurrent | | | | | | | | | | | | | | | | |
| Gross amounts recognized | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | |
| Gross amounts offset | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Net amounts presented in Other Noncurrent Assets: Other | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | |
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | DERIVATIVES AND HEDGING |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative Assets | | December 31, 2016 |
| | | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
| (in millions) | | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
| Current | | | | | | | | | | | | | | | | |
| Gross amounts recognized | | $ | 111 |
| | $ | 23 |
| | $ | 64 |
| | $ | 36 |
| | $ | 28 |
| | $ | 4 |
| | $ | 16 |
| | $ | 3 |
|
| Gross amounts offset | | (11 | ) | | — |
| | (11 | ) | | — |
| | (11 | ) | | — |
| | — |
| | — |
|
| Net amounts presented in Current Assets: Other | | $ | 100 |
| | $ | 23 |
| | $ | 53 |
| | $ | 36 |
| | $ | 17 |
| | $ | 4 |
| | $ | 16 |
| | $ | 3 |
|
| Noncurrent | | | | | | | | | | | | | | | | |
| Gross amounts recognized | | $ | 51 |
| | $ | 10 |
| | $ | 21 |
| | $ | 10 |
| | $ | 11 |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
| Gross amounts offset | | (2 | ) | | (1 | ) | | (1 | ) | | (1 | ) | | — |
| | — |
| | — |
| | — |
|
| Net amounts presented in Other Noncurrent Assets: Other | | $ | 49 |
| | $ | 9 |
| | $ | 20 |
| | $ | 9 |
| | $ | 11 |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
| | | Derivative Liabilities | | December 31, 2016 | Derivative Liabilities | | December 31, 2019 |
| | | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | | | Duke | | Duke | | Duke | | Duke | | Duke | |
| | | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | | | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | |
| (in millions) | | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
| (in millions) | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Current | | | | | | | | | | | | | | | | | Current | |
| Gross amounts recognized | | $ | 52 |
| | $ | — |
| | $ | 12 |
| | $ | — |
| | $ | 12 |
| | $ | 1 |
| | $ | 2 |
| | $ | 35 |
| Gross amounts recognized | | $ | 118 | | | $ | 39 | | | $ | 51 | | | $ | 27 | | | $ | 24 | | | $ | 1 | | | $ | 1 | | | $ | 7 | |
| Gross amounts offset | | (11 | ) | | — |
| | (11 | ) | | — |
| | (11 | ) | | — |
| | — |
| | — |
| Gross amounts offset | | (24) | | | — | | | (24) | | | — | | | (24) | | | — | | | — | | | — | |
| Net amounts presented in Current Liabilities: Other | | $ | 41 |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | 2 |
| | $ | 35 |
| Net amounts presented in Current Liabilities: Other | | $ | 94 | | | $ | 39 | | | $ | 27 | | | $ | 27 | | | $ | — | | | $ | 1 | | | $ | 1 | | | $ | 7 | |
| Noncurrent | | | | | | | | | | | | | | | | | Noncurrent | |
| Gross amounts recognized | | $ | 200 |
| | $ | 16 |
| | $ | 13 |
| | $ | 7 |
| | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | 152 |
| Gross amounts recognized | | $ | 182 | | | $ | 10 | | | $ | 37 | | | $ | 22 | | | $ | — | | | $ | 5 | | | $ | — | | | $ | 110 | |
| Gross amounts offset | | (2 | ) | | (1 | ) | | (1 | ) | | (1 | ) | | — |
| | — |
| | — |
| | — |
| Gross amounts offset | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Net amounts presented in Other Noncurrent Liabilities: Other | | $ | 198 |
| | $ | 15 |
| | $ | 12 |
| | $ | 6 |
| | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | 152 |
| Net amounts presented in Other Noncurrent Liabilities: Other | | $ | 182 | | | $ | 10 | | | $ | 37 | | | $ | 22 | | | $ | — | | | $ | 5 | | | $ | — | | | $ | 110 | |
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. |
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | | | Duke |
| | | | Duke |
| | Duke |
|
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
|
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
|
| Aggregate fair value of derivatives in a net liability position | $ | 59 |
| | $ | 35 |
| | $ | 25 |
| | $ | 15 |
| | $ | 10 |
|
| Fair value of collateral already posted | — |
| | — |
| | — |
| | — |
| | — |
|
| Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered | 59 |
| | 35 |
| | 25 |
| | 15 |
| | 10 |
|
| | | | December 31, 2016 | | December 31, 2020 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | | Duke | | Duke | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Duke | | Energy | | Progress | | Energy | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | |
| Aggregate fair value of derivatives in a net liability position | $ | 34 |
| | $ | 16 |
| | $ | 18 |
| | $ | 6 |
| | $ | 12 |
| Aggregate fair value of derivatives in a net liability position | $ | 24 | | | $ | 9 | | | $ | 14 | | | $ | 14 | | |
| Fair value of collateral already posted | — |
| | — |
| | — |
| | — |
| | — |
| Fair value of collateral already posted | 0 | | | 0 | | | 0 | | | 0 | | |
| Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered | 34 |
| | 16 |
| | 18 |
| | 6 |
| | 12 |
| Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered | 24 | | | 9 | | | 14 | | | 14 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| | | Duke | | | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | |
| Aggregate fair value of derivatives in a net liability position | $ | 79 | | | $ | 35 | | | $ | 44 | | | $ | 44 | | | |
| Fair value of collateral already posted | 0 | | | 0 | | | 0 | | | 0 | | | |
| Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered | 79 | | | 35 | | | 44 | | | 44 | | | |
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 theirEnergy’s investments in debt and equity securities as either trading or available-for-sale.
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 – (Continued)
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)NDTF at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, (ii) the grantor trusts at Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana related to OPEB plans and (iii) Bison. The Duke Energy Registrants classify investments in debt securities as AFS and investments in equity securities as FV-NI.
For investments in debt securities classified as AFS, the unrealized gains and losses are included in other comprehensive income until realized, at which time they are reported through net income. For investments in equity securities classified as FV-NI, both realized and unrealized gains and losses are reported through net income. Substantially all of Duke Energy’s investments in debt and equity securities qualify for regulatory accounting, and accordingly, all associated realized and unrealized gains and losses on these investments are deferred as a regulatory asset or liability.
Duke Energy classifies all otherthe majority of investments in debt and equity securities as long term, unless otherwise noted.
| | | | | |
| FINANCIAL STATEMENTS | INVESTMENTS IN DEBT AND EQUITY SECURITIES |
Investment Trusts
The investments within the NDTF investments and the Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana grantor trusts (Investment Trusts)Investment Trusts are managed by independent investment managers with discretion to buy, sell and invest pursuant to the objectives set forth by the investment manager agreements and 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 aand deferred to regulatory asset.accounts where appropriate.
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.
has a credit loss. 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 usedis related 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.
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.loss. 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 tounrealized credit loss is recognizedincluded in earnings. The amount related to other factors is recognized in other comprehensive income. There were no material credit losses as of December 31, 2017,2020, and 2016.2019.
Other Investments amounts are recorded in Other within Other Noncurrent Assets on the Consolidated Balance Sheets.
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 – (Continued)
DUKE ENERGY
The following table presents the estimated fair value of investments in AFS securities.debt and equity securities; equity investments are classified as FV-NI and debt investments are classified as AFS. | | | | December 31, 2017 | | December 31, 2016 | | December 31, 2020 | | December 31, 2019 |
| | Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | | | Gross | | Gross | | | Gross | | Gross | |
| | Unrealized |
| | Unrealized |
| | | | Unrealized |
| | Unrealized |
| | | | Unrealized | | Unrealized | | Unrealized | | Unrealized | |
| | Holding |
| | Holding |
| | Estimated |
| | Holding |
| | Holding |
| | Estimated |
| | Holding | | Holding | | Estimated | | Holding | | Holding | | Estimated |
| (in millions) | Gains |
| | Losses |
| | Fair Value |
| | Gains |
| | Losses(a) |
| | Fair Value |
| (in millions) | Gains | | Losses | | Fair Value | | Gains | | Losses | | Fair Value |
| NDTF | | | | | | | | | |
| | | NDTF | | | | | | | | | | | |
| Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 115 |
| | $ | — |
| | $ | — |
| | $ | 111 |
| Cash and cash equivalents | $ | — | | | $ | — | | | $ | 177 | | | $ | — | | | $ | — | | | $ | 101 | |
| Equity securities | 2,805 |
| | 27 |
| | 4,914 |
| | 2,092 |
| | 54 |
| | 4,106 |
| Equity securities | 4,138 | | | 54 | | | 6,235 | | | 3,523 | | | 55 | | | 5,661 | |
| Corporate debt securities | 17 |
| | 2 |
| | 570 |
| | 10 |
| | 8 |
| | 528 |
| Corporate debt securities | 76 | | | 1 | | | 806 | | | 37 | | | 1 | | | 603 | |
| Municipal bonds | 4 |
| | 3 |
| | 344 |
| | 3 |
| | 10 |
| | 331 |
| Municipal bonds | 22 | | | 0 | | | 370 | | | 13 | | | 0 | | | 368 | |
| U.S. government bonds | 11 |
| | 7 |
| | 1,027 |
| | 10 |
| | 8 |
| | 984 |
| U.S. government bonds | 51 | | | — | | | 1,361 | | | 33 | | | 1 | | | 1,256 | |
| Other debt securities | — |
| | 1 |
| | 118 |
| | — |
| | 3 |
| | 124 |
| Other debt securities | 8 | | | 0 | | | 180 | | | 3 | | | 0 | | | 141 | |
| Total NDTF | $ | 2,837 |
| | $ | 40 |
| | $ | 7,088 |
| | $ | 2,115 |
| | $ | 83 |
| | $ | 6,184 |
| |
| Total NDTF Investments | | Total NDTF Investments | $ | 4,295 | | | $ | 55 | | | $ | 9,129 | | | $ | 3,609 | | | $ | 57 | | | $ | 8,130 | |
| Other Investments | |
| | |
| | |
| | |
| | |
| | |
| Other Investments | | | | | | | | | | | |
| Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 15 |
| | $ | — |
| | $ | — |
| | $ | 25 |
| Cash and cash equivalents | $ | — | | | $ | — | | | $ | 127 | | | $ | — | | | $ | — | | | $ | 52 | |
| Equity securities | 59 |
| | — |
| | 123 |
| | 38 |
| | — |
| | 104 |
| Equity securities | 79 | | | 0 | | | 146 | | | 57 | | | 0 | | | 122 | |
| Corporate debt securities | 1 |
| | — |
| | 57 |
| | 1 |
| | 1 |
| | 66 |
| Corporate debt securities | 8 | | | 0 | | | 110 | | | 3 | | | 0 | | | 67 | |
| Municipal bonds | 2 |
| | 1 |
| | 83 |
| | 2 |
| | 1 |
| | 82 |
| Municipal bonds | 5 | | | 0 | | | 86 | | | 4 | | | 0 | | | 94 | |
| U.S. government bonds | — |
| | — |
| | 41 |
| | — |
| | 1 |
| | 51 |
| U.S. government bonds | 0 | | | 0 | | | 42 | | | 2 | | | 0 | | | 41 | |
| Other debt securities | — |
| | 1 |
| | 44 |
| | — |
| | 2 |
| | 42 |
| Other debt securities | 0 | | | 0 | | | 47 | | | 0 | | | 0 | | | 56 | |
| Total Other Investments | $ | 62 |
| | $ | 2 |
| | $ | 363 |
| | $ | 41 |
| | $ | 5 |
| | $ | 370 |
| Total Other Investments | $ | 92 | | | $ | 0 | | | $ | 558 | | | $ | 66 | | | $ | 0 | | | $ | 432 | |
| Total Investments | $ | 2,899 |
| | $ | 42 |
| | $ | 7,451 |
| | $ | 2,156 |
| | $ | 88 |
| | $ | 6,554 |
| Total Investments | $ | 4,387 | | | $ | 55 | | | $ | 9,687 | | | $ | 3,675 | | | $ | 57 | | | $ | 8,562 | |
The table below summarizes the maturity date for debt securities. |
| | | |
| (in millions) | December 31, 2017 |
|
| Due in one year or less | $ | 117 |
|
| Due after one through five years | 552 |
|
| Due after five through 10 years | 554 |
|
| Due after 10 years | 1,061 |
|
| Total | $ | 2,284 |
|
Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were as follows. |
| | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
|
| Realized gains | $ | 202 |
| | $ | 246 |
| | $ | 193 |
|
| Realized losses | 160 |
| | 187 |
| | 98 |
|
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 – (Continued)
DUKE ENERGY CAROLINAS
The following table presents the estimated fair value of investments in AFS securities. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| | Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| | Unrealized |
| | Unrealized |
| | | | Unrealized |
| | Unrealized |
| | |
| | Holding |
| | Holding |
| | Estimated |
| | Holding |
| | Holding |
| | Estimated |
|
| (in millions) | Gains |
| | Losses |
| | Fair Value |
| | Gains |
| | Losses(a) |
| | Fair Value |
|
| NDTF | | | | | | | | | | | |
|
| Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 32 |
| | $ | — |
| | $ | — |
| | $ | 18 |
|
| Equity securities | 1,531 |
| | 12 |
| | 2,692 |
| | 1,157 |
| | 28 |
| | 2,245 |
|
| Corporate debt securities | 9 |
| | 2 |
| | 359 |
| | 5 |
| | 6 |
| | 354 |
|
| Municipal bonds | — |
| | 1 |
| | 60 |
| | 1 |
| | 2 |
| | 67 |
|
| U.S. government bonds | 3 |
| | 4 |
| | 503 |
| | 2 |
| | 5 |
| | 458 |
|
| Other debt securities | — |
| | 1 |
| | 112 |
| | — |
| | 3 |
| | 116 |
|
Total NDTF | $ | 1,543 |
| | $ | 20 |
| | $ | 3,758 |
| | $ | 1,165 |
| | $ | 44 |
| | $ | 3,258 |
|
| Other Investments | |
| | |
| | |
| | |
| | |
| | |
|
| Other debt securities | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 3 |
|
| Total Other Investments | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 3 |
|
| Total Investments | $ | 1,543 |
| | $ | 20 |
| | $ | 3,758 |
| | $ | 1,165 |
| | $ | 45 |
| | $ | 3,261 |
|
The table below summarizes the maturity date for debt securities. |
| | | |
| (in millions) | December 31, 2017 |
|
| Due in one year or less | $ | 9 |
|
| Due after one through five years | 204 |
|
| Due after five through 10 years | 300 |
|
| Due after 10 years | 521 |
|
| Total | $ | 1,034 |
|
Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were as follows. |
| | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
|
| Realized gains | $ | 135 |
| | $ | 157 |
| | $ | 158 |
|
| Realized losses | 103 |
| | 121 |
| | 83 |
|
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 – (Continued)
PROGRESS ENERGY
The following table presents the estimated fair value of investments in AFS securities. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| | Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| | Unrealized |
| | Unrealized |
| | | | Unrealized |
| | Unrealized |
| | |
| | Holding |
| | Holding |
| | Estimated |
| | Holding |
| | Holding |
| | Estimated |
|
| (in millions) | Gains |
| | Losses |
| | Fair Value |
| | Gains |
| | Losses(a) |
| | Fair Value |
|
| NDTF | | | | | | | | | | | |
| Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 83 |
| | $ | — |
| | $ | — |
| | $ | 93 |
|
| Equity securities | 1,274 |
| | 15 |
| | 2,222 |
| | 935 |
| | 26 |
| | 1,861 |
|
| Corporate debt securities | 8 |
| | — |
| | 211 |
| | 5 |
| | 2 |
| | 174 |
|
| Municipal bonds | 4 |
| | 2 |
| | 284 |
| | 2 |
| | 8 |
| | 264 |
|
| U.S. government bonds | 8 |
| | 3 |
| | 524 |
| | 8 |
| | 3 |
| | 526 |
|
| Other debt securities | — |
| | — |
| | 6 |
| | — |
| | — |
| | 8 |
|
| Total NDTF | $ | 1,294 |
| | $ | 20 |
| | $ | 3,330 |
| | $ | 950 |
| | $ | 39 |
| | $ | 2,926 |
|
| Other Investments | |
| | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 12 |
| | $ | — |
| | $ | — |
| | $ | 21 |
|
| Municipal bonds | 2 |
| | — |
| | 47 |
| | 2 |
| | — |
| | 44 |
|
| Total Other Investments | $ | 2 |
| | $ | — |
| | $ | 59 |
| | $ | 2 |
| | $ | — |
| | $ | 65 |
|
| Total Investments | $ | 1,296 |
| | $ | 20 |
| | $ | 3,389 |
| | $ | 952 |
| | $ | 39 |
| | $ | 2,991 |
|
The table below summarizes the maturity date for debt securities. |
| | | |
| (in millions) | December 31, 2017 |
|
| Due in one year or less | $ | 94 |
|
| Due after one through five years | 301 |
|
| Due after five through 10 years | 203 |
|
| Due after 10 years | 474 |
|
| Total | $ | 1,072 |
|
Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were as follows. |
| | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
|
| Realized gains | $ | 65 |
| | $ | 84 |
| | $ | 33 |
|
| Realized losses | 56 |
| | 64 |
| | 13 |
|
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 – (Continued)
DUKE ENERGY PROGRESS
The following table presents the estimated fair value of investments in AFS securities. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| | Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| | Unrealized |
| | Unrealized |
| | | | Unrealized |
| | Unrealized |
| | |
| | Holding |
| | Holding |
| | Estimated |
| | Holding |
| | Holding |
| | Estimated |
|
| (in millions) | Gains |
| | Losses |
| | Fair Value |
| | Gains |
| | Losses(a) |
| | Fair Value |
|
| NDTF | | | | | | | | | | | |
| Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 50 |
| | $ | — |
| | $ | — |
| | $ | 45 |
|
| Equity securities | 980 |
| | 12 |
| | 1,795 |
| | 704 |
| | 21 |
| | 1,505 |
|
| Corporate debt securities | 6 |
| |
|
| | 149 |
| | 4 |
| | 1 |
| | 120 |
|
| Municipal bonds | 4 |
| | 2 |
| | 283 |
| | 2 |
| | 8 |
| | 263 |
|
| U.S. government bonds | 5 |
| | 2 |
| | 310 |
| | 5 |
| | 2 |
| | 275 |
|
| Other debt securities | — |
| | — |
| | 4 |
| | — |
| | — |
| | 5 |
|
| Total NDTF | $ | 995 |
| | $ | 16 |
| | $ | 2,591 |
| | $ | 715 |
| | $ | 32 |
| | $ | 2,213 |
|
| Other Investments | |
| | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 1 |
|
| Total Other Investments | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 1 |
|
| Total Investments | $ | 995 |
| | $ | 16 |
| | $ | 2,592 |
| | $ | 715 |
| | $ | 32 |
| | $ | 2,214 |
|
The table below summarizes the maturity date for debt securities. |
| | | |
| (in millions) | December 31, 2017 |
|
| Due in one year or less | $ | 21 |
|
| Due after one through five years | 219 |
|
| Due after five through 10 years | 146 |
|
| Due after 10 years | 360 |
|
| Total | $ | 746 |
|
Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were as follows. |
| | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
|
| Realized gains | $ | 54 |
| | $ | 71 |
| | $ | 26 |
|
| Realized losses | 48 |
| | 55 |
| | 11 |
|
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 – (Continued)
DUKE ENERGY FLORIDA
The following table presents the estimated fair value of investments in AFS securities. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| | Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| | Unrealized |
| | Unrealized |
| | | | Unrealized |
| | Unrealized |
| | |
| | Holding |
| | Holding |
| | Estimated |
| | Holding |
| | Holding |
| | Estimated |
|
| (in millions) | Gains |
| | Losses |
| | Fair Value |
| | Gains |
| | Losses(a) |
| | Fair Value |
|
| NDTF | | | | | | | | | | | |
| Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 33 |
| | $ | — |
| | $ | — |
| | $ | 48 |
|
| Equity securities | 294 |
| | 3 |
| | 427 |
| | 231 |
| | 5 |
| | 356 |
|
| Corporate debt securities | 2 |
| | — |
| | 62 |
| | 1 |
| | 1 |
| | 54 |
|
| Municipal bonds | — |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
| U.S. government bonds | 3 |
| | 1 |
| | 214 |
| | 3 |
| | 1 |
| | 251 |
|
| Other debt securities | — |
| | — |
| | 2 |
| | — |
| | — |
| | 3 |
|
Total NDTF(a) | $ | 299 |
| | $ | 4 |
| | $ | 739 |
| | $ | 235 |
| | $ | 7 |
| | $ | 713 |
|
| Other Investments | |
| | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 4 |
|
| Municipal bonds | 2 |
| | — |
| | 47 |
| | 2 |
| | — |
| | 44 |
|
| Total Other Investments | $ | 2 |
| | $ | — |
| | $ | 48 |
| | $ | 2 |
| | $ | — |
| | $ | 48 |
|
| Total Investments | $ | 301 |
| | $ | 4 |
| | $ | 787 |
| | $ | 237 |
| | $ | 7 |
| | $ | 761 |
|
| | | | | |
(a)(in millions) | 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.2020 |
| Due in one year or less | $ | 149 | |
| Due after one through five years | 922 | |
| Due after five through 10 years | 671 | |
| Due after 10 years | 1,260 | |
| Total | $ | 3,002 | |
The table below summarizes the maturity date for debt securities. |
| | | |
| (in millions) | December 31, 2017 |
|
| Due in one year or less | $ | 73 |
|
| Due after one through five years | 82 |
|
| Due after five through 10 years | 57 |
|
| Due after 10 years | 114 |
|
| Total | $ | 326 |
|
Realized gains and losses, which were determined on a specific identification basis, from sales of AFS securities were as follows. |
| | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
|
| Realized gains | $ | 11 |
| | $ | 13 |
| | $ | 7 |
|
| Realized losses | 8 |
| | 9 |
| | 2 |
|
DUKE ENERGY INDIANA
The following table presents the estimated fair value of investments in AFS securities. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| | Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| | Unrealized |
| | Unrealized |
| | | | Unrealized |
| | Unrealized |
| | |
| | Holding |
| | Holding |
| | Estimated |
| | Holding |
| | Holding |
| | Estimated |
|
| (in millions) | Gains |
| | Losses |
| | Fair Value |
| | Gains |
| | Losses(a) |
| | Fair Value |
|
| Other Investments | | | | | | | | | | | |
| Equity securities | $ | 49 |
| | $ | — |
| | $ | 97 |
| | $ | 33 |
| | $ | — |
| | $ | 79 |
|
| Corporate debt securities | — |
| | — |
| | 3 |
| | — |
| | — |
| | 2 |
|
| Municipal bonds | — |
| | 1 |
| | 28 |
| | — |
| | 1 |
| | 28 |
|
| U.S. government bonds | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
|
| Total Other Investments | $ | 49 |
| | $ | 1 |
| | $ | 128 |
| | $ | 33 |
| | $ | 1 |
| | $ | 110 |
|
| Total Investments | $ | 49 |
| | $ | 1 |
| | $ | 128 |
| | $ | 33 |
| | $ | 1 |
| | $ | 110 |
|
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | INVESTMENTS IN DEBT AND EQUITY SECURITIES |
The table below summarizes the maturity date for debt securities. |
| | | |
| (in millions) | December 31, 2017 |
|
| Due in one year or less | $ | 5 |
|
| Due after one through five years | 12 |
|
| Due after five through 10 years | 7 |
|
| Due after 10 years | 7 |
|
| Total | $ | 31 |
|
Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities were insignificant for the years ended December 31, 2017, 20162020, 2019 and 2015.2018, were as follows.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| FV-NI: | | | | | |
| Realized gains | $ | 366 | | | $ | 172 | | | $ | 168 | |
| Realized losses | 174 | | | 151 | | | 126 | |
| AFS: | | | | | |
| Realized gains | 96 | | | 94 | | | 22 | |
| Realized losses | 51 | | | 67 | | | 51 | |
DUKE ENERGY CAROLINAS
The following table presents the estimated fair value of investments in debt and equity securities; equity investments are classified as FV-NI and debt investments are classified as AFS.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2019 |
| Gross | | Gross | | | | Gross | | Gross | | |
| Unrealized | | Unrealized | | | | Unrealized | | Unrealized | | |
| Holding | | Holding | | Estimated | | Holding | | Holding | | Estimated |
| (in millions) | Gains | | Losses | | Fair Value | | Gains | | Losses | | Fair Value |
| NDTF | | | | | | | | | | | |
| Cash and cash equivalents | $ | — | | | $ | — | | | $ | 30 | | | $ | — | | | $ | — | | | $ | 21 | |
| Equity securities | 2,442 | | | 23 | | | 3,685 | | | 1,914 | | | 8 | | | 3,154 | |
| Corporate debt securities | 49 | | | 1 | | | 510 | | | 21 | | | 1 | | | 361 | |
| Municipal bonds | 6 | | | — | | | 91 | | | 3 | | | — | | | 96 | |
| U.S. government bonds | 25 | | | — | | | 475 | | | 16 | | | 1 | | | 578 | |
| Other debt securities | 7 | | | — | | | 174 | | | 3 | | | — | | | 137 | |
| Total NDTF Investments | $ | 2,529 | | | $ | 24 | | | $ | 4,965 | | | $ | 1,957 | | | $ | 10 | | | $ | 4,347 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
The table below summarizes the maturity date for debt securities.
| | | | | |
| (in millions) | December 31, 2020 |
| Due in one year or less | $ | 14 | |
| Due after one through five years | 299 | |
| Due after five through 10 years | 279 | |
| Due after 10 years | 658 | |
| Total | $ | 1,250 | |
Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the years ended December 31, 2020, 2019 and 2018, were as follows.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| FV-NI: | | | | | |
| Realized gains | $ | 64 | | | $ | 113 | | | $ | 89 | |
| Realized losses | 99 | | | 107 | | | 73 | |
| AFS: | | | | | |
| Realized gains | 60 | | | 55 | | | 19 | |
| Realized losses | 37 | | | 38 | | | 35 | |
| | | | | |
| FINANCIAL STATEMENTS | INVESTMENTS IN DEBT AND EQUITY SECURITIES |
PROGRESS ENERGY
The following table presents the estimated fair value of investments in debt and equity securities; equity investments are classified as FV-NI and debt investments are classified as AFS.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Gross | | Gross | | | | Gross | | Gross | | |
| Unrealized | | Unrealized | | | | Unrealized | | Unrealized | | |
| Holding | | Holding | | Estimated | | Holding | | Holding | | Estimated |
| (in millions) | Gains | | Losses | | Fair Value | | Gains | | Losses | | Fair Value |
| NDTF | | | | | | | | | | | |
| Cash and cash equivalents | $ | — | | | $ | — | | | $ | 147 | | | $ | — | | | $ | — | | | $ | 80 | |
| Equity securities | 1,696 | | | 31 | | | 2,550 | | | 1,609 | | | 47 | | | 2,507 | |
| Corporate debt securities | 27 | | | 0 | | | 296 | | | 16 | | | — | | | 242 | |
| Municipal bonds | 16 | | | 0 | | | 279 | | | 10 | | | — | | | 272 | |
| U.S. government bonds | 26 | | | 0 | | | 886 | | | 17 | | | — | | | 678 | |
| Other debt securities | 1 | | | 0 | | | 6 | | | 0 | | | 0 | | | 4 | |
| Total NDTF Investments | $ | 1,766 | | | $ | 31 | | | $ | 4,164 | | | $ | 1,652 | | | $ | 47 | | | $ | 3,783 | |
| Other Investments | | | | | | | | | | | |
| Cash and cash equivalents | $ | — | | | $ | — | | | $ | 106 | | | $ | — | | | $ | — | | | $ | 49 | |
| Municipal bonds | 3 | | | 0 | | | 26 | | | 3 | | | 0 | | | 51 | |
| Total Other Investments | $ | 3 | | | $ | 0 | | | $ | 132 | | | $ | 3 | | | $ | 0 | | | $ | 100 | |
| Total Investments | $ | 1,769 | | | $ | 31 | | | $ | 4,296 | | | $ | 1,655 | | | $ | 47 | | | $ | 3,883 | |
The table below summarizes the maturity date for debt securities.
| | | | | |
| (in millions) | December 31, 2020 |
| Due in one year or less | $ | 109 | |
| Due after one through five years | 567 | |
| Due after five through 10 years | 298 | |
| Due after 10 years | 519 | |
| Total | $ | 1,493 | |
Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the years ended December 31, 2020, 2019 and 2018, were as follows.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| FV-NI: | | | | | |
| Realized gains | $ | 302 | | | $ | 59 | | | $ | 79 | |
| Realized losses | 75 | | | 44 | | | 53 | |
| AFS: | | | | | |
| Realized gains | 24 | | | 36 | | | 3 | |
| Realized losses | 13 | | | 29 | | | 15 | |
| | | | | |
| FINANCIAL STATEMENTS | INVESTMENTS IN DEBT AND EQUITY SECURITIES |
DUKE ENERGY PROGRESS
The following table presents the estimated fair value of investments in debt and equity securities; equity investments are classified as FV-NI and debt investments are classified as AFS.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2019 |
| Gross | | Gross | | | | Gross | | Gross | | |
| Unrealized | | Unrealized | | | | Unrealized | | Unrealized | | |
| Holding | | Holding | | Estimated | | Holding | | Holding | | Estimated |
| (in millions) | Gains | | Losses | | Fair Value | | Gains | | Losses | | Fair Value |
| NDTF | | | | | | | | | | | |
| Cash and cash equivalents | $ | — | | | $ | — | | | $ | 76 | | | $ | — | | | $ | — | | | $ | 53 | |
| Equity securities | 1,617 | | | 31 | | | 2,459 | | | 1,258 | | | 21 | | | 2,077 | |
| Corporate debt securities | 27 | | | — | | | 296 | | | 16 | | | — | | | 242 | |
| Municipal bonds | 16 | | | — | | | 279 | | | 10 | | | — | | | 272 | |
| U.S. government bonds | 26 | | | — | | | 412 | | | 16 | | | — | | | 403 | |
| Other debt securities | 1 | | | 0 | | | 6 | | | 0 | | | 0 | | | 4 | |
| Total NDTF Investments | $ | 1,687 | | | $ | 31 | | | $ | 3,528 | | | $ | 1,300 | | | $ | 21 | | | $ | 3,051 | |
| Other Investments | | | | | | | | | | | |
| Cash and cash equivalents | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | | | $ | 2 | |
| Total Other Investments | $ | 0 | | | $ | 0 | | | $ | 1 | | | $ | 0 | | | $ | 0 | | | $ | 2 | |
| Total Investments | $ | 1,687 | | | $ | 31 | | | $ | 3,529 | | | $ | 1,300 | | | $ | 21 | | | $ | 3,053 | |
The table below summarizes the maturity date for debt securities.
| | | | | |
| (in millions) | December 31, 2020 |
| Due in one year or less | $ | 21 | |
| Due after one through five years | 259 | |
| Due after five through 10 years | 210 | |
| Due after 10 years | 503 | |
| Total | $ | 993 | |
Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the years ended December 31, 2020, 2019 and 2018, were as follows.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| FV-NI: | | | | | |
| Realized gains | $ | 52 | | | $ | 38 | | | $ | 68 | |
| Realized losses | 59 | | | 33 | | | 48 | |
| AFS: | | | | | |
| Realized gains | 24 | | | 7 | | | 2 | |
| Realized losses | 13 | | | 5 | | | 10 | |
| | | | | |
| FINANCIAL STATEMENTS | INVESTMENTS IN DEBT AND EQUITY SECURITIES |
DUKE ENERGY FLORIDA
The following table presents the estimated fair value of investments in debt and equity securities; equity investments are classified as FV-NI and debt investments are classified as AFS.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2019 |
| Gross | | Gross | | | | Gross | | Gross | | |
| Unrealized | | Unrealized | | | | Unrealized | | Unrealized | | |
| Holding | | Holding | | Estimated | | Holding | | Holding | | Estimated |
| (in millions) | Gains | | Losses | | Fair Value | | Gains | | Losses | | Fair Value |
| NDTF | | | | | | | | | | | |
| Cash and cash equivalents | $ | — | | | $ | — | | | $ | 71 | | | $ | — | | | $ | — | | | $ | 27 | |
| Equity securities | 79 | | | — | | | 91 | | | 351 | | | 26 | | | 430 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| U.S. government bonds | — | | | — | | | 474 | | | 1 | | | — | | | 275 | |
| | | | | | | | | | | |
Total NDTF Investments(a) | $ | 79 | | | $ | 0 | | | $ | 636 | | | $ | 352 | | | $ | 26 | | | $ | 732 | |
| Other Investments | | | | | | | | | | | |
| Cash and cash equivalents | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | | | $ | 4 | |
| Municipal bonds | 3 | | | 0 | | | 26 | | | 3 | | | 0 | | | 51 | |
| Total Other Investments | $ | 3 | | | $ | 0 | | | $ | 27 | | | $ | 3 | | | $ | 0 | | | $ | 55 | |
| Total Investments | $ | 82 | | | $ | 0 | | | $ | 663 | | | $ | 355 | | | $ | 26 | | | $ | 787 | |
(a) During the years ended December 31, 2020, and 2019, Duke Energy Florida continued to receive reimbursements from the NDTF for costs related to ongoing decommissioning activity of the Crystal River Unit 3.
The table below summarizes the maturity date for debt securities.
| | | | | |
| (in millions) | December 31, 2020 |
| Due in one year or less | $ | 88 | |
| Due after one through five years | 308 | |
| Due after five through 10 years | 88 | |
| Due after 10 years | 16 | |
| Total | $ | 500 | |
Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the years ended December 31, 2020, 2019 and 2018, were as follows.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| FV-NI: | | | | | |
| Realized gains | $ | 250 | | | $ | 21 | | | $ | 11 | |
| Realized losses | 16 | | | 11 | | | 5 | |
| AFS: | | | | | |
| Realized gains | 0 | | | 29 | | | 1 | |
| Realized losses | 0 | | | 24 | | | 5 | |
| | | | | |
| FINANCIAL STATEMENTS | INVESTMENTS IN DEBT AND EQUITY SECURITIES |
DUKE ENERGY INDIANA
The following table presents the estimated fair value of investments in debt and equity securities; equity investments are measured at FV-NI and debt investments are classified as AFS.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2019 |
| Gross | | Gross | | | | Gross | | Gross | | |
| Unrealized | | Unrealized | | | | Unrealized | | Unrealized | | |
| Holding | | Holding | | Estimated | | Holding | | Holding | | Estimated |
| (in millions) | Gains | | Losses | | Fair Value | | Gains | | Losses | | Fair Value |
| Investments | | | | | | | | | | | |
| Cash and cash equivalents | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | |
| Equity securities | 58 | | | 0 | | | 97 | | | 43 | | | 0 | | | 81 | |
| Corporate debt securities | 0 | | | 0 | | | 3 | | | 0 | | | 0 | | | 6 | |
| Municipal bonds | 1 | | | 0 | | | 38 | | | 1 | | | 0 | | | 36 | |
| U.S. government bonds | 0 | | | — | | | 4 | | | 0 | | | — | | | 2 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total Investments | $ | 59 | | | $ | — | | | $ | 143 | | | $ | 44 | | | $ | 0 | | | $ | 125 | |
The table below summarizes the maturity date for debt securities.
| | | | | |
| (in millions) | December 31, 2020 |
| Due in one year or less | $ | 3 | |
| Due after one through five years | 17 | |
| Due after five through 10 years | 10 | |
| Due after 10 years | 15 | |
| Total | $ | 45 | |
Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the years ended December 31, 2020, 2019 and 2018, were immaterial.
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, suchhierarchy 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 –defined by GAAP. Certain investments are not categorized within the Fair Valuefair value hierarchy. These investments are measured at fair value using the net asset value per share practical expedient. The net asset value is derived based on the fair valueinvestment cost, less any impairment, plus or minus changes resulting from observable price changes for an identical or similar investment of the underlying investments but may not be readily redeemable at that fair value.same issuer.
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.
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)NYSE and the NASDAQNasdaq 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.
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | FAIR VALUE MEASUREMENTS |
Commodity derivatives
Commodity derivatives with clearinghouses are classified as Level 1. Other commodityCommodity derivatives including Piedmont's natural gas supply contracts,with observable forward curves 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 suchclassified 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.Level 2. 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 natural 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 tabletables 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. | | | | December 31, 2017 | | December 31, 2020 |
| (in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Not Categorized |
| (in millions) | Total Fair Value | Level 1 | Level 2 | Level 3 | Not Categorized |
| NDTF cash and cash equivalents | | NDTF cash and cash equivalents | $ | 177 | | $ | 177 | | $ | 0 | | $ | 0 | | $ | 0 | |
| NDTF equity securities | $ | 4,914 |
| $ | 4,840 |
| $ | — |
| $ | — |
| $ | 74 |
| NDTF equity securities | 6,235 | | 6,189 | | — | | — | | 46 | |
| NDTF debt securities | 2,174 |
| 635 |
| 1,539 |
| — |
| — |
| NDTF debt securities | 2,717 | | 874 | | 1,843 | | — | | — | |
| Other AFS equity securities | 123 |
| 123 |
| — |
| — |
| — |
| |
| Other trading and AFS debt securities | 241 |
| 57 |
| 184 |
| — |
| — |
| |
| Other equity securities | | Other equity securities | 146 | | 146 | | — | | — | | — | |
| Other debt securities | | Other debt securities | 285 | | 37 | | 248 | | — | | — | |
| Other cash and cash equivalents | | Other cash and cash equivalents | 127 | | 127 | | 0 | | 0 | | 0 | |
| Derivative assets | 51 |
| 3 |
| 20 |
| 28 |
| — |
| Derivative assets | 61 | | 1 | | 53 | | 7 | | — | |
| Total assets | 7,503 |
| 5,658 |
| 1,743 |
| 28 |
| 74 |
| Total assets | 9,748 | | 7,551 | | 2,144 | | 7 | | 46 | |
| | Derivative liabilities | (230 | ) | (2 | ) | (86 | ) | (142 | ) | — |
| Derivative liabilities | (324) | | 0 | | (240) | | (84) | | — | |
| Net assets (liabilities) | $ | 7,273 |
| $ | 5,656 |
| $ | 1,657 |
| $ | (114 | ) | $ | 74 |
| Net assets (liabilities) | $ | 9,424 | | $ | 7,551 | | $ | 1,904 | | $ | (77) | | $ | 46 | |
| | | | | | | | | | | | | | | | | |
| | December 31, 2019 |
| (in millions) | Total Fair Value | Level 1 | Level 2 | Level 3 | Not Categorized |
| NDTF cash and cash equivalents | $ | 101 | | $ | 101 | | $ | 0 | | $ | 0 | | $ | 0 | |
| NDTF equity securities | 5,684 | | 5,633 | | — | | — | | 51 | |
| NDTF debt securities | 2,368 | | 725 | | 1,643 | | — | | — | |
| Other equity securities | 122 | | 122 | | — | | — | | — | |
| Other debt securities | 258 | | 39 | | 219 | | — | | — | |
| Other cash and cash equivalents | 52 | | 52 | | 0 | | 0 | | 0 | |
| Derivative assets | 25 | | 3 | | 7 | | 15 | | — | |
| Total assets | 8,610 | | 6,675 | | 1,869 | | 15 | | 51 | |
| NDTF equity security contracts | (23) | | 0 | | (23) | | 0 | | — | |
| Derivative liabilities | (277) | | (15) | | (145) | | (117) | | — | |
| Net assets (liabilities) | $ | 8,310 | | $ | 6,660 | | $ | 1,701 | | $ | (102) | | $ | 51 | |
|
| | | | | | | | | | | | | | | |
| | December 31, 2016 |
| (in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Not Categorized |
|
| NDTF equity securities | $ | 4,106 |
| $ | 4,029 |
| $ | — |
| $ | — |
| $ | 77 |
|
| NDTF debt securities | 2,078 |
| 632 |
| 1,446 |
| — |
| — |
|
| Other trading and AFS equity securities | 104 |
| 104 |
| — |
| — |
| — |
|
| Other trading and AFS debt securities | 266 |
| 75 |
| 186 |
| 5 |
| — |
|
| Derivative assets | 162 |
| 5 |
| 136 |
| 21 |
| — |
|
| Total assets | 6,716 |
| 4,845 |
| 1,768 |
| 26 |
| 77 |
|
| Derivative liabilities | (252 | ) | (2 | ) | (63 | ) | (187 | ) | — |
|
| Net assets | $ | 6,464 |
| $ | 4,843 |
| $ | 1,705 |
| $ | (161 | ) | $ | 77 |
|
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | FAIR VALUE MEASUREMENTS |
The following tables providetable provides 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. | | | | | | | | | | | | | | | | | Derivatives (net) | |
| | December 31, 2017 | | December 31, 2016 | | | Years Ended December 31, | |
| | | | | | | | | | | | | |
| (in millions) | Investments |
| | Derivatives (net) |
| | Total |
| | Investments |
| | Derivatives (net) |
| | Total |
| (in millions) | | 2020 | | | | 2019 | |
| Balance at beginning of period | $ | 5 |
| | $ | (166 | ) | | $ | (161 | ) | | $ | 5 |
| | $ | 10 |
| | $ | 15 |
| Balance at beginning of period | | $ | (102) | | | | | $ | (113) | | |
| Total pretax realized or unrealized gains included in comprehensive income | 1 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| |
| Derivative liability resulting from the acquisition of Piedmont | — |
| | — |
| | — |
| | — |
| | (187 | ) | | (187 | ) | |
| | Total pretax realized or unrealized losses included in comprehensive income | | Total pretax realized or unrealized losses included in comprehensive income | | (84) | | | | | 0 | | |
| | Purchases, sales, issuances and settlements: | | | | |
|
| | | | | | | Purchases, sales, issuances and settlements: | | | | | | | |
| Purchases | — |
| | 55 |
| | 55 |
| | — |
| | 33 |
| | 33 |
| Purchases | | 14 | | | | | 37 | | |
| Sales | (6 | ) | | — |
| | (6 | ) | | — |
| | — |
| | — |
| |
| | Settlements | — |
| | (47 | ) | | (47 | ) | | — |
| | (28 | ) | | (28 | ) | Settlements | | (19) | | | | | (44) | | |
| Total gains included on the Consolidated Balance Sheet | — |
| | 44 |
| | 44 |
| | — |
| | 6 |
| | 6 |
| |
Net transfers Out of Level 3(a) | | Net transfers Out of Level 3(a) | | 117 | | | | | 0 | | |
| Total (losses) gains included on the Consolidated Balance Sheet | | Total (losses) gains included on the Consolidated Balance Sheet | | (3) | | | | | 18 | | |
| Balance at end of period | $ | — |
|
| $ | (114 | ) | | $ | (114 | ) | | $ | 5 |
| | $ | (166 | ) | | $ | (161 | ) | Balance at end of period | | $ | (77) | | | | | $ | (102) | | |
|
(a)Transferred from Level 3 to Level 2 because observable market data became available.
