UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2016March 31, 2017
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, North Carolina 28202-1803 704-382-3853 | 20-2777218 |
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Commission file number | 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 (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. (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 |
1-3382 | DUKE ENERGY PROGRESS, LLC (a North Carolina limited liability company) 410 South Wilmington Street Raleigh, North Carolina 27601-1748 704-382-3853 56-0165465 | | 1-3543 | DUKE ENERGY INDIANA, LLC (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 | | | |
Indicate by check mark whether the registrant (1) has 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.
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Duke Energy Corporation (Duke Energy) | Yes x | No ¨ | | Duke Energy Florida, LLC (Duke Energy Florida) | Yes x | No ¨ |
Duke Energy Carolinas, LLC (Duke Energy Carolinas) | Yes x | No ¨ | | Duke Energy Ohio, Inc. (Duke Energy Ohio) | Yes x | No ¨ |
Progress Energy, Inc. (Progress Energy) | Yes x | No ¨ | | Duke Energy Indiana, LLC (Duke Energy Indiana) | Yes x | No ¨ |
Duke Energy Progress, LLC (Duke Energy Progress) | Yes x | No ¨ | | Piedmont Natural Gas Company, Inc. (Piedmont) | Yesx | No ¨ |
Indicate by check mark whether the registrant has submitted electronically and posted on its 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).
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Duke Energy | Yes x | No ¨ | | Duke Energy Florida | Yes x | No ¨ |
Duke Energy Carolinas | Yes x | No ¨ | | Duke Energy Ohio | Yes x | No ¨ |
Progress Energy | Yes x | No ¨ | | Duke Energy Indiana | Yes x | No ¨ |
Duke Energy Progress | Yes x | No ¨ | | Piedmont | Yesx | No ¨ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Duke Energy | Large accelerated filer x | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company¨ | Emerging Growth Company ¨ |
Duke Energy Carolinas | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x | Smaller reporting company ¨ | Emerging Growth Company ¨ |
Progress Energy | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x | Smaller reporting company¨ | Emerging Growth Company ¨ |
Duke Energy Progress | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x | Smaller reporting company ¨ | Emerging Growth Company ¨ |
Duke Energy Florida | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x | Smaller reporting company¨ | Emerging Growth Company ¨ |
Duke Energy Ohio | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x | Smaller reporting company ¨ | Emerging Growth Company ¨ |
Duke Energy Indiana | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x | Smaller reporting company ¨ | Emerging Growth Company ¨ |
Piedmont | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filerx | Smaller reporting company ¨ | Emerging Growth Company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Duke Energy | Yes ¨ | No x | | Duke Energy Florida | Yes ¨ | No x |
Duke Energy Carolinas | Yes ¨ | No x | | Duke Energy Ohio | Yes ¨ | No x |
Progress Energy | Yes ¨ | No x | | Duke Energy Indiana | Yes ¨ | No x |
Duke Energy Progress | Yes ¨ | No x | | Piedmont | Yes ¨ | Nox |
Number of shares of Common stock outstanding at June 30, 2016:March 31, 2017:
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Registrant | Description | Shares |
Duke Energy | Common stock, $0.001 par value | 688,933,508 |
Duke Energy Carolinas | All of the registrant's limited liability company member interests are directly owned by Duke Energy. |
Progress Energy | All of the registrant's common stock is directly owned by Duke Energy. |
Duke Energy Progress | All of the registrant's limited liability company member interests are indirectly owned by Duke Energy. |
Duke Energy Florida | All of the registrant's limited liability company member interests are indirectly owned by Duke Energy. |
Duke Energy Ohio | All of the registrant's common stock is indirectly owned by Duke Energy. |
Duke Energy Indiana | All of the registrant's limited liability company member interests are indirectly owned by Duke Energy.699,883,528 |
This combined Form 10-Q is filed separately by seveneight registrants: Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, and 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, and Duke Energy Indiana and Piedmont meet the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and are therefore filing this form with the reduced disclosure format specified in General Instructions H(2) of Form 10-Q.
TABLE OF CONTENTSDUKE ENERGY CORPORATION
(a Delaware corporation)
550 South Tryon Street
Charlotte, North Carolina 28202-1803
704-382-3853
20-2777218 | |
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Commission file number | 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 (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. (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 |
1-3382 | DUKE ENERGY PROGRESS, LLC (a North Carolina limited liability company) 410 South Wilmington Street Raleigh, North Carolina 27601-1748 704-382-3853 56-0165465 | | 1-3543 | DUKE ENERGY INDIANA, LLC (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 | | | |
PART I. FINANCIAL INFORMATION |
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Indicate by check mark whether the registrant (1) has 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.
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| Note 1 – Organization and Basis of Presentation | |
| Note 2 – Acquisitions and Dispositions | |
| Note 3 – Business Segments | |
| Note 4 – Regulatory Matters | |
| Note 5 – Commitments and Contingencies | |
| Note 6 – Debt and Credit Facilities | |
| Note 7 – Goodwill and Intangible Assets | |
| Note 8 – Related Party Transactions | |
| Note 9 – Derivatives and Hedging | |
| Note 10 – Investments in Debt and Equity Securities | |
| Note 11 – Fair Value Measurements | |
| Note 12 – Variable Interest Entities | |
| Note 13 – Common Stock | |
| Note 14 – Stock-Based Compensation | |
| Note 15 – Employee Benefit Plans | |
| Note 16 – Income Taxes | |
| Note 17 – Subsequent Events | |
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PART II. OTHER INFORMATION |
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| | 120 | | | | | | | | Duke Energy Corporation (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) | Yesx | No ¨ | | 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 whether the registrant has submitted electronically and posted on its 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). | | | | | | | | Duke Energy | Yesx | No ¨ | | Duke Energy Florida | Yesx | No ¨ | Duke Energy Carolinas | Yesx | No ¨ | | Duke Energy Ohio | Yesx | No ¨ | Progress Energy | Yesx | No ¨ | | Duke Energy Indiana | Yesx | No ¨ | Duke Energy Progress | Yesx | No ¨ | | Piedmont | Yesx | No ¨ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. | | | | | | | Duke Energy | Large accelerated filerx | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company ¨ | Emerging Growth Company ¨ | Duke Energy Carolinas | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filerx | Smaller reporting company ¨ | Emerging Growth Company ¨ | Progress Energy | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filerx | Smaller reporting company ¨ | Emerging Growth Company ¨ | Duke Energy Progress | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filerx | Smaller reporting company ¨ | Emerging Growth Company ¨ | Duke Energy Florida | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filerx | Smaller reporting company ¨ | Emerging Growth Company ¨ | Duke Energy Ohio | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filerx | Smaller reporting company ¨ | Emerging Growth Company ¨ | Duke Energy Indiana | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filerx | Smaller reporting company ¨ | Emerging Growth Company ¨ | Piedmont | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filerx | Smaller reporting company ¨ | Emerging Growth Company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | | | | | | | | Duke Energy | Yes ¨ | Nox | | Duke Energy Florida | Yes ¨ | Nox | Duke Energy Carolinas | Yes ¨ | Nox | | Duke Energy Ohio | Yes ¨ | Nox | Progress Energy | Yes ¨ | Nox | | Duke Energy Indiana | Yes ¨ | Nox | Duke Energy Progress | Yes ¨ | Nox | | Piedmont | Yes ¨ | Nox |
Number of shares of Common stock outstanding at March 31, 2017: | | | | Registrant | Description | Shares | Duke Energy | Common stock, $0.001 par value | 699,883,528 |
This combined Form 10-Q 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 H(1)(a) and (b) of Form 10-Q and are therefore filing this form with the reduced disclosure format specified in General Instructions H(2) of Form 10-Q.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on management’s beliefs and assumptions and can often be identified by terms and phrases that include “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will,” “potential,” “forecast,” “target,” “guidance,” “outlook” or other similar terminology. Various factors may cause actual results to be materially different than the suggested outcomes within forward-looking statements; accordingly, there is no assurance that such results will be realized. These factors include, but are not limited to:
| | ◦ | State, federal and foreign legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements or 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 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; |
| | ◦ | Credit ratings of the Duke Energy Registrants may be different from what is expected; |
| | ◦ | 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 variations in customer usage patterns, including energy efficiency efforts and use of alternative energy sources, including 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 rooftop 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 markets and continued industry consolidation; |
| | ◦ | Political, economic and regulatory uncertainty in Brazil and other countries in which Duke Energy conducts business; |
| | ◦ | 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; |
| | ◦ | The ability to successfully operate electric generating facilities and deliver electricity to customers including direct or indirect effects to the company resulting from an incident that affects the U.S. electric grid or generating resources; |
| | ◦ | The impact on facilities and business from a terrorist attack, cybersecurity threats, data security breaches, and other catastrophic events such as fires, explosions, pandemic health events or other similar occurrences; |
| | ◦ | The inherent risks associated with the operation and potential construction of nuclear facilities, including environmental, health, safety, regulatory and financial risks; |
| | ◦ | The timing and extent of changes in commodity prices, interest rates and foreign currency exchange 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, and general economic conditions; |
| | ◦ | 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 Duke Energy Registrants’ capital investment projects, including risks related to financing, obtaining and complying with terms of permits, meeting construction budgets and schedules, and satisfying operating and environmental performance standards, as well as the ability to recover costs from customers in a timely manner or at all; |
| | ◦ | Changes in rules for regional transmission organizations, including changes in rate designs and new and evolving capacity markets, and risks related to obligations created by the default of other participants; |
| | ◦ | The ability to control operation and maintenance costs; |
| | ◦ | The level of creditworthiness of counterparties to transactions; |
| | ◦ | Employee workforce factors, including the potential inability to attract and retain key personnel; |
| | ◦ | The ability of subsidiaries to pay dividends or distributions to Duke Energy Corporation holding company (the Parent); |
| | ◦ | The performance of projects undertaken by our nonregulated businesses and the success of efforts to invest in and develop new opportunities; |
| | ◦ | The effect of accounting pronouncements issued periodically by accounting standard-setting bodies; |
| | ◦ | The impact of potential goodwill impairments; |
| | ◦ | The ability to successfully complete future merger, acquisition or divestiture plans; |
| | ◦ | The expected timing and likelihood of completion of the proposed acquisition of Piedmont Natural Gas Company, Inc. (Piedmont), including the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the proposed acquisition that could reduce anticipated benefits or cause the parties to abandon the acquisition, and under certain specified circumstances pay a termination fee of $250 million, as well as the ability to successfully integrate the businesses and realize anticipated benefits and the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect; and |
| | ◦ | The likelihood, terms and timing of the potential sale of International Energy, excluding the equity investment in National Methanol Company (NMC), could change the presentation of certain assets, liabilities and results of operations as assets held for sale, liabilities associated with assets held for sale, and discontinued operations, respectively. |
Additional risks and uncertainties are identified and discussed in the Duke Energy Registrants' reports filed with the SEC and available at the SEC's website at www.sec.gov. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than described. Forward-looking statements speak only as of the date they are made and the Duke Energy Registrants expressly disclaim an obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DUKE ENERGY CORPORATION Condensed Consolidated Statements of Operations(a Delaware corporation)
(Unaudited)550 South Tryon Street
Charlotte, North Carolina 28202-1803 704-382-3853 | 20-2777218 |
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| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
(in millions, except per-share amounts) | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
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Operating Revenues | | | | | | | |
Regulated electric | $ | 4,965 |
| | $ | 5,090 |
| | $ | 10,018 |
| | $ | 10,547 |
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Nonregulated electric and other | 422 |
| | 403 |
| | 822 |
| | 780 |
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Regulated natural gas | 97 |
| | 96 |
| | 266 |
| | 327 |
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Total operating revenues | 5,484 |
| | 5,589 |
| | 11,106 |
| | 11,654 |
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Operating Expenses | | | | | | | |
Fuel used in electric generation and purchased power – regulated | 1,509 |
| | 1,721 |
| | 3,086 |
| | 3,662 |
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Fuel used in electric generation and purchased power – nonregulated | 82 |
| | 118 |
| | 140 |
| | 222 |
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Cost of natural gas | 21 |
| | 26 |
| | 81 |
| | 137 |
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Operation, maintenance and other | 1,431 |
| | 1,422 |
| | 2,920 |
| | 2,848 |
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Depreciation and amortization | 813 |
| | 790 |
| | 1,627 |
| | 1,567 |
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Property and other taxes | 293 |
| | 279 |
| | 590 |
| | 543 |
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Impairment charges | 195 |
| | — |
| | 198 |
| | — |
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Total operating expenses | 4,344 |
| | 4,356 |
| | 8,642 |