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. | | | | December 31, 2017 | | December 31, 2020 |
| (in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Not Categorized |
| (in millions) | Total Fair Value | Level 1 | Level 2 | | Not Categorized |
| NDTF cash and cash equivalents | | NDTF cash and cash equivalents | $ | 30 | | $ | 30 | | $ | 0 | | | $ | 0 | |
| NDTF equity securities | $ | 2,692 |
| $ | 2,618 |
| $ | — |
| $ | — |
| $ | 74 |
| NDTF equity securities | 3,685 | | 3,639 | | — | | | 46 | |
| NDTF debt securities | 1,066 |
| 204 |
| 862 |
| — |
| — |
| NDTF debt securities | 1,250 | | 192 | | 1,058 | | | — | |
| | Derivative assets | 2 |
| — |
| 2 |
| — |
| — |
| Derivative assets | 20 | | 0 | | 20 | | | 0 | |
| Total assets | 3,760 |
| 2,822 |
| 864 |
| — |
| 74 |
| Total assets | 4,985 | | 3,861 | | 1,078 | | | 46 | |
| Derivative liabilities | (35 | ) | (1 | ) | (34 | ) | — |
| — |
| Derivative liabilities | (20) | | — | | (20) | | | — | |
| Net assets | $ | 3,725 |
| $ | 2,821 |
| $ | 830 |
| $ | — |
| $ | 74 |
| Net assets | $ | 4,965 | | $ | 3,861 | | $ | 1,058 | | | $ | 46 | |
| | | | | | | | | | | | | | | |
| | December 31, 2019 |
| (in millions) | Total Fair Value | Level 1 | Level 2 | | Not Categorized |
| NDTF cash and cash equivalents | $ | 21 | | $ | 21 | | $ | 0 | | | $ | 0 | |
| NDTF equity securities | 3,154 | | 3,103 | | — | | | 51 | |
| NDTF debt securities | 1,172 | | 206 | | 966 | | | — | |
| | | | | |
| | | | | |
| Total assets | 4,347 | | 3,330 | | 966 | | | 51 | |
| Derivative liabilities | (49) | | — | | (49) | | | — | |
| Net assets | $ | 4,298 | | $ | 3,330 | | $ | 917 | | | $ | 51 | |
|
| | | | | | | | | | | | | | | |
| | December 31, 2016 |
| (in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Not Categorized |
|
| NDTF equity securities | $ | 2,245 |
| $ | 2,168 |
| $ | — |
| $ | — |
| $ | 77 |
|
| NDTF debt securities | 1,013 |
| 178 |
| 835 |
| — |
| — |
|
| Other AFS debt securities | 3 |
| — |
| — |
| 3 |
| — |
|
| Derivative assets | 33 |
| — |
| 33 |
| — |
| — |
|
| Total assets | 3,294 |
| 2,346 |
| 868 |
| 3 |
| 77 |
|
| Derivative liabilities | (16 | ) | — |
| (16 | ) | — |
| — |
|
| Net assets | $ | 3,278 |
| $ | 2,346 |
| $ | 852 |
| $ | 3 |
| $ | 77 |
|
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | FAIR VALUE MEASUREMENTS |
The following table provides reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. |
| | | | | | | |
| | Investments |
| | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
|
| Balance at beginning of period | $ | 3 |
| | $ | 3 |
|
| Total pretax realized or unrealized gains included in comprehensive income | 1 |
| | — |
|
| Purchases, sales, issuances and settlements: | | | |
| Sales | (4 | ) | | — |
|
| Balance at end of period | $ | — |
|
| $ | 3 |
|
PROGRESS ENERGY
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. | | | | December 31, 2017 | | December 31, 2016 | | December 31, 2020 | | December 31, 2019 |
| (in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| | Total Fair Value |
| Level 1 |
| Level 2 |
| (in millions) | Total Fair Value | Level 1 | Level 2 | | | Total Fair Value | Level 1 | Level 2 | |
| NDTF cash and cash equivalents | | NDTF cash and cash equivalents | $ | 147 | | $ | 147 | | $ | 0 | | | | $ | 80 | | $ | 80 | | $ | 0 | | |
| NDTF equity securities | $ | 2,222 |
| $ | 2,222 |
| $ | — |
| | $ | 1,861 |
| $ | 1,861 |
| $ | — |
| NDTF equity securities | 2,550 | | 2,550 | | — | | | | 2,530 | | 2,530 | | — | | |
| NDTF debt securities | 1,108 |
| 431 |
| 677 |
| | 1,065 |
| 454 |
| 611 |
| NDTF debt securities | 1,467 | | 682 | | 785 | | | | 1,196 | | 519 | | 677 | | |
| Other AFS debt securities | 59 |
| 12 |
| 47 |
| | 65 |
| 21 |
| 44 |
| |
| Other debt securities | | Other debt securities | 26 | | — | | 26 | | | | 51 | | — | | 51 | | |
| Other cash and cash equivalents | | Other cash and cash equivalents | 106 | | 106 | | 0 | | | 49 | | 49 | | 0 | | |
| Derivative assets | 3 |
| 1 |
| 2 |
| | 85 |
| — |
| 85 |
| Derivative assets | 33 | | — | | 33 | | | | 7 | | — | | 7 | | |
| Total assets | 3,392 |
| 2,666 |
| 726 |
| | 3,076 |
| 2,336 |
| 740 |
| Total assets | 4,329 | | 3,485 | | 844 | | | | 3,913 | | 3,178 | | 735 | | |
| NDTF equity security contracts | | NDTF equity security contracts | — | | — | | — | | | | (23) | | — | | (23) | | |
| Derivative liabilities | (36 | ) | (1 | ) | (35 | ) | | (25 | ) | — |
| (25 | ) | Derivative liabilities | (29) | | — | | (29) | | | | (65) | | — | | (65) | | |
| Net assets | $ | 3,356 |
| $ | 2,665 |
| $ | 691 |
| | $ | 3,051 |
| $ | 2,336 |
| $ | 715 |
| Net assets | $ | 4,300 | | $ | 3,485 | | $ | 815 | | | | $ | 3,825 | | $ | 3,178 | | $ | 647 | | |
DUKE ENERGY PROGRESS
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. | | | | December 31, 2017 | | December 31, 2016 | | December 31, 2020 | | December 31, 2019 | |
| (in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| | Total Fair Value |
| Level 1 |
| Level 2 |
| (in millions) | Total Fair Value | Level 1 | Level 2 | | | Total Fair Value | Level 1 | Level 2 | |
| NDTF cash and cash equivalents | | NDTF cash and cash equivalents | $ | 76 | | $ | 76 | | $ | 0 | | | | $ | 53 | | $ | 53 | | $ | 0 | | |
| NDTF equity securities | $ | 1,795 |
| $ | 1,795 |
| $ | — |
| | $ | 1,505 |
| $ | 1,505 |
| $ | — |
| NDTF equity securities | 2,459 | | 2,459 | | — | | | | 2,077 | | 2,077 | | — | | |
| NDTF debt securities | 796 |
| 243 |
| 553 |
| | 708 |
| 207 |
| 501 |
| NDTF debt securities | 993 | | 237 | | 756 | | | | 921 | | 244 | | 677 | | |
| Other AFS debt securities | 1 |
| 1 |
| — |
| | 1 |
| 1 |
| — |
| |
| | Other cash and cash equivalents | | Other cash and cash equivalents | 1 | | 1 | | 0 | | | | 2 | | 2 | | 0 | | |
| Derivative assets | 2 |
| 1 |
| 1 |
| | 46 |
| — |
| 46 |
| Derivative assets | 33 | | — | | 33 | | | | — | | — | | 0 | | |
| Total assets | 2,594 |
| 2,040 |
| 554 |
| | 2,260 |
| 1,713 |
| 547 |
| Total assets | 3,562 | | 2,773 | | 789 | | | | 3,053 | | 2,376 | | 677 | | |
| Derivative liabilities | (18 | ) | (1 | ) | (17 | ) | | (7 | ) | — |
| (7 | ) | Derivative liabilities | (14) | | — | | (14) | | | | (49) | | — | | (49) | | |
| Net assets | $ | 2,576 |
| $ | 2,039 |
| $ | 537 |
| | $ | 2,253 |
| $ | 1,713 |
| $ | 540 |
| Net assets | $ | 3,548 | | $ | 2,773 | | $ | 775 | | | | $ | 3,004 | | $ | 2,376 | | $ | 628 | | |
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. |
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| (in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| | Total Fair Value |
| Level 1 |
| Level 2 |
|
| NDTF equity securities | $ | 427 |
| $ | 427 |
| $ | — |
| | $ | 356 |
| $ | 356 |
| $ | — |
|
| NDTF debt securities | 312 |
| 188 |
| 124 |
| | 357 |
| 247 |
| 110 |
|
| Other AFS debt securities | 48 |
| 1 |
| 47 |
| | 48 |
| 4 |
| 44 |
|
| Derivative assets | 1 |
| — |
| 1 |
| | 39 |
| — |
| 39 |
|
| Total assets | 788 |
| 616 |
| 172 |
| | 800 |
| 607 |
| 193 |
|
| Derivative liabilities | (12 | ) | — |
| (12 | ) | | (12 | ) | — |
| (12 | ) |
| Net assets | $ | 776 |
| $ | 616 |
| $ | 160 |
| | $ | 788 |
| $ | 607 |
| $ | 181 |
|
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 – (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2019 | |
| (in millions) | Total Fair Value | Level 1 | Level 2 | | Total Fair Value | Level 1 | Level 2 | |
| NDTF cash and cash equivalents | $ | 71 | | $ | 71 | | $ | 0 | | | $ | 27 | | $ | 27 | | $ | 0 | | |
| NDTF equity securities | 91 | | 91 | | — | | | 453 | | 453 | | — | | |
| NDTF debt securities | 474 | | 445 | | 29 | | | 275 | | 275 | | — | | |
| Other debt securities | 26 | | — | | 26 | | | 51 | | — | | 51 | | |
| Other cash and cash equivalents | 1 | | 1 | | 0 | | | 4 | | 4 | | 0 | | |
| Derivative assets | — | | — | | — | | | 7 | | — | | 7 | | |
| Total assets | 663 | | 608 | | 55 | | | 817 | | 759 | | 58 | | |
| NDTF equity security contracts | — | | — | | — | | | (23) | | — | | (23) | | |
| Derivative liabilities | — | | — | | — | | | (1) | | — | | (1) | | |
| Net assets | $ | 663 | | $ | 608 | | $ | 55 | | | $ | 793 | | $ | 759 | | $ | 34 | | |
DUKE ENERGY OHIO
The recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets were not material at December 31, 2020, and 2019.
| | | | | |
| FINANCIAL STATEMENTS | FAIR VALUE MEASUREMENTS |
DUKE ENERGY INDIANA
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets.
| | | | December 31, 2017 | | December 31, 2016 | | December 31, 2020 | | December 31, 2019 |
| (in millions) | Total Fair Value |
| Level 2 |
| Level 3 |
| | Total Fair Value |
| Level 2 |
| Level 3 |
| (in millions) | Total Fair Value | Level 1 | Level 2 | Level 3 | | Total Fair Value | Level 1 | Level 2 | Level 3 |
| Other equity securities | | Other equity securities | $ | 97 | | $ | 97 | | $ | — | | $ | — | | | $ | 81 | | $ | 81 | | $ | — | | $ | — | |
| Other debt securities | | Other debt securities | 45 | | — | | 45 | | — | | | 44 | | — | | 44 | | — | |
| Other cash equivalents | | Other cash equivalents | 1 | | 1 | | 0 | | 0 | | | 0 | | 0 | | 0 | | — | |
| Derivative assets | $ | 1 |
| $ | — |
| $ | 1 |
| | $ | 5 |
| $ | — |
| $ | 5 |
| Derivative assets | 6 | | — | | — | | 6 | | | 13 | | 2 | | — | | 11 | |
| Total assets | | Total assets | 149 | | 98 | | 45 | | 6 | | | 138 | | 83 | | 44 | | 11 | |
| Derivative liabilities | (5 | ) | (5 | ) | — |
| | (6 | ) | (6 | ) | — |
| Derivative liabilities | (1) | | (1) | | — | | — | | | (1) | | (1) | | — | | — | |
| Net (liabilities) assets | $ | (4 | ) | $ | (5 | ) | $ | 1 |
| | $ | (1 | ) | $ | (6 | ) | $ | 5 |
| |
| Total assets | | Total assets | $ | 148 | | $ | 97 | | $ | 45 | | $ | 6 | | | $ | 137 | | $ | 82 | | $ | 44 | | $ | 11 | |
The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. | | | | Derivatives (net) | | Derivatives (net) |
| | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| (in millions) | 2020 | | 2019 |
| Balance at beginning of period | $ | 5 |
| | $ | 3 |
| Balance at beginning of period | $ | 11 | | | $ | 22 | |
| | Purchases, sales, issuances and settlements: | | | | Purchases, sales, issuances and settlements: | |
| Purchases | 3 |
| | 5 |
| Purchases | 10 | | | 28 | |
| | Settlements | (4 | ) | | (5 | ) | Settlements | (13) | | | (36) | |
| Total gains included on the Consolidated Balance Sheet | (3 | ) | | 2 |
| |
| | Total losses included on the Consolidated Balance Sheet | | Total losses included on the Consolidated Balance Sheet | (2) | | | (3) | |
| Balance at end of period | $ | 1 |
| | $ | 5 |
| Balance at end of period | $ | 6 | | | $ | 11 | |
DUKE ENERGY INDIANAPIEDMONT
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| �� | December 31, 2017 | | December 31, 2016 |
| (in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
|
| Other AFS equity securities | $ | 97 |
| $ | 97 |
| $ | — |
| $ | — |
| | $ | 79 |
| $ | 79 |
| $ | — |
| $ | — |
|
| Other AFS debt securities | 31 |
| — |
| 31 |
| — |
| | 31 |
| — |
| 31 |
| — |
|
| Derivative assets | 27 |
| — |
| — |
| 27 |
| | 16 |
| — |
| — |
| 16 |
|
| Total assets | 155 |
| 97 |
| 31 |
| 27 |
| | 126 |
| 79 |
| 31 |
| 16 |
|
| Derivative liabilities | — |
| — |
| — |
| — |
| | (2 | ) | (2 | ) | — |
| — |
|
| Net assets | $ | 155 |
| $ | 97 |
| $ | 31 |
| $ | 27 |
| | $ | 124 |
| $ | 77 |
| $ | 31 |
| $ | 16 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2019 |
| (in millions) | Total Fair Value | Level 1 | Level 2 | | | Total Fair Value | Level 1 | | Level 3 |
| | | | | | | | | |
| | | | | | | | | |
| Derivative assets | $ | 1 | | $ | 1 | | $ | — | | | | $ | 1 | | $ | 1 | | | $ | — | |
| | | | | | | | | |
| Derivative liabilities | (122) | | — | | (122) | | | | (117) | | — | | | (117) | |
| Net (liabilities) assets | $ | (121) | | $ | 1 | | $ | (122) | | | | $ | (116) | | $ | 1 | | | $ | (117) | |
The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. |
| | | | | | | |
| | Derivatives (net) |
| | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
|
| Balance at beginning of period | $ | 16 |
| | $ | 7 |
|
| Purchases, sales, issuances and settlements: | | | |
| Purchases | 52 |
| | 29 |
|
| Settlements | (43 | ) | | (24 | ) |
| Total gains included on the Consolidated Balance Sheet | 2 |
| | 4 |
|
| Balance at end of period | $ | 27 |
| | $ | 16 |
|
| | | | | | | | | | | |
| | Derivatives (net) |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 |
| Balance at beginning of period | $ | (117) | | | $ | (141) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Net transfers Out of Level 3(a) | 117 | | | 0 | |
| Total gains and settlements | 0 | | | 24 | |
| Balance at end of period | $ | 0 | | | $ | (117) | |
(a) Transferred from Level 3 to Level 2 because observable market data became available.
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | FAIR VALUE MEASUREMENTS |
PIEDMONT
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| (in millions) | Total Fair Value |
| Level 1 |
| Level 3 |
| | Total Fair Value |
| Level 1 |
| Level 3 |
|
| Other trading equity securities | $ | — |
| $ | — |
| $ | — |
| | $ | 4 |
| $ | 4 |
| $ | — |
|
| Other trading debt securities | 1 |
| 1 |
| — |
| | 1 |
| 1 |
| — |
|
| Derivative assets | 2 |
| 2 |
| — |
| | 3 |
| 3 |
| — |
|
| Total assets | 3 |
| 3 |
| — |
| | 8 |
| 8 |
| — |
|
| Derivative liabilities | (142 | ) | — |
| (142 | ) | | (187 | ) | — |
| (187 | ) |
| Net assets | $ | (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. |
| | | | | | | | | | | |
| | Derivatives (net) |
| | Year Ended | | Two Months Ended | | Year Ended |
| (in millions) | December 31, 2017 |
| | December 31, 2016 |
| | October 31, 2016 |
|
| Balance at beginning of period | $ | (187 | ) | | $ | (188 | ) | | $ | — |
|
| Total gains (losses) and settlements | 45 |
| | 1 |
| | (188 | ) |
| Balance at end of period | $ | (142 | ) | | $ | (187 | ) | | $ | (188 | ) |
QUANTITATIVE INFORMATION ABOUT UNOBSERVABLE INPUTS
The following tables include quantitative information about the Duke Energy Registrants' derivatives classified as Level 3. |
| | | | | | | | | | | | |
| | December 31, 2017 |
| | Fair Value | | | | | |
| Investment Type | (in millions) | Valuation Technique | Unobservable Input | Range |
| Duke Energy Ohio | | | | | | |
| FTRs | $ | 1 |
| RTO auction pricing | FTR price – per MWh | $ | 0.07 |
| – | $ | 1.41 |
|
| Duke Energy Indiana | | | | | | |
| FTRs | 27 |
| RTO auction pricing | FTR price – per MWh | (0.77 | ) | – | 7.44 |
|
| Piedmont | | | | | | |
| Natural gas contracts | (142 | ) | Discounted cash flow | Forward natural gas curves - price per MMBtu | 2.10 |
| – | 2.88 |
|
| Duke Energy | | | | | | |
| Total Level 3 derivatives | $ | (114 | ) | | | | | |
| | | | | | | | | | | | | December 31, 2020 | |
| | December 31, 2016 | | | Weighted |
| | Fair Value | | | | | | Fair Value | | Average |
| Investment Type | (in millions) | Valuation Technique | Unobservable Input | Range | Investment Type | (in millions) | Valuation Technique | Unobservable Input | Range | Range |
| Duke Energy | | Duke Energy | |
| Electricity contracts | | Electricity contracts | $ | (84) | | Discounted cash flow | Forward electricity curves – price per MWh | $ | 14.68 | | – | $ | 151.84 | | $ | 28.84 | |
| Duke Energy Ohio | | | | | | Duke Energy Ohio | |
| FTRs | $ | 5 |
| RTO auction pricing | FTR price – per MWh | 0.77 |
| – | 3.52 |
| FTRs | 1 | | RTO auction pricing | FTR price – per MWh | 0.25 | | – | 1.68 | | 0.79 | |
| Duke Energy Indiana | | | | | | Duke Energy Indiana | |
| FTRs | 16 |
| RTO auction pricing | FTR price – per MWh | (0.83 | ) | – | 9.32 |
| FTRs | 6 | | RTO auction pricing | FTR price – per MWh | (2.40) | | – | 7.41 | | 1.05 | |
| Piedmont | | | | | | |
| Natural gas contracts | (187 | ) | Discounted cash flow | Forward natural gas curves - price per MMBtu | 2.31 |
| – | 4.18 |
| |
| | Duke Energy | | | | | | Duke Energy | |
| Total Level 3 derivatives | $ | (166 | ) | | | | | Total Level 3 derivatives | $ | (77) | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 | |
| | | | | | | Weighted |
| Fair Value | | | | | | Average |
| Investment Type | (in millions) | Valuation Technique | Unobservable Input | Range | Range |
| | | | | | | |
| Duke Energy Ohio | | | | | | | |
| FTRs | $ | 4 | | RTO auction pricing | FTR price – per MWh | $ | 0.59 | | – | $ | 3.47 | | $ | 2.07 | |
| Duke Energy Indiana | | | | | | | |
| FTRs | 11 | | RTO auction pricing | FTR price – per MWh | (0.66) | | – | 9.24 | | 1.15 | |
| Piedmont | | | | | | | |
| Natural gas contracts | (117) | | Discounted cash flow | Forward natural gas curves – price per MMBtu | 1.59 | | – | 2.46 | | 1.91 | |
| Duke Energy | | | | | | | |
| Total Level 3 derivatives | $ | (102) | | | | | | | |
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 – (Continued)
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. | | | | December 31, 2017 | | December 31, 2016 | | December 31, 2020 | | December 31, 2019 |
| (in millions) | Book Value |
| | Fair Value |
| | Book Value |
| | Fair Value |
| (in millions) | Book Value | | Fair Value | | Book Value | | Fair Value |
| Duke Energy | $ | 52,279 |
| | $ | 55,331 |
| | $ | 47,895 |
| | $ | 49,161 |
| |
Duke Energy(a) | | Duke Energy(a) | $ | 59,863 | | | $ | 69,292 | | | $ | 58,126 | | | $ | 63,062 | |
| Duke Energy Carolinas | 10,103 |
| | 11,372 |
| | 9,603 |
| | 10,494 |
| Duke Energy Carolinas | 12,218 | | | 14,917 | | | 11,900 | | | 13,516 | |
| Progress Energy | 17,837 |
| | 20,000 |
| | 17,541 |
| | 19,107 |
| Progress Energy | 19,264 | | | 23,470 | | | 19,634 | | | 22,291 | |
| Duke Energy Progress | 7,357 |
| | 7,992 |
| | 7,011 |
| | 7,357 |
| Duke Energy Progress | 9,258 | | | 10,862 | | | 9,058 | | | 9,934 | |
| Duke Energy Florida | 7,095 |
| | 7,953 |
| | 6,125 |
| | 6,728 |
| Duke Energy Florida | 7,915 | | | 9,756 | | | 7,987 | | | 9,131 | |
| Duke Energy Ohio | 2,067 |
| | 2,249 |
| | 1,884 |
| | 2,020 |
| Duke Energy Ohio | 3,089 | | | 3,650 | | | 2,619 | | | 2,964 | |
| Duke Energy Indiana | 3,783 |
| | 4,464 |
| | 3,786 |
| | 4,260 |
| Duke Energy Indiana | 4,091 | | | 5,204 | | | 4,057 | | | 4,800 | |
| Piedmont | 2,037 |
| | 2,209 |
| | 1,821 |
| | 1,933 |
| Piedmont | 2,780 | | | 3,306 | | | 2,384 | | | 2,642 | |
(a) Book value of long-term debt includes $1.3 billion as of December 31, 2020, and $1.5 billion as of December 31, 2019, of unamortized debt discount and premium, net in purchase accounting adjustments related to the mergers with Progress Energy and Piedmont that are excluded from fair value of long-term debt.
At both December 31, 2017,2020, and December 31, 2016,2019, 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.
| | | | | |
| FINANCIAL STATEMENTS | VARIABLE INTEREST ENTITIES |
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 thesethe consolidated 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.
NoNaN financial support was provided to any of the consolidated VIEs during the years ended December 31, 2017, 20162020, 2019 and 2015,2018, 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)DERF, DEPR and Duke Energy Florida Receivables, LLC (DEFR)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 companiesLLCs 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.purchased, which generally exclude receivables past due more than a predetermined number of days and reserves for expected past-due balances. The sole source of funds to satisfy the related debt obligations is cash collections from the receivables. Amounts borrowed under the credit facilities for DERF and DEPR are reflected on the Consolidated Balance Sheets as Long-Term Debt. Amounts borrowed under the credit facilities for DEFR are reflected on the Consolidated Balance Sheets as Current maturities of long-term debt.
Due to the COVID-19 pandemic, as described in Note 1, the Duke Energy Registrants suspended customer disconnections for nonpayment. Since taking action to suspend customer disconnections for nonpayment, certain jurisdictions have now returned to normal operations and billing practices. The full impact of COVID-19 and the Duke Energy Registrant’s related response on customers’ ability to pay for service is uncertain. However, the level of past-due receivables at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida have increased significantly during the COVID-19 pandemic, and it is reasonably possible eventual write-offs of customer receivables may increase over current estimates. In 2020, DERF, DEPR and DEFR executed amendments to their credit facilities to manage the impact of past-due receivables resulting from the suspension of customer disconnections from COVID-19. See Note 3 for information about COVID-19 filings with state utility commissions.
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 are considered the primary beneficiaries and 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.CRC, which generally exclude receivables past due more than a predetermined number of days and reserves for expected past-due balances. 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 percentapproximately 75% cash and 25 percent25% 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.
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 – (Continued)
Due to the COVID-19 pandemic, as described in Note 1, the Duke Energy Registrants suspended customer disconnections for nonpayment. Since taking action to suspend customer disconnections for nonpayment, certain jurisdictions have now returned to normal operations and billing practices. The full impact of COVID-19 and the Duke Energy Registrant’s related response on customers’ ability to pay for service is uncertain. However, the level of past-due receivables at Duke Energy Ohio and Duke Energy Indiana have increased significantly during the COVID-19 pandemic, and it is reasonably possible eventual write-offs of customer receivables may increase over current estimates. In July of 2020, CRC executed an amendment to its credit facility to manage the impact of past-due receivables resulting from the suspension of customer disconnections from COVID-19. See Note 3 for information about COVID-19 filings with state utility commissions.
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 areis not performedheld 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 is considered the primary beneficiary and consolidates CRC as it makes these decisions. Neither Duke Energy Ohio nor Duke Energy Indiana consolidate CRC.
| | | | | |
| FINANCIAL STATEMENTS | VARIABLE INTEREST ENTITIES |
Receivables Financing – Credit Facilities
The following table outlinessummarizes the amounts and expiration dates of the credit facilities and associated restricted receivables described above. |
| | | | | | | | | | | | | | | |
| | Duke Energy |
| | | | Duke Energy |
| | Duke Energy |
| | Duke Energy |
|
| | | | Carolinas |
| | Progress |
| | Florida |
|
| | CRC |
| | DERF |
| | DEPR |
| | DEFR |
|
| Expiration date | December 2020 |
| | December 2020 |
| | February 2019 |
| | April 2019 |
|
| Credit facility amount (in millions) | $ | 325 |
| | $ | 450 |
| | $ | 300 |
| | $ | 225 |
|
| Amounts borrowed at December 31, 2017 | 325 |
| | 450 |
| | 300 |
| | 225 |
|
| Amounts borrowed at December 31, 2016 | 325 |
| | 425 |
| | 300 |
| | 225 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Duke Energy |
| | | Duke Energy | | Duke Energy | | Duke Energy |
| | | Carolinas | | Progress | | Florida |
| (in millions) | CRC | | DERF | | DEPR | | DEFR |
| Expiration date | February 2023 | | December 2022 | | April 2023 | | April 2021 |
| Credit facility amount | $ | 350 | | | $ | 475 | | | $ | 350 | | | $ | 250 | |
| Amounts borrowed at December 31, 2020 | 350 | | | 364 | | | 250 | | | 250 | |
| Amounts borrowed at December 31, 2019 | 350 | | | 474 | | | 325 | | | 250 | |
| Restricted Receivables at December 31, 2020 | 547 | | | 696 | | | 500 | | | 397 | |
| Restricted Receivables at December 31, 2019 | 522 | | | 642 | | | 489 | | | 336 | |
Nuclear Asset-Recovery Bonds – DEFPF
Duke Energy Florida Project Finance, LLC (DEFPF)
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. | | | | | | | | December 31, |
| (in millions) | December 31, 2017 |
| December 31, 2016 |
| (in millions) | 2020 | 2019 |
| Receivables of VIEs | $ | 4 |
| $ | 6 |
| Receivables of VIEs | $ | 4 | | $ | 5 | |
| Regulatory Assets: Current | 51 |
| 50 |
| Regulatory Assets: Current | 53 | | 52 | |
| Current Assets: Other | 40 |
| 53 |
| Current Assets: Other | 39 | | 39 | |
| Other Noncurrent Assets: Regulatory assets | 1,091 |
| 1,142 |
| Other Noncurrent Assets: Regulatory assets | 937 | | 989 | |
| Current Liabilities: Other | 10 |
| 17 |
| Current Liabilities: Other | 10 | | 10 | |
| Current maturities of long-term debt | 53 |
| 62 |
| Current maturities of long-term debt | 55 | | 54 | |
| Long-Term Debt | 1,164 |
| 1,217 |
| Long-Term Debt | 1,002 | | 1,057 | |
Commercial Renewables
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. Additionally, Duke Energy has VIEs associated with tax equity arrangements entered into with third-party investors in order to finance the cost of renewable assets eligible for tax credits. The activities that most significantly impactimpacted the economic performance of these renewable energy facilities were decisions associated with siting, negotiating PPAs engineering, procurement and constructionEPC agreements, and decisions associated with ongoing operations and maintenance-related activities. Duke Energy is considered the primary beneficiary and consolidates the entities as it is responsible for all of these decisions.
| | | | | |
| FINANCIAL STATEMENTS | VARIABLE INTEREST ENTITIES |
The table below presents material balances reported on Duke Energy's Consolidated Balance Sheets related to
renewablesCommercial Renewables VIEs.
| | | | | | | | December 31, |
| (in millions) | December 31, 2017 |
| December 31, 2016 |
| (in millions) | 2020 | 2019 |
| Current Assets: Other | $ | 174 |
| $ | 223 |
| Current Assets: Other | $ | 257 | | $ | 203 | |
| Property, plant and equipment, cost | 3,923 |
| 3,419 |
| |
| Property, Plant and Equipment: Cost | | Property, Plant and Equipment: Cost | 6,394 | | 5,747 | |
| Accumulated depreciation and amortization | (591 | ) | (453 | ) | Accumulated depreciation and amortization | (1,242) | | (1,041) | |
| Other Noncurrent Assets: Other | | Other Noncurrent Assets: Other | 67 | | 106 | |
| Current maturities of long-term debt | 170 |
| 198 |
| Current maturities of long-term debt | 167 | | 162 | |
| Long-Term Debt | 1,700 |
| 1,097 |
| Long-Term Debt | 1,569 | | 1,541 | |
| Other Noncurrent Liabilities: Deferred income taxes | (148 | ) | 275 |
| |
| | Other Noncurrent Liabilities: AROs | | Other Noncurrent Liabilities: AROs | 148 | | 127 | |
| Other Noncurrent Liabilities: Other | 241 |
| 252 |
| Other Noncurrent Liabilities: Other | 316 | | 228 | |
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 – (Continued)
NON-CONSOLIDATED VIEs
The following tables summarize the impact of non-consolidated VIEs on the Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | Duke Energy | | Duke |
| | Duke |
|
| | Pipeline |
| | Commercial |
| | Other |
| | | | Energy |
| | Energy |
|
| (in millions) | Investments |
| | Renewables |
| | VIEs(a) |
| | Total |
| | Ohio |
| | Indiana |
|
| Receivables from affiliated companies | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 87 |
| | $ | 106 |
|
| Investments in equity method unconsolidated affiliates | 697 |
| | 180 |
| | 42 |
| | 919 |
| | — |
| | — |
|
| Other noncurrent assets | 17 |
| | — |
| | — |
| | 17 |
| | — |
| | — |
|
| Total assets | $ | 714 |
| | $ | 180 |
| | $ | 42 |
| | $ | 936 |
| | $ | 87 |
| | $ | 106 |
|
| Taxes accrued | (29 | ) | | — |
| | — |
| | (29 | ) | | — |
| | — |
|
| Other current liabilities | — |
| | — |
| | 4 |
| | 4 |
| | — |
| | — |
|
| Deferred income taxes | 42 |
| | — |
| | — |
| | 42 |
| | — |
| | — |
|
| Other noncurrent liabilities | — |
| | — |
| | 12 |
| | 12 |
| | — |
| | — |
|
| Total liabilities | $ | 13 |
| | $ | — |
| | $ | 16 |
| | $ | 29 |
| | $ | — |
| | $ | — |
|
| Net assets | $ | 701 |
| | $ | 180 |
| | $ | 26 |
| | $ | 907 |
| | $ | 87 |
| | $ | 106 |
|
| |
(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. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | Duke Energy | | Duke | | Duke |
| Pipeline | | Commercial | | | | | | Energy | | Energy |
| (in millions) | Investments | | Renewables | | | | Total | | Ohio | | Indiana |
| Receivables from affiliated companies | $ | — | | | $ | — | | | | | $ | — | | | $ | 83 | | | $ | 110 | |
| | | | | | | | | | | |
| Investments in equity method unconsolidated affiliates | — | | | 530 | | | | | 530 | | | — | | | — | |
| Other noncurrent assets | 31 | | | — | | | | | 31 | | | — | | | — | |
| Total assets | $ | 31 | | | $ | 530 | | | | | $ | 561 | | | $ | 83 | | | $ | 110 | |
| | | | | | | | | | | |
| Other current liabilities | 928 | | | 5 | | | | | 933 | | | — | | | — | |
| | | | | | | | | | | |
| Other noncurrent liabilities | 8 | | | 10 | | | | | 18 | | | — | | | — | |
| Total liabilities | $ | 936 | | | $ | 15 | | | | | $ | 951 | | | $ | — | | | $ | — | |
| Net assets (liabilities) | $ | (905) | | | $ | 515 | | | | | $ | (390) | | | $ | 83 | | | $ | 110 | |
| | | | December 31, 2016 | | | | December 31, 2019 |
| | Duke Energy | | Duke |
| | Duke |
| | | | Duke Energy | | Duke | | Duke |
| | Pipeline |
| | Commercial |
| | | | | | Energy |
| | Energy |
| | | | Pipeline | | Commercial | | | | | Energy | | Energy |
| (in millions) | Investments |
| | Renewables |
| | Other |
| | Total |
| | Ohio |
| | Indiana |
| | Piedmont (a) |
| (in millions) | Investments | | Renewables | | | Total | | Ohio | | Indiana |
| Receivables from affiliated companies | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 82 |
| | $ | 101 |
| | $ | — |
| Receivables from affiliated companies | $ | — | | | $ | (1) | | | | $ | (1) | | | $ | 64 | | | $ | 77 | |
| | Investments in equity method unconsolidated affiliates | 487 |
| | 174 |
| | 90 |
| | 751 |
| | — |
| | — |
| | 139 |
| Investments in equity method unconsolidated affiliates | 1,179 | | | 300 | | | | 1,479 | | | — | | | — | |
| Other noncurrent assets | 12 |
| | — |
| | — |
| | 12 |
| | — |
| | — |
| | — |
| |
| | Total assets | $ | 499 |
| | $ | 174 |
| | $ | 90 |
| | $ | 763 |
| | $ | 82 |
| | $ | 101 |
| | $ | 139 |
| Total assets | $ | 1,179 | | | $ | 299 | | | | $ | 1,478 | | | $ | 64 | | | $ | 77 | |
| Taxes accrued | | Taxes accrued | (1) | | | — | | | | (1) | | | — | | | — | |
| Other current liabilities | — |
| | — |
| | 3 |
| | 3 |
| | — |
| | — |
| | — |
| Other current liabilities | — | | | 4 | | | | 4 | | | — | | | — | |
| Deferred income taxes | | Deferred income taxes | 59 | | | — | | | | 59 | | | — | | | — | |
| Other noncurrent liabilities | — |
| | — |
| | 13 |
| | 13 |
| | — |
| | — |
| | 4 |
| Other noncurrent liabilities | — | | | 11 | | | | 11 | | | — | | | — | |
| Total liabilities | $ | — |
| | $ | — |
| | $ | 16 |
| | $ | 16 |
| | $ | — |
| | $ | — |
| | $ | 4 |
| Total liabilities | $ | 58 | | | $ | 15 | | | | $ | 73 | | | $ | — | | | $ | — | |
| Net assets | $ | 499 |
| | $ | 174 |
| | $ | 74 |
| | $ | 747 |
| | $ | 82 |
| | $ | 101 |
| | $ | 135 |
| Net assets | $ | 1,121 | | | $ | 284 | | | | $ | 1,405 | | | $ | 64 | | | $ | 77 | |
| |
(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 agreementPPA with OVEC, which is discussed below, and various guarantees, somefuture exit costs associated with the cancellation of which are reflected in the table aboveACP pipeline, as Other noncurrent liabilities. For more information on various guarantees, refer to Note 7.discussed below.
Pipeline Investments
Duke Energy has investments in various joint ventures withto construct and operate pipeline projects currently under construction.projects. 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.
Duke Energy has a 47% ownership interest in ACP. In 2020, Duke Energy determined that it would no longer invest in the construction of the ACP pipeline. The current liability related to the cancellation of the ACP pipeline represents Duke Energy's continuing obligation to fund its share of ACP's obligations. See Notes 3, 7 and 12 for further information regarding this transaction.
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | VARIABLE INTEREST ENTITIES |
The table below presents Duke Energy's ownership interest and investment balance in in these joint ventures. |
| | | | | | | | | | |
| | | | Investment Amount (in millions) |
| | Ownership | | December 31, | | December 31, |
| Entity Name | Interest | | 2017 | | 2016 |
| ACP | 47 | % | | $ | 397 |
| | $ | 265 |
|
| Sabal Trail | 7.5 | % | | 219 |
| | 140 |
|
| Constitution | 24 | % | | 81 |
| | 82 |
|
| Total | | | $ | 697 |
| | $ | 487 |
|
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.
Other VIEsOVEC
Duke Energy holds a 50 percent equityOhio’s 9% ownership interest in Pioneer. PioneerOVEC is considered a non-consolidated VIE due to OVEC having insufficient equity to finance their ownits activities without subordinated financial support. The activities that most significantly impact Pioneer'sOVEC's economic performance areinclude fuel strategy and supply activities and decisions related toassociated with ongoing operations and maintenance-related activities. Duke Energy Ohio does not have the development of new transmission facilities. Theunilateral 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.
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 agreementInter-Company Power Agreement (ICPA), Duke Energy Ohio has a contractual arrangement to buy powerreceive 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 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, includingbusiness. On March 31, 2018, FES, a subsidiary of FirstEnergy Corp. and an ICPA counterparty with a power participation ratio of 4.85%, filed for Chapter 11 bankruptcy, which could increase costs associated with its 2,256 MW of coal-fired generation capacity. Deteriorationallocated to the counterparties. On July 31, 2018, the bankruptcy court rejected the FES ICPA, which means OVEC is an unsecured creditor in the credit quality, orFES bankruptcy proceeding. Duke Energy Ohio cannot predict the impact of one or more parties to the ICPA could increase the costs of OVEC.bankruptcy filing on its OVEC interests. In addition, certain proposed environmental rulemaking could result in future increased OVEC cost allocations. In July 2020, legislation was proposed to repeal HB 6. Duke Energy cannot predict the outcome of this matter. See Note 3 for additional information.
CRC
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 percent10% and a 20 percent20% 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. | | | | Duke Energy Ohio | | Duke Energy Indiana | | Duke Energy Ohio | | Duke Energy Indiana |
| | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Anticipated credit loss ratio | 0.5 | % | | 0.5 | % | | 0.3 | % | | 0.3 | % | Anticipated credit loss ratio | 0.5 | % | | 0.6 | % | | 0.3 | % | | 0.3 | % |
| Discount rate | 2.1 | % | | 1.5 | % | | 2.1 | % | | 1.5 | % | Discount rate | 1.6 | % | | 3.3 | % | | 1.6 | % | | 3.3 | % |
| Receivable turnover rate | 13.5 | % | | 13.3 | % | | 10.7 | % | | 10.6 | % | Receivable turnover rate | 13.4 | % | | 13.4 | % | | 11.3 | % | | 11.5 | % |
The following table shows the gross and net receivables sold. | | | | | | | | | | | | Duke Energy Ohio | | Duke Energy Indiana |
| | Duke Energy Ohio | | Duke Energy Indiana | | December 31, | | December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| (in millions) | 2020 | | 2019 | | 2020 | | 2019 |
| Receivables sold | $ | 273 |
| | $ | 267 |
| | $ | 312 |
| | $ | 306 |
| Receivables sold | $ | 270 | | | $ | 253 | | | $ | 344 | | | $ | 307 | |
| Less: Retained interests | 87 |
| | 82 |
| | 106 |
| | 101 |
| Less: Retained interests | 83 | | | 64 | | | 110 | | | 77 | |
| Net receivables sold | $ | 186 |
| | $ | 185 |
| | $ | 206 |
| | $ | 205 |
| Net receivables sold | $ | 187 | | | $ | 189 | | | $ | 234 | | | $ | 230 | |
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | VARIABLE INTEREST ENTITIES |
The following table shows sales and cash flows related to receivables sold. | | | | Duke Energy Ohio | | Duke Energy Indiana | | Duke Energy Ohio | | Duke Energy Indiana |
| | Years Ended December 31, | | Years Ended December 31, | | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
| | 2017 |
| | 2016 |
| | 2015 |
| (in millions) | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
| Sales | | | | | | | | | | | | Sales | | | | | | | | | | | |
| Receivables sold | $ | 1,879 |
| | $ | 1,926 |
| | $ | 1,963 |
| | $ | 2,711 |
| | $ | 2,635 |
| | $ | 2,627 |
| Receivables sold | $ | 1,905 | | | $ | 1,979 | | | $ | 1,987 | | | $ | 2,631 | | | $ | 2,837 | | | $ | 2,842 | |
| Loss recognized on sale | 10 |
| | 9 |
| | 9 |
| | 12 |
| | 11 |
| | 11 |
| Loss recognized on sale | 10 | | | 14 | | | 13 | | | 12 | | | 17 | | | 16 | |
| Cash Flows | | | | | | | | | | | | |
| Cash flows | | Cash flows | | | | | | | | |
| Cash proceeds from receivables sold | 1,865 |
| | 1,882 |
| | 1,995 |
| | 2,694 |
| | 2,583 |
| | 2,670 |
| Cash proceeds from receivables sold | 1,875 | | | 1,993 | | | 1,967 | | | 2,586 | | | 2,860 | | | 2,815 | |
| Collection fees received | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| Collection fees received | 1 | | | 1 | | | 1 | | | 1 | | | 1 | | | 1 | |
| Return received on retained interests | 3 |
| | 2 |
| | 3 |
| | 7 |
| | 5 |
| | 5 |
| Return received on retained interests | 4 | | | 6 | | | 6 | | | 5 | | | 9 | | | 9 | |
Cash flows from the sales of receivables are reflected within Cash Flows From Operating Activities and Cash Flows from Investing 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.1%.
18. COMMON STOCKREVENUE
Duke Energy recognizes revenue consistent with amounts billed under tariff offerings or at contractually agreed upon rates based on actual physical delivery of electric or natural gas service, including estimated volumes delivered when billings have not yet occurred. As such, the majority of Duke Energy’s revenues have fixed pricing based on the contractual terms of the published tariffs, with variability in expected cash flows attributable to the customer’s volumetric demand and ultimate quantities of energy or natural gas supplied and used during the billing period. The stand-alone selling price of related sales are designed to support recovery of prudently incurred costs and an appropriate return on invested assets and are primarily governed by published tariff rates or contractual agreements approved by relevant regulatory bodies. As described in Note 1, certain excise taxes and franchise fees 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 as part of revenues. Duke Energy elects to account for all other taxes net of revenues.
Performance obligations are satisfied over time as energy or natural gas is delivered and consumed with billings generally occurring monthly and related payments due within 30 days, depending on regulatory requirements. In no event does the timing between payment and delivery of the goods and services exceed one year. Using this output method for revenue recognition provides a faithful depiction of the transfer of electric and natural gas service as customers obtain control of the commodity and benefit from its use at delivery. Additionally, Duke Energy has an enforceable right to consideration for energy or natural gas delivered at any discrete point in time and will recognize revenue at an amount that reflects the consideration to which Duke Energy is entitled for the energy or natural gas delivered.
As described above, the majority of Duke Energy’s tariff revenues are at-will and, as such, related contracts with customers have an expected duration of one year or less and will not have future performance obligations for disclosure. Additionally, other long-term revenue streams, including wholesale contracts, generally provide services that are part of a single performance obligation, the delivery of electricity or natural gas. As such, other than material fixed consideration under long-term contracts, related disclosures for future performance obligations are also not applicable.
Duke Energy earns substantially all of its revenues through its reportable segments, Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables.
Electric Utilities and Infrastructure
Electric Utilities and Infrastructure earns the majority of its revenues through retail and wholesale electric service through the generation, transmission, distribution and sale of electricity. Duke Energy generally provides retail and wholesale electric service customers with their full electric load requirements or with supplemental load requirements when the customer has other sources of electricity.
Retail electric service is generally marketed throughout Duke Energy's electric service territory through standard service offers. The standard service offers are through tariffs determined by regulators in Duke Energy's regulated service territory. Each tariff, which is assigned to customers based on customer class, has multiple components such as an energy charge, a demand charge, a basic facilities charge and applicable riders. Duke Energy considers each of these components to be aggregated into a single performance obligation for providing electric service, or in the case of distribution only customers in Duke Energy Ohio, for delivering electricity. Electricity is considered a single performance obligation satisfied over time consistent with the series guidance and is provided and consumed over the billing period, generally one month. Retail electric service is typically provided to at-will customers who can cancel service at any time, without a substantive penalty. Additionally, Duke Energy adheres to applicable regulatory requirements in each jurisdiction to ensure the collectability of amounts billed and appropriate mitigating procedures are followed when necessary. As such, revenue from contracts with customers for such contracts is equivalent to the electricity supplied and billed in that period (including unbilled estimates).
| | | | | |
| FINANCIAL STATEMENTS | REVENUE |
Wholesale electric service is generally provided under long-term contracts using cost-based pricing. FERC regulates costs that may be recovered from customers and the amount of return companies are permitted to earn. Wholesale contracts include both energy and demand charges. For full requirements contracts, Duke Energy considers both charges as a single performance obligation for providing integrated electric service. For contracts where energy and demand charges are considered separate performance obligations, energy and demand are each a distinct performance obligation under the series guidance and are satisfied as energy is delivered and stand-ready service is provided on a monthly basis. This service represents consumption over the billing period and revenue is recognized consistent with billings and unbilled estimates, which generally occur monthly. Contractual amounts owed are typically trued up annually based upon incurred costs in accordance with FERC published filings and the specific customer’s actual peak demand. Estimates of variable consideration related to potential additional billings or refunds owed are updated quarterly.
The majority of wholesale revenues are full requirements contracts where the customers purchase the substantial majority of their energy needs and do not have a fixed quantity of contractually required energy or capacity. As such, related forecasted revenues are considered optional purchases. Supplemental requirements contracts that include contracted blocks of energy and capacity at contractually fixed prices have the following estimated remaining performance obligations:
| | | | | | | | | | | | | | | | | | | | | | | |
| Remaining Performance Obligations |
| (in millions) | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total |
| | | | | | | |
| Progress Energy | $ | 93 | | $ | 107 | | $ | 44 | | $ | 45 | | $ | 7 | | $ | 51 | | $ | 347 | |
| Duke Energy Progress | 8 | | 8 | | 8 | | 8 | | — | | — | | 32 | |
| Duke Energy Florida | 85 | | 99 | | 36 | | 37 | | 7 | | 51 | | 315 | |
| Duke Energy Indiana | 5 | | — | | 7 | | 12 | | 12 | | 24 | | 60 | |
Revenues for block sales are recognized monthly as energy is delivered and stand-ready service is provided, consistent with invoiced amounts and unbilled estimates.
Gas Utilities and Infrastructure
Gas Utilities and Infrastructure earns its revenue through retail and wholesale natural gas service through the transportation, distribution and sale of natural gas. Duke Energy generally provides retail and wholesale natural gas service customers with all natural gas load requirements. Additionally, while natural gas can be stored, substantially all natural gas provided by Duke Energy is consumed by customers simultaneously with receipt of delivery.
Retail natural gas service is marketed throughout Duke Energy's natural gas service territory using published tariff rates. The tariff rates are established by regulators in Duke Energy's service territories. Each tariff, which is assigned to customers based on customer class, have multiple components, such as a commodity charge, demand charge, customer or monthly charge and transportation costs. Duke Energy considers each of these components to be aggregated into a single performance obligation for providing natural gas service. For contracts where Duke Energy provides all of the customer’s natural gas needs, the delivery of natural gas is considered a single performance obligation satisfied over time, and revenue is recognized monthly based on billings and unbilled estimates as service is provided and the commodity is consumed over the billing period. Additionally, natural gas service is typically at-will and customers can cancel service at any time, without a substantive penalty. Duke Energy also adheres to applicable regulatory requirements to ensure the collectability of amounts billed and receivable and appropriate mitigating procedures are followed when necessary.
Certain long-term individually negotiated contracts exist to provide natural gas service. These contracts are regulated and approved by state commissions. The negotiated contracts have multiple components, including a natural gas and a demand charge, similar to retail natural gas contracts. Duke Energy considers each of these components to be a single performance obligation for providing natural gas service. This service represents consumption over the billing period, generally one month.
Fixed capacity payments under long-term contracts for the Gas Utilities and Infrastructure segment include minimum margin contracts and supply arrangements with municipalities and power generation facilities. Revenues for related sales are recognized monthly as natural gas is delivered and stand-ready service is provided, consistent with invoiced amounts and unbilled estimates. Estimated remaining performance obligations are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Remaining Performance Obligations |
| (in millions) | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total |
| Piedmont | $ | 65 | | $ | 64 | | $ | 61 | | $ | 59 | | $ | 58 | | $ | 319 | | $ | 626 | |
Commercial Renewables
Commercial Renewables earns the majority of its revenues through long-term PPAs and generally sells all of its wind and solar facility output, electricity and RECs to customers. The majority of these PPAs have historically been accounted for as leases. For PPAs that are not accounted for as leases, the delivery of electricity and the delivery of RECs are considered separate performance obligations.
| | | | | |
| FINANCIAL STATEMENTS | REVENUE |
The delivery of electricity is a performance obligation satisfied over time and represents generation and consumption of the electricity over the billing period, generally one month. The delivery of RECs is a performance obligation satisfied at a point in time and represents delivery of each REC generated by the wind or solar facility. The majority of self-generated RECs are bundled with energy in Duke Energy’s contracts and, as such, related revenues are recognized as energy is generated and delivered as that pattern is consistent with Duke Energy’s performance. Commercial Renewables recognizes revenue based on the energy generated and billed for the period, generally one month, at contractual rates (including unbilled estimates) according to the invoice practical expedient. Amounts are typically due within 30 days of invoice.
Commercial Renewables also earns revenues from installation of distributed solar generation resources, which is primarily composed of EPC projects to deliver functioning solar power systems, generally completed within two to 12 months from commencement of construction. The installation of distributed solar generation resources is a performance obligation that is satisfied over time. Revenue from fixed-price EPC contracts is recognized using the input method as work is performed based on the estimated ratio of incurred costs to estimated total costs.
Other
The remainder of Duke Energy’s operations is presented as Other, which does not include material revenues from contracts with customers.
Disaggregated Revenues
For the Electric and Gas Utility and Infrastructure segments, revenue by customer class is most meaningful to Duke Energy as each respective customer class collectively represents unique customer expectations of service, generally has different energy and demand requirements, and operates under tailored, regulatory approved pricing structures. Additionally, each customer class is impacted differently by weather and a variety of economic factors including the level of population growth, economic investment, employment levels, and regulatory activities in each of Duke Energy’s jurisdictions. As such, analyzing revenues disaggregated by customer class allows Duke Energy to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. For the Commercial Renewables segment, the majority of revenues from contracts with customers are from selling all of the unit-contingent output at contractually defined pricing under long-term PPAs with consistent expectations regarding the timing and certainty of cash flows. Disaggregated revenues are presented as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| | Duke | | Duke | Duke | Duke | Duke | |
| (in millions) | Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
| By market or type of customer | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Electric Utilities and Infrastructure | | | | | | | | |
| Residential | $ | 9,806 | | $ | 2,997 | | $ | 5,017 | | $ | 2,059 | | $ | 2,958 | | $ | 726 | | $ | 1,064 | | $ | — | |
| General | 6,194 | | 2,233 | | 2,779 | | 1,312 | | 1,467 | | 442 | | 740 | | — | |
| Industrial | 2,859 | | 1,137 | | 901 | | 649 | | 252 | | 137 | | 683 | | — | |
| Wholesale | 1,864 | | 380 | | 1,228 | | 1,034 | | 194 | | 32 | | 224 | | — | |
| Other revenues | 914 | | 281 | | 596 | | 294 | | 302 | | 82 | | 72 | | — | |
| Total Electric Utilities and Infrastructure revenue from contracts with customers | $ | 21,637 | | $ | 7,028 | | $ | 10,521 | | $ | 5,348 | | $ | 5,173 | | $ | 1,419 | | $ | 2,783 | | $ | — | |
| | | | | | | | |
| Gas Utilities and Infrastructure | | | | | | | | |
| Residential | $ | 930 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 300 | | $ | — | | $ | 630 | |
| Commercial | 446 | | — | | — | | — | | — | | 117 | | — | | 329 | |
| Industrial | 127 | | — | | — | | — | | — | | 17 | | — | | 110 | |
| Power Generation | — | | — | | — | | — | | — | | — | | — | | 34 | |
| Other revenues | 87 | | — | | — | | — | | — | | 17 | | — | | 70 | |
| Total Gas Utilities and Infrastructure revenue from contracts with customers | $ | 1,590 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 451 | | $ | — | | $ | 1,173 | |
| | | | | | | | |
| Commercial Renewables | | | | | | | | |
| Revenue from contracts with customers | $ | 227 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | |
| Other | | | | | | | | |
| Revenue from contracts with customers | $ | 26 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | |
| Total revenue from contracts with customers | $ | 23,480 | | $ | 7,028 | | $ | 10,521 | | $ | 5,348 | | $ | 5,173 | | $ | 1,870 | | $ | 2,783 | | $ | 1,173 | |
| | | | | | | | |
Other revenue sources(a) | $ | 388 | | $ | (13) | | $ | 106 | | $ | 74 | | $ | 15 | | $ | (12) | | $ | 12 | | $ | 124 | |
| Total revenues | $ | 23,868 | | $ | 7,015 | | $ | 10,627 | | $ | 5,422 | | $ | 5,188 | | $ | 1,858 | | $ | 2,795 | | $ | 1,297 | |
| | | | | |
| FINANCIAL STATEMENTS | REVENUE |
(a) Other revenue sources include revenues from leases, derivatives and alternative revenue programs that are not considered revenues from contracts with customers. Alternative revenue programs in certain jurisdictions include regulatory mechanisms that periodically adjust for over or under collection of related revenues.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| | Duke | | Duke | Duke | Duke | Duke | |
| (in millions) | Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
| By market or type of customer | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Electric Utilities and Infrastructure | | | | | | | | |
| Residential | $ | 9,863 | | $ | 3,044 | | $ | 4,998 | | $ | 2,144 | | $ | 2,854 | | $ | 733 | | $ | 1,087 | | $ | — | |
| General | 6,431 | | 2,244 | | 2,935 | | 1,368 | | 1,567 | | 451 | | 802 | | — | |
| Industrial | 3,071 | | 1,215 | | 934 | | 675 | | 259 | | 147 | | 774 | | — | |
| Wholesale | 2,212 | | 462 | | 1,468 | | 1,281 | | 187 | | 46 | | 235 | | — | |
| Other revenues | 770 | | 276 | | 548 | | 317 | | 231 | | 80 | | 89 | | — | |
| Total Electric Utilities and Infrastructure revenue from contracts with customers | $ | 22,347 | | $ | 7,241 | | $ | 10,883 | | $ | 5,785 | | $ | 5,098 | | $ | 1,457 | | $ | 2,987 | | $ | — | |
| | | | | | | | |
| Gas Utilities and Infrastructure | | | | | | | | |
| Residential | $ | 976 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 315 | | $ | — | | $ | 661 | |
| Commercial | 508 | | — | | — | | — | | — | | 130 | | — | | 378 | |
| Industrial | 141 | | — | | — | | — | | — | | 19 | | — | | 122 | |
| Power Generation | — | | — | | — | | — | | — | | — | | — | | 51 | |
| Other revenues | 129 | | — | | — | | — | | — | | 19 | | — | | 110 | |
| Total Gas Utilities and Infrastructure revenue from contracts with customers | $ | 1,754 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 483 | | $ | — | | $ | 1,322 | |
| | | | | | | | |
| Commercial Renewables | | | | | | | | |
| Revenue from contracts with customers | $ | 223 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | |
| Other | | | | | | | | |
| Revenue from contracts with customers | $ | 24 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | |
| Total revenue from contracts with customers | $ | 24,348 | | $ | 7,241 | | $ | 10,883 | | $ | 5,785 | | $ | 5,098 | | $ | 1,940 | | $ | 2,987 | | $ | 1,322 | |
| | | | | | | | |
Other revenue sources(a) | $ | 731 | | $ | 154 | | $ | 319 | | $ | 172 | | $ | 133 | | $ | — | | $ | 17 | | $ | 59 | |
| Total revenues | $ | 25,079 | | $ | 7,395 | | $ | 11,202 | | $ | 5,957 | | $ | 5,231 | | $ | 1,940 | | $ | 3,004 | | $ | 1,381 | |
(a) Other revenue sources include revenues from leases, derivatives and alternative revenue programs that are not considered revenues from contracts with customers. Alternative revenue programs in certain jurisdictions include regulatory mechanisms that periodically adjust for over or under collection of related revenues.
| | | | | |
| FINANCIAL STATEMENTS | REVENUE |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2018 |
| | Duke | | Duke | Duke | Duke | Duke | |
| (in millions) | Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
| By market or type of customer | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Electric Utilities and Infrastructure | | | | | | | | |
| Residential | $ | 9,587 | | $ | 2,981 | | $ | 4,785 | | $ | 2,019 | | $ | 2,766 | | $ | 743 | | $ | 1,076 | | $ | — | |
| General | 6,127 | | 2,119 | | 2,809 | | 1,280 | | 1,529 | | 422 | | 778 | | — | |
| Industrial | 2,974 | | 1,180 | | 904 | | 642 | | 262 | | 131 | | 760 | | — | |
| Wholesale | 2,324 | | 508 | | 1,462 | | 1,303 | | 159 | | 57 | | 298 | | — | |
| Other revenues | 717 | | 320 | | 502 | | 320 | | 182 | | 73 | | 91 | | — | |
| Total Electric Utilities and Infrastructure revenue from contracts with customers | $ | 21,729 | | $ | 7,108 | | $ | 10,462 | | $ | 5,564 | | $ | 4,898 | | $ | 1,426 | | $ | 3,003 | | $ | — | |
| | | | | | | | |
| Gas Utilities and Infrastructure | | | | | | | | |
| Residential | $ | 1,000 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 331 | | $ | — | | $ | 669 | |
| Commercial | 514 | | — | | — | | — | | — | | 135 | | — | | 378 | |
| Industrial | 147 | | — | | — | | — | | — | | 18 | | — | | 128 | |
| Power Generation | — | | — | | — | | — | | — | | — | | — | | 54 | |
| Other revenues | 139 | | — | | — | | — | | — | | 19 | | — | | 120 | |
| Total Gas Utilities and Infrastructure revenue from contracts with customers | $ | 1,800 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 503 | | $ | — | | $ | 1,349 | |
| | | | | | | | |
| Commercial Renewables | | | | | | | | |
| Revenue from contracts with customers | $ | 209 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | |
| Other | | | | | | | | |
| Revenue from contracts with customers | $ | 19 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1 | | $ | — | | $ | — | |
| | | | | | | | |
| Total revenue from contracts with customers | $ | 23,757 | | $ | 7,108 | | $ | 10,462 | | $ | 5,564 | | $ | 4,898 | | $ | 1,930 | | $ | 3,003 | | $ | 1,349 | |
| | | | | | | | |
Other revenue sources(a) | $ | 764 | | $ | 192 | | $ | 266 | | $ | 135 | | $ | 123 | | $ | 27 | | $ | 56 | | $ | 26 | |
| Total revenues | $ | 24,521 | | $ | 7,300 | | $ | 10,728 | | $ | 5,699 | | $ | 5,021 | | $ | 1,957 | | $ | 3,059 | | $ | 1,375 | |
(a) Other revenue sources include revenues from leases, derivatives and alternative revenue programs that are not considered revenues from contracts with customers. Alternative revenue programs in certain jurisdictions include regulatory mechanisms that periodically adjust for over or under collection of related revenues.
As described in Note 1, Duke Energy adopted the new guidance for credit losses effective January 1, 2020, using the modified retrospective method of adoption, which does not require restatement of prior year reported results. The following table presents the reserve for credit losses for trade and other receivables based on adoption of the new standard.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
| (in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Balance at December 31, 2019 | $ | 76 | | $ | 10 | | $ | 16 | | $ | 8 | | $ | 7 | | $ | 4 | | $ | 3 | | $ | 6 | |
| Cumulative Change in Accounting Principle | 5 | | 1 | | 2 | | 1 | | 1 | | — | | — | | 1 | |
| Write-Offs | (58) | | (13) | | (23) | | (8) | | (14) | | — | | — | | (6) | |
| Credit Loss Expense | 75 | | 13 | | 29 | | 9 | | 20 | | — | | — | | 11 | |
| Other Adjustments | 48 | | 12 | | 13 | | 13 | | — | | — | | — | | — | |
| Balance at December 31, 2020 | $ | 146 | | $ | 23 | | $ | 37 | | $ | 23 | | $ | 14 | | $ | 4 | | $ | 3 | | $ | 12 | |
| | | | | |
| FINANCIAL STATEMENTS | REVENUE |
Trade and other receivables are evaluated based on an estimate of the risk of loss over the life of the receivable and current and historical conditions using supportable assumptions. Management evaluates the risk of loss for trade and other receivables by comparing the historical write-off amounts to total revenue over a specified period. Historical loss rates are adjusted due to the impact of current conditions, including the impacts of COVID-19, as well as forecasted conditions over a reasonable time period. The calculated write-off rate can be applied to the receivable balance for which an established reserve does not already exist. Management reviews the assumptions and risk of loss periodically for trade and other receivables. Due to the COVID-19 pandemic, as described in Note 1, certain jurisdictions have resumed standard billing and credit practices, disconnections for nonpayment and late payment charges, all of which were previously suspended in the first quarter of 2020. The specific actions taken by each Duke Energy Registrant are described in Note 3 and the impact of COVID-19 on certain receivables financing entities are described in Note 17. The impact of COVID-19 and Duke Energy’s related response on customers’ ability to pay for service is uncertain, and it is reasonably possible eventual write-offs of customer receivables may increase over current estimates.
The aging of trade receivables is presented in the table below. Duke Energy considers receivables greater than 30 days outstanding past due.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
| (in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Unbilled Receivables | $ | 969 | | $ | 328 | | $ | 283 | | $ | 167 | | $ | 116 | | $ | 2 | | $ | 16 | | $ | 86 | |
| 0-30 days | 1,789 | | 445 | | 707 | | 398 | | 307 | | 60 | | 26 | | 149 | |
| 30-60 days | 185 | | 80 | | 54 | | 25 | | 29 | | 8 | | 3 | | 8 | |
| 60-90 days | 22 | | 1 | | 10 | | 4 | | 6 | | 2 | | 1 | | 3 | |
| 90+ days | 119 | | 16 | | 32 | | 9 | | 23 | | 30 | | 12 | | 9 | |
Deferred Payment Arrangements(a) | 215 | | 96 | | 80 | | 52 | | 28 | | — | | — | | 7 | |
| Trade and Other Receivables | $ | 3,299 | | $ | 966 | | $ | 1,166 | | $ | 655 | | $ | 509 | | $ | 102 | | $ | 58 | | $ | 262 | |
(a) Due to certain customer financial hardships created by the COVID-19 pandemic and resulting stay-at-home orders, Duke Energy permitted customers to defer payment of past-due amounts through an installment payment plan over a period of several months.
IMPACT OF WEATHER AND THE TIMING OF BILLING PERIODS
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. 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.
The estimated impact of weather on earnings for Electric Utilities and Infrastructure 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.
Gas Utilities and Infrastructure's costs and revenues are influenced by seasonal patterns due to peak natural gas sales occurring during the winter months as a result of space heating requirements. Residential customers are the most impacted by weather. There are certain regulatory mechanisms for the North Carolina, South Carolina, Tennessee, Ohio and Kentucky service territories that normalize the margins collected from certain customer classes during the winter. In North Carolina, rate design provides protection from both weather and other usage variations such as conservation, while South Carolina, Tennessee and Kentucky revenues are adjusted solely based on weather. Ohio primarily employs a fixed charge each month regardless of the season and usage.
UNBILLED REVENUE
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.
| | | | | |
| FINANCIAL STATEMENTS | REVENUE |
Unbilled revenues are included within Receivables and Receivables of VIEs on the Consolidated Balance Sheets as shown in the following table.
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2020 | | 2019 |
| Duke Energy | $ | 969 | | | $ | 843 | |
| Duke Energy Carolinas | 328 | | | 298 | |
| Progress Energy | 283 | | | 217 | |
| Duke Energy Progress | 167 | | | 122 | |
| Duke Energy Florida | 116 | | | 95 | |
| Duke Energy Ohio | 2 | | | 1 | |
| Duke Energy Indiana | 16 | | | 16 | |
| Piedmont | 86 | | | 78 | |
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, 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.
| | | | | | | | | | | |
| December 31, |
| (in millions) | 2020 | | 2019 |
| Duke Energy Ohio | $ | 87 | | | $ | 82 | |
| Duke Energy Indiana | 134 | | | 115 | |
19. STOCKHOLDERS' EQUITY
Basic Earnings Per Share (EPS)EPS is computed by dividing net income attributableavailable to Duke Energy common stockholders, as adjusted for distributed and undistributed earnings allocated to participating securities and accumulated preferred dividends, by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income attributableavailable to Duke Energy common stockholders, as adjusted for distributed and undistributed earnings allocated to participating securities and accumulated preferred dividends, 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,stock, such as stock options and equity forward sale agreements, were exercised or settled. Duke Energy’s participating securities are restricted stock unitsRSUs that are entitled to dividends declared on Duke Energy common stock during the restrictedRSUs vesting periods. Dividends declared on preferred stock unit’s vesting periods.are recorded on the Consolidated Statements of Operations as a reduction of net income to arrive at net income available to Duke Energy common stockholders. Dividends accumulated on preferred stock are an adjustment to net income used in the calculation of basic and diluted EPS.
The following table presents Duke Energy’s basic and diluted EPS calculations, and reconciles the weighted average number of common shares outstanding and common and preferred share dividends declared.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| (in millions, except per share amounts) | 2020 | | 2019 | | 2018 |
| Net Income available to Duke Energy common stockholders | $ | 1,270 | | | $ | 3,707 | | | $ | 2,666 | |
| Less: Income (Loss) from discontinued operations | 7 | | | (7) | | | 19 | |
| Accumulated preferred stock dividends adjustment | 1 | | | (15) | | | 0 | |
| Less: Impact of participating securities | 2 | | | 5 | | | 5 | |
| Income from continuing operations available to Duke Energy common stockholders | $ | 1,262 | | | $ | 3,694 | | | $ | 2,642 | |
| Weighted average common shares outstanding – basic | 737 | | | 729 | | | 708 | |
| | | | | |
| Equity forwards | 1 | | | 0 | | | 0 | |
| Weighted average common shares outstanding – diluted | 738 | | | 729 | | | 708 | |
| EPS from continuing operations available to Duke Energy common stockholders | | | | | |
| Basic and Diluted | $ | 1.71 | | | $ | 5.07 | | | $ | 3.73 | |
| | | | | |
Potentially dilutive items excluded from the calculation(a) | 2 | | | 2 | | | 2 | |
| Dividends declared per common share | $ | 3.82 | | | $ | 3.75 | | | $ | 3.64 | |
| Dividends declared on Series A preferred stock per depositary share | $ | 1.437 | | | $ | 1.03 | | | $ | — | |
| Dividends declared on Series B preferred stock per share | $ | 49.292 | | | $ | — | | | $ | 0 | |
(a) Performance stock outstandingawards were not included in the dilutive securities calculation because the performance measures related to the diluted weighted average number of common stock outstanding.awards had not been met.
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions, except per share amounts) | 2017 |
| | 2016 |
| | 2015 |
|
| Income from continuing operations attributable to Duke Energy common stockholders excluding impact of participating securities | $ | 3,059 |
| | $ | 2,567 |
| | $ | 2,640 |
|
| Weighted average shares outstanding – basic | 700 |
| | 691 |
| | 694 |
|
| Weighted average shares outstanding – diluted | 700 |
| | 691 |
| | 694 |
|
| Earnings per share from continuing operations attributable to Duke Energy common stockholders | | | | | |
| Basic | $ | 4.37 |
| | $ | 3.71 |
| | $ | 3.80 |
|
| Diluted | $ | 4.37 |
| | $ | 3.71 |
| | $ | 3.80 |
|
Potentially dilutive items excluded from the calculation(a) | 2 |
| | 2 |
| | 2 |
|
| Dividends declared per common share | $ | 3.49 |
| | $ | 3.36 |
| | $ | 3.24 |
|
| | | | | |
(a)FINANCIAL STATEMENTS | Performance stock awards were not included in the dilutive securities calculation because the performance measures related to the awards had not been met.STOCKHOLDERS' EQUITY |
Equity Distribution Agreement
On February 20, 2018,Common Stock
In November 2019, Duke Energy filed a prospectus supplement and executed an Equity Distribution Agreement (the EDA)(EDA) under which it may sell up to $1$1.5 billion of its common stock through an at-the-marketa new ATM 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 endingthrough September 23, 2019.2022.
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.
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 – (Continued)
Stock Issuance
In March 2016,Separately, in November 2019, Duke Energy marketed an equity offering of 10.628.75 million shares of common stock.stock through an Underwriting Agreement. In lieu of issuing equity at the time ofconnection with the offering, Duke Energy entered into Equity Forwardsequity forward sales agreements with Barclays. The Equity Forwards requiredan initial forward price of $85.99 per share. In March 2020, Duke Energy to either physically settlemarketed approximately 940,000 shares of common stock through an equity forward transaction under the transactions by issuing 10.6 millionATM with an initial forward price of $89.76 per share. In May 2020, Duke Energy marketed approximately 903,000 shares or net settle in whole or in partof common stock through an equity forward transaction under the delivery or receiptATM with an initial forward price of cash or shares.$82.44 per share. In August 2020, Duke Energy marketed approximately 936,000 shares of common stock through an equity forward transaction under the ATM with an initial forward price of $79.52 per share.
On October 5, 2016, following the close of the Piedmont acquisition,In December 2020, Duke Energy physically settled the Equity Forwards in fullequity forwards by delivering 10.632 million shares of common stock in exchange for net cash proceeds of approximately $723 million.$2.6 billion.
Preferred Stock
On March 29, 2019, Duke Energy completed the issuance of 40 million depositary shares, each representing 1/1,000th share of its Series A Cumulative Redeemable Perpetual Preferred Stock, at a price of $25 per depositary share. The transaction resulted in net proceeds wereof $973 million after issuance costs with proceeds used for general corporate purposes and to reduce short-term debt. The preferred stock has a $25 liquidation preference per depositary share and earns dividends on a cumulative basis at a rate of 5.75% per annum. Dividends are payable quarterly in arrears on the 16th day of March, June, September and December, and began on June 16, 2019.
The Series A Preferred Stock has no maturity or mandatory redemption date, is not redeemable at the option of the holders and includes separate call options. The first call option allows Duke Energy to call the Series A Preferred Stock at a redemption price of $25.50 per depositary share prior to June 15, 2024, in whole but not in part, at any time within 120 days after a ratings event where a rating agency amends, clarifies or changes the criteria it uses to assign equity credit for securities such as the preferred stock. The second call option allows Duke Energy to call the preferred stock, in whole or in part, at any time, on or after June 15, 2024, at a redemption price of $25 per depositary share. Duke Energy is also required to redeem all accumulated and unpaid dividends if either call option is exercised.
On September 12, 2019, Duke Energy completed the issuance of 1 million shares of its Series B Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Stock, at a price of $1,000 per share. The transaction resulted in net proceeds of $989 million after issuance costs with proceeds being used to financepay down short-term debt, repay at maturity $500 million senior notes due September 2019, and for general corporate purposes. The preferred stock has a portion$1,000 liquidation preference per share and earns dividends on a cumulative basis at an initial rate of 4.875% per annum. Dividends are payable semiannually in arrears on the 16th day of March and September, and began on March 16, 2020. On September 16, 2024, the First Call Date, and any fifth anniversary of the Piedmont acquisition. AsFirst Call Date (each a resultReset Date), the dividend rate will reset based on the then current five-year U.S. Treasury rate plus a spread of 3.388%.
The Series B Preferred Stock has no maturity or mandatory redemption date, is not redeemable at the option of the acquisition,holders and includes separate call options. The first call option allows Duke Energy to call the Series B Preferred Stock at a redemption price of $1,020 per share, in whole but not in part, at any time within 120 days after a ratings event. The second call option allows Duke Energy to call the preferred stock, in whole or in part, on the First Call Date or any subsequent Reset Date at a redemption price in cash equal to $1,000 per share. Duke Energy is also required to redeem all accumulated and unpaid dividends if either call option is exercised.
Dividends issued on its Series A and Series B Preferred Stock are subject to approval by the Board of Piedmont's issuedDirectors. However, the deferral of dividend payments on the preferred stock prohibits the declaration of common stock dividends.
The Series A and Series B Preferred Stock rank, with respect to dividends and distributions upon liquidation or dissolution:
•senior to Common Stock and to each other class or series of capital stock established after the original issue date of the Series A and Series B Preferred Stock that is expressly made subordinated to the Series A and Series B Preferred Stock;
•on a parity with any class or series of capital stock established after the original issue date of the Series A and Series B Preferred Stock that is not expressly made senior or subordinated to the Series A or Series B Preferred Stock;
•junior to any class or series of capital stock established after the original issue date of the Series A and Series B Preferred Stock that is expressly made senior to the Series A or Series B Preferred Stock;
•junior to all existing and future indebtedness (including indebtedness outstanding stock became the issuedunder Duke Energy's credit facilities, unsecured senior notes, junior subordinated debentures and outstanding shares of a wholly owned subsidiarycommercial paper) and other liabilities with respect to assets available to satisfy claims against Duke Energy; and
•structurally subordinated to existing and future indebtedness and other liabilities of Duke Energy. See Note 2 for additional information relatedEnergy's subsidiaries and future preferred stock of subsidiaries.
| | | | | |
| FINANCIAL STATEMENTS | STOCKHOLDERS' EQUITY |
Holders of Series A and Series B Preferred Stock have no voting rights with respect to matters that generally require the Piedmont acquisition.
Acceleratedapproval of voting stockholders. The limited voting rights of holders of Series A and Series B Preferred Stock Repurchase Program
On April 6, 2015,include the right to vote as a single class, respectively, on certain matters that may affect the preference or special rights of the preferred stock, except in the instance that Duke Energy entered into agreements with eachelects to defer the payment of Goldman, Sachs & Co. and JPMorgan Chase Bank, National Association (the Dealers) to repurchasedividends for a total of $1.5 billionsix quarterly full dividend periods for Series A Preferred Stock or three semiannual full dividend periods for Series B Preferred Stock. If dividends are deferred for a cumulative total of Duke Energy common stock under an accelerated stock repurchase program (the ASR). Duke Energy made payments of $750 million to eachsix quarterly full dividend periods for Series A Preferred Stock or three semiannual full dividend periods for Series B Preferred Stock, whether or not for consecutive dividend periods, holders of the Dealers and was delivered 16.6 million shares, with a total fair valuerespective preferred stock have the right to elect two additional Board members to the Board 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.Directors.
19.20. 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 cause2020, as a result of partial settlements between Duke Energy's acquisitionEnergy Carolinas, Duke Energy Progress and the Public Staff, Duke Energy Carolinas and Duke Energy Progress deferred as Regulatory assets on the Consolidated Balance Sheets, approximately $65 million and $33 million, respectively, of Piedmont.previously recorded severance charges within Operation, maintenance and other on the Consolidated Statements of Operations. These reductions continueseverance charges were previously recorded during 2018, as Duke Energy reviewed its operations and identified opportunities for improvement to be implementedbetter serve its customers. This operational review included the company's workforce strategy and arestaffing levels to ensure the company was staffed with the right skill sets and number of teammates to execute the long-term vision for Duke Energy. As such, Duke Energy extended voluntary and involuntary severance benefits to certain employees in specific areas as a part of the synergies expected to be realized with the acquisition. Refer toworkforce planning and digital transformation efforts. See Note 23 for additional information on the Piedmont acquisition.more information.
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 recordedcharges accrued for approximately 30 employees in 2020, 140 employees in 2019, and 1,900 employees in 2018, by the Duke Energy Registrants. Amounts are includedRegistrants within Operation, maintenance and other on the Consolidated Statements of Operations. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
| (in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont(a) |
|
| Year Ended December 31, 2017 | $ | 15 |
| $ | 2 |
| $ | 2 |
| $ | 1 |
| $ | 1 |
| $ | — |
| $ | 1 |
| $ | 9 |
|
| Year Ended December 31, 2016 | 118 |
| 39 |
| 40 |
| 23 |
| 17 |
| 3 |
| 7 |
| |
| Year Ended December 31, 2015 | 142 |
| 93 |
| 36 |
| 28 |
| 8 |
| 2 |
| 6 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
| (in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Year Ended December 31, 2020(a)(b) | $ | (85) | | $ | (58) | | $ | (28) | | $ | (31) | | $ | 3 | | $ | — | | $ | — | | $ | — | |
| Year Ended December 31, 2019 | 16 | | 8 | | 6 | | 3 | | 3 | | — | | 1 | | 1 | |
| Year Ended December 31, 2018 | 187 | | 102 | | 69 | | 52 | | 17 | | 6 | | 7 | | 2 | |
| |
(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. |
(a) Includes unamortized deferred severance charges of approximately $(86) million, $(57) million, $(29) million and $(29) million for Duke Energy, Duke Energy Carolinas, Progress Energy and Duke Energy Progress, respectively.
(b) Includes adjustments associated with 2018 severance charges of approximately $(6) million, $(2) million, $(3) million and $(2) million for Duke Energy, Duke Energy Carolinas, Progress Energy and Duke Energy Progress, respectively.
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
| (in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Balance at December 31, 2019 | $ | 41 | | $ | 11 | | $ | 13 | | $ | 6 | | $ | 7 | | $ | 1 | | $ | 2 | | $ | — | |
| Provision/Adjustments | 1 | | — | | — | | (2) | | 2 | | (1) | | — | | — | |
| Cash Reductions | (31) | | (9) | | (10) | | (3) | | (7) | | — | | (1) | | — | |
| Balance at December 31, 2020 | $ | 11 | | $ | 2 | | $ | 3 | | $ | 1 | | $ | 2 | | $ | — | | $ | 1 | | $ | — | |
|
| | | | | | | | | | | | | | | | | | |
| | | Duke |
| | Duke |
| Duke |
| |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| |
| (in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Piedmont |
|
| Balance at December 31, 2016 | $ | 79 |
| $ | 13 |
| $ | 14 |
| $ | 6 |
| $ | 8 |
| $ | 20 |
|
| Provision/Adjustments | 17 |
| 2 |
| — |
| — |
| — |
| 9 |
|
| Cash Reductions | (77 | ) | (10 | ) | (12 | ) | (5 | ) | (8 | ) | (24 | ) |
| Balance at December 31, 2017 | $ | 19 |
| $ | 5 |
| $ | 2 |
| $ | 1 |
| $ | — |
| $ | 5 |
|
20.21. 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.
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | STOCK-BASED COMPENSATION |
The following table summarizes the total expense recognized by the Duke Energy Registrants, net of tax, for stock-based compensation. | | | | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
| (in millions) | 2020 | | 2019 | | 2018 |
| Duke Energy | $ | 43 |
| | $ | 35 |
| | $ | 38 |
| Duke Energy | $ | 61 | | | $ | 65 | | | $ | 56 | |
| Duke Energy Carolinas | 15 |
| | 12 |
| | 14 |
| Duke Energy Carolinas | 22 | | | 24 | | | 20 | |
| Progress Energy | 16 |
| | 12 |
| | 14 |
| Progress Energy | 23 | | | 24 | | | 21 | |
| Duke Energy Progress | 10 |
| | 7 |
| | 9 |
| Duke Energy Progress | 15 | | | 15 | | | 13 | |
| Duke Energy Florida | 6 |
| | 5 |
| | 5 |
| Duke Energy Florida | 9 | | | 9 | | | 8 | |
| Duke Energy Ohio | 3 |
| | 2 |
| | 2 |
| Duke Energy Ohio | 4 | | | 5 | | | 4 | |
| Duke Energy Indiana | 4 |
| | 3 |
| | 4 |
| Duke Energy Indiana | 6 | | | 6 | | | 5 | |
Piedmont(a) | 3 |
| | | | | |
| Piedmont | | Piedmont | 3 | | | 3 | | | 3 | |
(a) See discussion below for information on Piedmont's pre-merger stock-based compensation plans.
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. | | | | Years Ended December 31, | | Years Ended December 31, |
| (in millions) | 2017 |
| | 2016 |
| | 2015 |
| (in millions) | 2020 | | 2019 | | 2018 |
| Restricted stock unit awards | $ | 41 |
| | $ | 36 |
| | $ | 38 |
| |
| RSU awards | | RSU awards | $ | 46 | | | $ | 44 | | | $ | 43 | |
| Performance awards | 27 |
| | 19 |
| | 23 |
| Performance awards | 38 | | | 45 | | | 35 | |
| | Pretax stock-based compensation cost | $ | 68 |
| | $ | 55 |
| | $ | 61 |
| Pretax stock-based compensation cost | $ | 84 | | | $ | 89 | | | $ | 78 | |
| Stock-based compensation costs capitalized | | Stock-based compensation costs capitalized | 5 | | | 5 | | | 5 | |
| Stock-based compensation expense | | Stock-based compensation expense | $ | 79 | | | $ | 84 | | | $ | 73 | |
| Tax benefit associated with stock-based compensation expense | $ | 25 |
| | $ | 20 |
| | $ | 23 |
| Tax benefit associated with stock-based compensation expense | $ | 18 | | | $ | 19 | | | $ | 17 | |
| Stock-based compensation costs capitalized | 4 |
| | 2 |
| | 3 |
| |
RESTRICTED STOCK UNIT AWARDS
Restricted stock unit (RSU)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 unitRSU awards. | | | | | | | | | | Years Ended December 31, |
| | Years Ended December 31, | | 2020 | | 2019 | | 2018 |
| | 2017 |
| | 2016 |
| | 2015 |
| |
| Shares awarded (in thousands) | 583 |
| | 684 |
| | 524 |
| |
| Shares granted (in thousands) | | Shares granted (in thousands) | 498 | | | 571 | | | 649 | |
| Fair value (in millions) | $ | 47 |
| | $ | 52 |
| | $ | 41 |
| Fair value (in millions) | $ | 50 | | | $ | 51 | | | $ | 49 | |
The following table summarizes information about restricted stock unitRSU awards outstanding. | | | | | | | Weighted Average |
| | | | Weighted Average |
| | Shares | | Grant Date Fair Value |
| | Shares |
| | Grant Date Fair Value |
| | (in thousands) | | (per share) |
| | (in thousands) |
| | (per share) |
| |
| Outstanding at December 31, 2016 | 1,139 |
| | $ | 76 |
| |
| Outstanding at December 31, 2019 | | Outstanding at December 31, 2019 | 1,010 | | | $ | 83 | |
| Granted | 583 |
| | 80 |
| Granted | 498 | | | 100 | |
| Vested | (553 | ) | | 76 |
| Vested | (532) | | | 82 | |
| Forfeited | (48 | ) | | 78 |
| Forfeited | (37) | | | 92 | |
| Outstanding at December 31, 2017 | 1,121 |
| | 78 |
| |
| Restricted stock unit awards expected to vest | 1,094 |
| | 78 |
| |
| Outstanding at December 31, 2020 | | Outstanding at December 31, 2020 | 939 | | | 93 | |
| RSU awards expected to vest | | RSU awards expected to vest | 898 | | | 93 | |
The total grant date fair value of shares vested during the years ended December 31, 2017, 20162020, 2019 and 20152018, was $42$43 million, $38$49 million and $41$43 million, respectively. At December 31, 2017,2020, Duke Energy had $29$31 million of unrecognized compensation cost, which is expected to be recognized over a weighted average period of twenty-three23 months.
PERFORMANCE AWARDS
Stock-based performance awards generally vest after three years if performance targets are met.
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 – (Continued)
The actual number of shares issued will range from zero to 200% of target shares, depending on the level of performance achieved.
Performance awards granted in 2017, 2016contain performance conditions and 2015 containa market condition. The performance conditions are based on theDuke Energy's cumulative adjusted EPS and total shareholder return (TSR)incident case rate (total incident case rate is one of our key employee safety metrics). The market condition is based on TSR of Duke Energy stock relative to a predefined peer group (relative TSR). These awards aregroup.
| | | | | |
| FINANCIAL STATEMENTS | STOCK-BASED COMPENSATION |
Relative TSR is 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 2017,2020, the model used a risk-free interest rate of 1.5 percent,1.4%, which reflects the yield on three-year Treasury bonds as of the grant date, and an expected volatility of 17.2 percent13.6% 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. | | | | Years Ended December 31, | | Years Ended December 31, |
| | 2017 |
| | 2016 |
| | 2015 |
| | 2020 | | 2019 | | 2018 |
| Shares granted assuming target performance (in thousands) | 461 |
| | 338 |
| | 321 |
| Shares granted assuming target performance (in thousands) | 319 | | | 320 | | | 372 | |
| Fair value (in millions) | $ | 37 |
| | $ | 25 |
| | $ | 26 |
| Fair value (in millions) | $ | 34 | | | $ | 27 | | | $ | 27 | |
The following table summarizes information about stock-based performance awards outstanding and assumes payout at the target level. | | | | | | | Weighted Average |
| | | | Weighted Average |
| | Shares | | Grant Date Fair Value |
| | Shares |
| | Grant Date Fair Value |
| | (in thousands) | | (per share) |
| Outstanding at December 31, 2019 | | Outstanding at December 31, 2019 | 1,109 | | | $ | 80 | |
| Granted | | Granted | 319 | | | 105 | |
| | (in thousands) |
| | (per share) |
| |
| Outstanding at December 31, 2016 | 862 |
| | $ | 75 |
| |
| Granted | 461 |
| | 81 |
| |
| | Vested | | Vested | (448) | | | 81 | |
| Forfeited | (258 | ) | | 69 |
| Forfeited | (18) | | | 88 | |
| Outstanding at December 31, 2017 | 1,065 |
| | 79 |
| |
| Outstanding at December 31, 2020 | | Outstanding at December 31, 2020 | 962 | | | 87 | |
| Stock-based performance awards expected to vest | 1,034 |
| | 79 |
| Stock-based performance awards expected to vest | 937 | | | 87 | |
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, 20162020, and 20152019, was $25$36 million and $26$23 million, respectively. At December 31, 2017,2020, Duke Energy had $34$23 million of unrecognized compensation cost, which is expected to be recognized over a weighted average period of twenty-three21 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. |
| | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2016 |
| | 2015 |
|
| Intrinsic value of options exercised | $ | 1 |
| | $ | 5 |
|
| Tax benefit related to options exercised | — |
| | 2 |
|
| Cash received from options exercised | 7 |
| | 17 |
|
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.
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 – (Continued)
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. |
| | | | | | | |
| | Years Ended October 31, |
| (in millions) | 2016 |
| | 2015 |
|
| Pretax stock-based compensation cost | $ | 16 |
| | $ | 14 |
|
| Tax benefit associated with stock-based compensation expense | 6 |
| | 4 |
|
| Net of tax stock-based compensation cost | $ | 10 |
| | $ | 10 |
|
21.22. 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), or (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 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. Actuarial gains experienced by the defined benefit retirement plans in remeasuring plan assets as of December 31, 2020, and 2019, were attributable to actual investment performance that exceeded expected investment performance. Actuarial losses experienced by the defined benefit retirement plans in remeasuring plan obligations as of December 31, 2020, and 2019, were primarily attributable to the decrease in the discount rate used to measure plan obligations.
As a result of the application of settlement accounting due to total lump-sum benefit payments exceeding the settlement threshold (defined as the sum of the service cost and interest cost on projected benefit obligation components of net periodic pension costs) for one of its qualified pension plans, Duke Energy recognized settlement charges of $94 million, primarily as a regulatory asset within Other Noncurrent Assets on the Consolidated Balance Sheets as of December 31, 2019 (an immaterial amount was recorded in Other income and expenses, net within the Consolidated Statement of Operations).
Settlement charges recognized by the Subsidiary Registrants as of December 31, 2019, which represent amounts allocated by Duke Energy for employees of the Subsidiary Registrants and allocated charges for their proportionate share of settlement charges for employees of Duke Energy’s shared services affiliate, were $53 million for Duke Energy Carolinas, $26 million for Progress Energy, $20 million for Duke Energy Progress, $6 million for Duke Energy Florida, $4 million for Duke Energy Indiana, $2 million for Duke Energy Ohio and $8 million for Piedmont.
| | | | | |
| FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
The settlement charges reflect the recognition of a pro-rata portion of previously unrecognized actuarial losses, equal to the percentage of reduction in the projected benefit obligation resulting from total lump-sum benefit payments as of December 31, 2019. Settlement charges recognized as a regulatory asset within Other Noncurrent Assets on the Consolidated Balance Sheets are amortized over the average remaining service period for participants in the plan. Amortization of settlement charges is disclosed in the tables below as a component of net periodic pension costs.
Net periodic benefit costs disclosed in the tables below represent the cost of the respective benefit plan for the periods presented. However, portionspresented prior to capitalization of amounts reflected as Net property, plant and equipment, on the Consolidated Balance Sheets. Only the service cost component of net periodic benefit costs disclosedis eligible to be capitalized. The remaining non-capitalized portions of net periodic benefit costs are classified as either: (1) service cost, which is recorded in Operations, maintenance and other on the tables below have been capitalizedConsolidated Statements of Operations; or as a component(2) components of property, plantnon-service cost, which is recorded in Other income and equipment.expenses, net, on the Consolidated Statements of Operations. 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 Consolidated Statements of Operations of the Subsidiary Registrants arealso include allocated net periodic benefit costs for 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. However, in the tables below, these amounts are only presented within the Duke Energy column (except for amortization of settlement charges). These allocated amounts are included in the governance and shared service costs discussed in Note 13.