| | 8,979 |
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Gains on Sales of Other Assets and Other, net | 5 |
| | 13 |
| | 14 |
| | 27 |
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Operating Income | 1,145 |
| | 1,246 |
| | 2,478 |
| | 2,702 |
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Other Income and Expenses | | | | | | | |
Equity in earnings of unconsolidated affiliates | 15 |
| | 23 |
| | 23 |
| | 36 |
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Other income and expenses, net | 92 |
| | 72 |
| | 171 |
| | 146 |
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Total other income and expenses | 107 |
| | 95 |
| | 194 |
| | 182 |
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Interest Expense | 500 |
| | 403 |
| | 1,011 |
| | 806 |
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Income From Continuing Operations Before Income Taxes | 752 |
| | 938 |
| | 1,661 |
| | 2,078 |
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Income Tax Expense from Continuing Operations | 239 |
| | 334 |
| | 452 |
| | 698 |
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Income From Continuing Operations | 513 |
| | 604 |
| | 1,209 |
| | 1,380 |
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(Loss) Income From Discontinued Operations, net of tax | (1 | ) | | (57 | ) | | 2 |
| | 34 |
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Net Income | 512 |
| | 547 |
| | 1,211 |
| | 1,414 |
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Less: Net Income Attributable to Noncontrolling Interests | 3 |
| | 4 |
| | 8 |
| | 7 |
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Net Income Attributable to Duke Energy Corporation | $ | 509 |
| | $ | 543 |
| | $ | 1,203 |
| | $ | 1,407 |
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Earnings Per Share – Basic and Diluted | | | | | | | |
Income from continuing operations attributable to Duke Energy Corporation common stockholders | | | | | | | |
Basic | $ | 0.74 |
| | $ | 0.87 |
| | $ | 1.74 |
| | $ | 1.96 |
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Diluted | $ | 0.74 |
| | $ | 0.87 |
| | $ | 1.74 |
| | $ | 1.96 |
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(Loss) Income from discontinued operations attributable to Duke Energy Corporation common stockholders | | | | | | | |
Basic | $ | — |
| | $ | (0.09 | ) | | $ | — |
| | $ | 0.05 |
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Diluted | $ | — |
| | $ | (0.09 | ) | | $ | — |
| | $ | 0.05 |
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Net income attributable to Duke Energy Corporation common stockholders | | | | | | | |
Basic | $ | 0.74 |
| | $ | 0.78 |
| | $ | 1.74 |
| | $ | 2.01 |
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Diluted | $ | 0.74 |
| | $ | 0.78 |
| | $ | 1.74 |
| | $ | 2.01 |
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Weighted average shares outstanding | | | | | | | |
Basic | 689 |
| | 692 |
| | 689 |
| | 700 |
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Diluted | 690 |
| | 692 |
| | 689 |
| | 700 |
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DUKE ENERGY CORPORATION
Condensed Consolidated Statements |
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Commission file number | Registrant, State of Comprehensive Income(Unaudited)
| | | | | | | | | | | | | | | | | | Three Months Ended | | Six Months Ended | | June 30, | | June 30, | (in millions) | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
| Net Income | $ | 512 |
| | $ | 547 |
| | $ | 1,211 |
| | $ | 1,414 |
| Other Comprehensive Income (Loss), net of tax | | | | | | | | Foreign currency translation adjustments | 58 |
| | 9 |
| | 107 |
| | (116 | ) | Pension and OPEB adjustments | 2 |
| | 7 |
| | 2 |
| | 2 |
| Net unrealized (losses) gains on cash flow hedges | (11 | ) | | 9 |
| | (25 | ) | | 2 |
| Reclassification into earnings from cash flow hedges | — |
| | 1 |
| | 2 |
| | 5 |
| Unrealized gains (losses) on available-for-sale securities | 3 |
| | (3 | ) | | 7 |
| | (3 | ) | Other Comprehensive Income (Loss), net of tax | 52 |
| | 23 |
| | 93 |
| | (110 | ) | Comprehensive Income | 564 |
| | 570 |
| | 1,304 |
| | 1,304 |
| Less: Comprehensive Income Attributable to Noncontrolling Interests | 6 |
| | 3 |
| | 12 |
| | 2 |
| Comprehensive Income Attributable to Duke Energy Corporation | $ | 558 |
| | $ | 567 |
| | $ | 1,292 |
| | $ | 1,302 |
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DUKE ENERGY CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
| | | | | | | | | (in millions) | June 30, 2016 | | December 31, 2015 | ASSETS | | | | Current Assets | | | | Cash and cash equivalents | $ | 676 |
| | $ | 857 |
| Receivables (net of allowance for doubtful accounts of $23 at 2016 and $18 at 2015) | 575 |
| | 703 |
| Receivables of VIEs (net of allowance for doubtful accounts of $56 at 2016 and $53 at 2015) | 1,943 |
| | 1,748 |
| Inventory | 3,627 |
| | 3,810 |
| Regulatory assets (includes $34 related to VIEs at 2016) | 825 |
| | 877 |
| Other | 451 |
| | 327 |
| Total current assets | 8,097 |
| | 8,322 |
| Investments and Other Assets | | | | Investments in equity method unconsolidated affiliates | 613 |
| | 499 |
| Nuclear decommissioning trust funds | 5,966 |
| | 5,825 |
| Goodwill | 16,357 |
| | 16,343 |
| Other | 2,972 |
| | 3,042 |
| Total investments and other assets | 25,908 |
| | 25,709 |
| Property, Plant and Equipment | | | | Cost | 115,143 |
| | 112,826 |
| Accumulated depreciation and amortization | (38,412 | ) | | (37,665 | ) | Generation facilities to be retired, net | 598 |
| | 548 |
| Net property, plant and equipment | 77,329 |
| | 75,709 |
| Regulatory Assets and Deferred Debits | | | | Regulatory assets (includes $1,194 related to VIEs at 2016) | 11,290 |
| | 11,373 |
| Other | 30 |
| | 43 |
| Total regulatory assets and deferred debits | 11,320 |
| | 11,416 |
| Total Assets | $ | 122,654 |
| | $ | 121,156 |
| LIABILITIES AND EQUITY | | | | Current Liabilities | | | | Accounts payable | $ | 2,221 |
| | $ | 2,400 |
| Notes payable and commercial paper | 2,312 |
| | 3,633 |
| Taxes accrued | 467 |
| | 348 |
| Interest accrued | 448 |
| | 430 |
| Current maturities of long-term debt (includes $197 at 2016 and $125 at 2015 related to VIEs) | 2,342 |
| | 2,074 |
| Regulatory liabilities | 332 |
| | 400 |
| Other | 1,784 |
| | 2,115 |
| Total current liabilities | 9,906 |
| | 11,400 |
| Long-Term Debt (includes $3,383 at 2016 and $2,197 at 2015 related to VIEs) | 39,931 |
| | 37,495 |
| Deferred Credits and Other Liabilities | | | | Deferred income taxes | 13,038 |
| | 12,705 |
| Investment tax credits | 492 |
| | 472 |
| Accrued pension and other post-retirement benefit costs | 1,044 |
| | 1,088 |
| Asset retirement obligations | 10,231 |
| | 10,264 |
| Regulatory liabilities | 6,334 |
| | 6,255 |
| Other | 1,730 |
| | 1,706 |
| Total deferred credits and other liabilities | 32,869 |
| | 32,490 |
| Commitments and Contingencies |
|
| |
|
| Equity | | | | Common stock, $0.001 par value, 2 billion shares authorized; 689 million and 688 million shares outstanding at 2016 and 2015, respectively | 1 |
| | 1 |
| Additional paid-in capital | 37,984 |
| | 37,968 |
| Retained earnings | 2,627 |
| | 2,564 |
| Accumulated other comprehensive loss | (717 | ) | | (806 | ) | Total Duke Energy Corporation stockholders' equity | 39,895 |
| | 39,727 |
| Noncontrolling interests | 53 |
| | 44 |
| Total equity | 39,948 |
| | 39,771 |
| Total Liabilities and Equity | $ | 122,654 |
| | $ | 121,156 |
|
DUKE ENERGY CORPORATION
Condensed Consolidated StatementsIncorporation or Organization, Address of Cash Flows
(Unaudited)
| | | | | | | | | | Six Months Ended | | June 30, | (in millions) | 2016 |
| | 2015 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | Net income | $ | 1,211 |
| | $ | 1,414 |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | Depreciation, amortization and accretion (including amortization of nuclear fuel) | 1,868 |
| | 1,784 |
| Equity component of AFUDC | (87 | ) | | (82 | ) | Gains on sales of other assets | (18 | ) | | (29 | ) | Impairment charges | 198 |
| | 37 |
| Deferred income taxes | 285 |
| | 699 |
| Equity in earnings of unconsolidated affiliates | (23 | ) | | (36 | ) | Accrued pension and other post-retirement benefit costs | 8 |
| | 36 |
| Contributions to qualified pension plans | — |
| | (132 | ) | Payments for asset retirement obligations | (263 | ) | | (125 | ) | (Increase) decrease in | | | | Net realized and unrealized mark-to-market and hedging transactions | 199 |
| | (29 | ) | Receivables | (57 | ) | | 105 |
| Inventory | 178 |
| | 2 |
| Other current assets | (51 | ) | | (161 | ) | Increase (decrease) in | | | | Accounts payable | (153 | ) | | (288 | ) | Taxes accrued | 216 |
| | (29 | ) | Other current liabilities | (281 | ) | | (145 | ) | Other assets | (9 | ) | | (63 | ) | Other liabilities | (15 | ) | | (79 | ) | Net cash provided by operating activities | 3,206 |
| | 2,879 |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | Capital expenditures | (3,393 | ) | | (3,062 | ) | Investment expenditures | (136 | ) | | (98 | ) | Acquisitions | — |
| | (29 | ) | Purchases of available-for-sale securities | (3,033 | ) | | (2,187 | ) | Proceeds from sales and maturities of available-for-sale securities | 3,059 |
| | 2,200 |
| Net proceeds from the sale of the Disposal Group | — |
| | 2,792 |
| Net proceeds from the sales of equity investments and other assets | 2 |
| | 40 |
| Change in restricted cash | (21 | ) | | (3 | ) | Other | (86 | ) | | 53 |
| Net cash used in investing activities | (3,608 | ) | | (294 | ) | CASH FLOWS FROM FINANCING ACTIVITIES | | | | Proceeds from the: | | | | Issuance of long-term debt | 3,514 |
| | 574 |
| Issuance of common stock related to employee benefit plans | 7 |
| | 16 |
| Payments for the redemption of long-term debt | (795 | ) | | (1,246 | ) | Proceeds from the issuance of short-term debt with original maturities greater than 90 days | 500 |
| | 287 |
| Payments for the redemption of short-term debt with original maturities greater than 90 days | (492 | ) | | (664 | ) | Notes payable and commercial paper | (1,349 | ) | | 12 |
| Distributions to noncontrolling interests | (3 | ) | | (7 | ) | Dividends paid | (1,140 | ) | | (1,115 | ) | Repurchase of common shares | — |
| | (1,500 | ) | Other | (21 | ) | | (18 | ) | Net cash provided by (used in) financing activities | 221 |
| | (3,661 | ) | Net decrease in cash and cash equivalents | (181 | ) | | (1,076 | ) | Cash and cash equivalents at beginning of period | 857 |
| | 2,036 |
| Cash and cash equivalents at end of period | $ | 676 |
| | $ | 960 |
| Supplemental Disclosures: | | | | Significant non-cash transactions: | | | | Accrued capital expenditures | $ | 670 |
| | $ | 547 |
|
DUKE ENERGY CORPORATION
Condensed Consolidated StatementsPrincipal Executive Offices, Telephone Number and IRS Employer Identification Number
| | Commission file number | Registrant, State of Changes in Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | — |
| | — |
| | — |
| | 1,407 |
| | — |
| | — |
| | — |
| | — |
| | 1,407 |
| | 7 |
| | 1,414 |
| Other comprehensive (loss) income | — |
| | — |
| | — |
| | — |
| | (111 | ) | | 7 |
| | (3 | ) | | 2 |
| | (105 | ) | | (5 | ) | | (110 | ) | Common stock issuances, including dividend reinvestment and employee benefits | 1 |
| | — |
| | 28 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 28 |
| | — |
| | 28 |
| Stock repurchase | (20 | ) | | — |
| | (1,500 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (1,500 | ) | | — |
| | (1,500 | ) | Common stock dividends | — |
| | — |
| | — |
| | (1,115 | ) | | — |
| | — |
| | — |
| | — |
| | (1,115 | ) | | — |
| | (1,115 | ) | Distributions to noncontrolling interest in subsidiaries | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (7 | ) | | (7 | ) | Other(a) | — |
| | — |
| | — |
| | (10 | ) | | — |
| | — |
| | — |
| | — |
| | (10 | ) | | 18 |
| | 8 |
| Balance at June 30, 2015 | 688 |
| | $ | 1 |
|
| $ | 37,933 |
|
| $ | 2,294 |
|
| $ | (550 | ) |
| $ | (52 | ) |
| $ | — |
|
| $ | (46 | ) |
| $ | 39,580 |
|
| $ | 37 |
|
| $ | 39,617 |
| | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2015 | 688 |
| | $ | 1 |
| | $ | 37,968 |
| | $ | 2,564 |
| | $ | (692 | ) | | $ | (50 | ) | | $ | (3 | ) | | $ | (61 | ) | | $ | 39,727 |
| | $ | 44 |
| | $ | 39,771 |
| Net income | — |
| | — |
| | — |
| | 1,203 |
| | — |
| | — |
| | — |
| | — |
| | 1,203 |
| | 8 |
| | 1,211 |
| Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | 103 |
| | (23 | ) | | 7 |
| | 2 |
| | 89 |
| | 4 |
| | 93 |
| Common stock issuances, including dividend reinvestment and employee benefits | 1 |
| | — |
| | 16 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 16 |
| | — |
| | 16 |
| Common stock dividends | — |
| | — |
| | — |
| | (1,140 | ) | | — |
| | — |
| | — |
| | — |
| | (1,140 | ) | | — |
| | (1,140 | ) | Distributions to noncontrolling interest in subsidiaries | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3 | ) | | (3 | ) | Balance at June 30, 2016 | 689 |
|
| $ | 1 |
|
| $ | 37,984 |
|
| $ | 2,627 |
|
| $ | (589 | ) |
| $ | (73 | ) |
| $ | 4 |
|
| $ | (59 | ) |
| $ | 39,895 |
|
| $ | 53 |
|
| $ | 39,948 |
|
Incorporation or Organization, Address of Principal Executive Offices, Telephone Number and IRS Employer Identification Number1-4928 | | (a) | The $18 million change in Noncontrolling Interests is primarily related to an acquisition of majority interest in a solar company for an insignificant amount of cash consideration. |
DUKE ENERGY CAROLINAS, LLC Condensed Consolidated Statements of Operations and Comprehensive Income(a North Carolina limited liability company)
(Unaudited)526 South Church Street
Charlotte, North Carolina 28202-1803 | | | | | | | | | | | | | | | | | | Three Months Ended | | Six Months Ended | | June 30, | | June 30, | (in millions) | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
| Operating Revenues | $ | 1,675 |
| | $ | 1,707 |
| | $ | 3,415 |
| | $ | 3,608 |
| Operating Expenses | | | | | | | | Fuel used in electric generation and purchased power | 389 |
| | 427 |
| | 810 |
| | 1,005 |
| Operation, maintenance and other | 476 |
| | 469 |
| | 988 |
| | 958 |
| Depreciation and amortization | 275 |
| | 261 |
| | 534 |
| | 510 |
| Property and other taxes | 71 |
| | 67 |
| | 138 |
| | 137 |
| Total operating expenses | 1,211 |
| | 1,224 |
| | 2,470 |
| | 2,610 |
| Operating Income | 464 |
| | 483 |
| | 945 |
| | 998 |
| Other Income and Expenses, net | 45 |
| | 41 |
| | 82 |
| | 83 |
| Interest Expense | 107 |
| | 106 |
| | 214 |
| | 208 |
| Income Before Income Taxes | 402 |
| | 418 |
| | 813 |
| | 873 |
| Income Tax Expense | 141 |
| | 153 |
| | 281 |
| | 316 |
| Net Income | $ | 261 |
| | $ | 265 |
| | $ | 532 |
| | $ | 557 |
| Other Comprehensive Income, net of tax | | | | | | | | Reclassification into earnings from cash flow hedges | — |
| | — |
| | 1 |
| | — |
| Comprehensive Income | $ | 261 |
| | $ | 265 |
| | $ | 533 |
| | $ | 557 |
|
704-382-3853 56-0205520
| | 1-3274 | DUKE ENERGY CAROLINAS,FLORIDA, LLC Condensed Consolidated Balance Sheets(a Florida limited liability company)
(Unaudited)299 First Avenue North
St. Petersburg, Florida 33701 | | | | | | | | | (in millions) | June 30, 2016 |
| | December 31, 2015 |
| ASSETS | | | | Current Assets | | | | Cash and cash equivalents | $ | 16 |
| | $ | 13 |
| Receivables (net of allowance for doubtful accounts of $2 at 2016 and $3 at 2015) | 112 |
| | 142 |
| Receivables of VIEs (net of allowance for doubtful accounts of $7 at 2016 and 2015) | 696 |
| | 596 |
| Receivables from affiliated companies | 71 |
| | 107 |
| Notes receivable from affiliated companies | 252 |
| | 163 |
| Inventory | 1,169 |
| | 1,276 |
| Regulatory assets | 262 |
| | 305 |
| Other | 86 |
| | 128 |
| Total current assets | 2,664 |