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. Duke Energy does not anticipate making any contributions in 2021. The following table includes information related to the Duke Energy Registrants’ contributions to its qualified defined benefit pension plans. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont(a) |
|
Anticipated Contributions: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Total anticipated 2018 contributions | $ | 148 |
| | $ | 46 |
| | $ | 45 |
| | $ | 25 |
| | $ | 20 |
| | $ | — |
| | $ | 8 |
| | $ | 7 |
|
| Contributions made January 2, 2018 | 141 |
| | 46 |
| | 45 |
| | 25 |
| | 20 |
| | — |
| | 8 |
| | — |
|
| Contributions to be made in 2018 | $ | 7 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 7 |
|
Contributions Made: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| 2017 | $ | 19 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 4 |
| | $ | — |
| | $ | 11 |
|
| 2016 | 155 |
| | 43 |
| | 43 |
| | 24 |
| | 20 |
| | 5 |
| | 9 |
| |
|
|
| 2015 | 302 |
| | 91 |
| | 83 |
| | 42 |
| | 40 |
| | 8 |
| | 19 |
| |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Contributions Made: | | | | | | | | | | | | | | | |
| 2020 | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| 2019 | 77 | | | 7 | | | 57 | | | 4 | | | 53 | | | 2 | | | 2 | | | 1 | |
| 2018 | 141 | | | 46 | | | 45 | | | 25 | | | 20 | | | 0 | | | 8 | | | 0 | |
| |
(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. |
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 – (Continued)
QUALIFIED PENSION PLANS
Components of Net Periodic Pension Costs |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
| Service cost | $ | 159 |
| | $ | 48 |
| | $ | 45 |
| | $ | 26 |
| | $ | 19 |
| | $ | 4 |
| | $ | 9 |
| | $ | 10 |
|
| Interest cost on projected benefit obligation | 328 |
| | 79 |
| | 100 |
| | 47 |
| | 53 |
| | 18 |
| | 26 |
| | 14 |
|
| Expected return on plan assets | (545 | ) | | (142 | ) | | (167 | ) | | (82 | ) | | (85 | ) | | (27 | ) | | (42 | ) | | (24 | ) |
| Amortization of actuarial loss | 146 |
| | 31 |
| | 52 |
| | 23 |
| | 29 |
| | 5 |
| | 12 |
| | 11 |
|
| Amortization of prior service credit | (24 | ) | | (8 | ) | | (3 | ) | | (2 | ) | | (1 | ) | | (1 | ) | | (2 | ) | | (2 | ) |
| Settlement charge | 12 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 12 |
|
| Other | 8 |
| | 2 |
| | 2 |
| | 1 |
| | 1 |
| | — |
| | 1 |
| | 1 |
|
Net periodic pension costs(a)(b) | $ | 84 |
|
| $ | 10 |
| | $ | 29 |
| | $ | 13 |
| | $ | 16 |
| | $ | (1 | ) | | $ | 4 |
| | $ | 22 |
|
| | | | Year Ended December 31, 2016 | | Year Ended December 31, 2020 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | | Duke | | Duke | | Duke | | Duke | | Duke | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Service cost | $ | 147 |
| | $ | 48 |
| | $ | 42 |
| | $ | 24 |
| | $ | 19 |
| | $ | 4 |
| | $ | 9 |
| Service cost | $ | 165 | | | $ | 51 | | | $ | 48 | | | $ | 27 | | | $ | 21 | | | $ | 5 | | | $ | 9 | | | $ | 6 | |
| Interest cost on projected benefit obligation | 335 |
| | 86 |
| | 106 |
| | 49 |
| | 55 |
| | 19 |
| | 28 |
| Interest cost on projected benefit obligation | 269 | | | 62 | | | 85 | | | 38 | | | 46 | | | 15 | | | 22 | | | 9 | |
| Expected return on plan assets | (519 | ) | | (142 | ) | | (168 | ) | | (82 | ) | | (84 | ) | | (27 | ) | | (42 | ) | Expected return on plan assets | (572) | | | (145) | | | (190) | | | (87) | | | (101) | | | (28) | | | (42) | | | (21) | |
| Amortization of actuarial loss | 134 |
| | 33 |
| | 51 |
| | 23 |
| | 29 |
| | 4 |
| | 11 |
| Amortization of actuarial loss | 128 | | | 28 | | | 41 | | | 18 | | | 23 | | | 6 | | | 12 | | | 9 | |
| Amortization of prior service (credit) | (17 | ) | | (8 | ) | | (3 | ) | | (2 | ) | | (1 | ) | | — |
| | (1 | ) | |
| Settlement charge | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Other | 8 |
| | 2 |
| | 3 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| |
| Amortization of prior service credit | | Amortization of prior service credit | (32) | | | (8) | | | (3) | | | (2) | | | (1) | | | 0 | | | (2) | | | (9) | |
| Amortization of settlement charges | | Amortization of settlement charges | 18 | | | 9 | | | 7 | | | 6 | | | 1 | | | 0 | | | 1 | | | 1 | |
Net periodic pension costs(a)(b) | $ | 91 |
| | $ | 19 |
| | $ | 31 |
| | $ | 13 |
| | $ | 19 |
| | $ | 1 |
| | $ | 6 |
| Net periodic pension costs(a)(b) | $ | (24) | | | $ | (3) | | | $ | (12) | | | $ | 0 | | | $ | (11) | | | $ | (2) | | | $ | 0 | | | $ | (5) | |
| | | | Year Ended December 31, 2015 | | Year Ended December 31, 2019 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | | Duke | | Duke | | Duke | | Duke | | Duke | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Service cost | $ | 159 |
| | $ | 50 |
| | $ | 44 |
| | $ | 23 |
| | $ | 20 |
| | $ | 4 |
| | $ | 10 |
| Service cost | $ | 158 | | | $ | 49 | | | $ | 46 | | | $ | 26 | | | $ | 20 | | | $ | 4 | | | $ | 9 | | | $ | 5 | |
| Interest cost on projected benefit obligation | 324 |
| | 83 |
| | 104 |
| | 48 |
| | 54 |
| | 18 |
| | 27 |
| Interest cost on projected benefit obligation | 317 | | | 75 | | | 100 | | | 45 | | | 54 | | | 18 | | | 26 | | | 10 | |
| Expected return on plan assets | (516 | ) | | (139 | ) | | (171 | ) | | (79 | ) | | (87 | ) | | (26 | ) | | (42 | ) | Expected return on plan assets | (567) | | | (147) | | | (178) | | | (88) | | | (89) | | | (28) | | | (43) | | | (22) | |
| Amortization of actuarial loss | 166 |
| | 39 |
| | 65 |
| | 33 |
| | 31 |
| | 7 |
| | 13 |
| Amortization of actuarial loss | 108 | | | 24 | | | 39 | | | 15 | | | 24 | | | 4 | | | 8 | | | 8 | |
| Amortization of prior service (credit) cost | (15 | ) | | (7 | ) | | (3 | ) | | (2 | ) | | (1 | ) | | — |
| | 1 |
| |
| Other | 8 |
| | 2 |
| | 3 |
| | 1 |
| | 1 |
| | — |
| | 1 |
| |
| Amortization of prior service credit | | Amortization of prior service credit | (32) | | | (8) | | | (3) | | | (2) | | | (1) | | | 0 | | | (2) | | | (9) | |
| Amortization of settlement charges | | Amortization of settlement charges | 6 | | | 2 | | | 1 | | | 1 | | | 0 | | | 2 | | | 0 | | | 0 | |
| Net periodic pension costs(a)(b) | $ | 126 |
| | $ | 28 |
| | $ | 42 |
| | $ | 24 |
| | $ | 18 |
| | $ | 3 |
| | $ | 10 |
| Net periodic pension costs(a)(b) | $ | (10) | | | $ | (5) | | | $ | 5 | | | $ | (3) | | | $ | 8 | | | $ | 0 | | | $ | (2) | | | $ | (8) | |
| | | | | |
(a)FINANCIAL STATEMENTS | 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.EMPLOYEE BENEFIT PLANS |
| |
(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. |
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 – (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2018 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Service cost | $ | 182 | | | $ | 58 | | | $ | 51 | | | $ | 29 | | | $ | 22 | | | $ | 5 | | | $ | 11 | | | $ | 7 | |
| Interest cost on projected benefit obligation | 299 | | | 72 | | | 94 | | | 43 | | | 50 | | | 17 | | | 23 | | | 11 | |
| Expected return on plan assets | (559) | | | (147) | | | (178) | | | (85) | | | (91) | | | (28) | | | (42) | | | (22) | |
| Amortization of actuarial loss | 132 | | | 29 | | | 44 | | | 21 | | | 23 | | | 5 | | | 10 | | | 11 | |
| Amortization of prior service credit | (32) | | | (8) | | | (3) | | | (2) | | | (1) | | | 0 | | | (2) | | | (10) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Net periodic pension costs(a)(b) | $ | 22 | | | $ | 4 | | | $ | 8 | | | $ | 6 | | | $ | 3 | | | $ | (1) | | | $ | 0 | | | $ | (3) | |
(a) Duke Energy amounts exclude $4 million, $4 million and $5 million for the years ended December 2020, 2019 and 2018, respectively, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy's merger with Cinergy in April 2006. |
| | | | | | | | | | | |
| | Piedmont |
| | Two Months Ended | | Years Ended October 31, |
(in millions) | December 31, 2016 | | 2016 | | 2015 |
| Service cost | $ | 2 |
| | $ | 11 |
| | $ | 11 |
|
| Interest cost on projected benefit obligation | 2 |
| | 9 |
| | 12 |
|
| Expected return on plan assets | (4 | ) | | (24 | ) | | (24 | ) |
| Amortization of actuarial loss | 2 |
| | 8 |
| | 9 |
|
| Amortization of prior service credit | (1 | ) | | (2 | ) | | (2 | ) |
| Settlement charge | 3 |
| | — |
| | — |
|
| Net periodic pension costs | $ | 4 |
| | $ | 2 |
| | $ | 6 |
|
Amounts Recognized in Accumulated Other Comprehensive Income and Regulatory Assets |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
| Regulatory assets, net (decrease) increase | $ | (212 | ) | | $ | (70 | ) | | $ | (49 | ) | | $ | (37 | ) | | $ | (11 | ) | | $ | 9 |
| | $ | (19 | ) | | $ | (64 | ) |
| Accumulated other comprehensive loss (income) | | | | | | | | | | | | | | | |
| Deferred income tax expense | $ | — |
| | — |
| | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Prior year service cost arising during the year | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Amortization of prior year actuarial losses | (7 | ) | | — |
| | (7 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Net amount recognized in accumulated other comprehensive income | $ | (6 | ) | | $ | — |
| | $ | (4 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
| Regulatory assets, net increase | $ | 214 |
| | $ | 4 |
| | $ | 34 |
| | $ | 18 |
| | $ | 16 |
| | $ | 2 |
| | $ | 9 |
|
| Accumulated other comprehensive (income) loss | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Deferred income tax expense | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Prior year service credit arising during the year | (2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Amortization of prior year actuarial losses | (7 | ) | | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
|
| Net amount recognized in accumulated other comprehensive income | $ | (5 | ) | | $ | — |
| | $ | (1 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Regulatory assets, net increase (decrease) | $ | (62) | | | $ | (39) | | | $ | (26) | | | $ | (30) | | | $ | 4 | | | $ | (2) | | | $ | 5 | | | $ | (1) | |
| Accumulated other comprehensive loss (income) | | | | | | | | | | | | | | | |
| Deferred income tax expense (benefit) | $ | 2 | | | $ | 0 | | | $ | 1 | | | $ | 0 | | | $ | 1 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Amortization of prior year service credit | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Amortization of prior year actuarial losses | (11) | | | 0 | | | (1) | | | 0 | | | (3) | | | 0 | | | 0 | | | 0 | |
| Net amount recognized in accumulated other comprehensive income | $ | (8) | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (2) | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
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. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Regulatory assets, net (decrease) increase | $ | (212) | | | $ | (156) | | | $ | (79) | | | $ | (59) | | | $ | (20) | | | $ | 12 | | | $ | 22 | | | $ | 0 | |
| Accumulated other comprehensive (income) loss | | | | | | | | | | | | | | | |
| Deferred income tax expense (benefit) | $ | 20 | | | $ | 0 | | | $ | 1 | | | $ | 0 | | | $ | (1) | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | |
| Amortization of prior year service credit | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Amortization of prior year actuarial losses | (15) | | | 0 | | | (2) | | | 0 | | | 3 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Net amount recognized in accumulated other comprehensive income | $ | 6 | | | $ | 0 | | | $ | (1) | | | $ | 0 | | | $ | 2 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
Reconciliation of Funded Status to Net Amount Recognized | | | | Year Ended December 31, 2017 | | Year Ended December 31, 2020 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | | | | Duke | | Duke | | Duke | | Duke | | Duke | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | | | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Change in Projected Benefit Obligation | |
| | | | | | | | | | | | | | | Change in Projected Benefit Obligation | |
| Obligation at prior measurement date | $ | 8,131 |
| | $ | 1,952 |
| | $ | 2,512 |
| | $ | 1,158 |
| | $ | 1,323 |
| | $ | 447 |
| | $ | 658 |
| | $ | 344 |
| Obligation at prior measurement date | $ | 8,321 | | | $ | 1,923 | | | $ | 2,608 | | | $ | 1,170 | | | $ | 1,424 | | | $ | 481 | | | $ | 693 | | | $ | 292 | |
| | Service cost | 159 |
| | 48 |
| | 45 |
| | 26 |
| | 19 |
| | 4 |
| | 9 |
| | 10 |
| Service cost | 157 | | | 49 | | | 46 | | | 26 | | | 20 | | | 4 | | | 8 | | | 5 | |
| Interest cost | 328 |
| | 79 |
| | 100 |
| | 47 |
| | 53 |
| | 18 |
| | 26 |
| | 14 |
| Interest cost | 269 | | | 62 | | | 85 | | | 38 | | | 46 | | | 15 | | | 22 | | | 9 | |
| Actuarial loss | 455 |
| | 68 |
| | 158 |
| | 57 |
| | 99 |
| | 35 |
| | 26 |
| | 38 |
| Actuarial loss | 433 | | | 83 | | | 144 | | | 50 | | | 93 | | | 21 | | | 46 | | | 14 | |
| Transfers | — |
| | 27 |
| | (32 | ) | | (2 | ) | | (15 | ) | | 12 |
| | — |
| | — |
| Transfers | 0 | | | 8 | | | (8) | | | (8) | | | 0 | | | 15 | | | 0 | | | 0 | |
| Plan amendments | (61 | ) | | — |
| | — |
| | — |
| | — |
| |
|
| | — |
| | (61 | ) | |
| Benefits paid | (537 | ) | | (145 | ) | | (146 | ) | | (75 | ) | | (69 | ) | | (37 | ) | | (50 | ) | | (5 | ) | Benefits paid | (541) | | | (137) | | | (160) | | | (83) | | | (76) | | | (34) | | | (49) | | | (27) | |
| Benefits paid - settlements | (27 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (27 | ) | |
| Benefits paid – settlements | | Benefits paid – settlements | (5) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (5) | | | 0 | |
| Obligation at measurement date | $ | 8,448 |
|
| $ | 2,029 |
|
| $ | 2,637 |
|
| $ | 1,211 |
|
| $ | 1,410 |
|
| $ | 479 |
|
| $ | 669 |
| | $ | 313 |
| Obligation at measurement date | $ | 8,634 | | | $ | 1,988 | | | $ | 2,715 | | | $ | 1,193 | | | $ | 1,507 | | | $ | 502 | | | $ | 715 | | | $ | 293 | |
| Accumulated Benefit Obligation at measurement date | $ | 8,369 |
| | $ | 2,029 |
| | $ | 2,601 |
| | $ | 1,211 |
| | $ | 1,375 |
| | $ | 468 |
| | $ | 652 |
| | $ | 313 |
| Accumulated Benefit Obligation at measurement date | $ | 8,577 | | | $ | 1,989 | | | $ | 2,684 | | | $ | 1,194 | | | $ | 1,476 | | | $ | 493 | | | $ | 709 | | | $ | 294 | |
Change in Fair Value of Plan Assets | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | Change in Fair Value of Plan Assets | |
Plan assets at prior measurement date | $ | 8,531 |
| | $ | 2,225 |
| | $ | 2,675 |
| | $ | 1,290 |
| | $ | 1,352 |
| | $ | 428 |
| | $ | 657 |
| | $ | 346 |
| Plan assets at prior measurement date | $ | 8,910 | | | $ | 2,263 | | | $ | 2,898 | | | $ | 1,364 | | | $ | 1,515 | | | $ | 443 | | | $ | 667 | | | $ | 335 | |
| Employer contributions | 19 |
| | — |
| | — |
| | — |
| | — |
| | 4 |
| | — |
| | 11 |
| |
| | Actual return on plan assets | 1,017 |
| | 265 |
| | 317 |
| | 153 |
| | 161 |
| | 51 |
| | 77 |
| | 43 |
| Actual return on plan assets | 973 | | | 247 | | | 319 | | | 149 | | | 166 | | | 48 | | | 71 | | | 35 | |
| Benefits paid | (537 | ) | | (145 | ) | | (146 | ) | | (75 | ) |
| (69 | ) |
| (37 | ) |
| (50 | ) | | (5 | ) | Benefits paid | (541) | | | (137) | | | (160) | | | (83) | | | (76) | | | (34) | | | (49) | | | (27) | |
Benefits paid - settlements
| (27 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (27 | ) | |
| Benefits paid – settlements | | Benefits paid – settlements | (5) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (5) | | | 0 | |
| Transfers | — |
| | 27 |
| | (32 | ) | | (2 | ) |
| (15 | ) |
| 12 |
|
| — |
| | — |
| Transfers | 0 | | | 8 | | | (8) | | | (8) | | | 0 | | | 15 | | | 0 | | | 0 | |
| | Plan assets at measurement date | $ | 9,003 |
| | $ | 2,372 |
| | $ | 2,814 |
| | $ | 1,366 |
| | $ | 1,429 |
| | $ | 458 |
| | $ | 684 |
| | $ | 368 |
| Plan assets at measurement date | $ | 9,337 | | | $ | 2,381 | | | $ | 3,049 | | | $ | 1,422 | | | $ | 1,605 | | | $ | 472 | | | $ | 684 | | | $ | 343 | |
| Funded status of plan | $ | 555 |
| | $ | 343 |
| | $ | 177 |
| | $ | 155 |
| | $ | 19 |
| | $ | (21 | ) | | $ | 15 |
| | $ | 55 |
| Funded status of plan | $ | 703 | | | $ | 393 | | | $ | 334 | | | $ | 229 | | | $ | 98 | | | $ | (30) | | | $ | (31) | | | $ | 50 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Change in Projected Benefit Obligation | | | | | | | | | | | | | | | |
| Obligation at prior measurement date | $ | 7,869 | | | $ | 1,954 | | | $ | 2,433 | | | $ | 1,125 | | | $ | 1,295 | | | $ | 435 | | | $ | 618 | | | $ | 264 | |
| | | | | | | | | | | | | | | |
| Service cost | 150 | | | 47 | | | 43 | | | 25 | | | 18 | | | 4 | | | 8 | | | 5 | |
| Interest cost | 317 | | | 75 | | | 100 | | | 45 | | | 54 | | | 18 | | | 26 | | | 10 | |
| Actuarial loss | 716 | | | 101 | | | 223 | | | 87 | | | 135 | | | 54 | | | 87 | | | 33 | |
| Transfers | 0 | | | 11 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | | | | | | | |
| Benefits paid | (731) | | | (265) | | | (191) | | | (112) | | | (78) | | | (30) | | | (46) | | | (20) | |
| | | | | | | | | | | | | | | |
| Obligation at measurement date | $ | 8,321 | | | $ | 1,923 | | | $ | 2,608 | | | $ | 1,170 | | | $ | 1,424 | | | $ | 481 | | | $ | 693 | | | $ | 292 | |
| Accumulated Benefit Obligation at measurement date | $ | 8,262 | | | $ | 1,923 | | | $ | 2,578 | | | $ | 1,170 | | | $ | 1,392 | | | $ | 471 | | | $ | 686 | | | $ | 292 | |
| Change in Fair Value of Plan Assets | | | | | | | | | | | | | | | |
| Plan assets at prior measurement date | $ | 8,233 | | | $ | 2,168 | | | $ | 2,606 | | | $ | 1,268 | | | $ | 1,322 | | | $ | 405 | | | $ | 611 | | | $ | 305 | |
| | | | | | | | | | | | | | | |
| Employer contributions | 77 | | | 7 | | | 57 | | | 4 | | | 53 | | | 2 | | | 2 | | | 1 | |
| Actual return on plan assets | 1,331 | | | 342 | | | 426 | | | 204 | | | 218 | | | 66 | | | 100 | | | 49 | |
| Benefits paid | (731) | | | (265) | | | (191) | | | (112) | | | (78) | | | (30) | | | (46) | | | (20) | |
| | | | | | | | | | | | | | | |
| Transfers | 0 | | | 11 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | | | | | | | |
| Plan assets at measurement date | $ | 8,910 | | | $ | 2,263 | | | $ | 2,898 | | | $ | 1,364 | | | $ | 1,515 | | | $ | 443 | | | $ | 667 | | | $ | 335 | |
| Funded status of plan | $ | 589 | | | $ | 340 | | | $ | 290 | | | $ | 194 | | | $ | 91 | | | $ | (38) | | | $ | (26) | | | $ | 43 | |
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 – (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Change in Projected Benefit Obligation | | | | | | | | | | | | | |
| Obligation at prior measurement date | $ | 7,727 |
| | $ | 1,995 |
| | $ | 2,451 |
| | $ | 1,143 |
| | $ | 1,276 |
| | $ | 453 |
| | $ | 649 |
|
| Obligation assumed from acquisition | 352 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Service cost | 147 |
| | 48 |
| | 42 |
| | 24 |
| | 19 |
| | 4 |
| | 9 |
|
| Interest cost | 335 |
| | 86 |
| | 106 |
| | 49 |
| | 55 |
| | 19 |
| | 28 |
|
| Actuarial loss | 307 |
| | 46 |
| | 111 |
| | 52 |
| | 57 |
| | 13 |
| | 41 |
|
| Transfers | — |
| | 14 |
| | (3 | ) | | (3 | ) | | — |
| | (3 | ) | | — |
|
| Plan amendments | (52 | ) | | (3 | ) | | — |
| | — |
| | — |
| | (3 | ) | | (15 | ) |
| Benefits paid | (679 | ) | | (234 | ) | | (195 | ) | | (107 | ) | | (84 | ) | | (36 | ) | | (54 | ) |
| Impact of settlements | (6 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Obligation at measurement date | $ | 8,131 |
| | $ | 1,952 |
| | $ | 2,512 |
| | $ | 1,158 |
| | $ | 1,323 |
| | $ | 447 |
| | $ | 658 |
|
Accumulated Benefit Obligation at measurement date | $ | 8,006 |
| | $ | 1,952 |
| | $ | 2,479 |
| | $ | 1,158 |
| | $ | 1,290 |
| | $ | 436 |
| | $ | 649 |
|
Change in Fair Value of Plan Assets | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Plan assets at prior measurement date | $ | 8,136 |
| | $ | 2,243 |
| | $ | 2,640 |
| | $ | 1,284 |
| | $ | 1,321 |
| | $ | 433 |
| | $ | 655 |
|
| Assets received from acquisition | 343 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Employer contributions | 155 |
| | 43 |
| | 43 |
| | 24 |
| | 20 |
| | 5 |
| | 9 |
|
| Actual return on plan assets | 582 |
| | 159 |
| | 190 |
| | 92 |
| | 95 |
| | 29 |
| | 47 |
|
| Benefits paid | (679 | ) | | (234 | ) | | (195 | ) | | (107 | ) | | (84 | ) | | (36 | ) | | (54 | ) |
| Impact of settlements | (6 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Transfers | — |
| | 14 |
| | (3 | ) | | (3 | ) | | — |
| | (3 | ) | | — |
|
| Plan assets at measurement date | $ | 8,531 |
| | $ | 2,225 |
| | $ | 2,675 |
| | $ | 1,290 |
| | $ | 1,352 |
| | $ | 428 |
| | $ | 657 |
|
| Funded status of plan | $ | 400 |
| | $ | 273 |
| | $ | 163 |
| | $ | 132 |
| | $ | 29 |
| | $ | (19 | ) | | $ | (1 | ) |
|
| | | | | | | |
| | Piedmont |
| | Two Months Ended | | Years Ended |
| (in millions) | December 31, 2016 | | October 31, 2016 |
Change in Projected Benefit Obligation | | | |
| Obligation at prior measurement date | $ | 352 |
| | $ | 312 |
|
| Service cost | 2 |
| | 11 |
|
| Interest cost | 2 |
| | 9 |
|
| Actuarial gain | (5 | ) | | 34 |
|
| Benefits paid | (1 | ) | | (14 | ) |
| Impact of settlements | (6 | ) | | — |
|
| Obligation at measurement date | $ | 344 |
| | $ | 352 |
|
Accumulated Benefit Obligation at measurement date | $ | 289 |
| | $ | 296 |
|
Change in Fair Value of Plan Assets | |
| | |
|
| Plan assets at prior measurement date | $ | 343 |
| | $ | 329 |
|
| Employer contributions | 10 |
| | 10 |
|
| Actual return on plan assets | — |
| | 18 |
|
| Benefits paid | (1 | ) | | (14 | ) |
| Impact of settlements | (6 | ) | | — |
|
| Plan assets at measurement date | $ | 346 |
| | $ | 343 |
|
| Funded status of plan | $ | 2 |
| | $ | (9 | ) |
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
Amounts Recognized in the Consolidated Balance Sheets |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Prefunded pension(a) | $ | 680 |
| | $ | 343 |
| | $ | 245 |
| | $ | 155 |
| | $ | 87 |
| | $ | 8 |
| | $ | 16 |
| | $ | 55 |
|
Noncurrent pension liability(b) | $ | 125 |
| | $ | — |
| | $ | 68 |
| | $ | — |
| | $ | 68 |
| | $ | 29 |
| | $ | 1 |
| | $ | — |
|
| Net asset (liability) recognized | $ | 555 |
|
| $ | 343 |
|
| $ | 177 |
|
| $ | 155 |
|
| $ | 19 |
|
| $ | (21 | ) |
| $ | 15 |
| | $ | 55 |
|
| Regulatory assets | $ | 1,886 |
| | $ | 406 |
| | $ | 756 |
| | $ | 341 |
| | $ | 415 |
| | $ | 90 |
| | $ | 152 |
| | $ | 73 |
|
| Accumulated other comprehensive (income) loss | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Deferred income tax benefit | $ | (41 | ) | | $ | — |
| | $ | (3 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Prior service credit | (5 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net actuarial loss | 116 |
| | — |
| | 9 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net amounts recognized in accumulated other comprehensive loss | $ | 70 |
| | $ | — |
| | $ | 6 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Amounts to be recognized in net periodic pension costs in the next year | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Unrecognized net actuarial loss | $ | 132 |
| | $ | 29 |
| | $ | 44 |
| | $ | 21 |
| | $ | 23 |
| | $ | 5 |
| | $ | 7 |
| | $ | 11 |
|
Unrecognized prior service credit | (32 | ) | | (8 | ) | | (3 | ) | | (2 | ) | | (1 | ) | | — |
| | (2 | ) | | (9 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Prefunded pension(a) | $ | 518 |
| | $ | 273 |
| | $ | 225 |
| | $ | 132 |
| | $ | 91 |
| | $ | 6 |
| | $ | — |
| | 3 |
|
Noncurrent pension liability(b) | $ | 118 |
| | $ | — |
| | $ | 62 |
| | $ | — |
| | $ | 62 |
| | $ | 25 |
| | $ | 1 |
| | — |
|
| Net asset recognized | $ | 400 |
| | $ | 273 |
| | $ | 163 |
| | $ | 132 |
| | $ | 29 |
| | $ | (19 | ) | | $ | (1 | ) | | $ | 3 |
|
| Regulatory assets | $ | 2,098 |
| | $ | 476 |
| | $ | 805 |
| | $ | 378 |
| | $ | 426 |
| | $ | 81 |
| | $ | 171 |
| | $ | 137 |
|
| Accumulated other comprehensive (income) loss | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Deferred income tax benefit | $ | (41 | ) | | $ | — |
| | $ | (6 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Prior service credit | (6 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net actuarial loss | 123 |
| | — |
| | 16 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net amounts recognized in accumulated other comprehensive loss | $ | 76 |
| | $ | — |
| | $ | 10 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Amounts to be recognized in net periodic pension costs in the next year | | | | | | | | | | | | | | | |
| Unrecognized net actuarial loss | $ | 147 |
| | $ | 31 |
| | $ | 52 |
| | $ | 23 |
| | $ | 29 |
| | $ | 5 |
| | $ | 8 |
| | $ | 13 |
|
| Unrecognized prior service credit | $ | (24 | ) | | $ | (8 | ) | | $ | (3 | ) | | $ | (2 | ) | | $ | (1 | ) | | $ | — |
| | $ | (2 | ) | | $ | (2 | ) |
| |
(a) | Included in Other within Other Noncurrent Assets on the Consolidated Balance Sheets. |
| |
(b) | Included in Accrued pension and other post-retirement benefit costs on the Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Prefunded pension(a) | $ | 780 | | | $ | 393 | | | $ | 379 | | | $ | 229 | | | $ | 143 | | | $ | 58 | | | $ | 79 | | | $ | 50 | |
Noncurrent pension liability(b) | $ | 77 | | | $ | 0 | | | $ | 45 | | | $ | 0 | | | $ | 45 | | | $ | 88 | | | $ | 110 | | | $ | 0 | |
| Net asset (liability) recognized | $ | 703 | | | $ | 393 | | | $ | 334 | | | $ | 229 | | | $ | 98 | | | $ | (30) | | | $ | (31) | | | $ | 50 | |
| Regulatory assets | $ | 1,910 | | | $ | 381 | | | $ | 691 | | | $ | 283 | | | $ | 408 | | | $ | 110 | | | $ | 209 | | | $ | 80 | |
| Accumulated other comprehensive (income) loss | | | | | | | | | | | | | | | |
| Deferred income tax benefit | $ | (21) | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Prior service credit | (2) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Net actuarial loss | 100 | | | 0 | | | 2 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Net amounts recognized in accumulated other comprehensive loss | $ | 77 | | | $ | 0 | | | $ | 2 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
PART II | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Prefunded pension(a) | $ | 621 | | | $ | 340 | | | $ | 322 | | | $ | 194 | | | $ | 123 | | | $ | 38 | | | $ | 57 | | | $ | 43 | |
Noncurrent pension liability(b) | $ | 32 | | | $ | 0 | | | $ | 32 | | | $ | 0 | | | $ | 32 | | | $ | 76 | | | $ | 83 | | | $ | 0 | |
| Net asset recognized | $ | 589 | | | $ | 340 | | | $ | 290 | | | $ | 194 | | | $ | 91 | | | $ | (38) | | | $ | (26) | | | $ | 43 | |
| Regulatory assets | $ | 1,972 | | | $ | 420 | | | $ | 717 | | | $ | 313 | | | $ | 404 | | | $ | 112 | | | $ | 204 | | | $ | 81 | |
| Accumulated other comprehensive (income) loss | | | | | | | | | | | | | | | |
| Deferred income tax benefit | $ | (23) | | | $ | 0 | | | $ | (1) | | | $ | 0 | | | $ | (1) | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Prior service credit | (3) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Net actuarial loss | 111 | | | 0 | | | 3 | | | 0 | | | 3 | | | 0 | | | 0 | | | 0 | |
| Net amounts recognized in accumulated other comprehensive loss | $ | 85 | | | $ | 0 | | | $ | 2 | | | $ | 0 | | | $ | 2 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Amounts to be recognized in net periodic pension costs in the next year | | | | | | | | | | | | | | | |
| Unrecognized net actuarial loss | $ | 135 | | | $ | 29 | | | $ | 43 | | | $ | 19 | | | $ | 24 | | | $ | 7 | | | $ | 10 | | | $ | 9 | |
| Unrecognized prior service credit | (32) | | | (8) | | | (3) | | | (2) | | | (1) | | | (1) | | | (2) | | | (9) | |
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. –(a) Included in Other within Other Noncurrent Assets on the Consolidated Balance Sheets.
DUKE ENERGY PROGRESS, LLC – DUKE ENERGY FLORIDA, LLC – DUKE ENERGY OHIO, INC. – DUKE ENERGY INDIANA, LLC– PIEDMONT NATURAL GAS COMPANY, INC.(b) Included in Accrued pension and other post-retirement benefit costs on the Consolidated Balance Sheets.
Combined Notes To Consolidated Financial Statements – (Continued)
Information for Plans with Accumulated Benefit Obligation in Excess of Plan Assets |
| | | | | | | | | | | | |
| | December 31, 2017 |
| | | | Duke |
| Duke |
|
| | Duke |
| Progress |
| Energy |
| Energy |
|
| (in millions) | Energy |
| Energy |
| Florida |
| Ohio |
|
| Projected benefit obligation | $ | 1,386 |
| $ | 718 |
| $ | 718 |
| $ | 337 |
|
| Accumulated benefit obligation | 1,326 |
| 683 |
| 683 |
| 326 |
|
| Fair value of plan assets | 1,260 |
| 650 |
| 650 |
| 308 |
|
| | | | December 31, 2016 | | December 31, 2020 | |
| | | Duke |
| Duke |
| | | Duke | | Duke | | Duke | |
| | Duke |
| Progress |
| Energy |
| Energy |
| | Duke | Progress | Energy | | Energy | | Energy | |
| (in millions) | Energy |
| Energy |
| Florida |
| Ohio |
| (in millions) | Energy | Florida | | Ohio | | Indiana | |
| Projected benefit obligation | $ | 1,299 |
| $ | 665 |
| $ | 665 |
| $ | 311 |
| Projected benefit obligation | $ | 4,914 | | $ | 828 | | $ | 828 | | | $ | 184 | | | $ | 293 | | |
| Accumulated benefit obligation | 1,239 |
| 633 |
| 633 |
| 299 |
| Accumulated benefit obligation | 4,856 | | 796 | | 796 | | | 176 | | | 285 | | |
| Fair value of plan assets | 1,182 |
| 604 |
| 604 |
| 286 |
| Fair value of plan assets | 4,837 | | 783 | | 783 | | | 96 | | | 183 | | |
| | | | | |
| FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | December 31, 2019 |
| | | | | | | | | Duke | | Duke |
| | | | | | | | | Energy | | Energy |
| (in millions) | | | | | | | | | Ohio | | Indiana |
| Projected benefit obligation | | | | | | | | | $ | 155 | | | $ | 260 | |
| Accumulated benefit obligation | | | | | | | | | 146 | | | 252 | |
| Fair value of plan assets | | | | | | | | | 79 | | | 177 | |
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 qualityhigh-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 for participants in active plans and life expectancy of active covered employeesparticipants in inactive plans is 13 years for Duke Energy, Duke Energy Indiana and Duke Energy Ohio, 14 years for Progress Energy, Duke Energy Progress and Duke Energy Florida, 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.
The following tables present the assumptions or range of assumptions used for pension benefit accounting. | | | | | December 31, | | December 31, |
| | | 2017 | | 2016 | | 2015 | | 2020 | | 2019 | | 2018 |
| Benefit Obligations | | | | | | | | | | | | | Benefit Obligations | |
| Discount rate | | | | 3.60% | | | | 4.10% | | | | 4.40% | Discount rate | | 2.60% | | 3.30% | | 4.30% |
| Interest crediting rate | | Interest crediting rate | | 4.00% | | 4.00% | | 4.00% |
| Salary increase | | 3.50 | % | – | 4.00% | | 4.00 | % | – | 4.50% | | 4.00 | % | – | 4.40% | Salary increase | | 3.50 | % | – | 4.00% | | 3.50 | % | – | 4.00% | | 3.50 | % | – | 4.00% |
| Net Periodic Benefit Cost | | | | | | | | | | | | | Net Periodic Benefit Cost | |
| Discount rate | | | | 4.10% | | | | 4.40% | |
|
| | 4.10% | Discount rate | | 3.30% | | 4.30% | | 3.60% |
| Interest crediting rate | | Interest crediting rate | | 4.00% | | 4.00% | | 4.00% |
Salary increase | | 4.00 | % | – | 4.50% | | 4.00 | % | – | 4.40% | | 4.00 | % | – | 4.40% | Salary increase | | 3.50 | % | – | 4.00% | | 3.50 | % | – | 4.00% | | 3.50 | % | – | 4.00% |
| Expected long-term rate of return on plan assets | | 6.50 | % | – | 6.75% | | 6.50 | % | – | 6.75% | |
|
| | 6.50% | Expected long-term rate of return on plan assets | | 6.85% | | 6.85% | | 0 | | 6.50% |
|
| | | | | | | | | |
| | | Piedmont |
| | | Two Months Ended | | Years Ended October 31, |
| | | December 31, 2016 | | 2016 | | 2015 |
| Benefit Obligations | | | | | | |
| Discount rate | | 4.10 | % | | 3.80 | % | | 4.34 | % |
| Salary increase | | 4.50 | % | | 4.05 | % | | 4.07 | % |
| Net Periodic Benefit Cost | | | | |
| | |
|
| Discount rate | | 3.80 | % | | 4.34 | % | | 4.13 | % |
Salary increase | | 4.05 | % | | 4.07 | % | | 3.68 | % |
| Expected long-term rate of return on plan assets | | 6.75 | % | | 7.25 | % | | 7.50 | % |
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 – (Continued)
Expected Benefit Payments | | | | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| | | Duke | | Duke | |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| | | Duke | Energy | Progress | Energy | |
| (in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
| (in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Years ending December 31, | | | Years ending December 31, | |
| 2018 | $ | 642 |
| $ | 185 |
| $ | 161 |
| $ | 85 |
| $ | 75 |
| $ | 36 |
| $ | 47 |
| $ | 29 |
| |
| 2019 | 644 |
| 185 |
| 164 |
| 86 |
| 77 |
| 36 |
| 46 |
| 26 |
| |
| 2020 | 661 |
| 195 |
| 172 |
| 90 |
| 80 |
| 36 |
| 44 |
| 24 |
| |
| 2021 | 666 |
| 194 |
| 175 |
| 93 |
| 81 |
| 37 |
| 44 |
| 24 |
| 2021 | $ | 667 | | $ | 169 | | $ | 177 | | $ | 94 | | $ | 82 | | $ | 40 | | $ | 53 | | $ | 29 | |
| 2022 | 672 |
| 197 |
| 176 |
| 92 |
| 83 |
| 36 |
| 44 |
| 23 |
| 2022 | 650 | | 170 | | 176 | | 92 | | 83 | | 39 | | 51 | | 25 | |
| 2023-2027 | 3,099 |
| 865 |
| 888 |
| 449 |
| 435 |
| 166 |
| 210 |
| 103 |
| |
| 2023 | | 2023 | 655 | | 174 | | 181 | | 95 | | 85 | | 38 | | 49 | | 22 | |
| 2024 | | 2024 | 644 | | 168 | | 184 | | 96 | | 87 | | 37 | | 49 | | 21 | |
| 2025 | | 2025 | 617 | | 163 | | 181 | | 93 | | 88 | | 35 | | 47 | | 19 | |
| 2025-2029 | | 2025-2029 | 2,745 | | 677 | | 846 | | 399 | | 443 | | 154 | | 217 | | 83 | |
NON-QUALIFIED PENSION PLANS
Components of Net Periodic Pension Costs |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
| (in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
| Service cost | $ | 2 |
| $ | 1 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Interest cost on projected benefit obligation | 13 |
| 1 |
| 5 |
| 1 |
| 2 |
| — |
| — |
| — |
|
| Amortization of actuarial loss | 8 |
| — |
| 2 |
| 1 |
| 1 |
| — |
| — |
| — |
|
| Amortization of prior service credit | (2 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Net periodic pension costs | $ | 21 |
| $ | 2 |
| $ | 7 |
| $ | 2 |
| $ | 3 |
| $ | — |
| $ | — |
| $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
|
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
|
| (in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
|
| Service cost | $ | 2 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Interest cost on projected benefit obligation | 14 |
| 1 |
| 5 |
| 1 |
| 2 |
| — |
| — |
|
| Amortization of actuarial loss | 8 |
| 1 |
| 1 |
| 1 |
| 1 |
| — |
| — |
|
| Amortization of prior service credit | (1 | ) | — |
| — |
| — |
| — |
| — |
| — |
|
| Net periodic pension costs | $ | 23 |
| $ | 2 |
| $ | 6 |
| $ | 2 |
| $ | 3 |
| $ | — |
| $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2015 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
|
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
|
| (in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
|
| Service cost | $ | 3 |
| $ | — |
| $ | 1 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Interest cost on projected benefit obligation | 13 |
| 1 |
| 4 |
| 1 |
| 2 |
| — |
| — |
|
| Amortization of actuarial loss | 6 |
| — |
| 2 |
| 1 |
| 2 |
| — |
| 1 |
|
| Amortization of prior service credit | (1 | ) | — |
| (1 | ) | — |
| — |
| — |
| — |
|
| Net periodic pension costs | $ | 21 |
| $ | 1 |
| $ | 6 |
| $ | 2 |
| $ | 4 |
| $ | — |
| $ | 1 |
|
|
| | | | | | |
| | Piedmont |
| | Years Ended October 31, |
(in millions) | 2016 | 2015 |
| Amortization of prior service cost | $ | — |
| $ | 1 |
|
| Settlement charge | 1 |
| — |
|
| Net periodic pension costs | $ | 1 |
| $ | 1 |
|
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 – (Continued)
Amounts Recognized in Accumulated Other Comprehensive Income and Regulatory Assets and Liabilities |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
| (in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
| Regulatory assets, net (decrease) increase | $ | 5 |
| $ | (1 | ) | $ | 3 |
| $ | 1 |
| $ | 2 |
| $ | — |
| $ | — |
| $ | — |
|
| Accumulated other comprehensive (income) loss | |
| |
| |
| |
| |
| |
| |
| |
|
| Deferred income tax benefit | $ | (1 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Actuarial loss arising during the year | 2 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Net amount recognized in accumulated other comprehensive loss (income) | $ | 1 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
|
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
|
| (in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
|
| Regulatory assets, net (decrease) increase | $ | (3 | ) | $ | (2 | ) | $ | 2 |
| $ | 1 |
| $ | 1 |
| $ | — |
| $ | (1 | ) |
| Accumulated other comprehensive (income) loss | | | | | | | |
| Prior service credit arising during the year | $ | (1 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Actuarial gains arising during the year | 1 |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Net amount recognized in accumulated other comprehensive loss (income) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Reconciliation of Funded Status to Net Amount Recognized |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
| (in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Change in Projected Benefit Obligation | |
| |
| |
| |
| |
| |
| |
| |
| Obligation at prior measurement date | $ | 332 |
| $ | 14 |
| $ | 114 |
| $ | 33 |
| $ | 46 |
| $ | 4 |
| $ | 3 |
| $ | 4 |
|
| Service cost | 2 |
| 1 |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Interest cost | 13 |
| 1 |
| 5 |
| 1 |
| 2 |
| — |
| — |
| — |
|
| Actuarial losses (gains) | 15 |
| — |
| 5 |
| 4 |
| 2 |
| — |
| — |
| — |
|
| Benefits paid | (31 | ) | (2 | ) | (8 | ) | (3 | ) | (3 | ) | — |
| — |
| — |
|
| Obligation at measurement date | $ | 331 |
| $ | 14 |
| $ | 116 |
| $ | 35 |
| $ | 47 |
| $ | 4 |
| $ | 3 |
| $ | 4 |
|
Accumulated Benefit Obligation at measurement date | $ | 331 |
| $ | 14 |
| $ | 116 |
| $ | 35 |
| $ | 47 |
| $ | 4 |
| $ | 3 |
| $ | 4 |
|
Change in Fair Value of Plan Assets | |
| |
| |
| |
| |
| |
| |
| |
|
| Benefits paid | $ | (31 | ) | $ | (2 | ) | $ | (8 | ) | $ | (3 | ) | $ | (3 | ) | $ | — |
| $ | — |
| $ | — |
|
| Employer contributions | 31 |
| 2 |
| 8 |
| 3 |
| 3 |
| — |
| — |
| — |
|
| Plan assets at measurement date | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
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 – (Continued)
|
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
|
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
|
| (in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
|
Change in Projected Benefit Obligation | | |
| |
| |
| |
| |
| |
|
| Obligation at prior measurement date | $ | 341 |
| $ | 16 |
| $ | 112 |
| $ | 33 |
| $ | 46 |
| $ | 4 |
| $ | 5 |
|
| Obligation assumed from acquisition | 5 |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Service cost | 2 |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Interest cost | 14 |
| 1 |
| 5 |
| 1 |
| 2 |
| — |
| — |
|
| Actuarial losses (gains) | 4 |
| (1 | ) | 5 |
| 2 |
| 1 |
| — |
| (2 | ) |
| Plan amendments | (2 | ) | — |
| — |
| — |
| — |
| — |
| |
| Benefits paid | (32 | ) | (2 | ) | (8 | ) | (3 | ) | (3 | ) | — |
| — |
|
| Obligation at measurement date | $ | 332 |
| $ | 14 |
| $ | 114 |
| $ | 33 |
| $ | 46 |
| $ | 4 |
| $ | 3 |
|
| Accumulated Benefit Obligation at measurement date | $ | 332 |
| $ | 14 |
| $ | 114 |
| $ | 33 |
| $ | 46 |
| $ | 4 |
| $ | 3 |
|
| Change in Fair Value of Plan Assets | |
| |
| |
| |
| |
| |
| |
|
| Benefits paid | $ | (32 | ) | $ | (2 | ) | $ | (8 | ) | $ | (3 | ) | $ | (3 | ) | — |
| — |
|
| Employer contributions | 32 |
| 2 |
| 8 |
| 3 |
| 3 |
| — |
| — |
|
| Plan assets at measurement date | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
|
| | | | | | | |
| | Piedmont |
| | Two Months Ended | | Years Ended |
| (in millions) | December 31, 2016 | | October 31, 2016 |
Change in Projected Benefit Obligation | | | |
| Obligation at prior measurement date | $ | 5 |
| | $ | 6 |
|
| Actuarial gain | (1 | ) | | — |
|
| Impact of settlements | — |
| | (1 | ) |
| Obligation at measurement date | $ | 4 |
| | $ | 5 |
|
Accumulated Benefit Obligation at measurement date | $ | — |
| | $ | 5 |
|
Change in Fair Value of Plan Assets | |
| | |
|
| Plan assets at prior measurement date | $ | — |
| | $ | 1 |
|
| Impact of settlements | — |
| | (1 | ) |
| Plan assets at measurement date | $ | — |
| | $ | — |
|
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 – (Continued)
Amounts Recognized inThe accumulated benefit obligation, which equals the Consolidated Balance Sheets |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
| (in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Current pension liability(a) | $ | 23 |
| $ | 2 |
| $ | 8 |
| $ | 3 |
| $ | 3 |
| $ | — |
| $ | — |
| $ | — |
|
Noncurrent pension liability(b) | 308 |
| 12 |
| 108 |
| 32 |
| 44 |
| 4 |
| 3 |
| 4 |
|
| Total accrued pension liability | $ | 331 |
| $ | 14 |
| $ | 116 |
| $ | 35 |
| $ | 47 |
| $ | 4 |
| $ | 3 |
| $ | 4 |
|
| Regulatory assets | $ | 78 |
| $ | 4 |
| $ | 21 |
| $ | 8 |
| $ | 13 |
| $ | 1 |
| $ | — |
| $ | 1 |
|
| Accumulated other comprehensive (income) loss | | |
| |
| |
| |
| |
| |
| |
|
| Deferred income tax benefit | $ | (4 | ) | $ | — |
| $ | (3 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Prior service credit | (1 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Net actuarial loss | 12 |
| — |
| 9 |
| — |
| — |
| — |
| — |
| — |
|
| Net amounts recognized in accumulated other comprehensive loss | $ | 7 |
| $ | — |
| $ | 6 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Amounts to be recognized in net periodic pension expense in the next year | | |
| |
| |
| |
| |
| |
| |
|
| Unrecognized net actuarial loss | $ | 8 |
| $ | — |
| $ | 2 |
| $ | 1 |
| $ | 1 |
| $ | — |
| $ | — |
| $ | — |
|
Unrecognized prior service credit | (2 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
| (in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
Current pension liability(a) | $ | 28 |
| $ | 2 |
| $ | 8 |
| $ | 2 |
| $ | 3 |
| $ | — |
| $ | — |
| $ | — |
|
Noncurrent pension liability(b) | 304 |
| 12 |
| 106 |
| 31 |
| 43 |
| 4 |
| 3 |
| 4 |
|
| Total accrued pension liability | $ | 332 |
| $ | 14 |
| $ | 114 |
| $ | 33 |
| $ | 46 |
| $ | 4 |
| $ | 3 |
| $ | 4 |
|
| Regulatory assets | $ | 73 |
| $ | 5 |
| $ | 18 |
| $ | 7 |
| $ | 11 |
| $ | 1 |
| $ | — |
| $ | 1 |
|
| Accumulated other comprehensive (income) loss | |
| |
| |
| |
| |
| |
| |
| |
|
| Deferred income tax benefit | $ | (3 | ) | $ | — |
| $ | (3 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Prior service credit | (1 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Net actuarial loss | 10 |
| — |
| 9 |
| — |
| — |
| — |
| — |
| — |
|
| Net amounts recognized in accumulated other comprehensive loss | $ | 6 |
| $ | — |
| $ | 6 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Amounts to be recognized in net periodic pension expense in the next year | | | | | | | | |
| Unrecognized net actuarial loss | $ | 7 |
| $ | — |
| $ | 2 |
| $ | 1 |
| $ | 1 |
| $ | — |
| $ | — |
| $ | — |
|
| Unrecognized prior service credit | $ | (2 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
(a) Included in Other within Current Liabilities on the Consolidated Balance Sheets.
| |
(b) | Included in Accrued pension and other post-retirement benefit costs on the Consolidated Balance Sheets. |
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 – (Continued)
Information for Plans with Accumulated Benefit Obligation in Excess of Plan Assets |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
| (in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
| Projected benefit obligation | $ | 331 |
| $ | 14 |
| $ | 116 |
| $ | 35 |
| $ | 47 |
| $ | 4 |
| $ | 3 |
| $ | 4 |
|
| Accumulated benefit obligation | 331 |
| 14 |
| 116 |
| 35 |
| 47 |
| 4 |
| 3 |
| 4 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
| (in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
| Projected benefit obligation | $ | 332 |
| $ | 14 |
| $ | 114 |
| $ | 33 |
| $ | 46 |
| $ | 4 |
| $ | 3 |
| $ | 4 |
|
| Accumulated benefit obligation | 332 |
| 14 |
| 114 |
| 33 |
| 46 |
| 4 |
| 3 |
| 4 |
|
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 yearsobligation for non-qualified pension plans, was $320 million for Duke Energy, and$13 million for Duke Energy Carolinas, $111 million for Progress Energy, $33 million for Duke Energy Progress, 14 years for Progress Energy, 15 years$45 million for Duke Energy Florida, eight years$4 million for Duke Energy Ohio, $2 million for Duke Energy Indiana and $4 million for Piedmont as of December 31, 2020.