| | 2,730 |
| Investments and Other Assets | | | | Nuclear decommissioning trust funds | 3,133 |
| | 3,050 |
| Other | 916 |
| | 999 |
| Total investments and other assets | 4,049 |
| | 4,049 |
| Property, Plant and Equipment | | | | Cost | 40,285 |
| | 39,398 |
| Accumulated depreciation and amortization | (13,880 | ) | | (13,521 | ) | Net property, plant and equipment | 26,405 |
| | 25,877 |
| Regulatory Assets and Deferred Debits | | | | Regulatory assets | 2,856 |
| | 2,766 |
| Other | 3 |
| | 4 |
| Total regulatory assets and deferred debits | 2,859 |
| | 2,770 |
| Total Assets | $ | 35,977 |
| | $ | 35,426 |
| LIABILITIES AND EQUITY | | | | Current Liabilities | | | | Accounts payable | $ | 565 |
| | $ | 753 |
| Accounts payable to affiliated companies | 173 |
| | 229 |
| Taxes accrued | 137 |
| | 25 |
| Interest accrued | 108 |
| | 95 |
| Current maturities of long-term debt | 468 |
| | 356 |
| Regulatory liabilities | 91 |
| | 39 |
| Other | 400 |
| | 519 |
| Total current liabilities | 1,942 |
|
| 2,016 |
| Long-Term Debt | 8,592 |
| | 7,711 |
| Long-Term Debt Payable to Affiliated Companies | 300 |
| | 300 |
| Deferred Credits and Other Liabilities | | | | Deferred income taxes | 6,472 |
| | 6,146 |
| Investment tax credits | 196 |
| | 199 |
| Accrued pension and other post-retirement benefit costs | 96 |
| | 107 |
| Asset retirement obligations | 3,910 |
| | 3,918 |
| Regulatory liabilities | 2,885 |
| | 2,802 |
| Other | 645 |
| | 621 |
| Total deferred credits and other liabilities | 14,204 |
| | 13,793 |
| Commitments and Contingencies |
|
| |
|
| Equity | | | | Member's equity | 10,949 |
| | 11,617 |
| Accumulated other comprehensive loss | (10 | ) | | (11 | ) | Total equity | 10,939 |
| | 11,606 |
| Total Liabilities and Equity | $ | 35,977 |
| | $ | 35,426 |
|
704-382-3853
PART I59-0247770
DUKE ENERGY CAROLINAS, LLC
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | Six Months Ended | | June 30, | (in millions) | 2016 |
| | 2015 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | Net income | $ | 532 |
| | $ | 557 |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | Depreciation and amortization (including amortization of nuclear fuel) | 673 |
| | 670 |
| Equity component of AFUDC | (48 | ) | | (48 | ) | Deferred income taxes | 273 |
| | 184 |
| Accrued pension and other post-retirement benefit costs | 2 |
| | 7 |
| Contributions to qualified pension plans | — |
| | (42 | ) | Payments for asset retirement obligations | (118 | ) | | (60 | ) | (Increase) decrease in | | | | Net realized and unrealized mark-to-market and hedging transactions | 3 |
| | — |
| Receivables | (48 | ) | | 45 |
| Receivables from affiliated companies | 36 |
| | (31 | ) | Inventory | 102 |
| | (31 | ) | Other current assets | 24 |
| | 34 |
| Increase (decrease) in | | | | Accounts payable | (226 | ) | | (200 | ) | Accounts payable to affiliated companies | (56 | ) | | (13 | ) | Taxes accrued | 188 |
| | 73 |
| Other current liabilities | 28 |
| | (33 | ) | Other assets | 22 |
| | 58 |
| Other liabilities | (14 | ) | | (49 | ) | Net cash provided by operating activities | 1,373 |
| | 1,121 |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | Capital expenditures | (1,031 | ) | | (954 | ) | Purchases of available-for-sale securities | (1,395 | ) | | (1,410 | ) | Proceeds from sales and maturities of available-for-sale securities | 1,395 |
| | 1,410 |
| Notes receivable from affiliated companies | (89 | ) | | (550 | ) | Other | (41 | ) | | 8 |
| Net cash used in investing activities | (1,161 | ) | | (1,496 | ) | CASH FLOWS FROM FINANCING ACTIVITIES | | | | Proceeds from the issuance of long-term debt | 992 |
| | 496 |
| Payments for the redemption of long-term debt | (1 | ) | | — |
| Distributions to parent | (1,200 | ) | | (100 | ) | Other | — |
| | (6 | ) | Net cash (used in) provided by financing activities | (209 | ) | | 390 |
| Net increase in cash and cash equivalents | 3 |
| | 15 |
| Cash and cash equivalents at beginning of period | 13 |
| | 13 |
| Cash and cash equivalents at end of period | $ | 16 |
| | $ | 28 |
| Supplemental Disclosures: | | | | Significant non-cash transactions: | | | | Accrued capital expenditures | $ | 228 |
| | $ | 160 |
|
DUKE ENERGY CAROLINAS, LLC
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
| | | | | | | | | | | | | | | | | | | | Accumulated Other | | | | | | Comprehensive Loss | | | | | | | | Net Unrealized |
| | | | | | Net Losses on |
| | Losses on |
| | | | Member's |
| | Cash Flow |
| | Available-for- |
| | Total |
| (in millions) | Equity |
| | Hedges |
| | Sale Securities |
| | Equity |
| Balance at December 31, 2014 | $ | 10,937 |
| | $ | (12 | ) | | $ | (1 | ) | | $ | 10,924 |
| Net income | 557 |
| | — |
| | — |
| | 557 |
| Distributions to parent | (100 | ) | | — |
| | — |
| | (100 | ) | Balance at June 30, 2015 | $ | 11,394 |
| | $ | (12 | ) | | $ | (1 | ) | | $ | 11,381 |
| | | | | | | | | Balance at December 31, 2015 | $ | 11,617 |
| | $ | (11 | ) | | $ | — |
| | $ | 11,606 |
| Net income | 532 |
| | — |
| | — |
| | 532 |
| Other comprehensive income | — |
| | 1 |
| | — |
| | 1 |
| Distributions to parent | (1,200 | ) | | — |
| | — |
| | (1,200 | ) | Balance at June 30, 2016 | $ | 10,949 |
| | $ | (10 | ) | | $ | — |
| | $ | 10,939 |
|
|
1-15929 | PROGRESS ENERGY, INC. Condensed Consolidated Statements of Operations and Comprehensive Income(a North Carolina corporation)
(Unaudited)410 South Wilmington Street
Raleigh, North Carolina 27601-1748 | | | | | | | | | | | | | | | | | | Three Months Ended | | Six Months Ended | | June 30, | | June 30, | (in millions) | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
| Operating Revenues | $ | 2,348 |
| | $ | 2,476 |
| | $ | 4,680 |
| | $ | 5,012 |
| Operating Expenses | | | | | | | | Fuel used in electric generation and purchased power | 852 |
| | 1,003 |
| | 1,712 |
| | 2,035 |
| Operation, maintenance and other | 525 |
| | 568 |
| | 1,117 |
| | 1,133 |
| Depreciation and amortization | 296 |
| | 283 |
| | 586 |
| | 570 |
| Property and other taxes | 120 |
| | 124 |
| | 239 |
| | 235 |
| Impairment charges | 1 |
| | — |
| | 3 |
| | — |
| Total operating expenses | 1,794 |
| | 1,978 |
| | 3,657 |
| | 3,973 |
| Gains on Sales of Other Assets and Other, net | 6 |
| | 6 |
| | 12 |
| | 14 |
| Operating Income | 560 |
| | 504 |
| | 1,035 |
| | 1,053 |
| Other Income and Expenses, net | 28 |
| | 19 |
| | 48 |
| | 46 |
| Interest Expense | 160 |
| | 166 |
| | 320 |
| | 334 |
| Income From Continuing Operations Before Income Taxes | 428 |
| | 357 |
| | 763 |
| | 765 |
| Income Tax Expense From Continuing Operations | 154 |
| | 140 |
| | 277 |
| | 284 |
| Income From Continuing Operations | 274 |
| | 217 |
| | 486 |
| | 481 |
| Loss From Discontinued Operations, net of tax | — |
| | — |
| | — |
| | (1 | ) | Net Income | 274 |
| | 217 |
| | 486 |
| | 480 |
| Less: Net Income Attributable to Noncontrolling Interests | 2 |
| | 2 |
| | 5 |
| | 5 |
| Net Income Attributable to Parent | $ | 272 |
| | $ | 215 |
| | $ | 481 |
| | $ | 475 |
| | | | | | | | | Net Income | $ | 274 |
| | $ | 217 |
| | $ | 486 |
| | $ | 480 |
| Other Comprehensive Income, net of tax | | | | | | | | Pension and OPEB adjustments | 1 |
| | 1 |
| | 2 |
| | 2 |
| Reclassification into earnings from cash flow hedges | 2 |
| | 1 |
| | 3 |
| | (1 | ) | Unrealized (losses) gains on available-for-sale securities | — |
| | (1 | ) | | 1 |
| | (1 | ) | Other Comprehensive Income, net of tax | 3 |
|
| 1 |
|
| 6 |
|
| — |
| Comprehensive Income | 277 |
| | 218 |
| | 492 |
| | 480 |
| Less: Comprehensive Income Attributable to Noncontrolling Interests | 2 |
| | 2 |
| | 5 |
| | 5 |
| Comprehensive Income Attributable to Parent | $ | 275 |
|
| $ | 216 |
|
| $ | 487 |
|
| $ | 475 |
|
704-382-3853 56-2155481
| | 1-1232 |
PROGRESSDUKE ENERGY OHIO, INC.
Condensed Consolidated Balance Sheets(an Ohio corporation)
(Unaudited)139 East Fourth Street
| | | | | | | | | (in millions) | June 30, 2016 |
| | December 31, 2015 |
| ASSETS | | | | Current Assets | | | | Cash and cash equivalents | $ | 34 |
| | $ | 44 |
| Receivables (net of allowance for doubtful accounts of $6 at 2016 and 2015) | 100 |
| | 151 |
| Receivables of VIEs (net of allowance for doubtful accounts of $8 at 2016 and 2015) | 776 |
| | 658 |
| Receivables from affiliated companies | 11 |
| | 375 |
| Inventory | 1,725 |
| | 1,751 |
| Regulatory assets (includes $34 related to VIEs at 2016) | 322 |
| | 362 |
| Other | 168 |
| | 156 |
| Total current assets | 3,136 |
| | 3,497 |
| Investments and Other Assets | | | | Nuclear decommissioning trust funds | 2,834 |
| | 2,775 |
| Goodwill | 3,655 |
| | 3,655 |
| Other | 852 |
| | 834 |
| Total investments and other assets | 7,341 |
| | 7,264 |
| Property, Plant and Equipment | | | | Cost | 43,720 |
| | 42,666 |
| Accumulated depreciation and amortization | (15,087 | ) | | (14,867 | ) | Generation facilities to be retired, net | 506 |
| | 548 |
| Net property, plant and equipment | 29,139 |
| | 28,347 |
| Regulatory Assets and Deferred Debits | | | | Regulatory assets (includes $1,194 related to VIEs at 2016) | 5,298 |
| | 5,435 |
| Other | 4 |
| | 5 |
| Total regulatory assets and deferred debits | 5,302 |
| | 5,440 |
| Total Assets | $ | 44,918 |
| | $ | 44,548 |
| LIABILITIES AND EQUITY | | | | Current Liabilities | | | | Accounts payable | $ | 690 |
| | $ | 722 |
| Accounts payable to affiliated companies | 232 |
| | 311 |
| Notes payable to affiliated companies | 916 |
| | 1,308 |
| Taxes accrued | 162 |
| | 53 |
| Interest accrued | 185 |
| | 195 |
| Current maturities of long-term debt (includes $35 related to VIEs at 2016) | 300 |
| | 315 |
| Regulatory liabilities | 166 |
| | 286 |
| Other | 702 |
| | 891 |
| Total current liabilities | 3,353 |
| | 4,081 |
| Long-Term Debt (includes $1,768 at 2016 and $479 at 2015 related to VIEs) | 15,036 |
| | 13,999 |
| Long-Term Debt Payable to Affiliated Companies | 150 |
| | 150 |
| Deferred Credits and Other Liabilities | | | | Deferred income taxes | 5,044 |
| | 4,790 |
| Accrued pension and other post-retirement benefit costs | 519 |
| | 536 |
| Asset retirement obligations | 5,386 |
| | 5,369 |
| Regulatory liabilities | 2,409 |
| | 2,387 |
| Other | 328 |
| | 383 |
| Total deferred credits and other liabilities | 13,686 |
| | 13,465 |
| Commitments and Contingencies |
| |
| Equity | | | | Common stock, $0.01 par value, 100 shares authorized and outstanding at 2016 and 2015 | — |
| | — |
| Additional paid-in capital | 8,092 |
| | 8,092 |
| Retained earnings | 4,661 |
| | 4,831 |
| Accumulated other comprehensive loss | (42 | ) | | (48 | ) | Total Progress Energy, Inc. stockholders' equity | 12,711 |
| | 12,875 |
| Noncontrolling interests | (18 | ) | | (22 | ) | Total equity | 12,693 |
| | 12,853 |
| Total Liabilities and Equity | $ | 44,918 |
| | $ | 44,548 |
|
704-382-3853
PART I31-0240030
PROGRESS ENERGY, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | Six Months Ended | | June 30, | (in millions) | 2016 |
| | 2015 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | Net income | $ | 486 |
| | $ | 480 |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | Depreciation, amortization and accretion (including amortization of nuclear fuel) | 696 |
| | 648 |
| Equity component of AFUDC | (30 | ) | | (26 | ) | Gains on sales of other assets | (15 | ) | | (14 | ) | Impairment charges | 3 |
| | — |
| Deferred income taxes | 285 |
| | 358 |
| Accrued pension and other post-retirement benefit costs | (12 | ) | | (3 | ) | Contributions to qualified pension plans | — |
| | (42 | ) | Payments for asset retirement obligations | (126 | ) | | (61 | ) | (Increase) decrease in | | | | Net realized and unrealized mark-to-market and hedging transactions | 32 |
| | 5 |
| Receivables | (66 | ) | | (103 | ) | Receivables from affiliated companies | 306 |
| | (55 | ) | Inventory | 25 |
| | 62 |
| Other current assets | 45 |
| | 215 |
| Increase (decrease) in | | | | Accounts payable | (26 | ) | | (182 | ) | Accounts payable to affiliated companies | (79 | ) | | 68 |
| Taxes accrued | 90 |
| | 94 |
| Other current liabilities | (162 | ) | | (9 | ) | Other assets | (72 | ) | | (70 | ) | Other liabilities | 15 |
| | (32 | ) | Net cash provided by operating activities | 1,395 |
| | 1,333 |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | Capital expenditures | (1,441 | ) | | (1,170 | ) | Purchases of available-for-sale securities | (1,570 | ) | | (562 | ) | Proceeds from sales and maturities of available-for-sale securities | 1,594 |
| | 624 |
| Proceeds from insurance | 58 |
| | — |
| Notes receivable from affiliated companies | — |
| | 220 |
| Change in restricted cash | (6 | ) | | — |
| Other | (14 | ) | | 4 |
| Net cash used in investing activities | (1,379 | ) | | (884 | ) | CASH FLOWS FROM FINANCING ACTIVITIES | | | | Proceeds from the issuance of long-term debt | 1,338 |
| | — |
| Payments for the redemption of long-term debt | (320 | ) | | (549 | ) | Notes payable to affiliated companies | (392 | ) | | 110 |
| Distributions to noncontrolling interests | (1 | ) | | (4 | ) | Dividends to parent | (651 | ) | | — |
| Other | — |
| | (3 | ) | Net cash used in financing activities | (26 | ) | | (446 | ) | Net (decrease) increase in cash and cash equivalents | (10 | ) | | 3 |
| Cash and cash equivalents at beginning of period | 44 |
| | 42 |
| Cash and cash equivalents at end of period | $ | 34 |
| | $ | 45 |
| Supplemental Disclosures: | | | | Significant non-cash transactions: | | | | Accrued capital expenditures | $ | 288 |
| | $ | 271 |
|
PROGRESS ENERGY, INC.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated Other Comprehensive Loss | | | | | | | | | | | | | | Net |
| | Net Unrealized |
| | | | Total Progress |
| | | | | | | | Additional |
| | | | Losses on |
| | Gains on |
| | Pension and |
| | Energy, Inc. |
| | | | | | Common |
| | Paid-in |
| | Retained |
| | Cash Flow |
| | Available-for- |
| | OPEB |
| | Stockholders' |
| | Noncontrolling |
| | Total |
| (in millions) | Stock |
| | 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 |
| Net income | — |
| | — |
| | 475 |
| | — |
| | — |
| | — |
| | 475 |
| | 5 |
| | 480 |
| Other comprehensive (loss) income | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | | 2 |
| | — |
| | — |
| | — |
| Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (4 | ) | | (4 | ) | Other | — |
| | — |
| | (2 | ) | | — |
| | — |
| | — |
| | (2 | ) | | 4 |
| | 2 |
| Balance at June 30, 2015 | $ | — |
|
| $ | 7,467 |
|
| $ | 4,255 |
|
| $ | (36 | ) |
| $ | — |
|
| $ | (5 | ) |
| $ | 11,681 |
|
| $ | (27 | ) |
| $ | 11,654 |
| | | | | | | | | | | | | | | | | | | Balance at December 31, 2015 | $ | — |
| | $ | 8,092 |
| | $ | 4,831 |
| | $ | (31 | ) | | $ | — |
| | $ | (17 | ) | | $ | 12,875 |
| | $ | (22 | ) | | $ | 12,853 |
| Net income | — |
| | — |
| | 481 |
| | — |
| | — |
| | — |
| | 481 |
| | 5 |
| | 486 |
| Other comprehensive income | — |
| | — |
| | — |
| | 3 |
| | 1 |
| | 2 |
| | 6 |
| | — |
| | 6 |
| Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | Dividends to parent | — |
| | — |
| | (651 | ) | | — |
| | — |
| | — |
| | (651 | ) | | — |
| | (651 | ) | Balance at June 30, 2016 | $ | — |
|
| $ | 8,092 |
|
| $ | 4,661 |
|
| $ | (28 | ) |
| $ | 1 |
|
| $ | (15 | ) |
| $ | 12,711 |
|
| $ | (18 | ) |
| $ | 12,693 |
|
|
1-3382 | DUKE ENERGY PROGRESS, LLC Condensed Consolidated Statements of Operations and Comprehensive Income(a North Carolina limited liability company)
(Unaudited)410 South Wilmington Street
Raleigh, North Carolina 27601-1748 | | | | | | | | | | | | | | | | | | Three Months Ended | | Six Months Ended | | June 30, | | June 30, | (in millions) | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
| Operating Revenues | $ | 1,213 |
| | $ | 1,193 |
| | $ | 2,520 |
| | $ | 2,642 |
| Operating Expenses | | | | | | | | Fuel used in electric generation and purchased power | 424 |
| | 449 |
| | 872 |
| | 1,024 |
| Operation, maintenance and other | 321 |
| | 362 |
| | 707 |
| | 737 |
| Depreciation and amortization | 175 |
| | 163 |
| | 350 |
| | 315 |
| Property and other taxes | 38 |
| | 35 |
| | 79 |
| | 67 |
| Total operating expenses | 958 |
| | 1,009 |
| | 2,008 |
| | 2,143 |
| Gains on Sales of Other Assets and Other, net | — |
| | — |
| | 1 |
| | 1 |
| Operating Income | 255 |
| | 184 |
| | 513 |
| | 500 |
| Other Income and Expenses, net | 12 |
| | 15 |
| | 29 |
| | 35 |
| Interest Expense | 64 |
| | 56 |
| | 127 |
| | 116 |
| Income Before Income Taxes | 203 |
| | 143 |
| | 415 |
| | 419 |
| Income Tax Expense | 72 |
| | 58 |
| | 147 |
| | 151 |
| Net Income and Comprehensive Income | $ | 131 |
| | $ | 85 |
| | $ | 268 |
| | $ | 268 |
|
704-382-3853 56-0165465
DUKE ENERGY PROGRESS, LLC
Condensed Consolidated Balance Sheets
(Unaudited)
| | | | | | | | | (in millions) | June 30, 2016 |
| | December 31, 2015 |
| ASSETS | | | | Current Assets | | | | Cash and cash equivalents | $ | 8 |
| | $ | 15 |
| Receivables (net of allowance for doubtful accounts of $4 at 2016 and 2015) | 35 |
| | 87 |
| Receivables of VIEs (net of allowance for doubtful accounts of $5 at 2016 and 2015) | 421 |
| | 349 |
| Receivables from affiliated companies | 9 |
| | 16 |
| Inventory | 1,068 |
| | 1,088 |
| Regulatory assets | 187 |
| | 264 |
| Other | 35 |
| | 121 |
| Total current assets | 1,763 |
| | 1,940 |
| Investments and Other Assets | | | | Nuclear decommissioning trust funds | 2,110 |
| | 2,035 |
| Other | 509 |
| | 486 |
| Total investments and other assets | 2,619 |
| | 2,521 |
| Property, Plant and Equipment | | | | Cost | 27,771 |
| | 27,313 |
| Accumulated depreciation and amortization | (10,350 | ) | | (10,141 | ) | Generation facilities to be retired, net | 506 |
| | 548 |
| Net property, plant and equipment | 17,927 |
| | 17,720 |
| Regulatory Assets and Deferred Debits | | | | Regulatory assets | 2,744 |
| | 2,710 |
| Other | 2 |
| | 3 |
| Total regulatory assets and deferred debits | 2,746 |
| | 2,713 |
| Total Assets | $ | 25,055 |
| | $ | 24,894 |
| LIABILITIES AND EQUITY | | | | Current Liabilities | | | | Accounts payable | $ | 300 |
| | $ | 399 |
| Accounts payable to affiliated companies | 134 |
| | 190 |
| Notes payable to affiliated companies | 78 |
| | 209 |
| Taxes accrued | 71 |
| | 15 |
| Interest accrued | 96 |
| | 96 |
| Current maturities of long-term debt | 252 |
| | 2 |
| Regulatory liabilities | 84 |
| | 85 |
| Other | 314 |
| | 412 |
| Total current liabilities | 1,329 |
| | 1,408 |
| Long-Term Debt | 6,163 |
| | 6,366 |
| Long-Term Debt Payable to Affiliated Companies | 150 |
| | 150 |
| Deferred Credits and Other Liabilities | | | | Deferred income taxes | 3,167 |
| | 3,027 |
| Investment tax credits | 152 |
| | 132 |
| Accrued pension and other post-retirement benefit costs | 249 |
| | 262 |
| Asset retirement obligations | 4,594 |
| | 4,567 |
| Regulatory liabilities | 1,901 |
| | 1,878 |
| Other | 23 |
| | 45 |
| Total deferred credits and other liabilities | 10,086 |
| | 9,911 |
| Commitments and Contingencies |
| |
| Equity | | | | Member's Equity | 7,327 |
| | 7,059 |
| Total equity | 7,327 |
| | 7,059 |
| Total Liabilities and Equity | $ | 25,055 |
| | $ | 24,894 |
|
DUKE ENERGY PROGRESS, LLC
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | Six Months Ended | | June 30, | (in millions) | 2016 |
| | 2015 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | Net income | $ | 268 |
| | $ | 268 |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | Depreciation, amortization and accretion (including amortization of nuclear fuel) | 451 |
| | 389 |
| Equity component of AFUDC | (20 | ) | | (23 | ) | Gains on sales of other assets | (3 | ) | | (1 | ) | Deferred income taxes | 172 |
| | 177 |
| Accrued pension and other post-retirement benefit costs | (16 | ) | | (7 | ) | Contributions to qualified pension plans | — |
| | (21 | ) | Payments for asset retirement obligations | (100 | ) | | (32 | ) | (Increase) decrease in | | | | Net realized and unrealized mark-to-market and hedging transactions | (1 | ) | | (3 | ) | Receivables | (19 | ) | | (64 | ) | Receivables from affiliated companies | 7 |
| | 6 |
| Inventory | 20 |
| | 53 |
| Other current assets | 131 |
| | 156 |
| Increase (decrease) in | | | | Accounts payable | (28 | ) | | (128 | ) | Accounts payable to affiliated companies | (56 | ) | | 62 |
| Taxes accrued | 56 |
| | 66 |
| Other current liabilities | (12 | ) | | (15 | ) | Other assets | (26 | ) | | (31 | ) | Other liabilities | (6 | ) | | (21 | ) | Net cash provided by operating activities | 818 |
| | 831 |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | Capital expenditures | (704 | ) | | (699 | ) | Purchases of available-for-sale securities | (1,299 | ) | | (319 | ) | Proceeds from sales and maturities of available-for-sale securities | 1,284 |
| | 301 |
| Notes receivable from affiliated companies | — |
| | 237 |
| Other | (19 | ) | | 6 |
| Net cash used in investing activities | (738 | ) | | (474 | ) | CASH FLOWS FROM FINANCING ACTIVITIES | | | | Proceeds from the issuance of long-term debt | 59 |
| | — |
| Payments for the redemption of long-term debt | (15 | ) | | (544 | ) | Notes payable to affiliated companies | (131 | ) | | 192 |
| Other | — |
| | (1 | ) | Net cash used in financing activities | (87 | ) | | (353 | ) | Net (decrease) increase in cash and cash equivalents | (7 | ) | | 4 |
| Cash and cash equivalents at beginning of period | 15 |
| | 9 |
| Cash and cash equivalents at end of period | $ | 8 |
| | $ | 13 |
| Supplemental Disclosures: | | | | Significant non-cash transactions: | | | | Accrued capital expenditures | $ | 73 |
| | $ | 135 |
|
DUKE ENERGY PROGRESS, LLC
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
| | | | | | | | | | | | | | | | | | Common |
| | Retained |
| | Member's |
| | Total |
| (in millions) | Stock |
| | Earnings |
| | Equity |
| | Equity |
| Balance at December 31, 2014 | $ | 2,159 |
| | $ | 3,708 |
| | $ | — |
| | $ | 5,867 |
| Net income | — |
| | 268 |
| | — |
| | 268 |
| Balance at June 30, 2015 | $ | 2,159 |
| | $ | 3,976 |
| | $ | — |
| | $ | 6,135 |
| | | | | | | | | Balance at December 31, 2015 | $ | — |
| | $ | — |
| | $ | 7,059 |
| | $ | 7,059 |
| Net income | — |
| | — |
| | 268 |
| | 268 |
| Balance at June 30, 2016 | $ | — |
| | $ | — |
| | $ | 7,327 |
| | $ | 7,327 |
|
DUKE ENERGY FLORIDA, LLC
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
| | | | | | | | | | | | | | | | | | Three Months Ended | | Six Months Ended | | June 30, | | June 30, | (in millions) | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
| Operating Revenues | $ | 1,133 |
| | $ | 1,281 |
| | $ | 2,157 |
| | $ | 2,367 |
| Operating Expenses | | | | | | | | Fuel used in electric generation and purchased power | 429 |
| | 554 |
| | 841 |
| | 1,011 |
| Operation, maintenance and other | 199 |
| | 202 |
| | 404 |
| | 390 |
| Depreciation and amortization | 122 |
| | 122 |
| | 236 |
| | 256 |
| Property and other taxes | 82 |
| | 88 |
| | 160 |
| | 168 |
| Impairment charges | 1 |
| | — |
| | 3 |
| | — |
| Total operating expenses | 833 |
| | 966 |
| | 1,644 |
| | 1,825 |
| Operating Income | 300 |
| | 315 |
| | 513 |
| | 542 |
| Other Income and Expenses, net | 14 |
| | 4 |
| | 19 |
| | 10 |
| Interest Expense | 40 |
| | 50 |
| | 81 |
| | 99 |
| Income Before Income Taxes | 274 |
| | 269 |
| | 451 |
| | 453 |
| Income Tax Expense | 103 |
| | 104 |
| | 170 |
| | 175 |
| Net Income | $ | 171 |
| | $ | 165 |
| | $ | 281 |
| | $ | 278 |
| Other Comprehensive Income, net of tax | | | | | | | | Unrealized gains on investments in available-for-sale securities | — |
| | $ | — |
| | 1 |
| | — |
| Comprehensive Income | $ | 171 |
| | $ | 165 |
| | $ | 282 |
|
| $ | 278 |
|
DUKE ENERGY FLORIDA, LLC
Condensed Consolidated Balance Sheets
(Unaudited)
| | | | | | | | | (in millions) | June 30, 2016 |
| | December 31, 2015 |
| ASSETS | | | | Current Assets | | | | Cash and cash equivalents | $ | 8 |
| | $ | 8 |
| Receivables (net of allowance for doubtful accounts of $2 at 2016 and 2015) | 64 |
| | 60 |
| Receivables of VIEs (net of allowance for doubtful accounts of $3 at 2016 and 2015) | 355 |
| | 308 |
| Receivables from affiliated companies | 3 |
| | 84 |
| Inventory | 657 |
| | 663 |
| Regulatory assets (includes $34 related to VIEs at 2016) | 135 |
| | 98 |
| Other | 43 |
| | 21 |
| Total current assets | 1,265 |
| | 1,242 |
| Investments and Other Assets | | | | Nuclear decommissioning trust funds | 724 |
| | 740 |
| Other | 288 |
| | 292 |
| Total investments and other assets | 1,012 |
| | 1,032 |
| Property, Plant and Equipment | | | | Cost | 15,938 |
| | 15,343 |
| Accumulated depreciation and amortization | (4,730 | ) | | (4,720 | ) | Net property, plant and equipment | 11,208 |
| | 10,623 |
| Regulatory Assets and Deferred Debits | | | | Regulatory assets (includes $1,194 related to VIEs at 2016) | 2,553 |
| | 2,725 |
| Other | 3 |
| | 2 |
| Total regulatory assets and deferred debits | 2,556 |
| | 2,727 |
| Total Assets | $ | 16,041 |
| | $ | 15,624 |
| LIABILITIES AND EQUITY | | | | Current Liabilities | | | | Accounts payable | $ | 390 |
| | $ | 322 |
| Accounts payable to affiliated companies | 100 |
| | 116 |
| Notes payable to affiliated companies | 406 |
| | 813 |
| Taxes accrued | 156 |
| | 132 |
| Interest accrued | 40 |
| | 43 |
| Current maturities of long-term debt (includes $35 related to VIEs at 2016) | 48 |
| | 13 |
| Regulatory liabilities | 82 |
| | 200 |
| Other | 361 |
| | 452 |
| Total current liabilities | 1,583 |
| | 2,091 |
| Long-Term Debt (includes $1,468 at 2016 and $225 at 2015 related to VIEs) | 5,492 |
| | 4,253 |
| Deferred Credits and Other Liabilities | | | | Deferred income taxes | 2,571 |
| | 2,460 |
| Accrued pension and other post-retirement benefit costs | 238 |
| | 242 |
| Asset retirement obligations | 792 |
| | 802 |
| Regulatory liabilities | 508 |
| | 509 |
| Other | 103 |
| | 146 |
| Total deferred credits and other liabilities | 4,212 |
| | 4,159 |
| Commitments and Contingencies |
| |
| Equity | | | | Member's equity | 4,753 |
| | 5,121 |
| Accumulated other comprehensive income | 1 |
| | — |
| Total equity | 4,754 |
| | 5,121 |
| Total Liabilities and Equity | $ | 16,041 |
| | $ | 15,624 |
|
DUKE ENERGY FLORIDA, LLC
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | Six Months Ended | | June 30, | (in millions) | 2016 |
| | 2015 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | Net income | $ | 281 |
| | $ | 278 |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | Depreciation, amortization and accretion | 239 |
| | 258 |
| Equity component of AFUDC | (9 | ) | | (2 | ) | Impairment charges | 3 |
| | — |
| Deferred income taxes | 113 |
| | 237 |
| Accrued pension and other post-retirement benefit costs | 1 |
| | 3 |
| Contributions to qualified pension plans | — |
| | (21 | ) | Payments for asset retirement obligations | (25 | ) | | (28 | ) | (Increase) decrease in | | | | Net realized and unrealized mark-to-market and hedging transactions | 34 |
| | 5 |
| Receivables | (49 | ) | | (40 | ) | Receivables from affiliated companies | 23 |
| | (53 | ) | Inventory | 5 |
| | 10 |
| Other current assets | (13 | ) | | 10 |
| Increase (decrease) in | | | | Accounts payable | 3 |
| | (53 | ) | Accounts payable to affiliated companies | (16 | ) | | 3 |
| Taxes accrued | 5 |
| | 65 |
| Other current liabilities | (142 | ) | | 5 |
| Other assets | (47 | ) | | (44 | ) | Other liabilities | 20 |
| | (19 | ) | Net cash provided by operating activities | 426 |
| | 614 |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | Capital expenditures | (737 | ) | | (471 | ) | Purchases of available-for-sale securities | (271 | ) | | (243 | ) | Proceeds from sales and maturities of available-for-sale securities | 310 |
| | 323 |
| Proceeds from insurance | 58 |
| | — |
| Change in restricted cash | (6 | ) | | — |
| Other | 5 |
| | 1 |
| Net cash used in investing activities | (641 | ) | | (390 | ) | CASH FLOWS FROM FINANCING ACTIVITIES | | | | Proceeds from the issuance of long-term debt | 1,278 |
| | — |
| Payments for the redemption of long-term debt | (5 | ) | | (5 | ) | Notes payable to affiliated companies | (407 | ) | | 137 |
| Dividends to parent | — |
| | (350 | ) | Distributions to parent | (649 | ) | | — |
| Other | (2 | ) | | (1 | ) | Net cash provided by (used in) financing activities | 215 |
| | (219 | ) | Net increase in cash and cash equivalents | — |
| | 5 |
| Cash and cash equivalents at beginning of period | 8 |
| | 8 |
| Cash and cash equivalents at end of period | $ | 8 |
| | $ | 13 |
| Supplemental Disclosures: | | | | Significant non-cash transactions: | | | | Accrued capital expenditures | $ | 215 |
| | $ | 136 |
|
DUKE ENERGY FLORIDA, LLC
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | Other | | | | | | | | | | Comprehensive | | | | | | | | | | Income | | | | | | | | | | Net Unrealized |
| | | | | | | | | | Gains on |
| | | | Common |
| | Retained |
| | Member's |
| | Available-for-Sale |
| | Total |
| (in millions) | Stock |
| | Earnings |
| | Equity |
| | Securities |
| | Equity |
| Balance at December 31, 2014 | $ | 1,762 |
| | $ | 3,460 |
| | $ | — |
| | $ | — |
| | $ | 5,222 |
| Net income | — |
| | 278 |
| | — |
| | — |
| | 278 |
| Dividends to parent | — |
| | (350 | ) | | — |
| | — |
| | (350 | ) | Balance at June 30, 2015 | $ | 1,762 |
| | $ | 3,388 |
| | $ | — |
| | $ | — |
| | $ | 5,150 |
| | | | | | | | | | | Balance at December 31, 2015 | $ | — |
| | $ | — |
| | $ | 5,121 |
| | $ | — |
| | $ | 5,121 |
| Net income | — |
| | — |
| | 281 |
| | — |
| | 281 |
| Other comprehensive income | — |
| | — |
| | — |
| | 1 |
| | 1 |
| Distributions to parent | — |
| | — |
| | (649 | ) | | — |
| | (649 | ) | Balance at June 30, 2016 | $ | — |
| | $ | — |
| | $ | 4,753 |
| | $ | 1 |
| | $ | 4,754 |
|
DUKE ENERGY OHIO, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
| | | | | | | | | | | | | | | | | | Three Months Ended | | Six Months Ended | | June 30, | | June 30, | (in millions) | 2016 |
| | 2015 |
| | 2016 |
|
| 2015 |
| Operating Revenues | | | | | | | | Regulated electric | $ | 323 |
| | $ | 299 |
| | $ | 663 |
| | $ | 638 |
| Nonregulated electric and other | 6 |
| | 9 |
| | 12 |
| | 23 |
| Regulated natural gas | 99 |
| | 97 |
| | 269 |
| | 330 |
| Total operating revenues | 428 |
| | 405 |
| | 944 |
| | 991 |
| Operating Expenses | | | | | | | | Fuel used in electric generation and purchased power – regulated | 100 |
| | 107 |
| | 211 |
| | 222 |
| Fuel used in electric generation and purchased power – nonregulated | 13 |
| | 12 |
| | 23 |
| | 26 |
| Cost of natural gas | 9 |
| | 12 |
| | 58 |
| | 109 |
| Operation, maintenance and other | 122 |
| | 118 |
| | 241 |
| | 246 |
| Depreciation and amortization | 64 |
| | 58 |
| | 125 |
| | 115 |
| Property and other taxes | 65 |
| | 57 |
| | 136 |
| | 127 |
| Total operating expenses | 373 |
| | 364 |
| | 794 |
| | 845 |
| Gains on Sales of Other Assets and Other, net | — |
| | 2 |
| | 1 |
| | 8 |
| Operating Income | 55 |
| | 43 |
| | 151 |
| | 154 |
| Other Income and Expenses, net | 1 |
| | (5 | ) | | 3 |
| | (2 | ) | Interest Expense | 21 |
| | 18 |
| | 41 |
| | 38 |
| Income From Continuing Operations Before Income Taxes | 35 |
| | 20 |
| | 113 |
| | 114 |
| Income Tax Expense From Continuing Operations | 12 |
| | 7 |
| | 33 |
| | 42 |
| Income From Continuing Operations | 23 |
| | 13 |
| | 80 |
| | 72 |
| Income (Loss) From Discontinued Operations, net of tax | — |
| | (65 | ) | | 2 |
| | 25 |
| Net Income (Loss) and Comprehensive Income (Loss) | $ | 23 |
| | $ | (52 | ) | | $ | 82 |
| | $ | 97 |
|
DUKE ENERGY OHIO, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