Employer contributions, which equal benefits paid for non-qualified pension plans, were $23 million for Duke Energy, $2 million for Duke Energy Carolinas, $8 million for Progress Energy, $3 million for Duke Energy Progress and $3 million for Duke Energy Florida for the year ended December 31, 2020. Employer contributions were not material for Duke Energy Ohio, and Duke Energy Indiana and nineor Piedmont for the year ended December 31, 2020.
Net periodic pension costs for non-qualified pension plans were not material for the years
for Piedmont. The following tables present the assumptions used for pension benefit accounting. |
| | | | | | | | | | | | |
| | | December 31, |
| | | 2017 | | 2016 |
| | 2015 |
|
Benefit Obligations | | | | |
| | |
| | �� |
|
| Discount rate | |
|
| | 3.60 | % | | 4.10 | % | | 4.40 | % |
| Salary increase | | 3.50 | % | – | 4.00 | % | | 4.40 | % | | 4.40 | % |
Net Periodic Benefit Cost | | | | |
| | |
| | |
|
| Discount rate | | | | 4.10 | % | | 4.40 | % | | 4.10 | % |
Salary increase | | | | 4.40 | % | | 4.40 | % | | 4.40 | % |
|
| | | | | | | | | |
| | | Piedmont |
| | | Two Months Ended | | Years Ended October 31, |
| | | December 31, 2016 | | 2016 | | 2015 |
| Benefit Obligations | | | | | | |
| Discount rate | | 4.10 | % | | 3.80 | % | | 3.85 | % |
| Net Periodic Benefit Cost | | | | |
| | |
|
| Discount rate | | 3.80 | % | | 3.85 | % | | 3.69 | % |
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
Expected Benefit Payments |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
| (in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
| Years ending December 31, | | | | | | | | |
| 2018 | $ | 23 |
| $ | 2 |
| $ | 8 |
| $ | 3 |
| $ | 3 |
| $ | — |
| $ | — |
| $ | — |
|
| 2019 | 21 |
| 1 |
| 8 |
| 2 |
| 3 |
| — |
| — |
| — |
|
| 2020 | 21 |
| 1 |
| 8 |
| 2 |
| 3 |
| — |
| — |
| — |
|
| 2021 | 22 |
| 1 |
| 8 |
| 2 |
| 3 |
| — |
| — |
| — |
|
| 2022 | 25 |
| 1 |
| 8 |
| 2 |
| 3 |
| — |
| — |
| — |
|
| 2023-2027 | 117 |
| 6 |
| 36 |
| 11 |
| 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, 20162020, 2019 or 2015.2018.
Components of Net Periodic Other Post-Retirement Benefit Costs | | | | Year Ended December 31, 2017 | | Year Ended December 31, 2020 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | | | | Duke | | Duke | | Duke | | Duke | | Duke | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | | | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Service cost | $ | 4 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1 |
| Service cost | $ | 4 | | | $ | 1 | | | $ | 1 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 1 | | | $ | 0 | |
| Interest cost on accumulated post-retirement benefit obligation | 34 |
| | 8 |
| | 13 |
| | 7 |
| | 6 |
| | 1 |
| | 3 |
| | 1 |
| Interest cost on accumulated post-retirement benefit obligation | 23 | | | 5 | | | 10 | | | 5 | | | 4 | | | 1 | | | 2 | | | 1 | |
| Expected return on plan assets | (14 | ) | | (8 | ) | | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (2 | ) | Expected return on plan assets | (13) | | | (8) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (2) | |
| Amortization of actuarial loss (gain) | 10 |
| | (2 | ) | | 21 |
| | 12 |
| | 9 |
| | (2 | ) | | (1 | ) | | 1 |
| |
| Amortization of actuarial loss | | Amortization of actuarial loss | 2 | | | 0 | | | 1 | | | 0 | | | 1 | | | 0 | | | 4 | | | 0 | |
| Amortization of prior service credit | (115 | ) | | (10 | ) | | (84 | ) | | (54 | ) | | (30 | ) | | — |
| | (1 | ) | | — |
| Amortization of prior service credit | (14) | | | (4) | | | (3) | | | (1) | | | (2) | | | (1) | | | (1) | | | (2) | |
Curtailment credit (c) | $ | (30 | ) | | $ | (4 | ) | | $ | (16 | ) | | $ | — |
| | $ | (16 | ) | | $ | (2 | ) | | $ | (2 | ) | | $ | — |
| |
Net periodic post-retirement benefit costs(a)(b) | $ | (111 | ) | | $ | (15 | ) | | $ | (66 | ) | | $ | (35 | ) | | $ | (31 | ) | | $ | (3 | ) | | $ | (2 | ) | | $ | 1 |
| Net periodic post-retirement benefit costs (a)(b) | $ | 2 | | | $ | (6) | | | $ | 9 | | | $ | 4 | | | $ | 3 | | | $ | 0 | | | $ | 6 | | | $ | (3) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Service cost | $ | 4 | | | $ | 1 | | | $ | 1 | | | $ | 0 | | | $ | 1 | | | $ | 0 | | | $ | 1 | | | $ | 0 | |
| Interest cost on accumulated post-retirement benefit obligation | 30 | | | 7 | | | 12 | | | 7 | | | 5 | | | 1 | | | 3 | | | 1 | |
| Expected return on plan assets | (12) | | | (7) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (1) | |
| Amortization of actuarial loss | 4 | | | 2 | | | 1 | | | 0 | | | 1 | | | 0 | | | 4 | | | 0 | |
| Amortization of prior service credit | (19) | | | (5) | | | (8) | | | (1) | | | (7) | | | (1) | | | (1) | | | (2) | |
| | | | | | | | | | | | | | | |
Net periodic post-retirement benefit costs(a)(b) | $ | 7 | | | $ | (2) | | | $ | 6 | | | $ | 6 | | | $ | 0 | | | $ | 0 | | | $ | 7 | | | $ | (2) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2018 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Service cost | $ | 6 | | | $ | 1 | | | $ | 1 | | | $ | 0 | | | $ | 1 | | | $ | 1 | | | $ | 1 | | | $ | 1 | |
| Interest cost on accumulated post-retirement benefit obligation | 28 | | | 7 | | | 12 | | | 6 | | | 6 | | | 1 | | | 3 | | | 1 | |
| Expected return on plan assets | (13) | | | (8) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (2) | |
| Amortization of actuarial loss | 6 | | | 3 | | | 1 | | | 1 | | | 0 | | | 0 | | | 4 | | | 0 | |
| Amortization of prior service credit | (19) | | | (5) | | | (8) | | | (1) | | | (7) | | | (1) | | | (1) | | | (2) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Net periodic post-retirement benefit costs(a)(b) | $ | 8 | | | $ | (2) | | | $ | 6 | | | $ | 6 | | | $ | 0 | | | $ | 1 | | | $ | 7 | | | $ | (2) | |
(a)Duke Energy amounts exclude $6 million, $6 million and $7 million for the years ended December 2020, 2019 and 2018, 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 $1 million, $2 million and $2 million for the years ended December 2020, 2019 and 2018, respectively, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy's merger with Cinergy in April 2006.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
| Service cost | $ | 3 |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
| Interest cost on accumulated post-retirement benefit obligation | 35 |
| | 8 |
| | 15 |
| | 8 |
| | 7 |
| | 1 |
| | 4 |
|
| Expected return on plan assets | (12 | ) | | (8 | ) | | — |
| | — |
| | — |
| | — |
| | (1 | ) |
| Amortization of actuarial loss (gain) | 6 |
| | (3 | ) | | 22 |
| | 13 |
| | 9 |
| | (2 | ) | | (1 | ) |
| Amortization of prior service credit | (141 | ) | | (14 | ) | | (103 | ) | | (68 | ) | | (35 | ) | | — |
| | (1 | ) |
Net periodic post-retirement benefit costs(a)(b) | $ | (109 | ) | | $ | (16 | ) | | $ | (65 | ) | | $ | (47 | ) | | $ | (18 | ) | | $ | (1 | ) | | $ | 1 |
|
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 – (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2015 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
| Service cost | $ | 6 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
|
| Interest cost on accumulated post-retirement benefit obligation | 36 |
| | 9 |
| | 15 |
| | 8 |
| | 7 |
| | 2 |
| | 4 |
|
| Expected return on plan assets | (13 | ) | | (8 | ) | | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
| Amortization of actuarial loss (gain) | 16 |
| | (2 | ) | | 28 |
| | 18 |
| | 10 |
| | (2 | ) | | (2 | ) |
| Amortization of prior service credit | (140 | ) | | (14 | ) | | (102 | ) | | (68 | ) | | (35 | ) | | — |
| | — |
|
Net periodic post-retirement benefit costs(a)(b) | $ | (95 | ) | | $ | (14 | ) | | $ | (58 | ) | | $ | (41 | ) | | $ | (17 | ) | | $ | (1 | ) | | $ | 2 |
|
| | | | | |
(a)FINANCIAL STATEMENTS | 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.EMPLOYEE BENEFIT PLANS |
| |
(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. |
|
| | | | | | |
| | Piedmont |
| | Years Ended October 31, |
(in millions) | 2016 | 2015 |
| Service cost | $ | 1 |
| $ | 1 |
|
| Interest cost on projected benefit obligation | 1 |
| 2 |
|
| Expected return on plan assets | (2 | ) | (2 | ) |
| Amortization of actuarial loss | 1 |
| — |
|
| Net periodic pension costs | $ | 1 |
| $ | 1 |
|
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 – (Continued)
Amounts Recognized in Accumulated Other Comprehensive Income and Regulatory Assets and Liabilities |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
| Regulatory assets, net increase (decrease) | $ | 71 |
| | $ | — |
| | $ | 81 |
| | $ | 42 |
| | $ | 39 |
| | $ | — |
| | $ | (5 | ) | | $ | (11 | ) |
| Regulatory liabilities, net increase (decrease) | $ | (27 | ) | | $ | (2 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (3 | ) | | $ | (7 | ) | | $ | — |
|
| Accumulated other comprehensive (income) loss | | | | | | | | | | | | | | | |
| Deferred income tax benefit | $ | (1 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Amortization of prior year prior service credit | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net amount recognized in accumulated other comprehensive income | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | | Year Ended December 31, 2016 | | Year Ended December 31, 2020 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | | Duke | | Duke | | Duke | | Duke | | Duke | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Regulatory assets, net increase (decrease) | $ | 53 |
| | $ | — |
| | $ | 47 |
| | $ | 38 |
| | $ | 9 |
| | $ | — |
| | $ | (6 | ) | Regulatory assets, net increase (decrease) | $ | 9 | | | $ | 0 | | | $ | 9 | | | $ | 6 | | | $ | 3 | | | $ | 0 | | | $ | (4) | | | $ | 0 | |
| Regulatory liabilities, net increase (decrease) | $ | (114 | ) | | $ | (22 | ) | | $ | (51 | ) | | $ | (25 | ) | | $ | (26 | ) | | $ | (2 | ) | | $ | (12 | ) | Regulatory liabilities, net increase (decrease) | $ | (10) | | | $ | (7) | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (1) | | | $ | 0 | |
| Accumulated other comprehensive (income) loss | | | | | | | | | | | | | | Accumulated other comprehensive (income) loss | |
| Deferred income tax benefit | $ | (2 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| Deferred income tax benefit | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Actuarial losses arising during the year | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Amortization of prior year prior service credit | 1 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| |
| | Amortization of prior year service credit | | Amortization of prior year service credit | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| | Net amount recognized in accumulated other comprehensive income | $ | 2 |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| Net amount recognized in accumulated other comprehensive income | $ | 1 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Regulatory assets, net increase (decrease) | $ | (127) | | | $ | 0 | | | $ | (127) | | | $ | (82) | | | $ | (45) | | | $ | 0 | | | $ | (5) | | | $ | 0 | |
| Regulatory liabilities, net increase (decrease) | $ | (152) | | | $ | 1 | | | $ | (149) | | | $ | (93) | | | $ | (56) | | | $ | (1) | | | $ | (4) | | | $ | 3 | |
| Accumulated other comprehensive (income) loss | | | | | | | | | | | | | | | |
| Deferred income tax benefit | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | |
| Amortization of prior year actuarial gain | (4) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Net amount recognized in accumulated other comprehensive income | $ | (4) | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
Reconciliation of Funded Status to Accrued Other Post-Retirement Benefit Costs | | | | Year Ended December 31, 2017 | | Year Ended December 31, 2020 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | | | | Duke | | Duke | | Duke | | Duke | | Duke | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | | | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Change in Projected Benefit Obligation | |
| | | | | | | | | | | | | | | Change in Projected Benefit Obligation | |
| Accumulated post-retirement benefit obligation at prior measurement date | $ | 868 |
| | $ | 201 |
| | $ | 357 |
| | $ | 191 |
| | $ | 164 |
| | $ | 32 |
| | $ | 83 |
| | $ | 39 |
| Accumulated post-retirement benefit obligation at prior measurement date | $ | 723 | | | $ | 175 | | | $ | 303 | | | $ | 168 | | | $ | 135 | | | $ | 29 | | | $ | 64 | | | $ | 30 | |
| | Service cost | 4 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| Service cost | 4 | | | 1 | | | 1 | | | 0 | | | 0 | | | 0 | | | 1 | | | 0 | |
| Interest cost | 34 |
| | 8 |
| | 13 |
| | 7 |
| | 6 |
| | 1 |
| | 3 |
| | 1 |
| Interest cost | 23 | | | 5 | | | 10 | | | 5 | | | 4 | | | 1 | | | 2 | | | 1 | |
| Plan participants' contributions | 17 |
| | 3 |
| | 6 |
| | 3 |
| | 3 |
| | 1 |
| | 2 |
| | — |
| Plan participants' contributions | 15 | | | 3 | | | 5 | | | 3 | | | 2 | | | 1 | | | 2 | | | 0 | |
| Actuarial (gains) losses | 4 |
| | (3 | ) | | 4 |
| | 1 |
| | 3 |
| | — |
| | 3 |
| | 1 |
| |
| Transfers | — |
| | 2 |
| | (1 | ) | | — |
| | (1 | ) | | 1 |
| | — |
| | — |
| |
| Plan amendments | (28 | ) | | (5 | ) | | (3 | ) | | (1 | ) | | (2 | ) | | (2 | ) | | (2 | ) | | (9 | ) | |
| Actuarial losses | | Actuarial losses | 19 | | | 8 | | | 8 | | | 5 | | | 2 | | | 0 | | | 1 | | | 1 | |
| | Benefits paid | (86 | ) | | (18 | ) | | (34 | ) | | (17 | ) | | (17 | ) | | (3 | ) | | (11 | ) | | (1 | ) | Benefits paid | (75) | | | (18) | | | (28) | | | (15) | | | (13) | | | (4) | | | (9) | | | (2) | |
| | Accumulated post-retirement benefit obligation at measurement date | $ | 813 |
| | $ | 189 |
| | $ | 342 |
| | $ | 184 |
| | $ | 156 |
| | $ | 30 |
| | $ | 78 |
| | $ | 32 |
| Accumulated post-retirement benefit obligation at measurement date | $ | 709 | | | $ | 174 | | | $ | 299 | | | $ | 166 | | | $ | 130 | | | $ | 27 | | | $ | 61 | | | $ | 30 | |
Change in Fair Value of Plan Assets | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Change in Fair Value of Plan Assets | |
Plan assets at prior measurement date | $ | 244 |
| | $ | 137 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 7 |
| | $ | 22 |
| | $ | 29 |
| Plan assets at prior measurement date | $ | 220 | | | $ | 130 | | | $ | (1) | | | $ | (1) | | | $ | 0 | | | $ | 9 | | | $ | 5 | | | $ | 34 | |
| | Actual return on plan assets | 25 |
| | 15 |
| | 1 |
| | — |
| | — |
| | 2 |
| | 1 |
| | 3 |
| Actual return on plan assets | 24 | | | 14 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 4 | |
| Benefits paid | (86 | ) | | (18 | ) | | (34 | ) | | (17 | ) | | (17 | ) | | (3 | ) | | (11 | ) | | (1 | ) | Benefits paid | (75) | | | (18) | | | (28) | | | (15) | | | (13) | | | (4) | | | (9) | | | (2) | |
| Employer contributions (reimbursements) | 25 |
| | (4 | ) | | 26 |
| | 14 |
| | 14 |
| | — |
| | (3 | ) | | — |
| |
| | Employer contributions | | Employer contributions | 53 | | | 10 | | | 23 | | | 11 | | | 10 | | | 3 | | | 8 | | | 1 | |
| Plan participants' contributions | 17 |
| | 3 |
| | 6 |
|
| 3 |
|
| 3 |
|
| 1 |
|
| 2 |
| | — |
| Plan participants' contributions | 15 | | | 3 | | | 5 | | | 3 | | | 2 | | | 1 | | | 2 | | | 0 | |
| Plan assets at measurement date | $ | 225 |
| | $ | 133 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 7 |
| | $ | 11 |
| | $ | 31 |
| Plan assets at measurement date | $ | 237 | | | $ | 139 | | | $ | (1) | | | $ | (2) | | | $ | (1) | | | $ | 9 | | | $ | 7 | | | $ | 37 | |
| Funded status of plan | | Funded status of plan | $ | (472) | | | $ | (35) | | | $ | (300) | | | $ | (168) | | | $ | (131) | | | $ | (18) | | | $ | (54) | | | $ | 7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Change in Projected Benefit Obligation | | | | | | | | | | | | | | | |
| Accumulated post-retirement benefit obligation at prior measurement date | $ | 728 | | | $ | 174 | | | $ | 303 | | | $ | 166 | | | $ | 137 | | | $ | 29 | | | $ | 67 | | | $ | 30 | |
| | | | | | | | | | | | | | | |
| Service cost | 4 | | | 1 | | | 1 | | | 0 | | | 1 | | | 0 | | | 1 | | | 0 | |
| Interest cost | 30 | | | 7 | | | 12 | | | 7 | | | 5 | | | 1 | | | 3 | | | 1 | |
| Plan participants' contributions | 16 | | | 3 | | | 6 | | | 3 | | | 2 | | | 1 | | | 2 | | | 0 | |
| Actuarial losses | 28 | | | 9 | | | 13 | | | 9 | | | 5 | | | 1 | | | 2 | | | 0 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Benefits paid | (83) | | | (19) | | | (32) | | | (17) | | | (15) | | | (3) | | | (11) | | | (1) | |
| Accumulated post-retirement benefit obligation at measurement date | $ | 723 | | | $ | 175 | | | $ | 303 | | | $ | 168 | | | $ | 135 | | | $ | 29 | | | $ | 64 | | | $ | 30 | |
| Change in Fair Value of Plan Assets | | | | | | | | | | | | | | | |
| Plan assets at prior measurement date | $ | 195 | | | $ | 115 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 8 | | | $ | 5 | | | $ | 29 | |
| | | | | | | | | | | | | | | |
| Actual return on plan assets | 32 | | | 20 | | | (1) | | | 0 | | | 0 | | | 1 | | | 0 | | | 6 | |
| Benefits paid | (83) | | | (19) | | | (32) | | | (17) | | | (15) | | | (3) | | | (11) | | | (1) | |
| Employer contributions | 60 | | | 11 | | | 26 | | | 13 | | | 13 | | | 2 | | | 9 | | | 0 | |
| Plan participants' contributions | 16 | | | 3 | | | 6 | | | 3 | | | 2 | | | 1 | | | 2 | | | 0 | |
| Plan assets at measurement date | $ | 220 | | | $ | 130 | | | $ | (1) | | | $ | (1) | | | $ | 0 | | | $ | 9 | | | $ | 5 | | | $ | 34 | |
| Funded status of plan | $ | (503) | | | $ | (45) | | | $ | (304) | | | $ | (169) | | | $ | (135) | | | $ | (20) | | | $ | (59) | | | $ | 4 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Change in Projected Benefit Obligation | | | | | | | | | | | | | |
| Accumulated post-retirement benefit obligation at prior measurement date | $ | 828 |
| | $ | 200 |
| | $ | 354 |
| | $ | 188 |
| | $ | 164 |
| | $ | 35 |
| | $ | 87 |
|
| Obligation assumed from acquisition | 39 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Service cost | 3 |
| | 1 |
| | 1 |
| | — |
| | 1 |
| | — |
| | — |
|
| Interest cost | 35 |
| | 8 |
| | 15 |
| | 8 |
| | 7 |
| | 1 |
| | 4 |
|
| Plan participants' contributions | 19 |
| | 3 |
| | 7 |
| | 4 |
| | 3 |
| | 1 |
| | 2 |
|
| Actuarial (gains) losses | 33 |
| | 5 |
| | 16 |
| | 8 |
| | 8 |
| | — |
| | 3 |
|
| Transfers | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Plan amendments | (1 | ) | | — |
| | — |
| | — |
| | — |
| | (1 | ) | | — |
|
| Benefits paid | (88 | ) | | (17 | ) | | (36 | ) | | (17 | ) | | (19 | ) | | (4 | ) | | (13 | ) |
| Accumulated post-retirement benefit obligation at measurement date | $ | 868 |
| | $ | 201 |
| | $ | 357 |
| | $ | 191 |
| | $ | 164 |
| | $ | 32 |
| | $ | 83 |
|
Change in Fair Value of Plan Assets | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Plan assets at prior measurement date | $ | 208 |
| | $ | 134 |
| | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 8 |
| | $ | 19 |
|
| Assets received from acquisition | 29 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Actual return on plan assets | 14 |
| | 8 |
| | 1 |
| | — |
| | — |
| | 1 |
| | 2 |
|
| Benefits paid | (88 | ) | | (17 | ) | | (36 | ) | | (17 | ) | | (19 | ) | | (4 | ) | | (13 | ) |
| Employer contributions | 62 |
| | 9 |
| | 29 |
| | 13 |
| | 15 |
| | 1 |
| | 12 |
|
| Plan participants' contributions | 19 |
| | 3 |
| | 7 |
| | 4 |
| | 3 |
| | 1 |
| | 2 |
|
| Plan assets at measurement date | $ | 244 |
| | $ | 137 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 7 |
| | $ | 22 |
|
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 – (Continued) | | | | | |
| FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
|
| | | | | | | |
| | Piedmont |
| | Two Months Ended | | Years Ended |
| (in millions) | December 31, 2016 | | October 31, 2016 |
Change in Projected Benefit Obligation | | | |
| Accumulated post-retirement benefit obligation at prior measurement date | $ | 39 |
| | $ | 38 |
|
| Service cost | — |
| | 1 |
|
| Interest cost | — |
| | 1 |
|
| Actuarial gain | — |
| | 2 |
|
| Benefits paid | — |
| | (3 | ) |
| Accumulated post-retirement benefit obligation at measurement date | $ | 39 |
| | $ | 39 |
|
Change in Fair Value of Plan Assets | |
| | |
|
| Plan assets at prior measurement date | $ | 29 |
| | $ | 28 |
|
| Employer contributions | — |
| | 3 |
|
| Actual return on plan assets | — |
| | 1 |
|
| Benefits paid | — |
| | (3 | ) |
| Plan assets at measurement date | $ | 29 |
| | $ | 29 |
|
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 – (Continued)
Amounts Recognized in the Consolidated Balance Sheets |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Current post-retirement liability(a) | $ | 36 |
| | $ | — |
| | $ | 29 |
| | $ | 15 |
| | $ | 14 |
| | $ | 2 |
| | $ | — |
| | $ | — |
|
Noncurrent post-retirement liability(b) | 552 |
| | 56 |
| | 313 |
| | 169 |
| | 142 |
| | 21 |
| | 67 |
| | 1 |
|
| Total accrued post-retirement liability | $ | 588 |
| | $ | 56 |
| | $ | 342 |
| | $ | 184 |
| | $ | 156 |
| | $ | 23 |
| | $ | 67 |
| | $ | 1 |
|
| Regulatory assets | $ | 125 |
| | $ | — |
| | $ | 129 |
| | $ | 80 |
| | $ | 49 |
| | $ | — |
| | $ | 46 |
| | $ | (4 | ) |
| Regulatory liabilities | $ | 147 |
| | $ | 44 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 16 |
| | $ | 64 |
| | $ | — |
|
| Accumulated other comprehensive (income) loss | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Deferred income tax expense | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Prior service credit | (2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net actuarial gain | (10 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net amounts recognized in accumulated other comprehensive income | $ | (8 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Amounts to be recognized in net periodic pension expense in the next year | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Unrecognized net actuarial loss | $ | 5 |
| | $ | 3 |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Unrecognized prior service credit | (19 | ) | | (5 | ) | | (7 | ) | | (1 | ) | | (6 | ) | | (1 | ) | | (1 | ) | | (2 | ) |
| | | | December 31, 2016 | | December 31, 2020 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | | | | Duke | | Duke | | Duke | | Duke | | Duke | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | | | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Prefunded post-retirement benefit | | Prefunded post-retirement benefit | $ | 8 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 1 | | | $ | 0 | | | $ | 7 | |
Current post-retirement liability(a) | $ | 38 |
| | $ | — |
| | $ | 31 |
| | $ | 17 |
| | $ | 15 |
| | $ | 2 |
| | $ | — |
| | $ | — |
| Current post-retirement liability(a) | 9 | | | 0 | | | 6 | | | 4 | | | 2 | | | 2 | | | 0 | | | 0 | |
Noncurrent post-retirement liability(b) | 586 |
| | 64 |
| | 325 |
| | 174 |
| | 149 |
| | 23 |
| | 63 |
| | 10 |
| Noncurrent post-retirement liability(b) | 471 | | | 35 | | | 294 | | | 164 | | | 129 | | | 17 | | | 54 | | | 0 | |
| Total accrued post-retirement liability | $ | 624 |
| | $ | 64 |
| | $ | 356 |
| | $ | 191 |
| | $ | 164 |
| | $ | 25 |
| | $ | 63 |
| | $ | 10 |
| |
| Net liability (asset) recognized | | Net liability (asset) recognized | $ | 472 | | | $ | 35 | | | $ | 300 | | | $ | 168 | | | $ | 131 | | | $ | 18 | | | $ | 54 | | | $ | (7) | |
| Regulatory assets | $ | 54 |
| | $ | — |
| | $ | 48 |
| | $ | 38 |
| | $ | 10 |
| | $ | — |
| | $ | 51 |
| | $ | 7 |
| Regulatory assets | $ | 144 | | | $ | 0 | | | $ | 144 | | | $ | 88 | | | $ | 56 | | | $ | 0 | | | $ | 32 | | | $ | 0 | |
| Regulatory liabilities | $ | 174 |
| | $ | 46 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 19 |
| | $ | 71 |
| | $ | — |
| Regulatory liabilities | $ | 139 | | | $ | 32 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 17 | | | $ | 62 | | | $ | 3 | |
| Accumulated other comprehensive (income) loss | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Accumulated other comprehensive (income) loss | |
| Deferred income tax expense | $ | 5 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| Deferred income tax expense | $ | 3 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Prior service credit | (5 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Prior service credit | (1) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Net actuarial gain | (10 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Net actuarial gain | (13) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Net amounts recognized in accumulated other comprehensive income | $ | (10 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| Net amounts recognized in accumulated other comprehensive income | $ | (11) | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Amounts to be recognized in net periodic pension expense in the next year | | | | | | | | | | | | | | | | |
| Unrecognized net actuarial loss (gain) | $ | 10 |
| | $ | (2 | ) | | $ | 21 |
| | $ | 12 |
| | $ | 9 |
| | $ | (2 | ) | | $ | (6 | ) | | $ | — |
| |
| Unrecognized prior service credit | (115 | ) | | (10 | ) | | (85 | ) | | (55 | ) | | (30 | ) | | — |
| | (1 | ) | | — |
| |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Current post-retirement liability(a) | $ | 9 | | | $ | 0 | | | $ | 5 | | | $ | 3 | | | $ | 2 | | | $ | 1 | | | $ | 0 | | | $ | 0 | |
Noncurrent post-retirement liability(b) | 494 | | | 45 | | | 299 | | | 163 | | | 133 | | | 19 | | | 59 | | | (4) | |
| Total accrued post-retirement liability | $ | 503 | | | $ | 45 | | | $ | 304 | | | $ | 166 | | | $ | 135 | | | $ | 20 | | | $ | 59 | | | $ | (4) | |
| Regulatory assets | $ | 135 | | | $ | 0 | | | $ | 135 | | | $ | 82 | | | $ | 53 | | | $ | 0 | | | $ | 36 | | | $ | 0 | |
| Regulatory liabilities | $ | 149 | | | $ | 39 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 17 | | | $ | 63 | | | $ | 3 | |
| Accumulated other comprehensive (income) loss | | | | | | | | | | | | | | | |
| Deferred income tax expense | $ | 3 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Prior service credit | (2) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Net actuarial gain | (13) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Net amounts recognized in accumulated other comprehensive income | $ | (12) | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Amounts to be recognized in net periodic pension expense in the next year | | | | | | | | | | | | | | | |
| Unrecognized net actuarial loss | $ | 5 | | | $ | 3 | | | $ | 1 | | | $ | 0 | | | $ | 1 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Unrecognized prior service credit | (14) | | | (4) | | | (3) | | | (1) | | | (2) | | | (1) | | | (1) | | | (2) | |
| |
(a) | Included in Other within Current Liabilities on the Consolidated Balance Sheets. |
| |
(b) | (a) Included in Other within Current Liabilities on the Consolidated Balance Sheets. (b) Included in Accrued pension and other post-retirement benefit costs on the Consolidated Balance Sheets. |
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 – (Continued)
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 qualityhigh-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,Florida and Duke Energy Indiana.Ohio and six years for Duke Energy Carolinas, Duke Energy Progress, Duke Energy Indiana and Piedmont.
| | | | | |
| FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
The following tables present the assumptions used for other post-retirement benefits accounting.
| | | | | December 31, | | December 31, |
| | | 2017 |
| | 2016 |
| | 2015 |
| | 2020 | | 2019 | | 2018 |
Benefit Obligations | | |
| | |
| | | Benefit Obligations | |
| Discount rate | | 3.60 | % | | 4.10 | % | | 4.40 | % | Discount rate | | 2.60 | % | | 3.30 | % | | 4.30 | % |
Net Periodic Benefit Cost | | |
| | |
| | | Net Periodic Benefit Cost | |
| Discount rate | | 4.10 | % | | 4.40 | % | | 4.10 | % | Discount rate | | 3.30 | % | | 4.30 | % | | 3.60 | % |
| Expected long-term rate of return on plan assets | | 6.50 | % | | 6.50 | % | | 6.50 | % | Expected long-term rate of return on plan assets | | 6.85 | % | | 6.85 | % | | 6.50 | % |
| Assumed tax rate | | 35 | % | | 35 | % | | 35 | % | Assumed tax rate | | 23 | % | | 23 | % | | 35 | % |
|
| | | | | | | | | |
| | | Piedmont |
| | | Two Months Ended | | Years Ended October 31, |
| | | December 31, 2016 | | 2016 | | 2015 |
| Benefit Obligations | | | | | | |
| Discount rate | | 4.10 | % | | 3.80 | % | | 4.38 | % |
| Net Periodic Benefit Cost | | | | |
| | |
|
| Discount rate | | 3.80 | % | | 4.38 | % | | 4.03 | % |
| Expected long-term rate of return on plan assets | | 6.75 | % | | 7.25 | % | | 7.50 | % |
Assumed Health Care Cost Trend Rate | | | | December 31, | | December 31, |
| | 2017 |
| | 2016 |
| | 2020 | | 2019 |
| Health care cost trend rate assumed for next year | 7.00 | % | | 7.00 | % | Health care cost trend rate assumed for next year | 6.25 | % | | 6.00 | % |
| Rate to which the cost trend is assumed to decline (the ultimate trend rate) | 4.75 | % | | 4.75 | % | Rate to which the cost trend is assumed to decline (the ultimate trend rate) | 4.75 | % | | 4.75 | % |
| Year that rate reaches ultimate trend | 2024 |
| | 2023 |
| Year that rate reaches ultimate trend | 2028 | | 2026 |
Sensitivity to Changes in Assumed Health Care Cost Trend Rates |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
| (in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
1-Percentage Point Increase | | | | | |
| | | |
| Effect on total service and interest costs | $ | 1 |
| $ | — |
| $ | 1 |
| $ | 1 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Effect on post-retirement benefit obligation | 27 |
| 6 |
| 11 |
| 6 |
| 5 |
| 1 |
| 3 |
| 1 |
|
| 1-Percentage Point Decrease | | | | | | | | |
| Effect on total service and interest costs | (1 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Effect on post-retirement benefit obligation | (24 | ) | (6 | ) | (10 | ) | (5 | ) | (5 | ) | (1 | ) | (2 | ) | (1 | ) |
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 – (Continued)
Expected Benefit Payments | | | | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| | | Duke | | Duke | |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| | | Duke | Energy | Progress | Energy | |
| (in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
| (in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Years ending December 31, | | |
| | | Years ending December 31, | |
| 2018 | $ | 78 |
| $ | 17 |
| $ | 30 |
| $ | 16 |
| $ | 14 |
| $ | 3 |
| $ | 9 |
| $ | 2 |
| |
| 2019 | 76 |
| 17 |
| 29 |
| 15 |
| 14 |
| 3 |
| 9 |
| 2 |
| |
| 2020 | 73 |
| 17 |
| 29 |
| 15 |
| 14 |
| 3 |
| 8 |
| 2 |
| |
| 2021 | 71 |
| 17 |
| 28 |
| 15 |
| 13 |
| 3 |
| 7 |
| 3 |
| 2021 | $ | 73 | | $ | 17 | | $ | 28 | | $ | 15 | | $ | 12 | | $ | 3 | | $ | 8 | | $ | 2 | |
| 2022 | 68 |
| 17 |
| 27 |
| 14 |
| 13 |
| 3 |
| 7 |
| 3 |
| 2022 | 66 | | 16 | | 26 | | 14 | | 12 | | 3 | | 7 | | 2 | |
| 2023 – 2027 | 290 |
| 70 |
| 117 |
| 63 |
| 54 |
| 12 |
| 29 |
| 13 |
| |
| 2023 | | 2023 | 62 | | 15 | | 25 | | 14 | | 11 | | 3 | | 6 | | 2 | |
| 2024 | | 2024 | 58 | | 14 | | 24 | | 13 | | 11 | | 2 | | 6 | | 2 | |
| 2025 | | 2025 | 54 | | 13 | | 22 | | 12 | | 10 | | 2 | | 5 | | 2 | |
| 2026-2030 | | 2026-2030 | 223 | | 54 | | 94 | | 52 | | 41 | | 9 | | 21 | | 11 | |
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 percent98% of the Duke Energy Master Retirement Trust assets were allocated to qualified pension plans and approximately 2 percent2% were allocated to other post-retirement plans (comprised of 401(h) accounts), as of December 31, 2017,2020, and 2016.2019. The investment objective of the Duke Energy Master Retirement Trust is to achieve reasonable returns,invest in a diverse portfolio of assets that is expected to generate positive surplus return over time (i.e., asset growth greater than liability growth) subject to a prudent level of portfolio risk, for the purpose of enhancing the security of benefits for plan participants.
As of December 31, 2017,2020, Duke Energy assumes pension and other post-retirement plan assets will generate a long-term rate of return of 6.50 percent.6.5%. 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. Hedgeplan. Return seeking debt securities, 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 strategyEffective January 1, 2020, the target asset allocation for the Duke Energy Retirement Master Retirement Trust. AsTrust is 58% liability hedging assets and 42% return-seeking assets. Duke Energy periodically reviews its asset allocation targets, and over time, as the funded status of the pensionbenefit plans increase, the targeted allocationlevel of asset risk relative to fixed-income assetsplan liabilities may be increasedreduced to better manage Duke Energy’s pension liabilityEnergy's benefit plan liabilities 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.
| | | | | |
| FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
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$482 million and $156$351 million at December 31, 2017,2020, and 2016,2019, respectively. Cash and securities obtained as collateral exceeded the fair value of the securities loaned at December 31, 2017,2020, and 2016,2019, respectively. Securities lending income earned by the Duke Energy Master Retirement Trust was immaterial for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, 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.
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 – (Continued)
The following table includes the target asset allocations by asset class at December 31, 2017,2020, and the actual asset allocations for the Duke Energy Master Retirement Trust. | | | | | | | | | Actual Allocation at |
| | | | Actual Allocation at | | Target | | December 31, |
| | Target |
| | December 31, | |
| | Allocation |
| | 2017 |
| | 2016(a) |
| | Allocation | | 2020 | | 2019 |
| U.S. equity securities | 10 | % | | 11 | % | | 11 | % | |
| Non-U.S. equity securities | 8 | % | | 8 | % | | 8 | % | |
| | Global equity securities | 10 | % | | 10 | % | | 10 | % | Global equity securities | 28 | % | | 30 | % | | 27 | % |
| Global private equity securities | 3 | % | | 2 | % | | 2 | % | Global private equity securities | 1 | % | | 1 | % | | 1 | % |
| Debt securities | 63 | % | | 63 | % | | 63 | % | Debt securities | 58 | % | | 55 | % | | 57 | % |
| Return seeking debt securities | | Return seeking debt securities | 4 | % | | 5 | % | | 5 | % |
| Hedge funds | 2 | % | | 2 | % | | 2 | % | Hedge funds | 3 | % | | 3 | % | | 3 | % |
| Real estate and cash | 2 | % | | 2 | % | | 2 | % | Real estate and cash | 6 | % | | 6 | % | | 7 | % |
| Other global securities | 2 | % | | 2 | % | | 2 | % | |
| | Total | 100 | % | | 100 | % | | 100 | % | Total | 100 | % | | 100 | % | | 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.
|
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, 2017.2020. | | | | | | Actual Allocation at | | Actual Allocation at |
| | Target |
| | December 31, | | Target | | December 31, |
| | Allocation |
| | 2017 |
| | 2016 |
| | Allocation | | 2020 | | 2019 |
| U.S. equity securities | 32 | % | | 41 | % | | 39 | % | U.S. equity securities | 30 | % | | 36 | % | | 35 | % |
| Non-US equity securities | 6 | % | | 8 | % | | — | % | |
| Non-U.S. equity securities | | Non-U.S. equity securities | 6 | % | | 6 | % | | 9 | % |
| Real estate | 2 | % | | 2 | % | | 2 | % | Real estate | 2 | % | | 2 | % | | 2 | % |
| Debt securities | 45 | % | | 36 | % | | 37 | % | Debt securities | 45 | % | | 42 | % | | 37 | % |
| Cash | 15 | % | | 13 | % | | 22 | % | Cash | 17 | % | | 14 | % | | 17 | % |
| Total | 100 | % | | 100 | % | | 100 | % | Total | 100 | % | | 100 | % | | 100 | % |
Fair Value Measurements
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.
| | | | | |
| FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
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.
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 – (Continued)
Investments in real estate limited partnerships
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.
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Total Fair | | | | | | | | Not |
| (in millions) | Value | | Level 1 | | Level 2 | | Level 3 | | Categorized(b) |
| Equity securities | $ | 3,202 | | | $ | 3,162 | | | $ | 0 | | | $ | 0 | | | $ | 40 | |
| Corporate debt securities | 4,162 | | | 0 | | | 4,162 | | | 0 | | | 0 | |
| Short-term investment funds | 397 | | | 247 | | | 150 | | | 0 | | | 0 | |
| Partnership interests | 97 | | | 0 | | | 0 | | | 0 | | | 97 | |
| Hedge funds | 198 | | | 0 | | | 0 | | | 0 | | | 198 | |
| | | | | | | | | |
| U.S. government securities | 1,164 | | | 0 | | | 1,164 | | | 0 | | | 0 | |
| | | | | | | | | |
| Governments bonds – foreign | 73 | | | 0 | | | 73 | | | 0 | | | 0 | |
| Cash | 98 | | | 98 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | |
| Net pending transactions and other investments | 88 | | | 34 | | | 54 | | | 0 | | | 0 | |
Total assets(a) | $ | 9,479 | | | $ | 3,541 | | | $ | 5,603 | | | $ | 0 | | | $ | 335 | |
(a) Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont were allocated approximately 26%, 32%, 15%, 17%, 5%, 7% and 4%, respectively, of the Duke Energy Master Retirement Trust at December 31, 2020. 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| Total Fair | | | | | | | | Not |
| (in millions) | Value | | Level 1 | | Level 2 | | Level 3 | | Categorized(b) |
| Equity securities | $ | 2,730 | | | $ | 2,712 | | | $ | 0 | | | $ | 0 | | | $ | 18 | |
| Corporate debt securities | 3,999 | | | 0 | | | 3,999 | | | 0 | | | 0 | |
| Short-term investment funds | 545 | | | 455 | | | 90 | | | 0 | | | 0 | |
| Partnership interests | 104 | | | 0 | | | 0 | | | 0 | | | 104 | |
| Hedge funds | 206 | | | 0 | | | 0 | | | 0 | | | 206 | |
| | | | | | | | | |
| U.S. government securities | 1,231 | | | 0 | | | 1,231 | | | 0 | | | 0 | |
| Guaranteed investment contracts | 11 | | | 0 | | | 0 | | | 11 | | | 0 | |
| Governments bonds – foreign | 78 | | | 0 | | | 78 | | | 0 | | | 0 | |
| Cash | 75 | | | 75 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | |
| Net pending transactions and other investments | 46 | | | (43) | | | 89 | | | 0 | | | 0 | |
Total assets(a) | $ | 9,025 | | | $ | 3,199 | | | $ | 5,487 | | | $ | 11 | | | $ | 328 | |
(a) Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont were allocated approximately 26%, 31%, 15%, 17%, 5%, 7% and 4%, respectively, of the Duke Energy Master Retirement Trust at December 31, 2019. 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.