| | | | | | | | | (in millions) | June 30, 2016 |
| | December 31, 2015 |
| ASSETS | | | | Current Assets | | | | Cash and cash equivalents | $ | 10 |
| | $ | 14 |
| Receivables (net of allowance for doubtful accounts of $2 at 2016 and 2015) | 63 |
| | 66 |
| Receivables from affiliated companies | 35 |
| | 84 |
| Notes receivable from affiliated companies | 186 |
| | — |
| Inventory | 110 |
| | 105 |
| Regulatory assets | 54 |
| | 36 |
| Other | 65 |
| | 110 |
| Total current assets | 523 |
| | 415 |
| Investments and Other Assets | | | | Goodwill | 920 |
| | 920 |
| Other | 16 |
| | 20 |
| Total investments and other assets | 936 |
| | 940 |
| Property, Plant and Equipment | | | | Cost | 7,906 |
| | 7,750 |
| Accumulated depreciation and amortization | (2,536 | ) | | (2,507 | ) | Net property, plant and equipment | 5,370 |
| | 5,243 |
| Regulatory Assets and Deferred Debits | | | | Regulatory assets | 472 |
| | 497 |
| Other | 2 |
| | 2 |
| Total regulatory assets and deferred debits | 474 |
| | 499 |
| Total Assets | $ | 7,303 |
| | $ | 7,097 |
| LIABILITIES AND EQUITY | | | | Current Liabilities | | | | Accounts payable | $ | 218 |
| | $ | 207 |
| Accounts payable to affiliated companies | 76 |
| | 53 |
| Notes payable to affiliated companies | — |
| | 103 |
| Taxes accrued | 108 |
| | 171 |
| Interest accrued | 19 |
| | 18 |
| Current maturities of long-term debt | 54 |
| | 106 |
| Regulatory liabilities | 18 |
| | 12 |
| Other | 82 |
| | 153 |
| Total current liabilities | 575 |
| | 823 |
| Long-Term Debt | 1,808 |
| | 1,467 |
| Long-Term Debt Payable to Affiliated Companies | 25 |
| | 25 |
| Deferred Credits and Other Liabilities | | | | Deferred income taxes | 1,476 |
| | 1,407 |
| Accrued pension and other post-retirement benefit costs | 52 |
| | 56 |
| Asset retirement obligations | 125 |
| | 125 |
| Regulatory liabilities | 241 |
| | 245 |
| Other | 160 |
| | 165 |
| Total deferred credits and other liabilities | 2,054 |
| | 1,998 |
| Commitments and Contingencies |
| |
| Equity | | | | Common stock, $8.50 par value, 120,000,000 shares authorized; 89,663,086 shares outstanding at 2016 and 2015 | 762 |
| | 762 |
| Additional paid-in capital | 2,695 |
| | 2,720 |
| Accumulated deficit | (616 | ) | | (698 | ) | Total equity | 2,841 |
| | 2,784 |
| Total Liabilities and Equity | $ | 7,303 |
| | $ | 7,097 |
|
DUKE ENERGY OHIO, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | Six Months Ended | | June 30, | (in millions) | 2016 |
| | 2015 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | Net income | $ | 82 |
| | $ | 97 |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | Depreciation, amortization and accretion | 127 |
| | 117 |
| Equity component of AFUDC | (2 | ) | | (2 | ) | Gains on sales of other assets and other, net | (1 | ) | | (8 | ) | Impairment charges | — |
| | 40 |
| Deferred income taxes | 68 |
| | 62 |
| Accrued pension and other post-retirement benefit costs | 3 |
| | 4 |
| Contributions to qualified pension plans | — |
| | (1 | ) | Payments for asset retirement obligations | (3 | ) | | (1 | ) | (Increase) decrease in | | | | Net realized and unrealized mark-to-market and hedging transactions | (2 | ) | | (12 | ) | Receivables | 3 |
| | 6 |
| Receivables from affiliated companies | 49 |
| | 46 |
| Inventory | (5 | ) | | 3 |
| Other current assets | 49 |
| | 32 |
| Increase (decrease) in | | | | Accounts payable | 8 |
| | (12 | ) | Accounts payable to affiliated companies | 23 |
| | 19 |
| Taxes accrued | (68 | ) | | (68 | ) | Other current liabilities | (66 | ) | | 99 |
| Other assets | (8 | ) | | 19 |
| Other liabilities | (9 | ) | | (52 | ) | Net cash provided by operating activities | 248 |
| | 388 |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | Capital expenditures | (214 | ) | | (166 | ) | Notes receivable from affiliated companies | (186 | ) | | 130 |
| Other | (13 | ) | | (4 | ) | Net cash used in investing activities | (413 | ) | | (40 | ) | CASH FLOWS FROM FINANCING ACTIVITIES | | | | Proceeds from the issuance of long-term debt | 341 |
| | — |
| Payments for the redemption of long-term debt | (52 | ) | | (152 | ) | Notes payable to affiliated companies | (103 | ) | | (193 | ) | Dividends to parent | (25 | ) | | — |
| Other | — |
| | (1 | ) | Net cash provided by (used in) financing activities | 161 |
| | (346 | ) | Net (decrease) increase in cash and cash equivalents | (4 | ) | | 2 |
| Cash and cash equivalents at beginning of period | 14 |
| | 20 |
| Cash and cash equivalents at end of period | $ | 10 |
| | $ | 22 |
| Supplemental Disclosures: | | | | Significant non-cash transactions: | | | | Accrued capital expenditures | $ | 30 |
| | $ | 19 |
| Distribution of membership interest of Duke Energy SAM, LLC to parent | — |
| | 1,912 |
|
DUKE ENERGY OHIO, INC.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
| | | | | | | | | | | | | | | | | | | | 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 | — |
| | — |
| | 97 |
| | 97 |
| Distribution of membership interest of Duke Energy SAM, LLC to parent | — |
| | (1,912 | ) | | — |
| | (1,912 | ) | Balance at June 30, 2015 | $ | 762 |
| | $ | 2,870 |
| | $ | (773 | ) | | $ | 2,859 |
| | | | | | | | | Balance at December 31, 2015 | $ | 762 |
| | $ | 2,720 |
| | $ | (698 | ) | | $ | 2,784 |
| Net income | — |
| | — |
| | 82 |
| | 82 |
| Dividends to parent | — |
| | (25 | ) | | — |
| | (25 | ) | Balance at June 30, 2016 | $ | 762 |
|
| $ | 2,695 |
|
| $ | (616 | ) |
| $ | 2,841 |
|
| | 1-3543 | DUKE ENERGY INDIANA, LLC Condensed Consolidated Statements of Operations and Comprehensive Income(an Indiana limited liability company)
(Unaudited)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 | | | |
Indicate by check mark whether the registrant (1) has 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.
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
(in millions) | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
|
Operating Revenues | $ | 702 |
| | $ | 686 |
| | $ | 1,416 |
| | $ | 1,474 |
|
Operating Expenses | | | | | | | |
Fuel used in electric generation and purchased power | 220 |
| | 235 |
| | 448 |
| | 529 |
|
Operation, maintenance and other | 189 |
| | 180 |
| | 351 |
| | 361 |
|
Depreciation and amortization | 97 |
| | 107 |
| | 222 |
| | 211 |
|
Property and other taxes | 22 |
| | 19 |
| | 45 |
| | 18 |
|
Total operating expenses | 528 |
| | 541 |
| | 1,066 |
| | 1,119 |
|
Gain on Sale of Other Assets and Other, net | — |
|
| 1 |
| | — |
| | 1 |
|
Operating Income | 174 |
| | 146 |
| | 350 |
| | 356 |
|
Other Income and Expenses, net | 6 |
| | 4 |
| | 10 |
| | 9 |
|
Interest Expense | 47 |
| | 43 |
| | 91 |
| | 88 |
|
Income Before Income Taxes | 133 |
| | 107 |
|
| 269 |
|
| 277 |
|
Income Tax Expense | 48 |
| | 39 |
| | 89 |
| | 101 |
|
Net Income | $ | 85 |
| | $ | 68 |
|
| $ | 180 |
|
| $ | 176 |
|
Other Comprehensive Loss, net of tax | | | | | | | |
Reclassification into earnings from cash flow hedges | — |
| | — |
| | (1 | ) | | (1 | ) |
Comprehensive Income | $ | 85 |
| | $ | 68 |
|
| $ | 179 |
|
| $ | 175 |
|
|
| | | | | | |
Duke Energy Corporation (Duke Energy) | Yesx | No ¨
| | Duke Energy Florida, LLC (Duke Energy Florida) | Yesx | No ¨
|
Duke Energy Carolinas, LLC (Duke Energy Carolinas) | PART IYesx
| No ¨ | | Duke Energy Ohio, Inc. (Duke Energy Ohio) | Yesx
| DUKE ENERGY INDIANA,No ¨
|
Progress Energy, Inc. (Progress Energy) | Yesx | No ¨ | | Duke Energy Indiana, LLC (Duke Energy Indiana) | Yesx | Condensed Consolidated Balance SheetsNo ¨
|
Duke Energy Progress, LLC (Duke Energy Progress) | (Unaudited)Yesx
| No ¨ | | Piedmont Natural Gas Company, Inc. (Piedmont) | Yesx | No ¨ |
Indicate by check mark whether the registrant has submitted electronically and posted on its 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).
|
| | | | | | | |
(in millions) | June 30, 2016 |
| | December 31, 2015 |
|
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 12 |
| | $ | 9 |
|
Receivables (net of allowance for doubtful accounts of $1 at 2016 and 2015) | 87 |
| | 96 |
|
Receivables from affiliated companies | 60 |
| | 71 |
|
Notes receivable from affiliated companies | 147 |
| | 83 |
|
Inventory | 508 |
| | 570 |
|
Regulatory assets | 115 |
| | 102 |
|
Other | 45 |
| | 15 |
|
Total current assets | 974 |
| | 946 |
|
Investments and Other Assets | 221 |
| | 212 |
|
Property, Plant and Equipment | | | |
Cost | 13,677 |
| | 14,007 |
|
Accumulated depreciation and amortization | (4,219 | ) | | (4,484 | ) |
Generation facilities to be retired, net | 93 |
| | — |
|
Net property, plant and equipment | 9,551 |
| | 9,523 |
|
Regulatory Assets and Deferred Debits | | | |
Regulatory assets | 825 |
| | 716 |
|
Other | 2 |
| | 2 |
|
Total regulatory assets and deferred debits | 827 |
| | 718 |
|
Total Assets | $ | 11,573 |
| | $ | 11,399 |
|
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 146 |
| | $ | 189 |
|
Accounts payable to affiliated companies | 87 |
| | 83 |
|
Taxes accrued | 40 |
| | 89 |
|
Interest accrued | 59 |
| | 56 |
|
Current maturities of long-term debt | 221 |
| | 547 |
|
Regulatory liabilities | 57 |
| | 62 |
|
Other | 101 |
| | 97 |
|
Total current liabilities | 711 |
| | 1,123 |
|
Long-Term Debt | 3,566 |
| | 3,071 |
|
Long-Term Debt Payable to Affiliated Companies | 150 |
| | 150 |
|
Deferred Credits and Other Liabilities | | | |
Deferred income taxes | 1,732 |
| | 1,657 |
|
Investment tax credits | 137 |
| | 138 |
|
Accrued pension and other post-retirement benefit costs | 74 |
| | 80 |
|
Asset retirement obligations | 520 |
| | 525 |
|
Regulatory liabilities | 745 |
| | 754 |
|
Other | 72 |
| | 65 |
|
Total deferred credits and other liabilities | 3,280 |
| | 3,219 |
|
Commitments and Contingencies |
| |
|
Equity | | | |
Member's equity | 3,866 |
| | — |
|
Common stock, no par; $0.01 stated value, 60,000,000 shares authorized; 53,913,701 shares outstanding at 2015 | — |
| | 1 |
|
Additional paid-in capital | — |
| | 1,384 |
|
Retained earnings | — |
| | 2,450 |
|
Accumulated other comprehensive income | — |
| | 1 |
|
Total equity | 3,866 |
| | 3,836 |
|
Total Liabilities and Equity | $ | 11,573 |
| | $ | 11,399 |
|
|
| | | | | | |
Duke Energy | Yesx | No ¨ | | Duke Energy Florida | Yesx
| PART INo ¨
|
Duke Energy Carolinas | Yesx | No ¨
| | Duke Energy Ohio | DUKE ENERGY INDIANA, LLCYesx
| Condensed Consolidated Statements of Cash FlowsNo ¨
|
Progress Energy | (Unaudited)Yesx
| No ¨ | | Duke Energy Indiana | Yesx | No ¨ |
Duke Energy Progress | Yesx | No ¨ | | Piedmont | Yesx | No ¨ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
| | | | | | | |
| Six Months Ended |
| June 30, |
(in millions) | 2016 |
| | 2015 |
|
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income | $ | 180 |
| | $ | 176 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation, amortization and accretion | 223 |
| | 214 |
|
Equity component of AFUDC | (7 | ) | | (6 | ) |
Gain on sale of other assets and other, net | — |
| | (1 | ) |
Deferred income taxes | 36 |
| | 232 |
|
Accrued pension and other post-retirement benefit costs | 4 |
| | 6 |
|
Contributions to qualified pension plans | — |
| | (9 | ) |
Payments for asset retirement obligations | (16 | ) | | (3 | ) |
(Increase) decrease in | | | |
Net realized and unrealized mark-to-market and hedging transactions
| — |
| | (2 | ) |
Receivables | 12 |
| | (1 | ) |
Receivables from affiliated companies | 11 |
| | 6 |
|
Inventory | 62 |
| | (42 | ) |
Other current assets | (19 | ) | | 87 |
|
Increase (decrease) in | | | |
Accounts payable | (22 | ) | | 26 |
|
Accounts payable to affiliated companies | 4 |
| | 2 |
|
Taxes accrued | (42 | ) | | (21 | ) |
Other current liabilities | (60 | ) | | 5 |
|
Other assets | (29 | ) | | (31 | ) |
Other liabilities | 44 |
| | (43 | ) |
Net cash provided by operating activities | 381 |
| | 595 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Capital expenditures | (325 | ) | | (380 | ) |
Purchases of available-for-sale securities | (7 | ) | | (4 | ) |
Proceeds from sales and maturities of available-for-sale securities | 5 |
| | 3 |
|
Proceeds from the sales of other assets | — |
| | 14 |
|
Notes receivable from affiliated companies | (64 | ) | | (25 | ) |
Other | (6 | ) | | 25 |
|
Net cash used in investing activities | (397 | ) | | (367 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Proceeds from the issuance of long-term debt | 495 |
| | — |
|
Payments for the redemption of long-term debt | (326 | ) | | — |
|
Notes payable to affiliated companies | — |
| | (71 | ) |
Dividends to parent | — |
| | (150 | ) |
Distributions to parent | (149 | ) | | — |
|
Other | (1 | ) | | (1 | ) |
Net cash provided by (used in) financing activities | 19 |
| | (222 | ) |
Net increase in cash and cash equivalents | 3 |
|
| 6 |
|
Cash and cash equivalents at beginning of period | 9 |
| | 6 |
|
Cash and cash equivalents at end of period | $ | 12 |
| | $ | 12 |
|
Supplemental Disclosures: | | | |
Significant non-cash transactions: | | | |
Accrued capital expenditures | $ | 43 |
| | $ | 46 |
|
|
| | | | | |
Duke Energy | Large accelerated filerx | Accelerated filer ¨ | Non-accelerated filer ¨
| PART ISmaller reporting company ¨
| Emerging Growth Company ¨ |
Duke Energy Carolinas | Large accelerated filer ¨
| DUKE ENERGY INDIANA, LLCAccelerated filer ¨
| Condensed Consolidated Statements of Changes in EquityNon-accelerated filerx
| (Unaudited)Smaller reporting company ¨
| Emerging Growth Company ¨ |
Progress Energy | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filerx | Smaller reporting company ¨ | Emerging Growth Company ¨ |
Duke Energy Progress | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filerx | Smaller reporting company ¨ | Emerging Growth Company ¨ |
Duke Energy Florida | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filerx | Smaller reporting company ¨ | Emerging Growth Company ¨ |
Duke Energy Ohio | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filerx | Smaller reporting company ¨ | Emerging Growth Company ¨ |
Duke Energy Indiana | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filerx | Smaller reporting company ¨ | Emerging Growth Company ¨ |
Piedmont | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filerx | Smaller reporting company ¨ | Emerging Growth Company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | 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 | — |
| | — |
| | 176 |
| | — |
| | — |
| | 176 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Dividends to parent | — |
| | — |
| | (150 | ) | | — |
| | — |
| | (150 | ) |
Balance at June 30, 2015 | $ | 1 |
| | $ | 1,384 |
| | $ | 2,486 |
|
| $ | — |
| | $ | 2 |
| | $ | 3,873 |
|
| | | | | | | | | | | |
Balance at December 31, 2015 | $ | 1 |
| | $ | 1,384 |
| | $ | 2,450 |
| | $ | — |
| | $ | 1 |
| | $ | 3,836 |
|
Net income | — |
| | — |
| | — |
| | 180 |
| | — |
| | 180 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Distributions to parent | — |
| | — |
| | — |
| | (149 | ) | | — |
| | (149 | ) |
Transfer to Member's Equity | (1 | ) | | (1,384 | ) | | (2,450 | ) | | 3,835 |
| | — |
| | — |
|
Balance at June 30, 2016 | $ | — |
| | $ | — |
| | $ | — |
|
| $ | 3,866 |
| | $ | — |
| | $ | 3,866 |
|
|
| | | | | | |
Duke Energy | Yes ¨ | Nox | | Duke Energy Florida | Yes ¨ | Nox |
Duke Energy Carolinas | Yes ¨ | Nox | | Duke Energy Ohio | Yes ¨ | Nox |
Progress Energy | Yes ¨ | Nox | | Duke Energy Indiana | Yes ¨ | Nox |
Duke Energy Progress | Yes ¨ | Nox | | Piedmont | Yes ¨ | Nox |
Number of shares of Common stock outstanding at March 31, 2017:
|
| | |
Registrant | Description | Shares |
Duke Energy | Common stock, $0.001 par value | 699,883,528 |
This combined Form 10-Q 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 H(1)(a) and (b) of Form 10-Q and are therefore filing this form with the reduced disclosure format specified in General Instructions H(2) of Form 10-Q.