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | Total Fair |
| | | | | | | | Not |
|
| (in millions) | Value |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| | Categorized(b) |
|
| Equity securities | $ | 2,823 |
| | $ | 1,976 |
| | $ | — |
| | $ | — |
| | 847 |
|
| Corporate debt securities | 4,694 |
| | — |
| | 4,694 |
| | — |
| | — |
|
| Short-term investment funds | 246 |
| | 192 |
| | 54 |
| | — |
| | — |
|
| Partnership interests | 137 |
| | — |
| | — |
| | — |
| | 137 |
|
| Hedge funds | 226 |
| | — |
| | — |
| | — |
| | 226 |
|
| Real estate limited partnerships | 135 |
| | — |
| | — |
| | — |
| | 135 |
|
| U.S. government securities | 762 |
| | — |
| | 762 |
| | — |
| | — |
|
| Guaranteed investment contracts | 28 |
| | — |
| | — |
| | 28 |
| | — |
|
| Governments bonds – foreign | 38 |
| | — |
| | 38 |
| | — |
| | — |
|
| Cash | 6 |
| | 6 |
| | — |
| | — |
| | — |
|
| Government and commercial mortgage backed securities | 2 |
| | — |
| | 2 |
| | — |
| | — |
|
| Net pending transactions and other investments | 17 |
| | 15 |
| | 2 |
| | — |
| | — |
|
Total assets(a) | $ | 9,114 |
| | $ | 2,189 |
| | $ | 5,552 |
| | $ | 28 |
|
| $ | 1,345 |
|
| | | | | |
(a)FINANCIAL STATEMENTS | 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.EMPLOYEE BENEFIT PLANS |
| |
(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. |
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 – (Continued)
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Total Fair |
| | | | | | | | Not |
|
| (in millions) | Value |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| | Categorized(b) |
|
| Equity securities | $ | 2,472 |
| | $ | 1,677 |
| | $ | 27 |
| | $ | 9 |
| | 759 |
|
| Corporate debt securities | 4,330 |
| | 8 |
| | 4,322 |
| | — |
| | — |
|
| Short-term investment funds | 476 |
| | 211 |
| | 265 |
| | — |
| | — |
|
| Partnership interests | 157 |
| | — |
| | — |
| | — |
| | 157 |
|
| Hedge funds | 232 |
| | — |
| | — |
| | — |
| | 232 |
|
| Real estate limited partnerships | 144 |
| | 17 |
| | — |
| | — |
| | 127 |
|
| U.S. government securities | 734 |
| | — |
| | 734 |
| | — |
| | — |
|
| Guaranteed investment contracts | 29 |
| | — |
| | — |
| | 29 |
| | — |
|
| Governments bonds – foreign | 32 |
| | — |
| | 32 |
| | — |
| | — |
|
| Cash | 17 |
| | 15 |
| | 2 |
| | — |
| | — |
|
| Net pending transactions and other investments | 32 |
| | 1 |
| | 6 |
| | — |
| | 25 |
|
Total assets(a) | $ | 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) | 2017 |
| | 2016 |
| (in millions) | 2020 | | 2019 |
| Balance at January 1 | $ | 38 |
| | $ | 31 |
| Balance at January 1 | $ | 11 | | | $ | 27 | |
| Combination of Piedmont Pension Assets | — |
| | 9 |
| |
| | Sales | (2 | ) | | (2 | ) | Sales | (12) | | | (18) | |
| Total gains (losses) and other, net | 1 |
| | — |
| |
| Total gains and other, net | | Total gains and other, net | 1 | | | 2 | |
| Transfer of Level 3 assets to other classifications | (9 | ) | | — |
| Transfer of Level 3 assets to other classifications | 0 | | | 0 | |
| Balance at December 31 | $ | 28 |
| | $ | 38 |
| Balance at December 31 | $ | 0 | | | $ | 11 | |
Other post-retirement assets
The following tables provide the fair value measurement amounts for VEBA trust assets. |
| | | | | | | |
| | December 31, 2017 |
| | Total Fair |
| | |
| (in millions) | Value |
| | Level 2 |
|
| Cash and cash equivalents | $ | 8 |
| | $ | 8 |
|
| Real estate | 1 |
| | 1 |
|
| Equity securities | 28 |
| | 28 |
|
| Debt securities | 21 |
| | 21 |
|
| Total assets | $ | 58 |
| | $ | 58 |
|
| | | | December 31, 2016 | | December 31, 2020 |
| | Total Fair |
| | | | Total Fair | | | | |
| (in millions) | Value |
| | Level 2 |
| (in millions) | Value | | | Level 2 | |
| Cash and cash equivalents | $ | 14 |
| | $ | 14 |
| Cash and cash equivalents | $ | 5 | | | | $ | 5 | | |
| Real estate | 1 |
| | 1 |
| Real estate | 1 | | | | 1 | | |
| Equity securities | 26 |
| | 26 |
| Equity securities | 23 | | | | 23 | | |
| Debt securities | 25 |
| | 25 |
| Debt securities | 19 | | | | 19 | | |
| Total assets | $ | 66 |
| | $ | 66 |
| Total assets | $ | 48 | | | | $ | 48 | | |
| | | | | | | | | | | | | | | |
| December 31, 2019 |
| Total Fair | | | | | | |
| (in millions) | Value | | | | Level 2 | | |
| Cash and cash equivalents | $ | 9 | | | | | $ | 9 | | | |
| Real estate | 1 | | | | | 1 | | | |
| Equity securities | 22 | | | | | 22 | | | |
| Debt securities | 18 | | | | | 18 | | | |
| Total assets | $ | 50 | | | | | $ | 50 | | | |
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 – (Continued)
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 percent100% of employee before-tax and Roth 401(k) contributions of up to 6 percent6% of eligible pay per pay period (5 percent for Piedmont employees).period. Dividends on 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, forFor 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 percent4% of eligible pay per pay period, which is subject to a three-year vesting schedule, is provided to the employee’s savings plan account. Certain Piedmont employees whose participation in a prior Piedmont defined benefit plan (that was frozen as of December 31, 2017) are eligible for employer transition credit contributions of 3% to 5% of eligible pay per period, for each pay period during the three-year period ending December 31, 2020.
The following table includes pretax employer matching contributions made by Duke Energy and expensed by the Subsidiary Registrants.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Years ended December 31, | | | | | | | | | | | | | | | |
| 2020 | $ | 213 | | | $ | 67 | | | $ | 57 | | | $ | 38 | | | $ | 19 | | | $ | 5 | | | $ | 11 | | | $ | 13 | |
| 2019 | 214 | | | 66 | | | 58 | | | 38 | | | 20 | | | 5 | | | 11 | | | 13 | |
| 2018 | 213 | | | 68 | | | 58 | | | 40 | | | 19 | | | 4 | | | 10 | | | 12 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont(a) |
|
| Years ended December 31, | | | | | | | | | | | | | | | |
| 2017 | $ | 179 |
| | $ | 61 |
| | $ | 53 |
| | $ | 37 |
| | $ | 16 |
| | $ | 3 |
| | $ | 9 |
| | $ | 7 |
|
| 2016 | 169 |
| | 57 |
| | 50 |
| | 35 |
| | 15 |
| | 3 |
| | 8 |
| | — |
|
| 2015 | 159 |
| | 54 |
| | 48 |
| | 34 |
| | 13 |
| | 3 |
| | 7 |
| | — |
|
| | | | | |
(a)FINANCIAL STATEMENTS | 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.INCOME TAXES |
Money Purchase Pension Plan
Piedmont sponsors23. INCOME TAXES
Consolidated Appropriations Act
On December 27, 2020, President Trump signed the MPP plan, which is a defined contribution pension plan that allows employeesConsolidated Appropriations Act (CAA) into law. In addition 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 accountCAA providing funding for government operations, it also provided tax provisions to assist with COVID-19 relief, including extending certain expiring tax provisions. The Company has reviewed the provisions of the MPP plan. This contribution equals 4 percentCAA and has determined that there is no material impact on the 2020 financial statements as a result of the participant’s eligible compensation plusCAA being signed into law.
CARES Act
On March 27, 2020, the CARES Act was enacted. The CARES Act is an additional 4 percent of eligible compensation above the Social Security wage base upemergency economic stimulus package in response to the IRS compensation limit. The participant is vestedCOVID-19 pandemic. Among other provisions, the CARES Act accelerates the remaining AMT credit refund allowances resulting in MPP plan after three yearstaxpayers being able to immediately claim a refund in full for any AMT credit carryforwards and deferral of service. No contributions were madecertain 2020 payroll taxes. In the third quarter of 2020, Duke Energy received $572 million related to these AMT credit carryforwards and $19 million of interest income. In addition, the MPP plan during the two months endedCompany has deferred approximately $117 million of payroll taxes, with 50% payable by December 31, 2016. Piedmont contributed $2 million to2021, and the MPP plan during each of the years endedremaining 50% payable by December 31, 2017, October 31, 2016 and 2015. Effective December 31, 2017,2022. The other provisions within 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.
22. INCOME TAXESCARES Act do not materially impact Duke Energy's income tax accounting. See Note 1 for information on COVID-19.
Tax Act
On December 22, 2017, President Trump signed the Tax Act into law. Among other provisions, the Tax Act lowerslowered the corporate federal income tax rate from 35 percent35% to 21 percent and eliminates bonus depreciation for21%, limits interest deductions outside of regulated utilities, effective January 1, 2018. The Tax Act also could be amended or subject to technical correction, which could changeutility operations, requires 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 treatmentnormalization 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 existingexcess 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”associated with property under IRS rules. Protected excess ADIT, resulting from accumulated tax depreciation of public utility property, are required to utilize the average rate assumption method underas a prerequisite to qualifying for accelerated depreciation and repealed the IRS normalization rulesfederal manufacturing deduction. The Tax Act also repealed the corporate AMT and stipulates a refund of 50% of remaining AMT credit carryforwards (to the extent the credits exceed regular tax for determining the timing of the returnyear) for tax years 2018, 2019, and 2020, with all remaining AMT credits 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.
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 – (Continued)
be refunded in tax year 2021.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No.(SAB) 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.
As of December 31, 2018, the accounting for the effects of the Tax Act was complete. During the year ended December 31, 2018, Duke Energy recorded a provisional netthe following measurement period adjustments in accordance with SAB 118:
•Additional tax benefitexpense of $112$23 million related to the Tax Act incompletion of the period ending December 31, 2017. This netanalysis of Duke Energy’s existing regulatory liability related to deferred taxes;
•A $10 million tax benefit primarily consists of a net benefit of $534 million due tofor the remeasurement of deferred tax accounts to reflect the corporate rate reduction impact to netassets and deferred tax balances, a netliabilities primarily related to the guidance on bonus depreciation issued by the IRS in August 2018, affecting the computation of the Company's 2017 Federal income tax liability;
•Additional tax expense forof $7 million related to the establishmentportion of athe deferred tax asset as of December 31, 2017, that represents nondeductible long-term incentives under the Tax Act’s limitation on the deductibility of executive compensation; and
•During the fourth quarter of 2018, the Company released the $76 million valuation allowance relatedthat it recorded in the first quarter of 2018 as a result of additional guidance published by the IRS that stated refundable AMT credits would not be subject to foreign tax credits of $406 million and a transition tax on previously untaxed earnings and profits on foreign subsidiaries of $10 million. sequestration.
•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. For Duke Energy's regulated operations, where the reduction is expected to be returned to customers in future rates, the remeasurement has been deferred as a regulatory liability. During 2018, Duke Energy recorded aan additional regulatory liability of $8,313$83 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.In addition, during 2018, Duke Energy continues to analyze additional information and guidance related to certain aspectsreclassified $573 million 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 netAMT credit carryforwards from noncurrent 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 thea current federal income tax law, may also cause the final impact from the Tax Act to differ from the estimated amounts.receivable. In 2019, Duke Energy continuesreceived a refund of $573 million related to appropriately refine such amounts withinAMT credit carryforwards based on the measurement period allowed by SAB 118, which will be completed no later than the fourth quarterfiling of 2018.Duke Energy's 2018 income tax return in 2019 and reclassified $286 million of AMT credits from noncurrent deferred tax liabilities to a current federal income tax receivable.
| | | | | |
| FINANCIAL STATEMENTS | INCOME TAXES |
Income Tax Expense
Components of Income Tax Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2020 |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
| (in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Current income taxes | | | | | | | | |
| Federal | $ | (281) | | $ | 314 | | $ | 280 | | $ | 181 | | $ | 148 | | $ | 10 | | $ | 48 | | $ | (27) | |
| State | (9) | | 35 | | 29 | | 17 | | 24 | | 1 | | 7 | | (8) | |
| Foreign | 1 | | — | | — | | — | | — | | — | | — | | — | |
| Total current income taxes | (289) | | 349 | | 309 | | 198 | | 172 | | 11 | | 55 | | (35) | |
| Deferred income taxes | | | | | | | | |
| Federal | 155 | | (171) | | (167) | | (180) | | 1 | | 30 | | 12 | | 60 | |
| State | (92) | | (86) | | (24) | | (49) | | 25 | | 2 | | 17 | | (7) | |
| | | | | | | | |
Total deferred income taxes(a) | 63 | | (257) | | (191) | | (229) | | 26 | | 32 | | 29 | | 53 | |
| ITC amortization | (10) | | (4) | | (5) | | (5) | | — | | — | | — | | — | |
| Income tax (benefit) expense from continuing operations | (236) | | 88 | | 113 | | (36) | | 198 | | 43 | | 84 | | 18 | |
| Tax expense from discontinued operations | 2 | | — | | — | | — | | — | | — | | — | | — | |
| Total income tax (benefit) expense included in Consolidated Statements of Operations | $ | (234) | | $ | 88 | | $ | 113 | | $ | (36) | | $ | 198 | | $ | 43 | | $ | 84 | | $ | 18 | |
(a) Total deferred income taxes includes the generation of NOL carryforwards and tax credit carryforwards of $20 million at Duke Energy Carolinas, $3 million at Duke Energy Progress, $8 million at Duke Energy Indiana, and $11 million at Piedmont. In addition, total deferred income taxes includes utilization of NOL carryforwards and tax credit carryforwards of $39 million at Progress Energy, $30 million at Duke Energy Florida and $79 million at Duke Energy.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 | |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
| (in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Current income taxes | | | | | | | | |
| Federal | $ | (299) | | $ | 164 | | $ | (173) | | $ | (36) | | $ | (43) | | $ | (41) | | $ | (23) | | $ | (92) | |
| State | 10 | | 13 | | (7) | | (3) | | 18 | | (1) | | 1 | | (1) | |
| Foreign | 2 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Total current income taxes | (287) | | 177 | | (180) | | (39) | | (25) | | (42) | | (22) | | (93) | |
| Deferred income taxes | | | | | | | | |
| Federal | 855 | | 175 | | 422 | | 220 | | 153 | | 77 | | 128 | | 133 | |
| State | (38) | | (37) | | 17 | | (18) | | 27 | | 5 | | 28 | | 3 | |
| | | | | | | | |
Total deferred income taxes(a) | 817 | | 138 | | 439 | | 202 | | 180 | | 82 | | 156 | | 136 | |
| ITC amortization | (11) | | (4) | | (6) | | (6) | | 0 | | 0 | | 0 | | 0 | |
| Income tax expense from continuing operations | 519 | | 311 | | 253 | | 157 | | 155 | | 40 | | 134 | | 43 | |
| Tax benefit from discontinued operations | (2) | | — | | — | | — | | — | | — | | — | | — | |
| Total income tax expense included in Consolidated Statements of Operations | $ | 517 | | $ | 311 | | $ | 253 | | $ | 157 | | $ | 155 | | $ | 40 | | $ | 134 | | $ | 43 | |
(a) Total deferred income taxes includes the generation of tax credit carryforwards of $8 million at Duke Energy Carolinas. In addition, total deferred income taxes includes utilization of NOL carryforwards and tax credit carryforwards of $243 million at Progress Energy, $35 million at Duke Energy Progress, $152 million at Duke Energy Florida, $25 million at Duke Energy Ohio, $60 million at Duke Energy Indiana, $90 million at Piedmont and $775 million at Duke Energy.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
| Current income taxes | | | | | | | | |
| Federal | $ | (247 | ) | $ | 221 |
| $ | (436 | ) | $ | (95 | ) | $ | (188 | ) | $ | (37 | ) | $ | 128 |
| $ | (90 | ) |
| State | 4 |
| 20 |
| (5 | ) | 2 |
| (11 | ) | 2 |
| 21 |
| (3 | ) |
| Foreign | 3 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Total current income taxes | (240 | ) | 241 |
| (441 | ) | (93 | ) | (199 | ) | (35 | ) | 149 |
| (93 | ) |
| Deferred income taxes | | | | | | | | |
| Federal | 1,344 |
| 381 |
| 664 |
| 378 |
| 194 |
| 99 |
| 138 |
| 147 |
|
| State | 102 |
| 35 |
| 44 |
| 10 |
| 51 |
| (4 | ) | 14 |
| 8 |
|
Total deferred income taxes(a) (b) | 1,446 |
| 416 |
| 708 |
| 388 |
| 245 |
| 95 |
| 152 |
| 155 |
|
| Investment tax credit amortization | (10 | ) | (5 | ) | (3 | ) | (3 | ) | — |
| (1 | ) | — |
| — |
|
| Income tax expense from continuing operations | 1,196 |
| 652 |
| 264 |
| 292 |
| 46 |
| 59 |
| 301 |
| 62 |
|
| Tax benefit from discontinued operations | (6 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Total income tax expense included in Consolidated Statements of Operations | $ | 1,190 |
| $ | 652 |
| $ | 264 |
| $ | 292 |
| $ | 46 |
| $ | 59 |
| $ | 301 |
| $ | 62 |
|
| | | | | |
(a)FINANCIAL STATEMENTS | 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.INCOME TAXES |
| |
(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. |
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 – (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 | |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
| (in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Current income taxes | | | | | | | | |
| Federal | $ | (647) | | $ | (8) | | $ | (135) | | $ | (71) | | $ | (49) | | $ | 20 | | $ | 29 | | $ | 67 | |
| State | (11) | | 6 | | (5) | | (5) | | (10) | | (1) | | 3 | | 1 | |
| Foreign | 3 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Total current income taxes | (655) | | (2) | | (140) | | (76) | | (59) | | 19 | | 32 | | 68 | |
| Deferred income taxes | | | | | | | | |
| Federal | 1,064 | | 299 | | 341 | | 256 | | 115 | | 21 | | 74 | | (36) | |
| State | 49 | | 11 | | 20 | | (17) | | 45 | | 3 | | 22 | | 5 | |
| | | | | | | | |
Total deferred income taxes(a)(b) | 1,113 | | 310 | | 361 | | 239 | | 160 | | 24 | | 96 | | (31) | |
| ITC amortization | (10) | | (5) | | (3) | | (3) | | 0 | | 0 | | 0 | | 0 | |
| Income tax expense from continuing operations | 448 | | 303 | | 218 | | 160 | | 101 | | 43 | | 128 | | 37 | |
| Tax benefit from discontinued operations | (26) | | — | | — | | — | | — | | — | | — | | — | |
| Total income tax expense included in Consolidated Statements of Operations | $ | 422 | | $ | 303 | | $ | 218 | | $ | 160 | | $ | 101 | | $ | 43 | | $ | 128 | | $ | 37 | |
(a) Includes benefits of NOL carryforwards and tax credit carryforwards of $22 million at Duke Energy Carolinas, $293 million at Progress Energy, $59 million at Duke Energy Progress, $219 million at Duke Energy Florida, $17 million at Duke Energy Ohio, $21 million at Duke Energy Indiana and $39 million at Piedmont. In addition, total deferred income taxes includes utilization of NOL carryforwards and tax credit carryforwards of $18 million at Duke Energy. |
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
|
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
|
| (in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
|
| Current income taxes | | | | | | | |
| Federal | $ | — |
| $ | 139 |
| $ | 15 |
| $ | (59 | ) | $ | 76 |
| $ | (7 | ) | $ | 7 |
|
| State | (15 | ) | 25 |
| (19 | ) | (25 | ) | 22 |
| (13 | ) | 6 |
|
| Foreign | 2 |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Total current income taxes | (13 | ) | 164 |
| (4 | ) | (84 | ) | 98 |
| (20 | ) | 13 |
|
| Deferred income taxes | | | | | | | |
| Federal | 1,064 |
| 430 |
| 486 |
| 350 |
| 199 |
| 88 |
| 202 |
|
| State | 117 |
| 45 |
| 50 |
| 40 |
| 25 |
| 11 |
| 11 |
|
Total deferred income taxes(a) | 1,181 |
| 475 |
| 536 |
| 390 |
| 224 |
| 99 |
| 213 |
|
| Investment tax credit amortization | (12 | ) | (5 | ) | (5 | ) | (5 | ) | — |
| (1 | ) | (1 | ) |
| Income tax expense from continuing operations | 1,156 |
| 634 |
| 527 |
| 301 |
| 322 |
| 78 |
| 225 |
|
| Tax (benefit) expense from discontinued operations | (30 | ) | — |
| 1 |
| — |
| — |
| (36 | ) | — |
|
| Total income tax expense included in Consolidated Statements of Operations | $ | 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. |
(b) For the year ended December 31, 2018, the Company has revised the December 31, 2017, estimates of the income tax effects of the Tax Act, in accordance with SAB 118. See the Statutory Rate Reconciliation section below for additional information on the Tax Act's impact on income tax expense . |
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2015 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
|
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
|
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
|
| Current income taxes | | | | | | | |
| Federal | $ | — |
| $ | 216 |
| $ | (193 | ) | $ | (56 | ) | $ | 1 |
| $ | (18 | ) | $ | (86 | ) |
| State | (12 | ) | 14 |
| 1 |
| (4 | ) | (7 | ) | (1 | ) | (12 | ) |
| Foreign | 4 |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Total current income taxes | (8 | ) | 230 |
| (192 | ) | (60 | ) | (6 | ) | (19 | ) | (98 | ) |
| Deferred income taxes | | | | | | | |
| Federal | 1,097 |
| 345 |
| 694 |
| 334 |
| 290 |
| 96 |
| 245 |
|
| State | 181 |
| 57 |
| 27 |
| 27 |
| 58 |
| 5 |
| 17 |
|
Total deferred income taxes(a) | 1,278 |
| 402 |
| 721 |
| 361 |
| 348 |
| 101 |
| 262 |
|
| Investment tax credit amortization | (14 | ) | (5 | ) | (7 | ) | (7 | ) | — |
| (1 | ) | (1 | ) |
| Income tax expense from continuing operations | 1,256 |
| 627 |
| 522 |
| 294 |
| 342 |
| 81 |
| 163 |
|
| Tax expense (benefit) from discontinued operations | 89 |
| — |
| (1 | ) | — |
| — |
| 22 |
| — |
|
| Total income tax expense included in Consolidated Statements of Operations | $ | 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. |
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 – (Continued)
|
| | | | | | | | | |
| | Piedmont |
| | Two Months Ended |
| Years Ended October 31, |
(in millions) | December 31, 2016 | 2016 | 2015 |
| Current income taxes | | | |
| Federal | $ | 4 |
| $ | 27 |
| $ | (1 | ) |
| State | (2 | ) | 12 |
| 1 |
|
| Total current income taxes | 2 |
| 39 |
| — |
|
| Deferred income taxes | | | |
| Federal | 24 |
| 79 |
| 78 |
|
| State | 6 |
| 6 |
| 12 |
|
Total deferred income taxes(a)(b) | 30 |
| 85 |
| 90 |
|
| Total income tax expense from continuing operations included in Consolidated Statements of Operations | $ | 32 |
| $ | 124 |
| $ | 90 |
|
| |
(a) | 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. |
| |
(b) | 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
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2020 | | 2019 | | 2018 |
| Domestic | $ | 826 | | | $ | 4,053 | | | $ | 3,018 | |
| Foreign | 13 | | | 44 | | | 55 | |
| Income from continuing operations before income taxes | $ | 839 | | | $ | 4,097 | | | $ | 3,073 | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | 2017 | | 2016 | | 2015 |
Domestic(a) | $ | 4,207 |
| | $ | 3,689 |
| | $ | 3,831 |
|
| Foreign | 59 |
| | 45 |
| | 79 |
|
| Income from continuing operations before income taxes | $ | 4,266 |
| | $ | 3,734 |
| | $ | 3,910 |
|
| | | | | |
(a)FINANCIAL STATEMENTS | 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.INCOME TAXES |
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.
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.
Statutory Rate Reconciliation
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. | | | | Year Ended December 31, 2017 | | Year Ended December 31, 2020 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| | | | Duke | | Duke | |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| | | Duke | Energy | Progress | Energy | |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
| (in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Income tax expense, computed at the statutory rate of 35 percent | $ | 1,493 |
| $ | 653 |
| $ | 536 |
| $ | 353 |
| $ | 265 |
| $ | 88 |
| $ | 229 |
| $ | 70 |
| |
| Income tax expense, computed at the statutory rate of 21% | | Income tax expense, computed at the statutory rate of 21% | $ | 176 | | $ | 219 | | $ | 243 | | $ | 80 | | $ | 204 | | $ | 62 | | $ | 103 | | $ | 61 | |
| State income tax, net of federal income tax effect | 69 |
| 36 |
| 25 |
| 8 |
| 26 |
| (1 | ) | 23 |
| 3 |
| State income tax, net of federal income tax effect | (80) | | (40) | | 4 | | (25) | | 39 | | 2 | | 19 | | (12) | |
| Amortization of excess deferred income tax | | Amortization of excess deferred income tax | (276) | | (82) | | (118) | | (68) | | (49) | | (20) | | (36) | | (21) | |
| AFUDC equity income | (81 | ) | (37 | ) | (32 | ) | (17 | ) | (16 | ) | (4 | ) | (8 | ) | — |
| AFUDC equity income | (48) | | (13) | | (9) | | (6) | | (3) | | (2) | | (4) | | (10) | |
| Renewable energy production tax credits | (132 | ) | — |
| — |
| — |
| — |
| — |
| — |
| — |
| |
Tax Act(a) | (112 | ) | 15 |
| (246 | ) | (40 | ) | (226 | ) | (23 | ) | 55 |
| (12 | ) | |
| Tax true-up | (52 | ) | (24 | ) | (19 | ) | (13 | ) | (7 | ) | (5 | ) | (6 | ) | — |
| |
| AFUDC equity depreciation | | AFUDC equity depreciation | 103 | | 19 | | 10 | | 5 | | 5 | | 1 | | 4 | | — | |
| Noncontrolling Interests | | Noncontrolling Interests | 62 | | — | | — | | — | | — | | — | | 0 | | — | |
| Renewable energy PTCs | | Renewable energy PTCs | (110) | | — | | — | | — | | — | | — | | — | | — | |
| Other tax credits | | Other tax credits | (37) | | (13) | | (16) | | (14) | | (2) | | (1) | | (3) | | (2) | |
| Tax true up | | Tax true up | (12) | | (3) | | 1 | | (5) | | 5 | | 0 | | (1) | | 1 | |
| Other items, net | 11 |
| 9 |
| — |
| 1 |
| 4 |
| 4 |
| 8 |
| 1 |
| Other items, net | (14) | | 1 | | (2) | | (3) | | (1) | | 1 | | 2 | | 1 | |
| Income tax expense from continuing operations | $ | 1,196 |
| $ | 652 |
| $ | 264 |
| $ | 292 |
| $ | 46 |
| $ | 59 |
| $ | 301 |
| $ | 62 |
| |
| Income tax (benefit) expense from continuing operations | | Income tax (benefit) expense from continuing operations | $ | (236) | | $ | 88 | | $ | 113 | | $ | (36) | | $ | 198 | | $ | 43 | | $ | 84 | | $ | 18 | |
| Effective tax rate | 28.0 | % | 34.9 | % | 17.2 | % | 29.0 | % | 6.1 | % | 23.4 | % | 46.0 | % | 30.8 | % | Effective tax rate | (28.1) | % | 8.4 | % | 9.7 | % | (9.5) | % | 20.4 | % | 14.6 | % | 17.1 | % | 6.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 | |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
| (in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Income tax expense, computed at the statutory rate of 21% | $ | 860 | | $ | 360 | | $ | 332 | | $ | 202 | | $ | 178 | | $ | 59 | | $ | 120 | | $ | 51 | |
| State income tax, net of federal income tax effect | (22) | | (19) | | 8 | | (17) | | 35 | | 3 | | 22 | | 2 | |
| Amortization of excess deferred income tax | (121) | | (29) | | (64) | | (10) | | (54) | | (12) | | (6) | | (10) | |
| AFUDC equity income | (52) | | (9) | | (14) | | (13) | | (1) | | (3) | | (3) | | — | |
| AFUDC equity depreciation | 34 | | 19 | | 10 | | 5 | | 5 | | 1 | | 4 | | — | |
| Renewable energy PTCs | (120) | | — | | — | | — | | — | | — | | — | | — | |
| Other tax credits | (23) | | (11) | | (9) | | (7) | | (2) | | (1) | | (1) | | (1) | |
| Tax true up | (64) | | (9) | | (8) | | (3) | | (5) | | (7) | | (1) | | 0 | |
| | | | | | | | |
| | | | | | | | |
| Other items, net | 27 | | 9 | | (2) | | 0 | | (1) | | 0 | | (1) | | 1 | |
| Income tax expense from continuing operations | $ | 519 | | $ | 311 | | $ | 253 | | $ | 157 | | $ | 155 | | $ | 40 | | $ | 134 | | $ | 43 | |
| Effective tax rate | 12.7 | % | 18.1 | % | 16.0 | % | 16.3 | % | 18.3 | % | 14.3 | % | 23.5 | % | 17.6 | % |
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 – (Continued)
| | | | | |
(a)FINANCIAL STATEMENTS | 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,INCOME TAXES |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 | |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
| (in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Income tax expense, computed at the statutory rate of 21% | $ | 645 | | $ | 288 | | $ | 263 | | $ | 174 | | $ | 137 | | $ | 46 | | $ | 109 | | $ | 35 | |
| State income tax, net of federal income tax effect | 30 | | 14 | | 13 | | (17) | | 28 | | 2 | | 20 | | 4 | |
| Amortization of excess deferred income tax | (61) | | — | | (55) | | (1) | | (54) | | (3) | | (2) | | — | |
| AFUDC equity income | (42) | | (15) | | (22) | | (12) | | (10) | | (2) | | (2) | | — | |
| AFUDC equity depreciation | 31 | | 18 | | 9 | | 5 | | 4 | | 1 | | 4 | | — | |
| Renewable energy PTCs | (129) | | — | | — | | — | | — | | — | | — | | — | |
| Other tax credits | (28) | | (7) | | (13) | | (5) | | (8) | | (1) | | (1) | | (3) | |
Tax Act(a) | 20 | | 1 | | 25 | | 19 | | 0 | | 2 | | — | | — | |
| Other items, net | (18) | | 4 | | (2) | | (3) | | 4 | | (2) | | — | | 1 | |
| Income tax expense from continuing operations | $ | 448 | | $ | 303 | | $ | 218 | | $ | 160 | | $ | 101 | | $ | 43 | | $ | 128 | | $ | 37 | |
| Effective tax rate | 14.6 | % | 22.1 | % | 17.4 | % | 19.3 | % | 15.4 | % | 19.6 | % | 24.6 | % | 22.3 | % |
(a) For the year ended December 31, 2018, the Company revised the December 31, 2017, estimates of the income tax effects of the Tax Act, in accordance with SAB 118. Amounts primarily include but are not limited to items that are excluded for ratemaking purposes related certain wholesale fixed-rate contracts, remeasurement of nonregulated net deferred tax liabilities, Federal NOLs, and valuation allowance on foreign tax credits.
|
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
|
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
|
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
|
| Income tax expense, computed at the statutory rate of 35 percent | $ | 1,307 |
| $ | 630 |
| $ | 548 |
| $ | 315 |
| $ | 306 |
| $ | 95 |
| $ | 212 |
|
| State income tax, net of federal income tax effect | 64 |
| 46 |
| 20 |
| 10 |
| 30 |
| (2 | ) | 11 |
|
| AFUDC equity income | (70 | ) | (36 | ) | (26 | ) | (17 | ) | (9 | ) | (2 | ) | (6 | ) |
| Renewable energy production tax credits | (97 | ) | — |
| — |
| — |
| — |
| — |
| — |
|
| Audit adjustment | 5 |
| 3 |
| — |
| — |
| — |
| — |
| — |
|
| Tax true-up | (14 | ) | (14 | ) | (11 | ) | (3 | ) | (9 | ) | (16 | ) | 2 |
|
| Other items, net | (39 | ) | 5 |
| (4 | ) | (4 | ) | 4 |
| 3 |
| 6 |
|
| Income tax expense from continuing operations | $ | 1,156 |
| $ | 634 |
| $ | 527 |
| $ | 301 |
| $ | 322 |
| $ | 78 |
| $ | 225 |
|
| Effective tax rate | 31.0 | % | 35.2 | % | 33.7 | % | 33.4 | % | 36.9 | % | 28.9 | % | 37.1 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2015 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
|
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
|
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
|
| Income tax expense, computed at the statutory rate of 35 percent | $ | 1,369 |
| $ | 598 |
| $ | 555 |
| $ | 302 |
| $ | 330 |
| $ | 81 |
| $ | 168 |
|
| State income tax, net of federal income tax effect | 109 |
| 46 |
| 18 |
| 15 |
| 33 |
| 2 |
| 2 |
|
| AFUDC equity income | (58 | ) | (34 | ) | (19 | ) | (17 | ) | (3 | ) | (1 | ) | (4 | ) |
| Renewable energy production tax credits | (72 | ) | — |
| (1 | ) | — |
| — |
| — |
| — |
|
| Audit adjustment | (22 | ) | — |
| (23 | ) | 1 |
| (24 | ) | — |
| — |
|
| Tax true-up | 2 |
| 2 |
| (3 | ) | (4 | ) | 2 |
| (5 | ) | (9 | ) |
| Other items, net | (72 | ) | 15 |
| (5 | ) | (3 | ) | 4 |
| 4 |
| 6 |
|
| Income tax expense from continuing operations | $ | 1,256 |
| $ | 627 |
| $ | 522 |
| $ | 294 |
| $ | 342 |
| $ | 81 |
| $ | 163 |
|
| Effective tax rate | 32.1 | % | 36.7 | % | 32.9 | % | 34.2 | % | 36.3 | % | 35.2 | % | 34.0 | % |
|
| | | | | | | | | |
| | Piedmont |
| | Two Months Ended |
| Years Ended October 31, |
(in millions) | December 31, 2016 | 2016 | 2015 |
| Income tax expense, computed at the statutory rate of 35 percent | $ | 30 |
| $ | 111 |
| $ | 79 |
|
| State income tax, net of federal income tax effect | 1 |
| 11 |
| 9 |
|
| Other items, net | 1 |
| 2 |
| 2 |
|
| Income tax expense from continuing operations | $ | 32 |
| $ | 124 |
| $ | 90 |
|
| Effective tax rate | 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.
Valuation allowances have been established for foreign 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 Tax Act in the above tables.
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 – (Continued)
DEFERRED TAXES
Net Deferred Income Tax Liability Components
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
| (in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Deferred credits and other liabilities | $ | 286 | | $ | 85 | | $ | 87 | | $ | 67 | | $ | 18 | | $ | 21 | | $ | 7 | | $ | 38 | |
| Lease obligations | 515 | | 96 | | 208 | | 120 | | 87 | | 5 | | 16 | | 5 | |
| Pension, post-retirement and other employee benefits | 236 | | (30) | | 68 | | 24 | | 38 | | 16 | | 26 | | (5) | |
Progress Energy merger purchase accounting adjustments(a) | 441 | | — | | — | | — | | — | | — | | — | | — | |
| Tax credits and NOL carryforwards | 3,909 | | 285 | | 508 | | 179 | | 282 | | 16 | | 183 | | 29 | |
| Regulatory liabilities and deferred credits | — | | 11 | | — | | — | | — | | 18 | | 0 | | — | |
| Investments and other assets | — | | — | | — | | — | | — | | 7 | | 0 | — | |
| Other | 93 | | 8 | | 14 | | 9 | | 4 | | 7 | | 1 | | 8 | |
| Valuation allowance | (586) | | — | | — | | — | | — | | — | | — | | — | |
| Total deferred income tax assets | 4,894 | | 455 | | 885 | | 399 | | 429 | | 90 | | 233 | | 75 | |
| Investments and other assets | (2,267) | | (1,127) | | (669) | | (507) | | (164) | | — | | (14) | | (48) | |
| Accelerated depreciation rates | (10,729) | | (3,170) | | (3,868) | | (1,778) | | (2,124) | | (1,071) | | (1,433) | | (844) | |
| Regulatory assets and deferred debits, net | (1,142) | | — | | (744) | | (412) | | (332) | | — | | (14) | | (4) | |
| | | | | | | | |
| Total deferred income tax liabilities | (14,138) | | (4,297) | | (5,281) | | (2,697) | | (2,620) | | (1,071) | | (1,461) | | (896) | |
| Net deferred income tax liabilities | $ | (9,244) | | $ | (3,842) | | $ | (4,396) | | $ | (2,298) | | $ | (2,191) | | $ | (981) | | $ | (1,228) | | $ | (821) | |
(a) Primarily related to lease obligations and debt fair value adjustments.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
| Deferred credits and other liabilities | $ | 143 |
| $ | 33 |
| $ | 78 |
| $ | 23 |
| $ | 49 |
| $ | 11 |
| $ | 6 |
| $ | (5 | ) |
| Capital lease obligations | 49 |
| 14 |
| — |
| — |
| — |
| — |
| 2 |
| — |
|
| Pension, post-retirement and other employee benefits | 295 |
| (17 | ) | 111 |
| 44 |
| 60 |
| 14 |
| 18 |
| (4 | ) |
Progress Energy merger purchase accounting adjustments(a) | 536 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Tax credits and NOL carryforwards | 4,527 |
| 234 |
| 402 |
| 156 |
| 143 |
| 25 |
| 216 |
| 70 |
|
| Regulatory liabilities and deferred credits | — |
| 222 |
| — |
| — |
| — |
| 65 |
| — |
| 61 |
|
| Investments and other assets | — |
| — |
| — |
| — |
| — |
| — |
| 1 |
| 18 |
|
| Other | 73 |
| 10 |
| 1 |
| 4 |
| — |
| — |
| — |
| — |
|
| Valuation allowance | (519 | ) | — |
| (14 | ) | — |
| — |
| — |
| — |
| — |
|
| Total deferred income tax assets | 5,104 |
| 496 |
| 578 |
| 227 |
| 252 |
| 115 |
| 243 |
| 140 |
|
| Investments and other assets | (1,419 | ) | (849 | ) | (470 | ) | (289 | ) | (187 | ) | — |
| (14 | ) | — |
|
| Accelerated depreciation rates | (9,216 | ) | (3,060 | ) | (2,803 | ) | (1,583 | ) | (1,257 | ) | (896 | ) | (966 | ) | (697 | ) |
| Regulatory assets and deferred debits, net | (1,090 | ) | — |
| (807 | ) | (238 | ) | (569 | ) | — |
| (188 | ) | — |
|
| Other | — |
| — |
| — |
| — |
| — |
| — |
| — |
| (7 | ) |
| Total deferred income tax liabilities | (11,725 | ) | (3,909 | ) | (4,080 | ) | (2,110 | ) | (2,013 | ) | (896 | ) | (1,168 | ) | (704 | ) |
| Net deferred income tax liabilities | $ | (6,621 | ) | $ | (3,413 | ) | $ | (3,502 | ) | $ | (1,883 | ) | $ | (1,761 | ) | $ | (781 | ) | $ | (925 | ) | $ | (564 | ) |
| | | | | |
(a)FINANCIAL STATEMENTS | Primarily related to capital lease obligations and debt fair value adjustments.INCOME TAXES |
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) | December 31, 2017 |
| Duke Energy | $ | 8,982 |
|
| Duke Energy Carolinas | 3,454 |
|
| Progress Energy | 3,282 |
|
| Duke Energy Progress | 1,882 |
|
| Duke Energy Florida | 1,420 |
|
| Duke Energy Ohio | 771 |
|
| Duke Energy Indiana | 1,053 |
|
| Piedmont | 521 |
|
The following table presents the expiration of tax credits and NOL carryforwards. |
| | | | | | | | | |
| | December 31, 2017 |
(in millions) | Amount |
| | Expiration Year |
| Investment tax credits | $ | 1,406 |
| | 2024 | | — | | 2037 |
| Alternative minimum tax credits | 1,147 |
| | Refundable by 2021 |
| Federal NOL carryforwards | 393 |
| | 2022 | | — | | 2036 |
State NOL carryforwards and credits(a) | 296 |
| | 2018 | | — | | 2037 |
Foreign NOL carryforwards(b) | 13 |
| | 2027 | | — | | 2036 |
Foreign Tax Credits(c) | 1,272 |
| | 2024 | | — | | 2027 |
| Total tax credits and NOL carryforwards | 4,527 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| (in millions) | Amount | | Expiration Year |
| General Business Credits | $ | 2,033 | | | 2024 | | — | | 2040 |
Federal NOL carryforwards(a) (f) | 154 | | | 2024 | | — | | Indefinite |
Capital loss carryforward(e) | 85 | | | 2024 |
State carryforwards and credits(b) (f) | 340 | | | 2021 | | — | | Indefinite |
Foreign NOL carryforwards(c) | 12 | | | 2027 | | — | | 2037 |
Foreign Tax Credits(d) | 1,272 | | | 2024 | | — | | 2027 |
| Charitable contribution carryforwards | 13 | | | 2025 |
| Total tax credits and NOL carryforwards | $ | 3,909 | | | | | | | |
(a) A valuation allowance of $4 million has been recorded on the Federal NOL carryforwards, as presented in the Net Deferred Income Tax Liability Components table.
(b) A valuation allowance of $97 million has been recorded on the state NOL and attribute carryforwards, as presented in the Net Deferred Income Tax Liability Components table.
(c) A valuation allowance of $12 million has been recorded on the foreign NOL carryforwards, as presented in the Net Deferred Income Tax Liability Components table.
(d) A valuation allowance of $388 million has been recorded on the foreign tax credits, as presented in the Net Deferred Income Tax Liability Components table.
(e) A valuation allowance of $85 million has been recorded on the Federal capital loss carryforward, as presented in the Net Deferred Income Tax Liability Components table.
(f) Indefinite carryforward for Federal NOLs, and NOLs for states that have adopted the Tax Act's NOL provisions, generated in tax years beginning after December 31, 2017.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
| (in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Deferred credits and other liabilities | $ | 125 | | $ | 24 | | $ | 25 | | $ | 49 | | $ | — | | $ | 14 | | $ | 5 | | $ | 22 | |
| Lease obligations | 462 | | 72 | | 193 | | 92 | | 102 | | 5 | | 17 | | 6 | |
| Pension, post-retirement and other employee benefits | 303 | | (5) | | 88 | | 38 | | 44 | | 17 | | 27 | | (3) | |
Progress Energy merger purchase accounting adjustments(a) | 389 | | — | | — | | — | | — | | — | | — | | — | |
| Tax credits and NOL carryforwards | 3,925 | | 262 | | 486 | | 176 | | 253 | | 16 | | 176 | | 19 | |
| Regulatory liabilities and deferred credits | — | | — | | — | | — | | — | | 36 | | 52 | | 42 | |
| Investments and other assets | — | | — | | — | | — | | — | | 10 | | — | | 2 | |
| Other | 97 | | 5 | | 8 | | 3 | | 2 | | 8 | | 1 | | 6 | |
| Valuation allowance | (587) | | — | | — | | — | | — | | — | | — | | — | |
| Total deferred income tax assets | 4,714 | | 358 | | 800 | | 358 | | 401 | | 106 | | 278 | | 94 | |
| Investments and other assets | (1,664) | | (981) | | (577) | | (390) | | (190) | | — | | (12) | | — | |
| Accelerated depreciation rates | (10,813) | | (3,254) | | (3,798) | | (1,918) | | (1,913) | | (1,028) | | (1,416) | | (802) | |
| Regulatory assets and deferred debits, net | (1,115) | | (44) | | (887) | | (438) | | (477) | | — | | — | | — | |
| | | | | | | | |
| Total deferred income tax liabilities | (13,592) | | (4,279) | | (5,262) | | (2,746) | | (2,580) | | (1,028) | | (1,428) | | (802) | |
| Net deferred income tax liabilities | $ | (8,878) | | $ | (3,921) | | $ | (4,462) | | $ | (2,388) | | $ | (2,179) | | $ | (922) | | $ | (1,150) | | $ | (708) | |
(a) Primarily related to finance lease obligations and debt fair value adjustments.
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 – (Continued)
| |
(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. |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
| Deferred credits and other liabilities | $ | 382 |
| $ | 66 |
| $ | 126 |
| $ | 40 |
| $ | 93 |
| $ | 21 |
| $ | 4 |
| $ | 71 |
|
| Capital lease obligations | 60 |
| 8 |
| — |
| — |
| — |
| — |
| 1 |
| — |
|
| Pension, post-retirement and other employee benefits | 561 |
| 16 |
| 199 |
| 91 |
| 96 |
| 22 |
| 37 |
| 10 |
|
Progress Energy merger purchase accounting adjustments(a) | 918 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Tax credits and NOL carryforwards | 4,682 |
| 192 |
| 1,165 |
| 222 |
| 232 |
| 49 |
| 278 |
| 192 |
|
| Investments and other assets | — |
| — |
| — |
| — |
| — |
| 3 |
| — |
| — |
|
| Other | 205 |
| 16 |
| 35 |
| 8 |
| — |
| 5 |
| 9 |
| 45 |
|
| Valuation allowance | (96 | ) | — |
| (12 | ) | — |
| — |
| — |
| — |
| (1 | ) |
| Total deferred income tax assets | 6,712 |
| 298 |
| 1,513 |
| 361 |
| 421 |
| 100 |
| 329 |
| 317 |
|
| Investments and other assets | (1,892 | ) | (1,149 | ) | (597 | ) | (313 | ) | (297 | ) | — |
| (21 | ) | (21 | ) |
| Accelerated depreciation rates | (14,872 | ) | (4,664 | ) | (4,490 | ) | (2,479 | ) | (2,038 | ) | (1,404 | ) | (1,938 | ) | (1,080 | ) |
| Regulatory assets and deferred debits, net | (4,103 | ) | (1,029 | ) | (1,672 | ) | (892 | ) | (780 | ) | (139 | ) | (270 | ) | (147 | ) |
| Total deferred income tax liabilities | (20,867 | ) | (6,842 | ) | (6,759 | ) | (3,684 | ) | (3,115 | ) | (1,543 | ) | (2,229 | ) | (1,248 | ) |
| Net deferred income tax liabilities | $ | (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.
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.
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 – (Continued)
UNRECOGNIZED TAX BENEFITS
The following tables present changes to unrecognized tax benefits. | | | | Year Ended December 31, 2017 | | Year Ended December 31, 2020 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| | | | Duke | | Duke | |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| | | Duke | Energy | Progress | Energy | |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
| (in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Unrecognized tax benefits – January 1 | $ | 17 |
| $ | 1 |
| $ | 2 |
| $ | 2 |
| $ | 4 |
| $ | 4 |
| $ | — |
| $ | — |
| Unrecognized tax benefits – January 1 | $ | 126 | | $ | 8 | | $ | 9 | | $ | 6 | | $ | 3 | | $ | 1 | | $ | 1 | | $ | 4 | |
| Unrecognized tax benefits increases (decreases) | | |
| Gross increases – tax positions in prior periods | 12 |
| 4 |
| 3 |
| 3 |
| 1 |
| 1 |
| 1 |
| 3 |
| |
| | Gross decreases – tax positions in prior periods | (4 | ) | — |
| — |
| — |
| — |
| (4 | ) | — |
| — |
| Gross decreases – tax positions in prior periods | (2) | | — | | — | | — | | — | | — | | — | | — | |
| Gross increases – current period tax positions | | Gross increases – current period tax positions | 4 | | 2 | | 1 | | 0 | | 0 | | 0 | | — | | — | |
| | Reduction due to lapse of statute of limitations | | Reduction due to lapse of statute of limitations | (3) | | — | | — | | — | | — | | — | | — | | (3) | |
| Total changes | 8 |
| 4 |
| 3 |
| 3 |
| 1 |
| (3 | ) | 1 |
| 3 |
| Total changes | (1) | | 2 | | 1 | | — | | — | | — | | — | | (3) | |
| Unrecognized tax benefits – December 31 | $ | 25 |
| $ | 5 |
| $ | 5 |
| $ | 5 |
| $ | 5 |
| $ | 1 |
| $ | 1 |
| $ | 3 |
| Unrecognized tax benefits – December 31 | $ | 125 | | $ | 10 | | $ | 10 | | $ | 6 | | $ | 3 | | $ | 1 | | $ | 1 | | $ | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 | |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
| (in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Unrecognized tax benefits – January 1 | $ | 24 | | $ | 6 | | $ | 9 | | $ | 6 | | $ | 3 | | $ | 1 | | $ | 1 | | $ | 4 | |
| | | | | | | | |
| Unrecognized tax benefits increases | 105 | | 2 | | 1 | | 1 | | — | | — | | — | | — | |
| Gross decreases – tax positions in prior periods | (3) | | — | | (1) | | (1) | | — | | — | | — | | — | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Total changes | 102 | | 2 | | 0 | | 0 | | 0 | | — | | — | | — | |
| Unrecognized tax benefits – December 31 | $ | 126 | | $ | 8 | | $ | 9 | | $ | 6 | | $ | 3 | | $ | 1 | | $ | 1 | | $ | 4 | |
| | | | Year Ended December 31, 2016 | | Year Ended December 31, 2018 | |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| | | Duke | | Duke | |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| | Duke | Energy | Progress | Energy | |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| (in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
| Unrecognized tax benefits – January 1 | $ | 88 |
| $ | 72 |
| $ | 1 |
| $ | 3 |
| $ | — |
| $ | — |
| $ | 1 |
| Unrecognized tax benefits – January 1 | $ | 25 | | $ | 5 | | $ | 5 | | $ | 5 | | $ | 5 | | $ | 1 | | $ | 1 | | $ | 3 | |
| | Unrecognized tax benefits increases (decreases) | | Unrecognized tax benefits increases (decreases) | |
| Gross decreases – tax positions in prior periods | | Gross decreases – tax positions in prior periods | (2) | | (1) | | — | | — | | (4) | | — | | — | | — | |
| Gross increases – tax positions in prior periods | — |
| — |
| — |
| — |
| 4 |
| 4 |
| — |
| Gross increases – tax positions in prior periods | 7 | | 2 | | 4 | | 1 | | 2 | | — | | — | | 1 | |
| Gross decreases – tax positions in prior periods | (4 | ) | (4 | ) | (1 | ) | (1 | ) | — |
| — |
| — |
| |
| | Decreases due to settlements | (68 | ) | (67 | ) | — |
| — |
| — |
| — |
| (1 | ) | Decreases due to settlements | (6) | | — | | — | | — | | — | | — | | — | | — | |
| Reduction due to lapse of statute of limitations | 1 |
| — |
| 2 |
| — |
| — |
| — |
| — |
| |
| | Total changes | (71 | ) | (71 | ) | 1 |
| (1 | ) | 4 |
| 4 |
| (1 | ) | Total changes | (1) | | 1 | | 4 | | 1 | | (2) | | 0 | | 0 | | 1 | |
| Unrecognized tax benefits – December 31 | $ | 17 |
| $ | 1 |
| $ | 2 |
| $ | 2 |
| $ | 4 |
| $ | 4 |
| $ | — |
| Unrecognized tax benefits – December 31 | $ | 24 | | $ | 6 | | $ | 9 | | $ | 6 | | $ | 3 | | $ | 1 | | $ | 1 | | $ | 4 | |
|
| | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2015 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
|
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
|
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Indiana |
|
| Unrecognized tax benefits – January 1 | $ | 213 |
| $ | 160 |
| $ | 32 |
| $ | 23 |
| $ | 8 |
| $ | 1 |
|
| Unrecognized tax benefits increases (decreases) | | | | | | |
| Gross increases – tax positions in prior periods | — |
| — |
| 1 |
| 1 |
| — |
| — |
|
| Gross decreases – tax positions in prior periods | (48 | ) | (45 | ) | — |
| — |
| — |
| — |
|
| Decreases due to settlements | (45 | ) | (43 | ) | — |
| — |
| — |
| — |
|
| Reduction due to lapse of statute of limitations | (32 | ) | — |
| (32 | ) | (21 | ) | (8 | ) | — |
|
| Total changes | (125 | ) | (88 | ) | (31 | ) | (20 | ) | (8 | ) | — |
|
| Unrecognized tax benefits – December 31 | $ | 88 |
| $ | 72 |
| $ | 1 |
| $ | 3 |
| $ | — |
| $ | 1 |
|
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 – (Continued)
The following table includes additional information regarding the Duke Energy Registrants' unrecognized tax benefits at December 31, 2017. During the first quarter of 2018,2020. Duke Energy recognized an approximate $8 million reduction and Duke Energy Carolinas recognized an approximate $1 million reductionRegistrants do not anticipate a material increase or decrease in unrecognized tax benefits. No additional material reductions are expected inbenefits within the next 12 months. | | | | December 31, 2017 | | December 31, 2020 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| | | | Duke | | Duke | |
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| | | Duke | Energy | Progress | Energy | |
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
| (in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Amount that if recognized, would affect the effective tax rate or regulatory liability(a) | $ | 15 |
| $ | 4 |
| $ | 7 |
| $ | 5 |
| $ | 1 |
| $ | 1 |
| $ | 1 |
| $ | 3 |
| Amount that if recognized, would affect the effective tax rate or regulatory liability(a) | $ | 122 | | $ | 10 | | $ | 10 | | $ | 6 | | $ | 3 | | $ | 1 | | $ | 1 | | $ | 1 | |
Amount that if recognized, would be recorded as a component of discontinued operations | 7 |
| — |
| — |
| — |
| — |
| 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(a) The Duke Energy Registrants are unable to estimate the specific amounts that would affect the ETR versus the regulatory liability. |
OTHER TAX MATTERS
The following tables include interest recognized in the Consolidated Statements of Operations and the Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | | Duke |
| | Duke |
| Duke |
|
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
|
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
|
| Net interest income recognized related to income taxes | $ | — |
| $ | — |
| $ | 1 |
| $ | — |
| $ | 1 |
|
| Net interest expense recognized related to income taxes | — |
| 2 |
| — |
| — |
| — |
|
| Interest payable related to income taxes | 5 |
| 25 |
| 1 |
| 1 |
| — |
|
|
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | | Duke |
| | Duke |
| Duke |
|
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
|
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
|
| Net interest income recognized related to income taxes | $ | — |
| $ | — |
| $ | 1 |
| $ | — |
| $ | 2 |
|
| Net interest expense recognized related to income taxes | — |
| 7 |
| — |
| — |
| — |
|
| Interest payable related to income taxes | 4 |
| 23 |
| 1 |
| 1 |
| — |
|
|
| | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2015 |
| | | Duke |
| | Duke |
| Duke |
| Duke |
|
| | Duke |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
|
(in millions) | Energy |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Indiana |
|
| Net interest income recognized related to income taxes | $ | 12 |
| $ | — |
| $ | 2 |
| $ | 2 |
| $ | 1 |
| $ | 1 |
|
| Net interest expense recognized related to income taxes | — |
| 1 |
| — |
| — |
| — |
| — |
|
| Interest receivable related to income taxes | 3 |
| — |
| — |
| — |
| — |
| 3 |
|
| Interest payable related to income taxes | — |
| 14 |
| — |
| 1 |
| — |
| — |
|
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 2015.2016. 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 2015.2016.
23.
| | | | | |
| FINANCIAL STATEMENTS | OTHER INCOME AND EXPENSES, NET |
24. 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2020 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Interest income | $ | 32 | | | $ | 4 | | | $ | 8 | | | $ | 2 | | | $ | 6 | | | $ | 4 | | | $ | 6 | | | $ | 17 | |
| AFUDC equity | 154 | | | 62 | | | 42 | | | 29 | | | 12 | | | 7 | | | 23 | | | 19 | |
| Post in-service equity returns | 27 | | | 17 | | | 8 | | | 8 | | | — | | | 1 | | | 1 | | | — | |
| Nonoperating income, other | 240 | | | 94 | | | 71 | | | 36 | | | 35 | | | 4 | | | 7 | | | 15 | |
| Other income and expense, net | $ | 453 | | | $ | 177 | | | $ | 129 | | | $ | 75 | | | $ | 53 | | | $ | 16 | | | $ | 37 | | | $ | 51 | |
PART II | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Interest income | $ | 31 | | | $ | 1 | | | $ | 11 | | | $ | 0 | | | $ | 11 | | | $ | 10 | | | $ | 10 | | | $ | 1 | |
| AFUDC equity | 139 | | | 42 | | | 66 | | | 60 | | | 6 | | | 13 | | | 18 | | | — | |
| Post in-service equity returns | 29 | | | 20 | | | 7 | | | 7 | | | — | | | 1 | | | — | | | — | |
| Nonoperating income, other | 231 | | | 88 | | | 57 | | | 33 | | | 31 | | | 0 | | | 13 | | | 19 | |
| Other income and expense, net | $ | 430 | | | $ | 151 | | | $ | 141 | | | $ | 100 | | | $ | 48 | | | $ | 24 | | | $ | 41 | | | $ | 20 | |
DUKE ENERGY CORPORATION – DUKE ENERGY CAROLINAS, LLC – PROGRESS ENERGY, INC. – | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 | | |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Interest income | $ | 20 | | | $ | 1 | | | $ | 18 | | | $ | 1 | | | $ | 18 | | | $ | 7 | | | $ | 9 | | | $ | 1 | |
| AFUDC equity | 221 | | | 73 | | | 104 | | | 57 | | | 47 | | | 11 | | | 32 | | | — | |
| Post in-service equity returns | 15 | | | 9 | | | 5 | | | 5 | | | — | | | 1 | | | — | | | — | |
| Nonoperating income, other | 143 | | | 70 | | | 38 | | | 24 | | | 21 | | | 4 | | | 4 | | | 13 | |
| Other income and expense, net | $ | 399 | | | $ | 153 | | | $ | 165 | | | $ | 87 | | | $ | 86 | | | $ | 23 | | | $ | 45 | | | $ | 14 | |
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)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
| Interest income | $ | 13 |
| | $ | 2 |
| | $ | 6 |
| | $ | 2 |
| | $ | 5 |
| | $ | 6 |
| | $ | 8 |
|
| AFUDC equity | 237 |
| | 106 |
| | 92 |
| | 47 |
| | 45 |
| | 11 |
| | 28 |
|
| Post in-service equity returns | 40 |
| | 28 |
| | 12 |
| | 12 |
| | — |
| | — |
| | — |
|
| Nonoperating income, other | 62 |
| | 3 |
| | 18 |
| | 4 |
| | 11 |
| | — |
| | 1 |
|
| Other income and expense, net | $ | 352 |
| | $ | 139 |
| | $ | 128 |
| | $ | 65 |
| | $ | 61 |
| | $ | 17 |
| | $ | 37 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
| Interest income | $ | 21 |
| | $ | 4 |
| | $ | 4 |
| | $ | 3 |
| | $ | 2 |
| | $ | 5 |
| | $ | 6 |
|
| AFUDC equity | 200 |
| | 102 |
| | 76 |
| | 50 |
| | 26 |
| | 6 |
| | 16 |
|
| Post in-service equity returns | 67 |
| | 55 |
| | 12 |
| | 12 |
| | — |
| | — |
| | — |
|
| Nonoperating income (expense), other | 36 |
| | 1 |
| | 22 |
| | 6 |
| | 16 |
| | (2 | ) | | — |
|
| Other income and expense, net | $ | 324 |
| | $ | 162 |
| | $ | 114 |
| | $ | 71 |
| | $ | 44 |
| | $ | 9 |
| | $ | 22 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2015 |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
| (in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
| Interest income | $ | 20 |
| | $ | 2 |
| | $ | 4 |
| | $ | 2 |
| | $ | 2 |
| | $ | 4 |
| | $ | 6 |
|
| AFUDC equity | 164 |
| | 96 |
| | 54 |
| | 47 |
| | 7 |
| | 3 |
| | 11 |
|
| Post in-service equity returns | 73 |
| | 60 |
| | 13 |
| | 13 |
| | — |
| | — |
| | — |
|
| Nonoperating income (expense), other | 33 |
| | 2 |
| | 26 |
| | 9 |
| | 15 |
| | (1 | ) | | (6 | ) |
| Other income and expense, net | $ | 290 |
| | $ | 160 |
| | $ | 97 |
| | $ | 71 |
| | $ | 24 |
| | $ | 6 |
| | $ | 11 |
|
24.25. SUBSEQUENT EVENTS
For information on subsequent events related to the sale of a minority interest in Duke Energy Indiana and 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, 171 and 18,3, respectively.
In February 2021, a severe winter storm impacted certain Commercial Renewables assets in Texas. Extreme weather conditions limited the ability for these solar and wind facilities to generate and sell electricity into the Electric Reliability Council of Texas market. The financial impact of the storm is estimated to be between approximately $75 million and $100 million on a pre-tax basis.
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 – (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. |
| | | | | | | | | | | | | | | | | | | |
| | First |
| | Second |
| | Third |
| | Fourth |
| | |
| (in millions, except per share data) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
| 2017 | | | | | | | | | |
| Operating revenues | $ | 5,729 |
| | $ | 5,555 |
| | $ | 6,482 |
| | $ | 5,799 |
| | $ | 23,565 |
|
| Operating income | 1,437 |
| | 1,387 |
| | 1,695 |
| | 1,262 |
| | 5,781 |
|
| Income from continuing operations | 717 |
| | 691 |
| | 957 |
| | 705 |
| | 3,070 |
|
| Loss from discontinued operations, net of tax | — |
| | (2 | ) | | (2 | ) | | (2 | ) | | (6 | ) |
| Net income | 717 |
| | 689 |
| | 955 |
| | 703 |
| | 3,064 |
|
| Net income attributable to Duke Energy Corporation | 716 |
| | 686 |
| | 954 |
| | 703 |
| | 3,059 |
|
| Earnings per share: | | | | | | | | | |
| Income from continuing operations attributable to Duke Energy Corporation common stockholders | | | | | | | | | |
| Basic | $ | 1.02 |
| | $ | 0.98 |
| | $ | 1.36 |
| | $ | 1.00 |
| | $ | 4.37 |
|
| Diluted | $ | 1.02 |
| | $ | 0.98 |
| | $ | 1.36 |
| | $ | 1.00 |
| | $ | 4.37 |
|
| Loss from discontinued operations attributable to Duke Energy Corporation common stockholders | | | | | | | | | |
| Basic | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (0.01 | ) |
| Diluted | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (0.01 | ) |
| Net income attributable to Duke Energy Corporation common stockholders | | | | | | | | | |
| Basic | $ | 1.02 |
| | $ | 0.98 |
| | $ | 1.36 |
| | $ | 1.00 |
| | $ | 4.36 |
|
| Diluted | $ | 1.02 |
| | $ | 0.98 |
| | $ | 1.36 |
| | $ | 1.00 |
| | $ | 4.36 |
|
| 2016 | | | | | | | | | |
| Operating revenues | $ | 5,377 |
| | $ | 5,213 |
| | $ | 6,576 |
| | $ | 5,577 |
| | $ | 22,743 |
|
| Operating income | 1,240 |
| | 1,259 |
| | 1,954 |
| | 888 |
| | 5,341 |
|
| Income from continuing operations | 577 |
| | 624 |
| | 1,001 |
| | 376 |
| | 2,578 |
|
| Income (Loss) from discontinued operations, net of tax | 122 |
| | (112 | ) | | 180 |
| | (598 | ) | | (408 | ) |
| Net income (loss) | 699 |
| | 512 |
| | 1,181 |
| | (222 | ) | | 2,170 |
|
| Net income (loss) attributable to Duke Energy Corporation | 694 |
| | 509 |
| | 1,176 |
| | (227 | ) | | 2,152 |
|
| Earnings per share: | | | | | | | | | |
| Income from continuing operations attributable to Duke Energy Corporation common stockholders | | | | | | | | | |
| Basic | $ | 0.83 |
| | $ | 0.90 |
| | $ | 1.44 |
| | $ | 0.53 |
| | $ | 3.71 |
|
| Diluted | $ | 0.83 |
| | $ | 0.90 |
| | $ | 1.44 |
| | $ | 0.53 |
| | $ | 3.71 |
|
| Income (Loss) from discontinued operations attributable to Duke Energy Corporation common stockholders | | | | | | | | | |
| Basic | $ | 0.18 |
| | $ | (0.16 | ) | | $ | 0.26 |
| | $ | (0.86 | ) | | $ | (0.60 | ) |
| Diluted | $ | 0.18 |
| | $ | (0.16 | ) | | $ | 0.26 |
| | $ | (0.86 | ) | | $ | (0.60 | ) |
| Net income (loss) attributable to Duke Energy Corporation common stockholders | | | | | | | | | |
| Basic | $ | 1.01 |
| | $ | 0.74 |
| | $ | 1.70 |
| | $ | (0.33 | ) | | $ | 3.11 |
|
| Diluted | $ | 1.01 |
| | $ | 0.74 |
| | $ | 1.70 |
| | $ | (0.33 | ) | | $ | 3.11 |
|
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 – (Continued)
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. |
| | | | | | | | | | | | | | | | | | | |
| | First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
| 2017 | | | | | | | | | |
| Costs to Achieve Piedmont Merger (see Note 2) | $ | (16 | ) | | $ | (30 | ) | | $ | (23 | ) | | $ | (34 | ) | | $ | (103 | ) |
| Regulatory Settlements (see Note 4) | — |
| | — |
| | (135 | ) | | (23 | ) | | (158 | ) |
| Commercial Renewables Impairments (see Notes 10 and 11) | — |
| | — |
| | (84 | ) | | (18 | ) | | (102 | ) |
| Impacts of the Tax Act (see Note 22) | — |
| | — |
| | — |
| | 102 |
| | 102 |
|
| Total | $ | (16 | ) | | $ | (30 | ) | | $ | (242 | ) | | $ | 27 |
| | $ | (261 | ) |
| 2016 | | | | | | | | | |
|
| Costs to Achieve Mergers (see Note 2) | $ | (120 | ) | | $ | (111 | ) | | $ | (84 | ) | | $ | (208 | ) | | $ | (523 | ) |
| Commercial Renewables Impairment (see Note 12) | — |
| | — |
| | (71 | ) | | — |
| | (71 | ) |
| Loss on Sale of International Disposal Group (see Note 2) | — |
| | — |
| | — |
| | (514 | ) | | (514 | ) |
| Impairment of Assets in Central America (see Note 2) | — |
| | (194 | ) | | — |
| | — |
| | (194 | ) |
| Cost Savings Initiatives (see Note 19) | (20 | ) | | (24 | ) | | (19 | ) | | (29 | ) | | (92 | ) |
| Total | $ | (140 | ) | | $ | (329 | ) | | $ | (174 | ) | | $ | (751 | ) | | $ | (1,394 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| | First |
| | Second |
| | Third |
| | Fourth |
| | |
| (in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
| 2017 | | | | | | | | | |
| Operating revenues | $ | 1,716 |
| | $ | 1,729 |
| | $ | 2,136 |
| | $ | 1,721 |
| | $ | 7,302 |
|
| Operating income | 484 |
| | 485 |
| | 777 |
| | 403 |
| | 2,149 |
|
| Net income | 270 |
| | 273 |
| | 466 |
| | 205 |
| | 1,214 |
|
| 2016 | | | | | | | | | |
| Operating revenues | $ | 1,740 |
| | $ | 1,675 |
| | $ | 2,226 |
| | $ | 1,681 |
| | $ | 7,322 |
|
| Operating income | 481 |
| | 464 |
| | 815 |
| | 302 |
| | 2,062 |
|
| Net income | 271 |
| | 261 |
| | 494 |
| | 140 |
| | 1,166 |
|
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. |
| | | | | | | | | | | | | | | | | | | |
| | First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
| 2017 | | | | | | | | | |
| Costs to Achieve Piedmont Merger (see Note 2) | $ | (4 | ) | | $ | (6 | ) | | $ | (5 | ) |
| $ | (5 | ) | | $ | (20 | ) |
| Impacts of the Tax Act (see Note 22) | — |
| | — |
| | — |
| | (15 | ) | | (15 | ) |
| Total | $ | (4 | ) | | $ | (6 | ) | | $ | (5 | ) | | $ | (20 | ) | | $ | (35 | ) |
| 2016 | | | | | | | | | |
| Costs to Achieve Mergers | $ | (11 | ) | | $ | (12 | ) | | $ | (13 | ) | | $ | (68 | ) | | $ | (104 | ) |
| Cost Savings Initiatives (see Note 19) | (10 | ) | | (10 | ) | | (8 | ) | | (11 | ) | | (39 | ) |
| Total | $ | (21 | ) | | $ | (22 | ) | | $ | (21 | ) | | $ | (79 | ) | | $ | (143 | ) |
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 – (Continued)
|
| | | | | | | | | | | | | | | | | | | |
| | First |
| | Second |
| | Third |
| | Fourth |
| | |
| (in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
| 2017 | | | | | | | | | |
| Operating revenues | $ | 2,179 |
| | $ | 2,392 |
| | $ | 2,864 |
| | $ | 2,348 |
| | $ | 9,783 |
|
| Operating income | 487 |
| | 591 |
| | 657 |
| | 493 |
| | 2,228 |
|
| Net income | 201 |
| | 277 |
| | 343 |
| | 447 |
| | 1,268 |
|
| Net income attributable to Parent | 199 |
| | 274 |
| | 341 |
| | 444 |
| | 1,258 |
|
| 2016 | | | | | | | | | |
| Operating revenues | $ | 2,332 |
| | $ | 2,348 |
| | $ | 2,965 |
| | $ | 2,208 |
| | $ | 9,853 |
|
| Operating income | 475 |
| | 560 |
| | 814 |
| | 292 |
| | 2,141 |
|
| Income from continuing operations | 212 |
| | 274 |
| | 449 |
| | 104 |
| | 1,039 |
|
| Net income | 212 |
| | 274 |
| | 449 |
| | 106 |
| | 1,041 |
|
| Net income attributable to Parent | 209 |
| | 272 |
| | 446 |
| | 104 |
| | 1,031 |
|
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. |
| | | | | | | | | | | | | | | | | | | |
| | First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
| 2017 | | | | | | | | | |
| Costs to Achieve Piedmont Merger (see Note 2) | $ | (4 | ) | | $ | (7 | ) | | $ | (6 | ) | | $ | (6 | ) | | $ | (23 | ) |
| Regulatory Settlements (see Note 4) | — |
| | — |
| | (135 | ) | | (23 | ) | | (158 | ) |
| Impacts of the Tax Act (see Note 22) | — |
| | — |
| | — |
| | 246 |
| | 246 |
|
| Total | $ | (4 | ) | | $ | (7 | ) | | $ | (141 | ) | | $ | 217 |
| | $ | 65 |
|
| 2016 | | | | | | | | | |
|
| Costs to Achieve Mergers | $ | (7 | ) | | $ | (8 | ) | | $ | (10 | ) | | $ | (44 | ) | | $ | (69 | ) |
| Cost Savings Initiatives (see Note 19) | (8 | ) | | (8 | ) | | (10 | ) | | (14 | ) | | (40 | ) |
| Total | $ | (15 | ) | | $ | (16 | ) | | $ | (20 | ) | | $ | (58 | ) | | $ | (109 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| | First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
| 2017 | | | | | | | | | |
| Operating revenues | $ | 1,219 |
| | $ | 1,199 |
| | $ | 1,460 |
| | $ | 1,251 |
| | $ | 5,129 |
|
| Operating income | 286 |
| | 282 |
| | 411 |
| | 256 |
| | 1,235 |
|
| Net income | 147 |
| | 154 |
| | 246 |
| | 168 |
| | 715 |
|
| 2016 | | | | | | | | | |
| Operating revenues | $ | 1,307 |
| | $ | 1,213 |
| | $ | 1,583 |
| | $ | 1,174 |
| | $ | 5,277 |
|
| Operating income | 258 |
| | 255 |
| | 438 |
| | 135 |
| | 1,086 |
|
| Net income | 137 |
| | 131 |
| | 271 |
| | 60 |
| | 599 |
|
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. |
| | | | | | | | | | | | | | | | | | | |
| | First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
| 2017 | | | | | | | | | |
| Costs to Achieve Piedmont Merger (see Note 2) | $ | (2 | ) | | $ | (4 | ) | | $ | (4 | ) | | $ | (4 | ) | | $ | (14 | ) |
| Regulatory Settlements (see Note 4) | — |
| | — |
| | — |
| | (23 | ) | | (23 | ) |
| Impacts of the Tax Act (see Note 22) | — |
| | — |
| | — |
| | 40 |
| | 40 |
|
| Total | $ | (2 | ) |
| $ | (4 | ) |
| $ | (4 | ) |
| $ | 13 |
|
| $ | 3 |
|
| 2016 | | | | | | | | | |
| Costs to Achieve Mergers | $ | (5 | ) | | $ | (5 | ) | | $ | (6 | ) | | $ | (40 | ) | | $ | (56 | ) |
| Cost Savings Initiatives (see Note 19) | (5 | ) | | (5 | ) | | (7 | ) | | (6 | ) | | (23 | ) |
| Total | $ | (10 | ) | | $ | (10 | ) | | $ | (13 | ) | | $ | (46 | ) | | $ | (79 | ) |
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 – (Continued)
|
| | | | | | | | | | | | | | | | | | | |
| | First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
| 2017 | | | | | | | | | |
| Operating revenues | $ | 959 |
| | $ | 1,191 |
| | $ | 1,401 |
| | $ | 1,095 |
| | $ | 4,646 |
|
| Operating income | 196 |
| | 306 |
| | 240 |
| | 234 |
| | 976 |
|
| Net income | 90 |
| | 158 |
| | 120 |
| | 344 |
| | 712 |
|
| 2016 | | | | | | | | | |
| Operating revenues | $ | 1,024 |
| | $ | 1,133 |
| | $ | 1,381 |
| | $ | 1,030 |
| | $ | 4,568 |
|
| Operating income | 213 |
| | 300 |
| | 373 |
| | 155 |
| | 1,041 |
|
| Net income | 110 |
| | 171 |
| | 206 |
| | 64 |
| | 551 |
|
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. |
| | | | | | | | | | | | | | | | | | | |
| | First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
| 2017 | | | | | | | | | |
| Costs to Achieve Piedmont Merger (see Note 2) | $ | (2 | ) | | $ | (3 | ) | | $ | (2 | ) | | $ | (2 | ) | | $ | (9 | ) |
| Regulatory Settlements (see Note 4) | — |
| | — |
| | (135 | ) | | — |
| | (135 | ) |
| Impacts of the Tax Act (see Note 22) | — |
| | — |
| | — |
| | 226 |
| | 226 |
|
| Total | $ | (2 | ) | | $ | (3 | ) | | $ | (137 | ) | | $ | 224 |
| | $ | 82 |
|
| 2016 | | | | | | | | | |
| Costs to Achieve Mergers | $ | (2 | ) | | $ | (3 | ) | | $ | (4 | ) | | $ | (4 | ) | | $ | (13 | ) |
| Cost Savings Initiatives (see Note 19) | (2 | ) | | (3 | ) | | (3 | ) | | (9 | ) | | (17 | ) |
| Total | $ | (4 | ) | | $ | (6 | ) | | $ | (7 | ) | | $ | (13 | ) | | $ | (30 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| | First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
| 2017 | | | | | | | | | |
| Operating revenues | $ | 518 |
| | $ | 437 |
| | $ | 471 |
| | $ | 497 |
| | $ | 1,923 |
|
| Operating income | 83 |
| | 65 |
| | 102 |
| | 76 |
| | 326 |
|
| Loss from discontinued operations, net of tax | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) |
| Net income | 42 |
| | 30 |
| | 55 |
| | 65 |
| | 192 |
|
| 2016 | | | | | | | | | |
| Operating revenues | $ | 516 |
| | $ | 428 |
| | $ | 489 |
| | $ | 511 |
| | $ | 1,944 |
|
| Operating income | 96 |
| | 55 |
| | 106 |
| | 90 |
| | 347 |
|
| Income from discontinued operations, net of tax | 2 |
| | — |
| | 34 |
| | — |
| | 36 |
|
| Net income | 59 |
| | 23 |
| | 89 |
| | 57 |
| | 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. |
| | | | | | | | | | | | | | | | | | | |
| | First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
| 2017 | | | | | | | | | |
| Costs to Achieve Piedmont Merger (see Note 2) | $ | (1 | ) | | $ | (1 | ) | | $ | (2 | ) | | $ | (2 | ) | | $ | (6 | ) |
| Impacts of the Tax Act (see Note 22) | — |
| | — |
| | — |
| | 23 |
| | 23 |
|
| Total | $ | (1 | ) | | $ | (1 | ) | | $ | (2 | ) | | $ | 21 |
| | $ | 17 |
|
| 2016 | | | | | | | | | |
| Costs to Achieve Mergers | $ | (1 | ) | | $ | (1 | ) | | $ | (2 | ) | | $ | (2 | ) | | $ | (6 | ) |
| Cost Savings Initiatives (see Note 19) | (1 | ) | | (1 | ) | | — |
| | (1 | ) | | (3 | ) |
| Total | $ | (2 | ) | | $ | (2 | ) | | $ | (2 | ) | | $ | (3 | ) | | $ | (9 | ) |
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 – (Continued)
|
| | | | | | | | | | | | | | | | | | | |
| | First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
| 2017 | | | | | | | | | |
| Operating revenues | $ | 758 |
| | $ | 742 |
| | $ | 802 |
| | $ | 745 |
| | $ | 3,047 |
|
| Operating income | 186 |
| | 210 |
| | 230 |
| | 170 |
| | 796 |
|
| Net income | 91 |
| | 106 |
| | 121 |
| | 36 |
| | 354 |
|
| 2016 | | | | | | | | | |
| Operating revenues | $ | 714 |
| | $ | 702 |
| | $ | 809 |
| | $ | 733 |
| | $ | 2,958 |
|
| Operating income | 176 |
| | 174 |
| | 239 |
| | 176 |
| | 765 |
|
| Net income | 95 |
| | 85 |
| | 129 |
| | 72 |
| | 381 |
|
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. |
| | | | | | | | | | | | | | | | | | | |
| | First |
| | Second |
| | Third |
| | Fourth |
| | |
(in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
| 2017 | | | | | | | | | |
| Costs to Achieve Piedmont Merger (see Note 2) | $ | (1 | ) | | $ | (2 | ) | | $ | (2 | ) | | $ | (1 | ) | | $ | (6 | ) |
| Impacts of the Tax Act (see Note 22) | — |
| | — |
| | — |
| | (55 | ) | | (55 | ) |
| Total | $ | (1 | ) | | $ | (2 | ) | | $ | (2 | ) | | $ | (56 | ) | | $ | (61 | ) |
| 2016 | | | | | | | | | |
| Costs to Achieve Mergers | $ | (1 | ) | | $ | (2 | ) | | $ | (3 | ) | | $ | (3 | ) | | $ | (9 | ) |
| Cost Savings Initiatives (see Note 19) | (1 | ) | | (4 | ) | | (1 | ) | | (1 | ) | | (7 | ) |
| Total | $ | (2 | ) | | $ | (6 | ) | | $ | (4 | ) | | $ | (4 | ) | | $ | (16 | ) |
PIEDMONT
The following tables include data for Piedmont's fiscal years ending December 31, 2017, and October 31, 2016. |
| | | | | | | | | | | | | | | | | | | |
| | First |
| | Second |
| | Third |
| | Fourth |
| | |
| (in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
| 2017 | | | | | | | | | |
| Operating revenues | $ | 500 |
| | $ | 201 |
| | $ | 183 |
| | $ | 444 |
| | $ | 1,328 |
|
| Operating income (loss) | 170 |
| | 5 |
| | (4 | ) | | 115 |
| | 286 |
|
| Net income (loss) | 95 |
| | (8 | ) | | (11 | ) | | 63 |
| | 139 |
|
| 2016 | | | | | | | | | |
| Operating revenues | $ | 464 |
| | $ | 353 |
| | $ | 160 |
| | $ | 172 |
| | $ | 1,149 |
|
| Operating income (loss) | 171 |
| | 104 |
| | — |
| | (50 | ) | | 225 |
|
| Net income (loss) | 98 |
| | 63 |
| | (7 | ) | | 39 |
| | 193 |
|
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. |
| | | | | | | | | | | | | | | | | | | |
| | First |
| | Second |
| | Third |
| | Fourth |
| | |
| (in millions) | Quarter |
| | Quarter |
| | Quarter |
| | Quarter |
| | Total |
|
| 2017 | | | | | | | | | |
| Costs to Achieve Piedmont Merger (see Note 2) | $ | (6 | ) | | $ | (13 | ) | | $ | (8 | ) | | $ | (19 | ) | | $ | (46 | ) |
| Impacts of the Tax Act (see Note 22) | — |
| | — |
| | — |
| | 2 |
| | 2 |
|
| Total | $ | (6 | ) | | $ | (13 | ) | | $ | (8 | ) | | $ | (17 | ) | | $ | (44 | ) |
| 2016 | | | | | | | | | |
| Costs to Achieve Mergers | $ | (6 | ) | | $ | (2 | ) | | $ | (1 | ) | | $ | (53 | ) | | $ | (62 | ) |
For the two months ended December 31, 2016, Piedmont's costs to achieve merger were $7 million.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures
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, 2017,2020, 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)13a-15 and 15d-15(f)15d-15 under the Exchange Act) that occurred during the fiscal quarter ended December 31, 2017,2020, and have concluded no change has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
Management’s Annual Report Onon 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.GAAP. 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, 2017,2020, 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, 2017.2020.
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 reportreporting, which is included in Part II, Item 8 of this Form 10-K.herein. This report is not applicable to the Subsidiary Registrants as these companies are not accelerated or large accelerated filers.
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"“Company”) as of December 31, 2017,2020, 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, 2017,2020, 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 sheetsfinancial statements as of December 31, 2017, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows, for the periodyear ended December 31, 2017, and the related notes2020, of the Company and our report dated February 23, 2018,25, 2021, 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’sManagement's Annual Report Onon 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
25, 2021
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information regarding Duke Energy's Executive Officers is set forth in Part I, Item 1, "Business – Information about Our 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, 2017,2020, about securities to be issued upon exercise of outstanding options, warrants and rights under Duke Energy's equity compensation plans, along with the weighted-averageweighted 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 | 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) | Plan Category | 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) |
| Equity compensation plans approved by security holders | 3,566,563 |
| (2) | n/a | 7,314,882 | (3) | Equity compensation plans approved by security holders | 3,256,542 | | (2) | n/a | 4,450,675 | (3) |
| Equity compensation plans not approved by security holders | 191,394 |
| (4) | n/a | (5) | Equity compensation plans not approved by security holders | 143,272 | | (4) | n/a | (5) |
| Total | 3,757,957 |
| | n/a | 7,314,882 | | Total | 3,399,814 | | | n/a | 4,450,675 | |
(1) As of December 31, 2017,2020, no options were outstanding under equity compensation plans.
| |
(2) | 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). |
| |
(3) | Includes shares remaining available for issuance pursuant to stock awards under the Duke Energy Corporation 2015 Long-Term Incentive Plan. |
| |
(4) | 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. |
(2) Includes RSUs and performance shares (assuming the maximum payout level) granted under 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 Directors’ Savings Plan.
(3) Includes shares remaining available for issuance pursuant to stock awards under the Duke Energy Corporation 2015 Long-Term Incentive Plan.
(4) Includes shares that could be payable with respect to certain compensation deferred under the Executive Savings Plan or the Duke Energy Corporation Directors' Savings Plan (Directors' Savings Plan), each of which is a non-qualified deferred compensation plan described in more detail below.
(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. Eligible participants may also earn pay credits based on age and length of service on eligible earnings that exceed limited prescribed by the Internal Revenue Code.
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 contributionstheir accounts (with certain exceptions) 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,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.
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 20172020 and 2016. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 | | |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Types of Fees | | | | | | | | | | | | | | | |
Audit Fees(a) | $ | 13.6 |
| | $ | 4.7 |
| | $ | 5.6 |
| | $ | 3.1 |
| | $ | 2.4 |
| | $ | 0.8 |
| | $ | 1.4 |
| | $ | 0.8 |
|
Audit-Related Fees(b) | 0.2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Tax Fees(c) | 1.7 |
| | 0.6 |
| | 0.1 |
| | 0.4 |
| | — |
| | 0.1 |
| | 0.1 |
| | 0.1 |
|
Other Fees(d) | 0.1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total Fees | $ | 15.6 |
| | $ | 5.3 |
| | $ | 5.7 |
| | $ | 3.5 |
| | $ | 2.4 |
| | $ | 0.9 |
| | $ | 1.5 |
| | $ | 0.9 |
|
| | | | Year Ended December 31, 2016 | | Year Ended December 31, 2020 | |
| | | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | | Duke | | Duke | | Duke | | Duke | | Duke | |
| | Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Types of Fees | | | | | | | | | | | | | | Types of Fees | | | | | | | | | | | | | | |
Audit Fees(a) | $ | 13.6 |
| | $ | 4.8 |
| | $ | 5.2 |
| | $ | 3.0 |
| | $ | 2.2 |
| | $ | 0.8 |
| | $ | 1.4 |
| Audit Fees(a) | $ | 12.9 | | | $ | 3.0 | | | $ | 4.5 | | | $ | 2.3 | | | $ | 2.2 | | | $ | 1.9 | | | $ | 1.7 | | | $ | 1.3 | |
Audit-Related Fees(b) | 0.7 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Audit-Related Fees(b) | 1.7 | | | 0.2 | | | 0.3 | | | 0.1 | | | 0.2 | | | 0.3 | | | 0.1 | | | — | |
Tax Fees(c) | 0.4 |
| | 0.1 |
| | 0.1 |
| | 0.1 |
| | — |
| | — |
| | 0.1 |
| Tax Fees(c) | 0.1 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Other Fees(d) | 0.2 |
| | 0.1 |
| | 0.1 |
| | 0.1 |
| | — |
| | — |
| | — |
| |
| | Total Fees | $ | 14.9 |
| | $ | 5.0 |
| | $ | 5.4 |
| | $ | 3.2 |
| | $ | 2.2 |
| | $ | 0.8 |
| | $ | 1.5 |
| Total Fees | $ | 14.7 | | | $ | 3.2 | | | $ | 4.8 | | | $ | 2.4 | | | $ | 2.4 | | | $ | 2.2 | | | $ | 1.8 | | | $ | 1.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 | | |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| (in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| Types of Fees | | | | | | | | | | | | | | | |
Audit Fees(a) | $ | 13.5 | | | $ | 4.6 | | | $ | 5.3 | | | $ | 3.1 | | | $ | 2.2 | | | $ | 0.9 | | | $ | 1.4 | | | $ | 0.8 | |
Audit-Related Fees(b) | 0.6 | | | 0.1 | | | 0.2 | | | 0.1 | | | 0.1 | | | 0.2 | | | — | | | — | |
Tax Fees(c) | 0.2 | | | 0.1 | | | 0.1 | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
| Total Fees | $ | 14.3 | | | $ | 4.8 | | | $ | 5.6 | | | $ | 3.2 | | | $ | 2.3 | | | $ | 1.1 | | | $ | 1.4 | | | $ | 0.8 | |
|
| | | | | | |
| | Piedmont(e) |
| | Two Months Ended |
| Year Ended October 31, |
(in millions) | December 31, 2016 | 2016 |
Types of Fees | | |
Audit Fees(a) | $ | 0.6 |
| $ | 1.3 |
|
Audit-Related Fees(b) | — |
| 0.1 |
|
| Total Fees | $ | 0.6 |
| $ | 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) | (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. |
| |
(e) | 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. |
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 20172020 and 20162019 by the independent accountant were approved by the Audit Committee pursuant to the preapproval policy.
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: |
(a) Consolidated Financial Statements 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, 20162020, 2019 and 20152018
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 20162020, 2019 and 20152018
Consolidated Balance Sheets as of December 31, 2017,2020, and 20162019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 20162020, 2019 and 20152018
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 20162020, 2019 and 20152018
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, 20162020, 2019 and 20152018
Consolidated Balance Sheets as of December 31, 2017,2020, and 20162019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 20162020, 2019 and 20152018
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 20162020, 2019 and 20152018
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, 20162020, 2019 and 20152018
Consolidated Balance Sheets as of December 31, 2017,2020, and 20162019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 20162020, 2019 and 20152018
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 20162020, 2019 and 20152018
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, 20162020, 2019 and 20152018
Consolidated Balance Sheets as of December 31, 2017,2020, and 20162019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 20162020, 2019 and 20152018
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 20162020, 2019 and 20152018
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, 20162020, 2019 and 20152018
Consolidated Balance Sheets as of December 31, 2017,2020, and 20162019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 20162020, 2019 and 20152018
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 20162020, 2019 and 20152018
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 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, LLCOhio, Inc.
Consolidated Financial Statements
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2017, 20162020, 2019 and 20152018
Consolidated Balance Sheets as of December 31, 2017,2020, and 20162019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 20162020, 2019 and 20152018
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 20162020, 2019 and 20152018
Notes to the Consolidated Financial Statements
Quarterly Financial Data, (unaudited,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 Note 25the 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, 2020, 2019 and 2018
Consolidated Balance Sheets as of December 31, 2020, and 2019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2020, 2019 and 2018
Notes to the Consolidated Financial Statements)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 YearYears Ended December 31, 2017, Two Months Ended December 31, 2016,2020, 2019 and the Years Ended October 31, 2016, and 20152018
Consolidated Balance Sheets as of December 31, 2017,2020, and 20162019
Consolidated Statements of Cash Flows for the YearYears Ended December 31, 2017, Two Months Ended December 31, 2016,2020, 2019 and the Years Ended October 31, 2016, and 20152018
Consolidated Statements of Changes in Equity for the YearYears Ended December 31, 2017, Two Months Ended December 31, 2016,2020, 2019 and the Years Ended October 31, 2016, and 20152018
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.