TABLE OF CONTENTS
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PART II. FINANCIAL INFORMATION |
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| Piedmont Natural Gas Company, Inc. Financial Statements | |
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| Note 1 – Organization and Basis of Presentation | |
| Note 2 – Acquisitions and Dispositions | |
| Note 3 – Business Segments | |
| Note 4 – Regulatory Matters | |
| Note 5 – Commitments and Contingencies | |
| Note 6 – Debt and Credit Facilities | |
| Note 7 – Goodwill and Intangible Assets | |
| Note 8 – Related Party Transactions | |
| Note 9 – Derivatives and Hedging | |
| Note 10 – Investments in Debt and Equity Securities | |
| Note 11 – Fair Value Measurements | |
| Note 12 – Variable Interest Entities | |
| Note 13 – Common Stock | |
| Note 14 – Stock-Based Compensation | |
| Note 15 – Employee Benefit Plans | |
| Note 16 – Income Taxes | |
| Note 17 – Subsequent Events | |
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PART II. OTHER INFORMATION |
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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:
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◦ | State, federal and foreign legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements or climate change, as well as rulings that affect cost and investment recovery or have an impact on rate structures or market prices; |
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◦ | The extent and timing of costs and liabilities to Combined Notescomply with federal and state laws, regulations and legal requirements related to Condensed Consolidated Financial Statementscoal ash remediation, including amounts for required closure of certain ash impoundments, are uncertain and difficult to estimate; |
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◦ | The unaudited notesability 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 the regulatory process; |
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◦ | 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; |
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◦ | Costs and effects of legal and administrative proceedings, settlements, investigations and claims; |
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◦ | Industrial, commercial and residential growth or decline in service territories or customer bases resulting from variations in customer usage patterns, including energy efficiency efforts and use of alternative energy sources, including self-generation and distributed generation technologies; |
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◦ | 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; |
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◦ | Advancements in technology; |
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◦ | Additional competition in electric and natural gas markets and continued industry consolidation; |
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◦ | 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; |
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◦ | The ability to successfully operate electric generating facilities and deliver electricity to customers including direct or indirect effects to the condensed consolidated financial statementscompany resulting from an incident that follow areaffects the U.S. electric grid or generating resources; |
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◦ | The ability to complete necessary or desirable pipeline expansion or infrastructure projects in our natural gas business; |
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◦ | Operational interruptions to our gas distribution and transmission activities; |
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◦ | The availability of adequate interstate pipeline transportation capacity and natural gas supply; |
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◦ | The impact on facilities and business from a combined presentation. The following list indicates the registrants to which the footnotes apply. Tables within the notes may not sum across due to Progress Energy's consolidation of Duke Energy Progress, Duke Energy Floridaterrorist attack, cybersecurity threats, data security breaches, and other subsidiaries that are not registrants. In addition,catastrophic events such as fires, explosions, pandemic health events or other similar occurrences; |
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◦ | The inherent risks associated with the Duke Energy amounts include balances from subsidiaries that are not registrants. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Applicable Notes | Registrant | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | 8 | | 9 | | 10 | | 11 | | 12 | | 13 | | 14 | | 15 | | 16 | | 17 | 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 | • | | | | • | | • | | • | | • | | | | • | | • | | • | | • | | • | | | | | | • | | • | | • |
1. ORGANIZATION AND BASIS OF PRESENTATION
NATURE OF OPERATIONS AND BASIS OF CONSOLIDATION
Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) is an energy company headquarteredoperation and potential construction of nuclear facilities, including environmental, health, safety, regulatory and financial risks, including the financial stability of third party service providers;
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◦ | The timing and extent of changes in Charlotte, North Carolina, subjectcommodity prices and interest rates and the ability to regulation byrecover such costs through the Federal Energy Regulatory Commission (FERC). Duke Energy operates inregulatory process, where appropriate, and their impact on liquidity positions and the United States (U.S.) and Latin America primarily through its direct and indirect subsidiaries. Duke Energy’s subsidiaries include its subsidiary registrants, 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) and Duke Energy Indiana, LLC (Duke Energy Indiana, formerly Duke Energy Indiana, Inc.). When discussing Duke Energy’s consolidated financial information, it necessarily includes thevalue of underlying assets; |
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◦ | The results of its six separate subsidiary registrants (collectively referredfinancing efforts, including the ability to as the Subsidiary Registrants),obtain financing on favorable terms, which along with Duke Energy, are collectively referred to as the Duke Energy Registrants (Duke Energy Registrants).These Condensed Consolidated Financial Statements include, after eliminating intercompany transactionscan be affected by various factors, including credit ratings, interest rate fluctuations, and balances, the accountsgeneral economic conditions;
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◦ | Credit ratings of the Duke Energy Registrants may be different from what is expected; |
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◦ | Declines in the market prices of equity and subsidiaries wherefixed-income securities and resultant cash funding requirements for defined benefit pension plans, other post-retirement benefit plans and nuclear decommissioning trust funds; |
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◦ | Construction and development risks associated with the respective Duke Energy Registrants have control. These Condensed Consolidated Financial Statements also reflectcompletion of the Duke Energy Registrants’ proportionate sharecapital investment projects, including risks related to financing, obtaining and complying with terms of certain jointly owned generationpermits, 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; |
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◦ | Changes in rules for regional transmission facilities.Duke Energy Carolinas is a regulated public utility primarily engagedorganizations, including changes in the generation, transmission, distributionrate designs and sale of electricity in portions of North Carolinanew and South Carolina. Duke Energy Carolinas is subjectevolving capacity markets, and risks related to the regulatory provisions of the North Carolina Utilities Commission (NCUC), Public Service Commission of South Carolina (PSCSC), U.S. Nuclear Regulatory Commission (NRC) and FERC. Substantially all of Duke Energy Carolinas’ operations qualify for regulatory accounting.
Progress Energy is a public utility holding company headquartered in Raleigh, North Carolina, subject to regulationobligations created by the FERC. Progress Energy conducts operations through its wholly owneddefault of other participants;
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◦ | The ability to control operation and maintenance costs; |
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◦ | The level of creditworthiness of counterparties to transactions; |
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◦ | Employee workforce factors, including the potential inability to attract and retain key personnel; |
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◦ | The ability of subsidiaries Duke Energy Progress and Duke Energy Florida. Substantially all of Progress Energy’s operations qualify for regulatory accounting.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. Substantially all of Duke Energy Progress’ operations qualify for regulatory accounting.
Duke Energy Florida is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Florida. Duke Energy Florida is subject to the regulatory provisions of the Florida Public Service Commission (FPSC), NRC and FERC. Substantially all of Duke Energy Florida’s operations qualify for regulatory accounting.
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 Condensed Consolidated Statements of Operations and Comprehensive Income. Operations in Kentucky are conducted through its wholly owned subsidiary, Duke Energy Kentucky, Inc. (Duke Energy Kentucky). References hereinpay dividends or distributions to Duke Energy Ohio collectively include Duke Energy OhioCorporation holding company (the Parent);
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◦ | The performance of projects undertaken by our nonregulated businesses and its subsidiaries, unless otherwise noted. Duke Energy Ohio is subjectthe success of efforts to invest in and develop new opportunities; |
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◦ | The effect of accounting pronouncements issued periodically by accounting standard-setting bodies; |
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◦ | Substantial revision to the regulatory provisionsU.S. tax code, such as changes to the corporate tax rate or material change in the deductibility of interest; |
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◦ | The impact of potential goodwill impairments; |
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◦ | The ability to successfully complete future merger, acquisition or divestiture plans; and |
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◦ | The ability to successfully integrate the Public Utilities Commissionnatural gas businesses following the acquisition of Ohio (PUCO), Kentucky Public Service Commission (KPSC)Piedmont Natural Gas Company, Inc. and FERC. On April 2, 2015, Duke Energy completedrealize anticipated benefits. |
Additional risks and uncertainties are identified and discussed in the Duke Energy Registrants' reports filed with the SEC and available at the SEC's website at www.sec.gov. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than described. Forward-looking statements speak only as of the date they are made and the Duke Energy Registrants expressly disclaim an obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DUKE ENERGY CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
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| Three Months Ended |
| March 31, |
(in millions, except per-share amounts) | 2017 |
| | 2016 |
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Operating Revenues | | | |
Regulated electric | $ | 4,913 |
| | $ | 5,053 |
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Regulated natural gas | 646 |
| | 169 |
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Nonregulated electric and other | 170 |
| | 155 |
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Total operating revenues | 5,729 |
| | 5,377 |
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Operating Expenses | | | |
Fuel used in electric generation and purchased power | 1,449 |
| | 1,588 |
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Cost of natural gas | 258 |
| | 49 |
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Operation, maintenance and other | 1,433 |
| | 1,416 |
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Depreciation and amortization | 859 |
| | 793 |
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Property and other taxes | 304 |
| | 295 |
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Impairment charges | — |
| | 3 |
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Total operating expenses | 4,303 |
| | 4,144 |
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Gains on Sales of Other Assets and Other, net | 11 |
| | 7 |
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Operating Income | 1,437 |
| | 1,240 |
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Other Income and Expenses | | | |
Equity in earnings of unconsolidated affiliates | 29 |
| | 8 |
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Other income and expenses, net | 86 |
| | 70 |
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Total other income and expenses | 115 |
| | 78 |
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Interest Expense | 491 |
| | 489 |
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Income From Continuing Operations Before Income Taxes | 1,061 |
| | 829 |
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Income Tax Expense from Continuing Operations | 344 |
| | 252 |
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Income From Continuing Operations | 717 |
| | 577 |
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Income From Discontinued Operations, net of tax | — |
| | 122 |
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Net Income | 717 |
| | 699 |
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Less: Net Income Attributable to Noncontrolling Interests | 1 |
| | 5 |
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Net Income Attributable to Duke Energy Corporation | $ | 716 |
| | $ | 694 |
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Earnings Per Share – Basic and Diluted | | | |
Income from continuing operations attributable to Duke Energy Corporation common stockholders | | | |
Basic | $ | 1.02 |
| | $ | 0.83 |
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Diluted | $ | 1.02 |
| | $ | 0.83 |
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Income from discontinued operations attributable to Duke Energy Corporation common stockholders | | | |
Basic | $ | — |
| | $ | 0.18 |
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Diluted | $ | — |
| | $ | 0.18 |
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Net income attributable to Duke Energy Corporation common stockholders | | | |
Basic | $ | 1.02 |
| | $ | 1.01 |
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Diluted | $ | 1.02 |
| | $ | 1.01 |
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Weighted average shares outstanding | | | |
Basic | 700 |
| | 689 |
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Diluted | 700 |
| | 689 |
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DUKE ENERGY CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
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| Three Months Ended |
| March 31, |
(in millions) | 2017 |
| | 2016 |
|
Net Income | $ | 717 |
| | $ | 699 |
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Other Comprehensive Income, net of tax | | | |
Foreign currency translation adjustments | — |
| | 49 |
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Pension and OPEB adjustments | 1 |
| | — |
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Net unrealized gains (losses) on cash flow hedges | 2 |
| | (14 | ) |
Reclassification into earnings from cash flow hedges | 1 |
| | 2 |
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Unrealized gains on available-for-sale securities | 4 |
| | 4 |
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Other Comprehensive Income, net of tax | 8 |
| | 41 |
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Comprehensive Income | 725 |
| | 740 |
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Less: Comprehensive Income Attributable to Noncontrolling Interests | 1 |
| | 6 |
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Comprehensive Income Attributable to Duke Energy Corporation | $ | 724 |
| | $ | 734 |
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DUKE ENERGY CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
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(in millions) | March 31, 2017 | | December 31, 2016 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 878 |
| | $ | 392 |
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Receivables (net of allowance for doubtful accounts of $13 at 2017 and $14 at 2016) | 623 |
| | 751 |
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Receivables of VIEs (net of allowance for doubtful accounts of $57 at 2017 and $54 at 2016) | 1,682 |
| | 1,893 |
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Inventory | 3,366 |
| | 3,522 |
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Regulatory assets (includes $53 at 2017 and $50 at 2016 related to VIEs) | 1,031 |
| | 1,023 |
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Other | 425 |
| | 458 |
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Total current assets | 8,005 |
| | 8,039 |
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Property, Plant and Equipment | | | |
Cost | 123,301 |
| | 121,397 |
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Accumulated depreciation and amortization | (40,293 | ) | | (39,406 | ) |
Generation facilities to be retired, net | 508 |
| | 529 |
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Net property, plant and equipment | 83,516 |
| | 82,520 |
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Other Noncurrent Assets | | | |
Goodwill | 19,425 |
| | 19,425 |
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Regulatory assets (includes $1,131 at 2017 and $1,142 at 2016 related to VIEs) | 12,838 |
| | 12,878 |
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Nuclear decommissioning trust funds | 6,448 |
| | 6,205 |
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Investments in equity method unconsolidated affiliates | 1,122 |
| | 925 |
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Other | 2,754 |
| | 2,769 |
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Total other noncurrent assets | 42,587 |
| | 42,202 |
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Total Assets | $ | 134,108 |
| | $ | 132,761 |
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LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 2,203 |
| | $ | 2,994 |
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Notes payable and commercial paper | 3,558 |
| | 2,487 |
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Taxes accrued | 363 |
| | 384 |
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Interest accrued | 526 |
| | 503 |
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Current maturities of long-term debt (includes $281 at 2017 and $260 at 2016 related to VIEs) | 1,977 |
| | 2,319 |
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Asset retirement obligations | 404 |
| | 411 |
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Regulatory liabilities | 340 |
| | 409 |
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Other | 1,570 |
| | 2,044 |
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Total current liabilities | 10,941 |
| | 11,551 |
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Long-Term Debt (includes $4,108 at 2017 and $3,587 at 2016 related to VIEs) | 47,021 |
| | 45,576 |
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Other Noncurrent Liabilities | | | |
Deferred income taxes | 14,443 |
| | 14,155 |
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Asset retirement obligations | 10,186 |
| | 10,200 |
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Regulatory liabilities | 6,972 |
| | 6,881 |
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Accrued pension and other post-retirement benefit costs | 1,115 |
| | 1,111 |
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Investment tax credits | 537 |
| | 493 |
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Other | 1,707 |
| | 1,753 |
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Total other noncurrent liabilities | 34,960 |
| | 34,593 |
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Commitments and Contingencies |
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Equity | | | |
Common stock, $0.001 par value, 2 billion shares authorized; 700 million shares outstanding at 2017 and 2016 | 1 |
| | 1 |
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Additional paid-in capital | 38,742 |
| | 38,741 |
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Retained earnings | 2,521 |
| | 2,384 |
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Accumulated other comprehensive loss | (85 | ) | | (93 | ) |
Total Duke Energy Corporation stockholders' equity | 41,179 |
| | 41,033 |
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Noncontrolling interests | 7 |
| | 8 |
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Total equity | 41,186 |
| | 41,041 |
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Total Liabilities and Equity | $ | 134,108 |
| | $ | 132,761 |
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DUKE ENERGY CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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| Three Months Ended |
| March 31, |
(in millions) | 2017 |
| | 2016 |
|
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income | $ | 717 |
| | $ | 699 |
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Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation, amortization and accretion (including amortization of nuclear fuel) | 991 |
| | 931 |
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Equity component of AFUDC | (62 | ) | | (42 | ) |
Gains on sales of other assets | (11 | ) | | (9 | ) |
Impairment charges | — |
| | 3 |
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Deferred income taxes | 342 |
| | 181 |
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Equity in earnings of unconsolidated affiliates | (29 | ) | | (8 | ) |
Accrued pension and other post-retirement benefit costs | 6 |
| | 4 |
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Payments for asset retirement obligations | (134 | ) | | (112 | ) |
(Increase) decrease in | | | |
Net realized and unrealized mark-to-market and hedging transactions | (38 | ) | | 102 |
|
Receivables | 343 |
| | 139 |
|
Inventory | 155 |
| | 89 |
|
Other current assets | 16 |
| | 13 |
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Increase (decrease) in | | | |
Accounts payable | (463 | ) | | (210 | ) |
Taxes accrued | (28 | ) | | 40 |
|
Other current liabilities | (478 | ) | | (81 | ) |
Other assets | (40 | ) | | 45 |
|
Other liabilities | 2 |
| | (102 | ) |
Net cash provided by operating activities | 1,289 |
| | 1,682 |
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CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Capital expenditures | (2,160 | ) | | (1,645 | ) |
Contributions to equity method investments | (175 | ) | | (59 | ) |
Purchases of available-for-sale securities | (1,386 | ) | | (1,347 | ) |
Proceeds from sales and maturities of available-for-sale securities | 1,405 |
| | 1,362 |
|
Change in restricted cash | (34 | ) | | (32 | ) |
Other | (49 | ) | | (37 | ) |
Net cash used in investing activities | (2,399 | ) | | (1,758 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Proceeds from the: | | | |
Issuance of long-term debt | 1,563 |
| | 1,140 |
|
Issuance of common stock related to employee benefit plans | — |
| | 7 |
|
Payments for the redemption of long-term debt | (408 | ) | | (389 | ) |
Proceeds from the issuance of short-term debt with original maturities greater than 90 days | 25 |
| | — |
|
Payments for the redemption of short-term debt with original maturities greater than 90 days | (7 | ) | | (92 | ) |
Notes payable and commercial paper | 1,045 |
| | (66 | ) |
Change in bank overdrafts | 5 |
| | — |
|
Dividends paid | (600 | ) | | (570 | ) |
Other | (27 | ) | | (33 | ) |
Net cash provided by (used in) financing activities | 1,596 |
| | (3 | ) |
Changes in cash and cash equivalents associated with assets held for sale | — |
| | 30 |
|
Net increase (decrease) in cash and cash equivalents | 486 |
| | (49 | ) |
Cash and cash equivalents at beginning of period | 392 |
| | 383 |
|
Cash and cash equivalents at end of period | $ | 878 |
| | $ | 334 |
|
Supplemental Disclosures: | | | |
Significant non-cash transactions: | | | |
Accrued capital expenditures | $ | 575 |
| | $ | 576 |
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DUKE ENERGY CORPORATION
Condensed Consolidated Statements of Changes in Equity
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Accumulated Other Comprehensive Loss | | | | | | |
| | | | | | | | | | | | | Net Unrealized |
| | | | Total |
| | | | |
| | | | | | | | | Foreign |
| | Net |
| | (Losses) Gains |
| | | | 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, 2015 | 688 |
| | $ | 1 |
| | $ | 37,968 |
| | $ | 2,564 |
| | $ | (692 | ) | | $ | (50 | ) | | $ | (3 | ) | | $ | (61 | ) | | $ | 39,727 |
| | $ | 44 |
| | $ | 39,771 |
|
Net income | — |
| | — |
| | — |
| | 694 |
| | — |
| | — |
| | — |
| | — |
| | 694 |
| | 5 |
| | 699 |
|
Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | 48 |
| | (12 | ) | | 4 |
| | — |
| | 40 |
| | 1 |
| | 41 |
|
Common stock issuances, including dividend reinvestment and employee benefits | 1 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
Common stock dividends | — |
| | — |
| | — |
| | (570 | ) | | — |
| | — |
| | — |
| | — |
| | (570 | ) | | — |
| | (570 | ) |
Distributions to noncontrolling interest in subsidiaries | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Balance at March 31, 2016 | 689 |
| | $ | 1 |
|
| $ | 37,969 |
|
| $ | 2,688 |
|
| $ | (644 | ) |
| $ | (62 | ) |
| $ | 1 |
|
| $ | (61 | ) |
| $ | 39,892 |
|
| $ | 49 |
|
| $ | 39,941 |
|
| | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2016 | 700 |
| | $ | 1 |
| | $ | 38,741 |
| | $ | 2,384 |
| | $ | — |
| | $ | (20 | ) | | $ | (1 | ) | | $ | (72 | ) | | $ | 41,033 |
| | $ | 8 |
| | $ | 41,041 |
|
Net income | — |
| | — |
| | — |
| | 716 |
| | — |
| | — |
| | — |
| | — |
| | 716 |
| | 1 |
| | 717 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | 4 |
| | 1 |
| | 8 |
| | — |
| | 8 |
|
Common stock issuances, including dividend reinvestment and employee benefits | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
Common stock dividends | — |
| | — |
| | — |
| | (600 | ) | | — |
| | — |
| | — |
| | — |
| | (600 | ) | | — |
| | (600 | ) |
Distributions to noncontrolling interest in subsidiaries | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) |
Other(a) | — |
| | — |
| | — |
| �� | 21 |
| | — |
| | — |
| | — |
| | — |
| | 21 |
| | — |
| | 21 |
|
Balance at March 31, 2017 | 700 |
|
| $ | 1 |
|
| $ | 38,742 |
|
| $ | 2,521 |
|
| $ | — |
|
| $ | (17 | ) |
| $ | 3 |
|
| $ | (71 | ) |
| $ | 41,179 |
|
| $ | 7 |
|
| $ | 41,186 |
|
| |
(a) | Cumulative-effect adjustment due to implementation of a new accounting standard related to stock-based compensation and the sale of its nonregulated Midwest generation business, which sold power into wholesale energy markets, to a subsidiary of Dynegy Inc. (Dynegy).associated income taxes. See Note 21 for additionalmore information. Substantially all of Duke Energy Ohio’s operations that remain after the sale qualify for regulatory accounting.Duke Energy Indiana is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Indiana. Duke Energy Indiana is subject to the regulatory provisions of the Indiana Utility Regulatory Commission (IURC) and FERC. Substantially all of Duke Energy Indiana’s operations qualify for regulatory accounting. On January 1, 2016, Duke Energy Indiana, an Indiana corporation, converted into an Indiana limited liability company.
|
PART I
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
Combined Notes to Condensed Consolidated Financial Statements – (Continued)
(Unaudited)
DUKE ENERGY CAROLINAS, LLC
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
|
| | | | | | | |
| Three Months Ended |
| March 31, |
(in millions) | 2017 |
| | 2016 |
|
Operating Revenues | $ | 1,716 |
| | $ | 1,740 |
|
Operating Expenses | | | |
Fuel used in electric generation and purchased power | 428 |
| | 421 |
|
Operation, maintenance and other | 482 |
| | 512 |
|
Depreciation and amortization | 254 |
| | 259 |
|
Property and other taxes | 68 |
| | 67 |
|
Total operating expenses | 1,232 |
| | 1,259 |
|
Operating Income | 484 |
| | 481 |
|
Other Income and Expenses, net | 37 |
| | 37 |
|
Interest Expense | 103 |
| | 107 |
|
Income Before Income Taxes | 418 |
| | 411 |
|
Income Tax Expense | 148 |
| | 140 |
|
Net Income | $ | 270 |
| | $ | 271 |
|
Other Comprehensive Income, net of tax | | | |
Reclassification into earnings from cash flow hedges | — |
| | 1 |
|
Comprehensive Income | $ | 270 |
| | $ | 272 |
|
DUKE ENERGY CAROLINAS, LLC
Condensed Consolidated Balance Sheets
(Unaudited)
|
| | | | | | | |
(in millions) | March 31, 2017 |
| | December 31, 2016 |
|
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 11 |
| | $ | 14 |
|
Receivables (net of allowance for doubtful accounts of $2 at 2017 and 2016) | 166 |
| | 160 |
|
Receivables of VIEs (net of allowance for doubtful accounts of $7 at 2017 and 2016) | 563 |
| | 645 |
|
Receivables from affiliated companies | 109 |
| | 163 |
|
Notes receivable from affiliated companies | — |
| | 66 |
|
Inventory | 1,051 |
| | 1,055 |
|
Regulatory assets | 233 |
| | 238 |
|
Other | 65 |
| | 37 |
|
Total current assets | 2,198 |
| | 2,378 |
|
Property, Plant and Equipment | | | |
Cost | 41,600 |
| | 41,127 |
|
Accumulated depreciation and amortization | (14,649 | ) | | (14,365 | ) |
Net property, plant and equipment | 26,951 |
| | 26,762 |
|
Other Noncurrent Assets | | | |
Regulatory assets | 3,098 |
| | 3,159 |
|
Nuclear decommissioning trust funds | 3,406 |
| | 3,273 |
|
Other | 926 |
| | 943 |
|
Total other noncurrent assets | 7,430 |
| | 7,375 |
|
Total Assets | $ | 36,579 |
| | $ | 36,515 |
|
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 602 |
| | $ | 833 |
|
Accounts payable to affiliated companies | 250 |
| | 247 |
|
Notes payable to affiliated companies | 337 |
| | — |
|
Taxes accrued | 90 |
| | 143 |
|
Interest accrued | 134 |
| | 102 |
|
Current maturities of long-term debt | 404 |
| | 116 |
|
Asset retirement obligations | 224 |
| | 222 |
|
Regulatory liabilities | 118 |
| | 161 |
|
Other | 345 |
| | 468 |
|
Total current liabilities | 2,504 |
|
| 2,292 |
|
Long-Term Debt | 8,787 |
| | 9,187 |
|
Long-Term Debt Payable to Affiliated Companies | 300 |
| | 300 |
|
Other Noncurrent Liabilities | | | |
Deferred income taxes | 6,668 |
| | 6,544 |
|
Asset retirement obligations | 3,658 |
| | 3,673 |
|
Regulatory liabilities | 2,860 |
| | 2,840 |
|
Accrued pension and other post-retirement benefit costs | 103 |
| | 97 |
|
Investment tax credits | 237 |
| | 203 |
|
Other | 595 |
| | 607 |
|
Total other noncurrent liabilities | 14,121 |
| | 13,964 |
|
Commitments and Contingencies |
|
| |
|
|
Equity | | | |
Member's equity | 10,876 |
| | 10,781 |
|
Accumulated other comprehensive loss | (9 | ) | | (9 | ) |
Total equity | 10,867 |
| | 10,772 |
|
Total Liabilities and Equity | $ | 36,579 |
| | $ | 36,515 |
|
DUKE ENERGY CAROLINAS, LLC
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| | | | | | | |
| Three Months Ended |
| March 31, |
(in millions) | 2017 |
| | 2016 |
|
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income | $ | 270 |
| | $ | 271 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization (including amortization of nuclear fuel) | 339 |
| | 330 |
|
Equity component of AFUDC | (30 | ) | | (23 | ) |
Deferred income taxes | 162 |
| | 145 |
|
Accrued pension and other post-retirement benefit costs | — |
| | 1 |
|
Payments for asset retirement obligations | (65 | ) | | (52 | ) |
(Increase) decrease in | | | |
Net realized and unrealized mark-to-market and hedging transactions | 3 |
| | 3 |
|
Receivables | 66 |
| | 2 |
|
Receivables from affiliated companies | 54 |
| | 33 |
|
Inventory | 4 |
| | 40 |
|
Other current assets | (26 | ) | | 102 |
|
Increase (decrease) in | | | |
Accounts payable | (131 | ) | | (165 | ) |
Accounts payable to affiliated companies | 3 |
| | 21 |
|
Taxes accrued | (53 | ) | | 52 |
|
Other current liabilities | (125 | ) | | 21 |
|
Other assets | (3 | ) | | 26 |
|
Other liabilities | (2 | ) | | (26 | ) |
Net cash provided by operating activities | 466 |
| | 781 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Capital expenditures | (563 | ) | | (459 | ) |
Purchases of available-for-sale securities | (722 | ) | | (785 | ) |
Proceeds from sales and maturities of available-for-sale securities | 722 |