EXHIBIT INDEX
Exhibits filed herewithinherewith 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 (***). |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Exhibit | | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| Number | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| 2.1 | | X | | | | X | | | | | | | | | | |
| 2.2 | | X | | | | | | | | | | | | | | X |
| 3.1 | | X | | | | | | | | | | | | | | |
| 3.2 | | X | | | | | | | | | | | | | | |
| 3.3 | | | | X | | | | | | | | | | | | |
| 3.3.1 | | | | X | | | | | | | | | | | | |
| 3.4 | | | | | | | | | | | | X | | | | |
| 3.4.1 | | | | | | | | | | | | X | | | | |
| 3.5 | | | | | | | | | | | | | | X | | |
| 3.5.1 | | | | | | | | | | | | | | X | | |
| 3.5.2 | | | | | | | | | | | | | | X | | |
| 3.5.3 | | | | | | | | | | | | | | X | | |
| 3.5.4 | | | | | | | | | | | | | | X | | |
| 3.6 | | | | X | | | | | | | | | | | | |
| 3.7 | | | | | | | | | | | | X | | | | |
| 3.8 | | | | | | | | X | | | | | | | | |
| 3.8.1 | | | | | | | | X | | | | | | | | |
| 3.8.2 | | | | | | | | X | | | | | | | | |
| 3.9 | | | | | | X | | | | | | | | | | |
| 3.9.1 | | | | | | X | | | | | | | | | | |
| 3.9.2 | | | | | | X | | | | | | | | | | |
| 3.9.3 | | | | | | X | | | | | | | | | | |
| 3.10 | | | | | | | | | | X | | | | | | |
| 3.10.1 | | | | | | | | | | X | | | | | | |
| 3.10.2 | | | | | | | | | | X | | | | | | |
| 3.10.3 | | | | | | | | | | X | | | | | | |
| 3.11 | | | | | | | | | | | | | | | | X |
| 3.11.1 | | | | | | | | | | | | | | | | X |
4.13.12 |
| X | | | | | | | | | | | | | | |
| 3.13 |
| X | | | | | | | | | | | | | | |
| 3.14 | | X | | | | | | | | | | | | | | |
| 3.15 | | | | | | | | | | | | | | | | X |
| 3.16 | | | | | | | | X | | | | | | | | |
| 3.17 |
| | | | | | | | | | | X | | | | |
| 3.18 |
| | | | | | | | | | | | | X | | |
| 3.19 | | | | | | | | | | X | | | | | | |
| 3.20 | | | | X | | | | | | | | | | | | |
| 4.1 | | X | | | | | | | | | | | | | | |
| 4.1.1 | | X | | | | | | | | | | | | | | |
| 4.1.2 | | X | | | | | | | | | | | | | | |
| 4.1.3 | | X | | | | | | | | | | | | | | |
| 4.1.4 | | X | | | | | | | | | | | | | | |
| 4.1.5 | | X | | | | | | | | | | | | | | |
| 4.1.6 | | X | | | | | | | | | | | | | | |
| 4.1.7 | | X | | | | | | | | | | | | | | |
| 4.1.8 | | X | | | | | | | | | | | | | | |
| 4.1.9 | | X | | | | | | | | | | | | | | |
| 4.1.10 | | X | | | | | | | | | | | | | | |
| 4.1.11 | | X | | | | | | | | | | | | | | |
| 4.1.12 | | X | | | | | | | | | | | | | | |
| 4.1.13 | 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). | X | | | | | | | | | | | | | | |
| 4.1.14 | | X | | | | | | | | | | | | | | |
| 4.1.15 | | X | | | | | | | | | | | | | | |
| 4.1.16 | | X | | | | | | | | | | | | | | |
| 4.1.17 | | X | | | | | | | | | | | | | | |
4.24.1.18 | | X | | | | | | | | | | | | | | |
| 4.1.19 |
| X | | | | | | | | | | | | | | |
| 4.1.20 | | X | | | | | | | | | | | | | | |
4.1.21
| | X | | | | | | | | | | | | | | |
4.1.22
| | X | | | | | | | | | | | | | | |
| 4.1.23 | | X | | | | | | | | | | | | | | |
| 4.1.24 | | X | | | | | | | | | | | | | | |
| 4.2 | | | | X | | | | | | | | | | | | |
| 4.2.1 | | | | X | | | | | | | | | | | | |
| 4.2.2 | | | | X | | | | | | | | | | | | |
| 4.3 | 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). | | | X | | | | | | | | | | | | |
| 4.3.1 | 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). | | | X | | | | | | | | | | | | |
| 4.3.2 | 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). | | | X | | | | | | | | | | | | |
| 4.3.3 | 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). | | | X | | | | | | | | | | | | |
| 4.3.4 | 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). | | | X | | | | | | | | | | | | |
| 4.3.5 | 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). | | | X | | | | | | | | | | | | |
| 4.3.6 | 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). | | �� | X | | | | | | | | | | | | |
| 4.3.7 | | | | X | | | | | | | | | | | | |
| 4.3.8 | | | | X | | | | | | | | | | | | |
| 4.3.9 | | | | X | | | | | | | | | | | | |
| 4.3.10 | | | | X | | | | | | | | | | | | |
| 4.3.11 | | | | X | | | | | | | | | | | | |
| 4.3.12 | | | | X | | | | | | | | | | | | |
| 4.3.13 | | | | X | | | | | | | | | | | | |
| 4.3.14 | | | | X | | | | | | | | | | | | |
| 4.3.15 | | | | X | | | | | | | | | | | | |
| 4.3.16 | | | | X | | | | | | | | | | | | |
| 4.3.17 | | | | X | | | | | | | | | | | | |
| 4.3.18 | | | | X | | | | | | | | | | | | |
| 4.3.19 | | | | X | | | | | | | | | | | | |
4.44.3.20 | | | | X | | | | | | | | | | | | |
| 4.3.21 | | | | X | | | | | | | | | | | | |
| 4.3.22 | | | | X | | | | | | | | | | | | |
| 4.3.23 | | | | X | | | | | | | | | | | | |
| 4.4 | 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. | | | | | | | X | | | | | | | | |
| 4.4.1 | First through Fifth Supplemental Indentures thereto (incorporated by reference to Exhibit 2(b), File No. 2-64189). | | | | | | | X | | | | | | | | |
| 4.4.2 | Sixth Supplemental Indenture dated April 1, 1960 (incorporated by reference to Exhibit 2(b)-5, File No. 2-16210). | | | | | | | X | | | | | | | | |
| 4.4.3 | Seventh Supplemental Indenture dated November 1, 1961 (incorporated by reference to Exhibit 2(b)-6, File No. 2-16210). | | | | | | | X | | | | | | | | |
| 4.4.4 | Eighth Supplemental Indenture dated July 1, 1964 (incorporated by reference to Exhibit 4(b)-8, File No. 2-19118). | | | | | | | X | | | | | | | | |
| 4.4.5 | Ninth Supplemental Indenture dated April 1, 1966 (incorporated by reference to Exhibit 4(b)-2, File No. 2-22439). | | | | | | | X | | | | | | | | |
| 4.4.6 | Tenth Supplemental Indenture dated October 1, 1967 (incorporated by reference to Exhibit 4(b)-2, File No. 2-24624). | | | | | | | X | | | | | | | | |
| 4.4.7 | Eleventh Supplemental Indenture dated October 1, 1968 (incorporated by reference to Exhibit 2(c), File No. 2-27297). | | | | | | | X | | | | | | | | |
| 4.4.8 | Twelfth Supplemental Indenture dated January 1, 1970 (incorporated by reference to Exhibit 2(c), File No. 2-30172). | | | | | | | X | | | | | | | | |
| 4.4.9 | Thirteenth Supplemental Indenture dated August 1, 1970 (incorporated by reference to Exhibit 2(c), File No. 2-35694). | | | | | | | X | | | | | | | | |
| 4.4.10 | Fourteenth Supplemental Indenture dated January 1, 1971 (incorporated by reference to Exhibit 2(c), File No. 2-37505). | | | | | | | X | | | | | | | | |
| 4.4.11 | Fifteenth Supplemental Indenture dated October 1, 1971 (incorporated by reference to Exhibit 2(c), File No. 2-39002). | | | | | | | X | | | | | | | | |
| 4.4.12 | Sixteenth Supplemental Indenture dated May 1, 1972 (incorporated by reference to Exhibit 2(c), File No. 2-41738). | | | | | | | X | | | | | | | | |
| 4.4.13 | Seventeenth Supplemental Indenture dated November 1, 1973 (incorporated by reference to Exhibit 2(c), File No. 2-43439). | | | | | | | X | | | | | | | | |
| 4.4.14 | Eighteenth Supplemental Indenture dated (incorporated by reference to Exhibit 2(c), File No. 2-47751). | | | | | | | X | | | | | | | | |
| 4.4.15 | Nineteenth Supplemental Indenture dated May 1, 1974 (incorporated by reference to Exhibit 2(c), File No. 2-49347). | | | | | | | X | | | | | | | | |
| 4.4.16 | Twentieth Supplemental Indenture dated December 1, 1974 (incorporated by reference to Exhibit 2(c), File No. 2-53113). | | | | | | | X | | | | | | | | |
| 4.4.17 | Twenty-first Supplemental Indenture dated April 15, 1975 (incorporated by reference to Exhibit 2(d), File No. 2-53113). | | | | | | | X | | | | | | | | |
| 4.4.18 | Twenty-second Supplemental Indenture dated October 1, 1977 (incorporated by reference to Exhibit 2(c), File No. 2-59511). | | | | | | | X | | | | | | | | |
| 4.4.19 | Twenty-third Supplemental Indenture dated June 1, 1978 (incorporated by reference to Exhibit 2(c), File No. 2-61611). | | | | | | | X | | | | | | | | |
| 4.4.20 | Twenty-fourth Supplemental Indenture dated May 15, 1979 (incorporated by reference to Exhibit 2(d), File No. 2-64189). | | | | | | | X | | | | | | | | |
| 4.4.21 | Twenty-fifth Supplemental Indenture dated November 1, 1979 (incorporated by reference to Exhibit 2(c), File No. 2-65514). | | | | | | | X | | | | | | | | |
| 4.4.22 | Twenty-sixth Supplemental Indenture dated November 1, 1979 (incorporated by reference to Exhibit 2(c), File No. 2-66851). | | | | | | | X | | | | | | | | |
| 4.4.23 | Twenty-seventh Supplemental Indenture dated April 1, 1980 (incorporated by reference to Exhibit 2 (d), File No. 2-66851). | | | | | | | X | | | | | | | | |
| 4.4.24 | Twenty-eighth Supplemental Indenture dated October 1, 1980 (incorporated by reference to Exhibit 4(b)-1, File No. 2-81299). | | | | | | | X | | | | | | | | |
| 4.4.25 | Twenty-ninth Supplemental Indenture dated October 1, 1980 (incorporated by reference to Exhibit 4(b)-2, File No. 2-81299). | | | | | | | X | | | | | | | | |
| 4.4.26 | Thirtieth Supplemental Indenture dated December 1, 1982 (incorporated by reference to Exhibit 4(b)- 3, File No. 2-81299). | | | | | | | X | | | | | | | | |
| 4.4.27 | Thirty-first Supplemental Indenture dated March 15, 1983 (incorporated by reference to Exhibit 4(c)-1, File No. 2-95505). | | | | | | | X | | | | | | | | |
| 4.4.28 | Thirty-second Supplemental Indenture dated March 15, 1983 (incorporated by reference to Exhibit 4(c)-2, File No. 2-95505). | | | | | | | X | | | | | | | | |
| 4.4.29 | Thirty-third Supplemental Indenture dated December 1, 1983 (incorporated by reference to Exhibit 4(c)-3, File No. 2-95505). | | | | | | | X | | | | | | | | |
| 4.4.30 | Thirty-fourth Supplemental Indenture dated December 15, 1983 (incorporated by reference to Exhibit 4(c)-4, File No. 2-95505). | | | | | | | X | | | | | | | | |
| 4.4.31 | Thirty-fifth Supplemental Indenture dated April 1, 1984 (incorporated by reference to Exhibit 4(c)-5, File No. 2-95505). | | | | | | | X | | | | | | | | |
| 4.4.32 | Thirty-sixth Supplemental Indenture dated June 1, 1984 (incorporated by reference to Exhibit 4(c)-6, File No. 2-95505). | | | | | | | X | | | | | | | | |
| 4.4.33 | Thirty-seventh Supplemental Indenture dated June 1, 1984 (incorporated by reference to Exhibit 4(c)-7, File No. 2-95505). | | | | | | | X | | | | | | | | |
| 4.4.34 | Thirty-eighth Supplemental Indenture dated June 1, 1984 (incorporated by reference to Exhibit 4(c)- 8, File No. 2-95505). | | | | | | | X | | | | | | | | |
| 4.4.35 | Thirty-ninth Supplemental Indenture dated April 1, 1985 (incorporated by reference to Exhibit 4(b), File No. 33-25560). | | | | | | | X | | | | | | | | |
| 4.4.36 | Fortieth Supplemental Indenture dated October 1, 1985 (incorporated by reference to Exhibit 4(c), File No. 33-25560). | | | | | | | X | | | | | | | | |
| 4.4.37 | Forty-first Supplemental Indenture dated March 1, 1986 (incorporated by reference to Exhibit 4(d), File No. 33-25560). | | | | | | | X | | | | | | | | |
| 4.4.38 | Forty-second Supplemental Indenture dated July 1, 1986 (incorporated by reference to Exhibit 4(e), File No. 33-25560). | | | | | | | X | | | | | | | | |
| 4.4.39 | Forty-third Supplemental Indenture dated January 1, 1987 (incorporated by reference to Exhibit 4(f), File No. 33-25560). | | | | | | | X | | | | | | | | |
| 4.4.40 | Forty-fourth Supplemental Indenture dated December 1, 1987 (incorporated by reference to Exhibit 4(g), File No. 33-25560). | | | | | | | X | | | | | | | | |
| 4.4.41 | Forty-fifth supplementalSupplemental Indenture dated September 1, 1988 (incorporated by reference to Exhibit 4(h), File No. 33-25560). | | | | | | | X | | | | | | | | |
| 4.4.42 | Forty-sixth Supplemental Indenture dated April 1, 1989 (incorporated by reference to Exhibit 4(b), File No. 33-33431). | | | | | | | X | | | | | | | | |
| 4.4.43 | Forty-seventh Supplemental Indenture dated August 1, 1989 (incorporated by reference to Exhibit 4(c), File No. 33-33431). | | | | | | | X | | | | | | | | |
| 4.4.44 | Forty-eighth Supplemental Indenture dated November 15, 1990 (incorporated by reference to Exhibit 4(b), File No. 33-38298). | | | | | | | X | | | | | | | | |
| 4.4.45 | Forty-ninth Supplemental Indenture dated November 15, 1990 (incorporated by reference to Exhibit 4(c), File No. 33-38298). | | | | | | | X | | | | | | | | |
| 4.4.46 | Fiftieth Supplemental Indenture dated February 15, 1991 (incorporated by reference to Exhibit 4(h), File No. 33-42869). | | | | | | | X | | | | | | | | |
| 4.4.47 | Fifty-first Supplemental Indenture dated April 1, 1991 (incorporated by reference to Exhibit 4(i), File No. 33-42869). | | | | | | | X | | | | | | | | |
| 4.4.48 | Fifty-second Supplemental Indenture dated September 15, 1991(incorporated by reference to Exhibit 4(e), File No. 33-48607). | | | | | | | X | | | | | | | | |
| 4.4.49 | Fifty-third Supplemental Indenture dated January 1, 1992 (incorporated by reference to Exhibit 4(f), File No. 33-48607). | | | | | | | X | | | | | | | | |
| 4.4.50 | Fifty-fourth Supplemental Indenture dated April 15, 1992 (incorporated by reference to Exhibit 4 (g), File No. 33-48607). | | | | | | | X | | | | | | | | |
| 4.4.51 | Fifty-fifth Supplemental Indenture dated July 1, 1992 (incorporated by reference to Exhibit 4(e), File No. 33-55060). | | | | | | | X | | | | | | | | |
| 4.4.52 | Fifty-sixth Supplemental Indenture dated October 1, 1992 (incorporated by reference to Exhibit 4(f), File No. 33-55060). | | | | | | | X | | | | | | | | |
| 4.4.53 | Fifty-seventh Supplemental Indenture dated February 1, 1993 (incorporated by reference to Exhibit 4(e), File No. 33-60014). | | | | | | | X | | | | | | | | |
| 4.4.54 | Fifty-eighth Supplemental Indenture dated March 1, 1993 (incorporated by reference to Exhibit 4(f), File No. 33-60014). | | | | | | | X | | | | | | | | |
| 4.4.55 | 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). | | | | | | | X | | | | | | | | |
| 4.4.56 | Sixtieth Supplemental Indenture dated July 1, 1993 (incorporated by reference to Exhibit 4(b) to Post-Effective Amendment No. 1, File No. 33-38349). | | | | | | | X | | | | | | | | |
| 4.4.57 | Sixty-first Supplemental Indenture dated August 15, 1993 (incorporated by reference to Exhibit 4(e), File No. 33-50597). | | | | | | | X | | | | | | | | |
| 4.4.58 | | | | | | | | X | | | | | | | | |
| 4.4.59 | | | | | | | | X | | | | | | | | |
| 4.4.60 | | | | | | | | X | | | | | | | | |
| 4.4.61 | | | | | | | | X | | | | | | | | |
| 4.4.62 | | | | | | | | X | | | | | | | | |
| 4.4.63 | | | | | | | | X | | | | | | | | |
| 4.4.64 | | | | | | | | X | | | | | | | | |
| 4.4.65 | | | | | | | | X | | | | | | | | |
| 4.4.66 | | | | | | | | X | | | | | | | | |
| 4.4.67 | | | | | | | | X | | | | | | | | |
| 4.4.68 | | | | | | | | X | | | | | | | | |
| 4.4.69 | | | | | | | | X | | | | | | | | |
| 4.4.70 | | | | | | | | X | | | | | | | | |
| 4.4.71 | | | | | | | | X | | | | | | | | |
| 4.4.72 | | | | | | | | X | | | | | | | | |
| 4.4.73 | | | | | | | | X | | | | | | | | |
| 4.4.74 | | | | | | | | X | | | | | | | | |
| 4.4.75 | | | | | | | | X | | | | | | | | |
| 4.4.76 | | | | | | | | X | | | | | | | | |
| 4.4.77 | | | | | | | | X | | | | | | | | |
| 4.4.78 | | | | | | | | X | | | | | | | | |
| 4.4.79 | | | | | | | | X | | | | | | | | |
| 4.4.80 | | | | | | | | X | | | | | | | | |
| 4.4.81 | | | | | | | | X | | | | | | | | |
4.54.4.82 |
| | | | | | | X | | | | | | | | |
| 4.4.83 | | | | | | | | X | | | | | | | | |
| 4.4.84 | | | | | | | | X | | | | | | | | |
| 4.5 | | | | | | | | X | | | | | | | | |
| 4.6 | | | | | | | | X | | | | | | | | |
| 4.7 | 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). | | | | | | | | | X | | | | | | |
| 4.7.1 | 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). | | | | | | | | | X | | | | | | |
| 4.7.2 | 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). | | | | | | | | | X | | | | | | |
| 4.7.3 | 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). | | | | | | | | | X | | | | | | |
| 4.7.4 | 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). | | | | | | | | | X | | | | | | |
| 4.7.5 | | | | | | | | | | X | | | | | | |
| 4.7.6 | | | | | | | | | | X | | | | | | |
| 4.7.7 | | | | | | | | | | X | | | | | | |
| 4.7.8 | | | | | | | | | | X | | | | | | |
| 4.7.9 | | | | | | | | | | X | | | | | | |
| 4.7.10 | | | | | | | | | | X | | | | | | |
| 4.7.11 | | | | | | | | | | X | | | | | | |
| 4.7.12 | | | | | | | | | | X | | | | | | |
| 4.7.13 | | | | | | | | | | X | | | | | | |
| 4.7.14 | | | | | | | | | | X | | | | | | |
| 4.7.15 | | | | | | | | | | X | | | | | | |
| 4.7.16 | | | | | | | | | | X | | | | | | |
4.84.7.17 | | | | | | | | | | X | | | | | | |
| 4.7.18 | | | | | | | | | | X | | | | | | |
| 4.7.19 | | | | | | | | | | X | | | | | | |
| 4.8 | | | | | | | | | | X | | | | | | |
| 4.8.1 | | | | | | | | | | X | | | | | | |
4.94.8.2 | | | | | | | | | | X | | | | | | |
| 4.9 | | | | | | | | | | X | | | | | | |
| 4.10 | | | | | | | | | | | | X | | | | |
| 4.10.1 | | | | | | | | | | | | X | | | | |
| 4.10.2 | | | | | | | | | | | | X | | | | |
| 4.11 | 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). | | | | | | | | | | | X | | | | |
| 4.11.1 | | | | | | | | | | | | X | | | | |
| 4.11.2 | | | | | | | | | | | | X | | | | |
| 4.11.3 | | | | | | | | | | | | X | | | | |
| 4.11.4 | | | | | | | | | | | | X | | | | |
4.124.11.5 | | | | | | | | | | | | X | | | | |
| 4.11.6 | | | | | | | | | | | | X | | | | |
| 4.12 | 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(incorporated by reference to Exhibit 4(v) to the Cinergy Corp. Form 10–K10-K for the year ended December 31, 1996, filed on March 27, 1997, File No. 1–11377)1-11377). | | | | | | | | | | | | | X | | |
| 4.12.1 | | | | | | | | | | | | | | X | | |
| 4.12.2 | | | | | | | | | | | | | | X | | |
| 4.12.3 | | | | | | | | | | | | | | X | | |
| 4.12.4 | | | | | | | | | | | | | | X | | |
| 4.13 | 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). | | | | | | | | | | | | | X | | |
| 4.13.1 | Tenth Supplemental Indenture, dated as of July 1, 1952, (filed as an exhibit in File No. 2-9687). | | | | | | | | | | | | | X | | |
| 4.13.2 | Twenty-third Supplemental Indenture, dated as of January 1, 1977, (filed as an exhibit in File No. 2-57828). | | | | | | | | | | | | | X | | |
| 4.13.3 | Twenty-fifth Supplemental Indenture, dated as of September 1, 1978, (filed as an exhibit in File No. 2-62543). | | | | | | | | | | | | | X | | |
| 4.13.4 | Twenty-sixth Supplemental Indenture, dated as of September 1, 1978, (filed as an exhibit in File No. 2-62543). | | | | | | | | | | | | | X | | |
| 4.13.5 | Thirtieth Supplemental Indenture, dated as of August 1, 1980, (filed as an exhibit in File No. 2-68562). | | | | | | | | | | | | | X | | |
| 4.13.6 | 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). | | | | | | | | | | | | | X | | |
| 4.13.7 | 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). | | | | | | | | | | | | | X | | |
| 4.13.8 | 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). | | | | | | | | | | | | | X | | |
| 4.13.9 | 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). | | | | | | | | | | | | | X | | |
| 4.13.10 | | | | | | | | | | | | | | X | | |
| 4.13.11 | | | | | | | | | | | | | | X | | |
| 4.13.12 | | | | | | | | | | | | | | X | | |
| 4.13.13 | | | | | | | | | | | | | | X | | |
| 4.13.14 | | | | | | | | | | | | | | X | | |
| 4.13.15 | | | | | | | | | | | | | | X | | |
| 4.13.16 | | | | | | | | | | | | | | X | | |
| 4.13.17 | | | | | | | | | | | | | | X | | |
| 4.13.18 | | | | | | | | | | | | | | X | | |
| 4.13.19 | | | | | | | | | | | | | | X | | |
| 4.13.20 | | | | | | | | | | | | | | X | | |
| 4.13.21 | 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). | | | | | | | | | | | | | X | | |
| 4.13.22 | | | | | | | | | | | | | | X | | |
4.144.13.23 | | | | | | | | | | | | | | X | | |
| 4.13.24 | | | | | | | | | | | | | | X | | |
| 4.14 | 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). | | | | | | | | | | | X | | | | |
| 4.15 | | | | | | | | | | | | | | X | | |
| 4.16 | | | | | | | | | | | | | | X | | |
| 4.17 | | | | | | | | | | | | | | X | | |
| 4.18 | | | | | | X | | | | | | | | | | |
| 4.19 | | | | | | | | | | | | | | | | X |
| 4.20 | | | | | | | | | | | | | | | | X |
| 4.21 | | | | | | | | | | | | | | | | X |
| 4.22 | | | | | | | | | | | | | | | | X |
| 4.23 | | | | | | | | | | | | | | | | X |
| 4.24 | | | | | | | | | | | | | | | | X |
| 4.25 | | | | | | | | | | | | | | | | X |
| 4.26 | | | | | | | | | | | | | | | | X |
| 4.26.1 | | | | | | | | | | | | | | | | X |
| 4.26.2 | | | | | | | | | | | | | | | | X |
| 4.26.3 | | | | | | | | | | | | | | | | X |
| 4.26.4 | | | | | | | | | | | | | | | | X |
| 4.26.5 | | | | | | | | | | | | | | | | X |
| 4.26.6 | | | | | | | | | | | | | | | | X |
4.274.26.7 |
| | | | | | | | | | | | | | | X |
| 4.26.8 | | | | | | | | | | | | | | | | X |
| 4.27 | 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). | | | | | | | | | | | | | | | X |
| 4.28 | | | | | | | | | | | | | | | | X |
| 4.29 | | | | | | | | | | | | | | | | X |
| 4.30 | | | | | | | | | | | | | | | | X |
| 4.31 | | | | | | | | | | | | | | | | X |
| 4.32 | | | | | | | | | | | | | | | | X |
| 4.33 | | | | | | | | | | | | | | | | X |
| 4.34 | 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). | | | | | | | | | | | | | | | X |
10.1** | 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). | | | X | | | | | | | | | | | | |
10.1.1**10.1 | | | | X | | | | | | | | | | | | |
10.1.2** | | | | X | | | | | | | | | | | | |
10.1.3** | | | | X | | | | | | | | | | | | |
10.2 | | | | X | | | | | | | | | | | | |
10.310.2 | | | | X | | | | | | | | | | | | |
10.410.3 | | | | X | | | | | | | | | | | | |
10.510.4 | | | | | | | | | | | | | | | | X |
10.6 | | | | | | | | | | | | | | | | X |
10.710.5 | | | | | | | | | | | | | | | | X |
10.810.6 | | | | X | | | | | | | | | | | | |
10.910.7 | | | | | | | | | | | | | | | | X |
10.1010.8 | 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.) | | | | | | | | | | | | | X | | |
10.1110.9 | 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). | X | | | | | | | | | | | | | | |
10.1210.10 | | X | | | | | | | | | | | | | | |
10.13*10.11** | | X | | | | | | | | | | | | | | |
10.1410.12 | | X | | | | | | | | | | | | X | | |
10.15*10.13** | | X | | | | | | | | | | | | | | |
10.1610.14 | $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(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). | X | | X | | | | | | | | X | | X | | |
10.16.110.14.1 | 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). | X | | X | | | | X | | X | | X | | X | | |
10.16.210.14.2 | 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(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). | X | | X | | | | X | | X | | X | | X | | |
10.16.310.14.3 | 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). | X | | X | | | | X | | X | | X | | X | | X |
10.17**10.14.4 | Amendment No.4 and Consent, dated as of March 18, 2019, among Duke Energy Corporation, Duke Energy Carolinas, LLC, Duke Energy Ohio, Inc., Duke Energy Indiana, LLC, Duke Energy Kentucky, Inc., Duke Energy Progress, LLC, Duke Energy Florida, LLC, and Piedmont Natural Gas Company, Inc., 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 21, 2019, File Nos. 1-32853. 1-4928, 1-3382, 1-3274, 1-1232, 1-3543, 1-6196). | X | | X | | | | X | | X | | X | | X | | X |
| 10.14.5 | Amendment No. 5 and Consent, dated as of March 16, 2020, among registrants', the Lenders party thereto, the Issuing Lenders party thereto, and Wells Fargo Bank, N.A., 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, 2020, File Nos. 1-32853, 1-4928, 1-3382, 1-3274, 1-1232, 1-3543, 1-6196). | X | | X | | | | X | | X | | X | | X | | X |
| 10.15** | | X | | | | | | | | | | | | | | |
10.17.1*10.15.1** | | X | | | | | | | | | | | | | | |
10.18*10.16** | | X | | | | | | | | | | | | | | |
10.19*10.16.1** | | X | | | | | | | | | | | | | | |
10.20*10.17** | | X | | | | | | | | | | | | | | |
10.21** | | X | | | | | | | | | | | | | | |
10.22** | | X | | | | | | | | | | | | | | |
10.23** | | X | | | | | | | | | | | | | | |
10.18**10.24** | | X | | | | | | | | | | | | | | |
10.25*10.19** | | X | | | | | | | | | | | | | | |
10.26*10.20** | | X | | | | | | | | | | | | | | |
10.21**10.27* | | X | | | | | | | | | | | | | | |
10.2810.22** | | X | | | | | | | | | | | | | | |
| 10.23** | | X | | | | | | | | | | | | | | |
| 10.24** | | X | | | | | | | | | | | | | | |
| 10.25 | | X | | | | | | | | | | | | | | |
10.2910.26 | | X | | | | | | | | | | | | | | |
10.30**10.27 | | | | X | | | | X | | | | | | | | |
| 10.28 | | X | | X | | | | X | | | | | | | | |
| 10.29** | | X | | | | | | | | | | | | | | |
10.31*10.30** | | X | | | | | | | | | | | | | | |
10.3210.30.1** | | X | | | | | | | | | | | | | | |
| 10.31 | 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). | | | | | | | X | | | | | | | | |
10.3310.32 | 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). | | | | | | | X | | | | | | | | |
10.3410.33 | 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). | | | | | | | X | | | | | | | | |
10.3510.34 | 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). | | | | | | | X | | | | | | | | |
10.36*10.35** | | | | | | X | | | | | | | | | | |
10.37**10.36 | | | | | | X | | | | | | | | | | |
10.38** | 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). | | | | | X | | X | | X | | | | | | |
10.39 | Precedent and Related Agreements between Duke Energy Florida, Inc. (formerly Florida PowerCorporationPower Corporation d/b/a Progress Energy Florida, Inc. (“PEF”)), Southern Natural Gas Company, FloridaGasFlorida Gas Transmission Company (“FGT”), and BG LNG Services, LLC (“BG”), including:a) Precedent Agreement between Southern Natural Gas Company and PEF, dated as ofDecemberof December 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 ofDecemberof December 2, 2004;d) Letter Agreement between FGT and PEF, dated as of December 2, 2004, andFirmand Firm Transportation Service Agreement between FGT and PEF to be entered into upon satisfactionofsatisfaction of 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)28, 2005; and g) Letter Agreement between FGT and PEF, dated as of January 31, 2005 (incorporated byreferenceby reference to Exhibit 10.1 to registrant's Current Report on Form 8-K/A filed on March 15, 2005, FileNos.File Nos. 1-15929 and 1-3274). (Portions of the exhibit have been omitted and filed separately with theSecuritiesthe 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.) | | | | | X | | | | X | | | | | | |
10.4010.37 | 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.) | | | | | X | | | | X | | | | | | |
10.41*10.38** | | X | | | | | | | | | | | | | | |
10.41.1*10.38.1** | | X | | | | | | | | | | | | | | |
10.42*10.39** | | X | | | | | | | | | | | | | | |
10.43*10.40** | | X | | | | | | | | | | | | | | |
10.44*10.41** | | X | | | | | | | | | | | | | | |
10.44.110.41.1** | | X | | | | | | | | | | | | | | |
10.4510.41.2** | | X | | | | | | | | | | | | | | |
| 10.42 | 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(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). | X | | | | | | | | | | X | | | | |
10.4610.43 | | X | | | | | | X | | | | | | | | |
10.47 | | X | | | | | | | | | | | | | | |
10.4810.44 | | X | | | | | | | | | | | | | | |
10.4910.45 | | X | | | | | | | | | | | | | | |
10.5010.46 | | X | | | | | | | | | | | | | | |
10.5110.47 | $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). | X | | | | | | | | | | | | | | |
10.52 | | X | | | | | | | | | | | | | | |
10.5310.48 | 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). | X | | | | | | | | | | | | | | |
10.54*10.49** | | X | | | | | | | | | | | | | | |
10.55*10.50** | | X | | | | | | | | | | | | | | |
10.56*10.51** | 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). | X | | | | | | | | | | | | | | |
10.56.1** | | X | | | | | | | | | | | | | | |
10.56.2** | | X | | | | | | | | | | | | | | |
10.57** | | X | | | | | | | | | | | | | | |
10.57.1*10.51.1** | | X | | | | | | | | | | | | | | |
10.58*10.52** | | X | | | | | | | | | | | | | | |
10.59** | | X | | | | | | | | | | | | | | |
10.60*10.53** | | X | | | | | | | | | | | | | | |
10.61*10.54** | | X | | | | | | | | | | | | | | |
10.6210.55** | | X | | | | | | | | | | | | | | |
10.62.1 | | X | | | | | | | | | | | | | | |
10.6310.56 | $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). | X | | | | | | | | | | | | | | |
10.6410.57 | $250,000,0001,000,000,000 Credit Agreement, dated as of May 15, 2019, among Duke Energy Corporation, the Lenders party thereto, The Bank of Nova Scotia, as Administrative Agent, PNC Bank, National Association, Sumitomo Mitsui Banking Corporation and TD Bank, N.A., as Co-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 May 16, 2019, File No. 1-32853).
| X | | | | | | | | | | | | | | |
| 10.58 | $1.5 billion 364-Day Term Loan Credit Agreement, dated as of June 14, 2017,March 19, 2020, among Piedmont Natural Gas Company, Inc. the lenders listed therein, U.S.registrant, as Borrower, certain Lenders from time to time parties thereto, and PNC Bank, National Association,N.A., as Administrative Agent, Branch Banking and Trust Company and Regions Bank, as Co-Syndication Agents and PNC Bank, National Association, as Documentation Agentregistrant's borrowing of the remaining $500 million under registrant's existing $1 billion revolving credit facility on March 17, 2020 (incorporated by reference to Exhibit 10.1 to registrant's Current Report on Form 8-K filed on June 14, 2017,March 19, 2020, File No. 1-06196)1-32853). | X | | | | | | | | | | | | | | X |
10.6510.58.1 | Joinder Agreement, dated as of March 27, 2020, by and among, the registrant, each of the Incremental Lenders listed therein, and PNC Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.2.1 to registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed on May 12, 2020, File No. 1-32853). | X | | | | | | | | | | | | | | |
| 10.59 | | | | | | | | | | | | | | | | X |
10.6610.60 | | | | | | | | | | | | | | | | X |
10.66.110.60.1 | 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). | | | | | | | | | | | | | | | X |
10.66.210.60.2 | 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). | | | | | | | | | | | | | | | X |
10.6710.61 | | | | | | | | | | | | | | | | X |
10.6810.62 | 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). | | | | | | | | | | | | | | | X |
*12.110.63 | ComputationEngineering, Procurement and Construction Agreement between Duke Energy Business Services, LLC, as agent for and on behalf of RatioPiedmont Natural Gas Company Inc. and Matrix Service, Inc., dated as of EarningsApril 30, 2019 (incorporated by reference to Fixed Charges – DUKE ENERGY CORPORATIONExhibit 10.1 to registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, filed on August 6, 2019, File No. 1-06196). (Portions of the exhibit have been omitted for confidentiality.) | X | | | | | | | | | | | | | | X |
*12.210.64 | ComputationDecommissioning Services Agreement between Duke Energy Florida, LLC, and ADP CR3, LLC, and ADP SF1, LLC (incorporated by reference to Exhibit 10.3 to registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, filed on August 6, 2019, File No. 2-5293). (Portions of Ratio of Earnings to Fixed Charges – DUKE ENERGY CAROLINAS, LLCthe exhibit have been omitted for confidentiality.)
| | | X | | | | | | X | | | | | | |
*12.310.65 | | X | | | | X | | | | | | | | | | |
*12.410.66 | ComputationLease Agreement dated as of Ratio of EarningsDecember 23, 2019, between the registrant and CGA 525 South Tryon TIC 1, LLC, a Delaware limited liability company, CGA 525 South Tryon TIC 2, LLC, a Delaware limited liability company, and CK 525 South Tryon TIC, LLC, a Delaware limited liability company (incorporated by reference to Fixed Charges – DUKE ENERGY PROGRESS, LLCExhibit 10.64 to registrant's Annual Report on Form 10-K for the year ended December 31, 2019, filed on February 20, 2020, File No. 1-4928). | | | X | | | | X | | | | | | | | |
*12.510.67 | ComputationConstruction Agency Agreement dated as of Ratio of EarningsDecember 23, 2019, between the registrant and CGA 525 South Tryon TIC 1, LLC, a Delaware limited liability company, CGA 525 South Tryon TIC 2, LLC, a Delaware limited liability company, and CK 525 South Tryon TIC, LLC, a Delaware limited liability company (incorporated by reference to Fixed Charges – DUKE ENERGY FLORIDA, LLCExhibit 10.65 to registrant's Annual Report on Form 10-K for the year ended December 31, 2019, filed on February 20, 2020, File No. 1-4928). | | | X | | | | | | X | | | | | | |
*12.621 | | | | | | | | | | | | X | | | | |
*12.7 | | | | | | | | | | | | | | X | | |
*12.8 | | | | | | | | | | | | | | | | X |
*21 | | X | | | | | | | | | | | | | | |
| *23.1.1 | | X | | | | | | | | | | | | | | |
| *23.1.2 | | | | X | | | | | | | | | | | | |
| *23.1.3 | | | | | | | | X | | | | | | | | |
| *23.1.4 | | | | | | | | | | X | | | | | | |
| *23.1.5 | | | | | | | | | | | | X | | | | |
| *23.1.6 | | | | | | | | | | | | | | X | | |
| *23.1.7 | | | | | | | | | | | | | | | | X |
| *24.1 | | X | | | | | | | | | | | | | | |
| *24.2 | | X | | | | | | | | | | | | | | |
| *31.1.1 | | X | | | | | | | | | | | | | | |
| *31.1.2 | | | | X | | | | | | | | | | | | |
| *31.1.3 | | | | | | X | | | | | | | | | | |
| *31.1.4 | | | | | | | | X | | | | | | | | |
| *31.1.5 | | | | | | | | | | X | | | | | | |
| *31.1.6 | | | | | | | | | | | | X | | | | |
| *31.1.7 | | | | | | | | | | | | | | X | | |
| *31.1.8 | | | | | | | | | | | | | | | | X |
| *31.2.1 | | X | | | | | | | | | | | | | | |
| *31.2.2 | | | | X | | | | | | | | | | | | |
| *31.2.3 | | | | | | X | | | | | | | | | | |
| *31.2.4 | | | | | | | | X | | | | | | | | |
| *31.2.5 | | | | | | | | | | X | | | | | | |
| *31.2.6 | | | | | | | | | | | | X | | | | |
| *31.2.7 | | | | | | | | | | | | | | X | | |
| *31.2.8 | | | | | | | | | | | | | | | | X |
| *32.1.1 | | X | | | | | | | | | | | | | | |
| *32.1.2 | | | | X | | | | | | | | | | | | |
| *32.1.3 | | | | | | X | | | | | | | | | | |
| *32.1.4 | | | | | | | | X | | | | | | | | |
| *32.1.5 | | | | | | | | | | X | | | | | | |
| *32.1.6 | | | | | | | | | | | | X | | | | |
| *32.1.7 | | | | | | | | | | | | | | X | | |
| *32.1.8 | | | | | | | | | | | | | | X | | X |
*32.1.832.2.1 | | X | | | | | | | | | | | | | | X |
*32.2.132.2.2 | | X | | X | | | | | | | | | | | | |
*32.2.232.2.3 | | | | X | | X | | | | | | | | | | |
*32.2.332.2.4 | | | | | | X | | X | | | | | | | | |
*32.2.432.2.5 | | | | | | | | X | | X | | | | | | |
*32.2.532.2.6 | | | | | | | | | | X | | X | | | | |
*32.2.632.2.7 | | | | | | | | | | | | X | | X | | |
*32.2.732.2.8 | | | | | | | | | | | | | | X | | X |
*32.2.8101.INS | | | | | | | | | | | | | | | | X |
*101.INS | XBRL Instance Document (this does not appear in the Interactive Data File because it's XBRL tags are embedded within the Inline XBRL document). | X | | X | | X | | X | | X | | X | | X | | X |
| *101.SCH | XBRL Taxonomy Extension Schema Document | X | | X | | X | | X | | X | | X | | X | | X |
| *101.CAL | XBRL Taxonomy Calculation Linkbase Document | X | | X | | X | | X | | X | | X | | X | | X |
| *101.LAB | XBRL Taxonomy Label Linkbase Document | X | | X | | X | | X | | X | | X | | X | | X |
| *101.PRE | XBRL Taxonomy Presentation Linkbase Document | X | | X | | X | | X | | X | | X | | X | | X |
| *101.DEF | XBRL Taxonomy Definition Linkbase Document | X | | X | | X | | X | | X | | X | | X | | X |
| *104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101). | 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 percent10% 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.
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.
25, 2021 |
| | | | | | | | | | |
| DUKE ENERGY CORPORATION (Registrant) | |
| By: | /s/ LYNN J. GOOD |
| | | Lynn J. Good Chairman,
Chair, President and Chief Executive Officer
|
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. |
| | | | | | | |
| (i) | /s/ LYNN J. GOOD | | | | |
| Lynn J. Good | |
| Chairman,Chair, 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.DWIGHT L. JACOBS | | | | |
| William E. Currens Jr. | Dwight L. Jacobs |
| Senior Vice President, Chief Accounting Officer, Tax and Controller (Principal Accounting Officer) |
| | | |
| (iv) | Directors: | | |
| | | |
| Michael G. Browning* | James B. Hyler, Jr.* | John T. Herron* |
| | | |
| Annette K. Clayton* | William E. Kennard* |
| | |
| Theodore F. Craver, Jr.* | William E. Kennard* | Marie McKee* |
| | | |
| Robert M. Davis* | E. Marie McKee* | Marya M. Rose* |
| | | |
| Daniel R. DiMicco* | Charles W. Moorman IV* | |
| | | |
| John H. Forsgren* | Carlos A. Saladrigas* | |
| | | |
| Lynn J. Good* | Thomas E. Skains* | |
| | | |
| John T. Herron*Nicholas C. Fanandakis* | William E. Webster, Jr.* |
| | |
| Lynn J. Good* | |
| | |
| | |
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 | Attorney-In-Fact |
| | | | |
Date: February 21, 201825, 2021
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 21, 2018
|
| | | | | | | | | | |
| DUKE ENERGY CAROLINAS, LLC (Registrant) | |
| By: | /s/ LYNN J. GOOD |
| | | Lynn J. Good
Chief Executive Officer
|
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. |
| | | | | | | |
| | |
| (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.DWIGHT L. JACOBS | |
| William E. Currens Jr.Dwight L. Jacobs | |
| Senior Vice President, Chief Accounting Officer, Tax 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 JULIA S. JANSON | |
| Lloyd M. YatesJulia S. Janson | |
Date: February 21, 201825, 2021
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.
25, 2021 |
| | | | | | | | | | |
| PROGRESS ENERGY, INC. (Registrant) | |
| By: | /s/ LYNN J. GOOD |
| | | Lynn J. Good
Chief Executive Officer
|
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. |
| | | | | | | |
| | |
| (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.DWIGHT L. JACOBS | |
| William E. Currens Jr.Dwight L. Jacobs | |
| Senior Vice President, Chief Accounting Officer, Tax and Controller (Principal Accounting Officer) |
| | |
| (iv) | Directors: | |
| | |
| /s/ KODWO GHARTEY-TAGOE | |
| Kodwo Ghartey-Tagoe | |
| | |
| /s/ LYNN J. GOOD | |
| Lynn J. Good | |
| | |
| /s/ JULIA S. JANSON | |
| Julia S. Janson | |
| | |
| | |
Date: February 21, 201825, 2021
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.
25, 2021 |
| | | | | | | | | | |
| DUKE ENERGY PROGRESS, LLC (Registrant) | |
| By: | /s/ LYNN J. GOOD |
| | | Lynn J. Good
Chief Executive Officer
|
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. |
| | | | | | | |
| (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.DWIGHT L. JACOBS | |
| William E. Currens Jr.Dwight L. Jacobs | |
| Senior Vice President, Chief Accounting Officer, Tax and Controller (Principal Accounting Officer) |
| | |
| (iv) | Directors: | |
| | |
| /s/ DOUGLAS F ESAMANN | |
| Douglas F Esamann | |
| | |
| /s/ KODWO GHARTEY-TAGOE | |
| Kodwo Ghartey-Tagoe | |
| | |
| /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 21, 201825, 2021
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 21, 201825, 2021 |
| | | | | | | | | | |
| DUKE ENERGY FLORIDA, LLC (Registrant) | |
| By: | /s/ LYNN J. GOOD |
| | | Lynn J. Good
Chief Executive Officer
|
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. |
| | | | | | | |
| | |
| (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.DWIGHT L. JACOBS | |
| William E. Currens Jr.Dwight L. Jacobs | |
| Senior Vice President, Chief Accounting Officer, Tax and Controller (Principal Accounting Officer) |
| | |
| (iv) | Directors: | |
| | |
| /s/ DOUGLAS F ESAMANN | |
| Douglas F Esamann | |
| | |
| /s/ KODWO GHARTEY-TAGOE | |
| Kodwo Ghartey-Tagoe | |
| | |
| /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 21, 201825, 2021
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.
25, 2021 |
| | | | | | | | | | |
| DUKE ENERGY OHIO, INC. (Registrant) | |
| By: | /s/ LYNN J. GOOD |
| | | Lynn J. Good
Chief Executive Officer
|
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. |
| | | | | | | |
| | |
| (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.DWIGHT L. JACOBS | |
| William E. Currens Jr.Dwight L. Jacobs | |
| Senior Vice President, Chief Accounting Officer, Tax 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 21, 201825, 2021
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.
25, 2021 |
| | | | | | | | | | |
| DUKE ENERGY INDIANA, LLC (Registrant) | |
| By: | /s/ LYNN J. GOOD |
| | | Lynn J. Good
Chief Executive Officer
|
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. |
| | | | | | | |
| | |
| (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.DWIGHT L. JACOBS | |
| William E. Currens Jr.Dwight L. Jacobs | |
| Senior Vice President, Chief Accounting Officer, Tax 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 | |
| | |
| /s/ STAN PINEGAR | |
| Stan Pinegar | |
Date: February 21, 201825, 2021
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.
25, 2021 |
| | | | | | | | | | |
| PIEDMONT NATURAL GAS COMPANY, INC. (Registrant) | |
| By: | /s/ LYNN J. GOOD |
| | | Lynn J. Good
Chief Executive Officer
|
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. |
| | | | | | | |
| | |
| (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.DWIGHT L. JACOBS | |
| William E. Currens Jr.Dwight L. Jacobs | |
| Senior Vice President, Chief Accounting Officer, Tax and Controller (Principal Accounting Officer) |
| | |
| (iv) | Directors: | |
| | |
| /s/ DOUGLAS F ESAMANN | |
| Douglas F Esamann | |
| | |
| /s/ LYNN J. GOOD | |
| Lynn J. Good | |
| | |
| /s/ FRANKLIN H. YOHO | |
| Franklin H. Yoho | |
| | |
| /s/ DHIAA M. JAMIL | |
| Dhiaa M. Jamil | |
Date: February 21, 201825, 2021