| | 785 |
|
Notes receivable from affiliated companies | 66 |
| | (691 | ) |
Other | (20 | ) | | (18 | ) |
Net cash used in investing activities | (517 | ) | | (1,168 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Proceeds from the issuance of long-term debt | — |
| | 992 |
|
Payments for the redemption of long-term debt | (113 | ) | | (1 | ) |
Notes payable to affiliated companies | 337 |
| | — |
|
Distributions to parent | (175 | ) | | (600 | ) |
Other | (1 | ) | | — |
|
Net cash provided by financing activities | 48 |
| | 391 |
|
Net (decrease) increase in cash and cash equivalents | (3 | ) | | 4 |
|
Cash and cash equivalents at beginning of period | 14 |
| | 13 |
|
Cash and cash equivalents at end of period | $ | 11 |
| | $ | 17 |
|
Supplemental Disclosures: | | | |
Significant non-cash transactions: | | | |
Accrued capital expenditures | $ | 164 |
| | $ | 179 |
|
DUKE ENERGY CAROLINAS, LLC
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
|
| | | | | | | | | | | |
| | | Accumulated Other | | |
| | | Comprehensive | | |
| | | Loss | | |
| | | Net Losses on |
| | |
| Member's |
| | Cash Flow |
| | Total |
|
(in millions) | Equity |
| | Hedges |
| | Equity |
|
Balance at December 31, 2015 | $ | 11,617 |
| | $ | (11 | ) | | $ | 11,606 |
|
Net income | 271 |
| | — |
| | 271 |
|
Other comprehensive income | — |
| | 1 |
| | 1 |
|
Distributions to parent | (600 | ) | | — |
| | (600 | ) |
Balance at March 31, 2016 | $ | 11,288 |
| | $ | (10 | ) | | $ | 11,278 |
|
| | | | | |
Balance at December 31, 2016 | $ | 10,781 |
| | $ | (9 | ) | | $ | 10,772 |
|
Net income | 270 |
| | — |
| | 270 |
|
Distributions to parent | (175 | ) | | — |
| | (175 | ) |
Balance at March 31, 2017 | $ | 10,876 |
| | $ | (9 | ) | | $ | 10,867 |
|
PROGRESS ENERGY, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
|
| | | | | | | |
| Three Months Ended |
| March 31, |
(in millions) | 2017 |
| | 2016 |
|
Operating Revenues | $ | 2,179 |
| | $ | 2,332 |
|
Operating Expenses | | | |
Fuel used in electric generation and purchased power | 726 |
| | 860 |
|
Operation, maintenance and other | 544 |
| | 592 |
|
Depreciation and amortization | 313 |
| | 290 |
|
Property and other taxes | 117 |
| | 119 |
|
Impairment charges | — |
| | 2 |
|
Total operating expenses | 1,700 |
| | 1,863 |
|
Gains on Sales of Other Assets and Other, net | 8 |
| | 6 |
|
Operating Income | 487 |
| | 475 |
|
Other Income and Expenses, net | 24 |
| | 20 |
|
Interest Expense | 206 |
| | 160 |
|
Income Before Income Taxes | 305 |
| | 335 |
|
Income Tax Expense | 104 |
| | 123 |
|
Net Income | 201 |
| | 212 |
|
Less: Net Income Attributable to Noncontrolling Interests | 2 |
| | 3 |
|
Net Income Attributable to Parent | $ | 199 |
| | $ | 209 |
|
| | | |
Net Income | $ | 201 |
| | $ | 212 |
|
Other Comprehensive Income, net of tax | | | |
Pension and OPEB adjustments | 1 |
| | 1 |
|
Reclassification into earnings from cash flow hedges | 1 |
| | 1 |
|
Unrealized gains on available-for-sale securities | 1 |
| | 1 |
|
Other Comprehensive Income, net of tax | 3 |
|
| 3 |
|
Comprehensive Income | 204 |
| | 215 |
|
Less: Comprehensive Income Attributable to Noncontrolling Interests | 2 |
| | 3 |
|
Comprehensive Income Attributable to Parent | $ | 202 |
|
| $ | 212 |
|
PROGRESS ENERGY, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
|
| | | | | | | |
(in millions) | March 31, 2017 |
| | December 31, 2016 |
|
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 38 |
| | $ | 46 |
|
Receivables (net of allowance for doubtful accounts of $3 at 2017 and $6 at 2016) | 80 |
| | 114 |
|
Receivables of VIEs (net of allowance for doubtful accounts of $7 at 2017 and 2016) | 612 |
| | 692 |
|
Receivables from affiliated companies | 2 |
| | 106 |
|
Notes receivable from affiliated companies | 184 |
| | 80 |
|
Inventory | 1,652 |
| | 1,717 |
|
Regulatory assets (includes $53 at 2017 and $50 at 2016 related to VIEs) | 447 |
| | 401 |
|
Other | 252 |
| | 148 |
|
Total current assets | 3,267 |
| | 3,304 |
|
Property, Plant and Equipment | | | |
Cost | 45,902 |
| | 44,864 |
|
Accumulated depreciation and amortization | (15,618 | ) | | (15,212 | ) |
Generation facilities to be retired, net | 508 |
| | 529 |
|
Net property, plant and equipment | 30,792 |
| | 30,181 |
|
Other Noncurrent Assets | | | |
Goodwill | 3,655 |
| | 3,655 |
|
Regulatory assets (includes $1,131 at 2017 and $1,142 at 2016 related to VIEs) | 5,815 |
| | 5,722 |
|
Nuclear decommissioning trust funds | 3,041 |
| | 2,932 |
|
Other | 851 |
| | 856 |
|
Total other noncurrent assets | 13,362 |
| | 13,165 |
|
Total Assets | $ | 47,421 |
| | $ | 46,650 |
|
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 678 |
| | $ | 1,003 |
|
Accounts payable to affiliated companies | 316 |
| | 348 |
|
Notes payable to affiliated companies | 866 |
| | 729 |
|
Taxes accrued | 96 |
| | 83 |
|
Interest accrued | 224 |
| | 201 |
|
Current maturities of long-term debt (includes $55 at 2017 and $62 at 2016 related to VIEs) | 521 |
| | 778 |
|
Asset retirement obligations | 180 |
| | 189 |
|
Regulatory liabilities | 157 |
| | 189 |
|
Other | 627 |
| | 745 |
|
Total current liabilities | 3,665 |
| | 4,265 |
|
Long-Term Debt (includes $1,713 at 2017 and $1,741 at 2016 related to VIEs) | 16,454 |
| | 15,590 |
|
Long-Term Debt Payable to Affiliated Companies | 1,173 |
| | 1,173 |
|
Other Noncurrent Liabilities | | | |
Deferred income taxes | 5,484 |
| | 5,246 |
|
Asset retirement obligations | 5,289 |
| | 5,286 |
|
Regulatory liabilities | 2,472 |
| | 2,395 |
|
Accrued pension and other post-retirement benefit costs | 540 |
| | 547 |
|
Other | 332 |
| | 341 |
|
Total other noncurrent liabilities | 14,117 |
| | 13,815 |
|
Commitments and Contingencies |
| |
|
Equity | | | |
Common stock, $0.01 par value, 100 shares authorized and outstanding at 2017 and 2016 | — |
| | — |
|
Additional paid-in capital | 8,094 |
| | 8,094 |
|
Retained earnings | 3,963 |
| | 3,764 |
|
Accumulated other comprehensive loss | (35 | ) | | (38 | ) |
Total Progress Energy, Inc. stockholders' equity | 12,022 |
| | 11,820 |
|
Noncontrolling interests | (10 | ) | | (13 | ) |
Total equity | 12,012 |
| | 11,807 |
|
Total Liabilities and Equity | $ | 47,421 |
| | $ | 46,650 |
|
PROGRESS ENERGY, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| | | | | | | |
| Three Months Ended |
| March 31, |
(in millions) | 2017 |
| | 2016 |
|
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income | $ | 201 |
| | $ | 212 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation, amortization and accretion (including amortization of nuclear fuel) | 365 |
| | 342 |
|
Equity component of AFUDC | (24 | ) | | (14 | ) |
Gains on sales of other assets | (9 | ) | | (7 | ) |
Impairment charges | — |
| | 2 |
|
Deferred income taxes | 220 |
| | 182 |
|
Accrued pension and other post-retirement benefit costs | (3 | ) | | (6 | ) |
Payments for asset retirement obligations | (60 | ) | | (54 | ) |
(Increase) decrease in | | | |
Net realized and unrealized mark-to-market and hedging transactions | (2 | ) | | 6 |
|
Receivables | 115 |
| | 70 |
|
Receivables from affiliated companies | 100 |
| | 295 |
|
Inventory | 65 |
| | 3 |
|
Other current assets | (173 | ) | | (76 | ) |
Increase (decrease) in | | | |
Accounts payable | (228 | ) | | 9 |
|
Accounts payable to affiliated companies | (32 | ) | | (55 | ) |
Taxes accrued | 12 |
| | 42 |
|
Other current liabilities | (121 | ) | | (64 | ) |
Other assets | (53 | ) | | (46 | ) |
Other liabilities | (14 | ) | | (7 | ) |
Net cash provided by operating activities | 359 |
| | 834 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Capital expenditures | (1,011 | ) | | (750 | ) |
Purchases of available-for-sale securities | (629 | ) | | (533 | ) |
Proceeds from sales and maturities of available-for-sale securities | 635 |
| | 548 |
|
Proceeds from insurance | 4 |
| | 43 |
|
Notes receivable from affiliated companies | (104 | ) | | — |
|
Change in restricted cash | 5 |
| | — |
|
Other | (4 | ) | | (15 | ) |
Net cash used in investing activities | (1,104 | ) | | (707 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Proceeds from the issuance of long-term debt | 892 |
| | 53 |
|
Payments for the redemption of long-term debt | (288 | ) | | (310 | ) |
Notes payable to affiliated companies | 137 |
| | 128 |
|
Distributions to noncontrolling interests | (1 | ) | | (1 | ) |
Other | (3 | ) | | — |
|
Net cash provided by (used in) financing activities | 737 |
| | (130 | ) |
Net decrease in cash and cash equivalents | (8 | ) | | (3 | ) |
Cash and cash equivalents at beginning of period | 46 |
| | 44 |
|
Cash and cash equivalents at end of period | $ | 38 |
| | $ | 41 |
|
Supplemental Disclosures: | | | |
Significant non-cash transactions: | | | |
Accrued capital expenditures | $ | 219 |
| | $ | 228 |
|
PROGRESS ENERGY, INC.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Accumulated Other Comprehensive Loss | | | | | | |
| | | | | Net (Losses) |
| | Net Unrealized |
| | | | Total Progress |
| | | | |
| Additional |
| | | | Gains on |
| | Gains on |
| | Pension and |
| | Energy, Inc. |
| | | | |
| Paid-in |
| | Retained |
| | Cash Flow |
| | Available-for- |
| | OPEB |
| | Stockholders' |
| | Noncontrolling |
| | Total |
|
(in millions) | Capital |
| | Earnings |
| | Hedges |
| | Sale Securities |
| | Adjustments |
| | Equity |
| | Interests |
| | Equity |
|
Balance at December 31, 2015 | $ | 8,092 |
| | $ | 4,831 |
| | $ | (31 | ) | | $ | — |
| | $ | (17 | ) | | $ | 12,875 |
| | $ | (22 | ) | | $ | 12,853 |
|
Net income | — |
| | 209 |
| | — |
| | — |
| | — |
| | 209 |
| | 3 |
| | 212 |
|
Other comprehensive income | — |
| | — |
| | 1 |
| | 1 |
| | 1 |
| | 3 |
| | — |
| | 3 |
|
Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Balance at March 31, 2016 | $ | 8,092 |
|
| $ | 5,040 |
|
| $ | (30 | ) |
| $ | 1 |
|
| $ | (16 | ) |
| $ | 13,087 |
|
| $ | (20 | ) |
| $ | 13,067 |
|
| | | | | | | | | | | | | | | |
Balance at December 31, 2016 | $ | 8,094 |
| | $ | 3,764 |
| | $ | (23 | ) | | $ | 1 |
| | $ | (16 | ) | | $ | 11,820 |
| | $ | (13 | ) | | $ | 11,807 |
|
Net income | — |
| | 199 |
| | — |
| | — |
| | — |
| | 199 |
| | 2 |
| | 201 |
|
Other comprehensive income | — |
| | — |
| | 1 |
| | 1 |
| | 1 |
| | 3 |
| | — |
| | 3 |
|
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | 1 |
|
Balance at March 31, 2017 | $ | 8,094 |
|
| $ | 3,963 |
|
| $ | (22 | ) |
| $ | 2 |
|
| $ | (15 | ) |
| $ | 12,022 |
|
| $ | (10 | ) |
| $ | 12,012 |
|
DUKE ENERGY PROGRESS, LLC
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
|
| | | | | | | |
| Three Months Ended |
| March 31, |
(in millions) | 2017 |
| | 2016 |
|
Operating Revenues | $ | 1,219 |
| | $ | 1,307 |
|
Operating Expenses | | | |
Fuel used in electric generation and purchased power | 364 |
| | 448 |
|
Operation, maintenance and other | 350 |
| | 386 |
|
Depreciation and amortization | 181 |
| | 175 |
|
Property and other taxes | 40 |
| | 41 |
|
Total operating expenses | 935 |
| | 1,050 |
|
Gains on Sales of Other Assets and Other, net | 2 |
| | 1 |
|
Operating Income | 286 |
| | 258 |
|
Other Income and Expenses, net | 19 |
| | 17 |
|
Interest Expense | 82 |
| | 63 |
|
Income Before Income Taxes | 223 |
| | 212 |
|
Income Tax Expense | 76 |
| | 75 |
|
Net Income and Comprehensive Income | $ | 147 |
| | $ | 137 |
|
DUKE ENERGY PROGRESS, LLC
Condensed Consolidated Balance Sheets
(Unaudited)
|
| | | | | | | |
(in millions) | March 31, 2017 |
| | December 31, 2016 |
|
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 11 |
| | $ | 11 |
|
Receivables (net of allowance for doubtful accounts of $1 at 2017 and $4 at 2016) | 28 |
| | 51 |
|
Receivables of VIEs (net of allowance for doubtful accounts of $5 at 2017 and 2016) | 364 |
| | 404 |
|
Receivables from affiliated companies | 6 |
| | 5 |
|
Notes receivable from affiliated companies | — |
| | 165 |
|
Inventory | 1,053 |
| | 1,076 |
|
Regulatory assets | 187 |
| | 188 |
|
Other | 102 |
| | 57 |
|
Total current assets | 1,751 |
| | 1,957 |
|
Property, Plant and Equipment | | | |
Cost | 28,769 |
| | 28,419 |
|
Accumulated depreciation and amortization | (10,716 | ) | | (10,561 | ) |
Generation facilities to be retired, net | 508 |
| | 529 |
|
Net property, plant and equipment | 18,561 |
| | 18,387 |
|
Other Noncurrent Assets | | | |
Regulatory assets | 3,338 |
| | 3,243 |
|
Nuclear decommissioning trust funds | 2,315 |
| | 2,217 |
|
Other | 535 |
| | 525 |
|
Total other noncurrent assets | 6,188 |
| | 5,985 |
|
Total Assets | $ | 26,500 |
| | $ | 26,329 |
|
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 317 |
| | $ | 589 |
|
Accounts payable to affiliated companies | 244 |
| | 227 |
|
Notes payable to affiliated companies | 502 |
| | — |
|
Taxes accrued | 35 |
| | 104 |
|
Interest accrued | 90 |
| | 102 |
|
Current maturities of long-term debt | 202 |
| | 452 |
|
Asset retirement obligations | 180 |
| | 189 |
|
Regulatory liabilities | 149 |
| | 158 |
|
Other | 294 |
| | 365 |
|
Total current liabilities | 2,013 |
| | 2,186 |
|
Long-Term Debt | 6,409 |
| | 6,409 |
|
Long-Term Debt Payable to Affiliated Companies | 150 |
| | 150 |
|
Other Noncurrent Liabilities | | | |
Deferred income taxes | 3,453 |
| | 3,323 |
|
Asset retirement obligations | 4,516 |
| | 4,508 |
|
Regulatory liabilities | 2,012 |
| | 1,946 |
|
Accrued pension and other post-retirement benefit costs | 247 |
| | 252 |
|
Investment tax credits | 146 |
| | 146 |
|
Other | 49 |
| | 51 |
|
Total other noncurrent liabilities | 10,423 |
| | 10,226 |
|
Commitments and Contingencies |
| |
|
Equity | | | |
Member's Equity | 7,505 |
| | 7,358 |
|
Total Liabilities and Equity | $ | 26,500 |
| | $ | 26,329 |
|
DUKE ENERGY PROGRESS, LLC
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| | | | | | | |
| Three Months Ended |
| March 31, |
(in millions) | 2017 |
| | 2016 |
|
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income | $ | 147 |
| | $ | 137 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization (including amortization of nuclear fuel) | 228 |
| | 223 |
|
Equity component of AFUDC | (13 | ) | | (10 | ) |
Gains on sales of other assets | (3 | ) | | (2 | ) |
Deferred income taxes | 120 |
| | 100 |
|
Accrued pension and other post-retirement benefit costs | (5 | ) | | (8 | ) |
Payments for asset retirement obligations | (47 | ) | | (42 | ) |
(Increase) decrease in | | | |
Net realized and unrealized mark-to-market and hedging transactions | (2 | ) | | (1 | ) |
Receivables | 65 |
| | 18 |
|
Receivables from affiliated companies | (1 | ) | | 10 |
|
Inventory | 23 |
| | 15 |
|
Other current assets | (60 | ) | | 83 |
|
Increase (decrease) in | | | |
Accounts payable | (192 | ) | | (16 | ) |
Accounts payable to affiliated companies | 17 |
| | (14 | ) |
Taxes accrued | (68 | ) | | 18 |
|
Other current liabilities | (81 | ) | | (39 | ) |
Other assets | (44 | ) | | (17 | ) |
Other liabilities | (10 | ) | | (4 | ) |
Net cash provided by operating activities | 74 |
| | 451 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Capital expenditures | (474 | ) | | (379 | ) |
Purchases of available-for-sale securities | (476 | ) | | (390 | ) |
Proceeds from sales and maturities of available-for-sale securities | 470 |
| | 384 |
|
Notes receivable from affiliated companies | 165 |
| | — |
|
Other | (9 | ) | | (13 | ) |
Net cash used in investing activities | (324 | ) | | (398 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Proceeds from the issuance of long-term debt | — |
| | 53 |
|
Payments for the redemption of long-term debt | (250 | ) | | (8 | ) |
Notes payable to affiliated companies | 502 |
| | (101 | ) |
Other | (2 | ) | | (1 | ) |
Net cash provided by (used in) financing activities | 250 |
| | (57 | ) |
Net decrease in cash and cash equivalents | — |
| | (4 | ) |
Cash and cash equivalents at beginning of period | 11 |
| | 15 |
|
Cash and cash equivalents at end of period | $ | 11 |
| | $ | 11 |
|
Supplemental Disclosures: | | | |
Significant non-cash transactions: | | | |
Accrued capital expenditures | $ | 66 |
| | $ | 55 |
|
DUKE ENERGY PROGRESS, LLC
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
|
| | | |
| Member's |
(in millions) | Equity |
Balance at December 31, 2015 | $ | 7,059 |
|
Net income | 137 |
|
Balance at March 31, 2016 | $ | 7,196 |
|
| |
Balance at December 31, 2016 | $ | 7,358 |
|
Net income | 147 |
|
Balance at March 31, 2017 | $ | 7,505 |
|
DUKE ENERGY FLORIDA, LLC
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
|
| | | | | | | |
| Three Months Ended |
| March 31, |
(in millions) | 2017 |
| | 2016 |
|
Operating Revenues | $ | 959 |
| | $ | 1,024 |
|
Operating Expenses | | | |
Fuel used in electric generation and purchased power | 362 |
| | 412 |
|
Operation, maintenance and other | 191 |
| | 205 |
|
Depreciation and amortization | 132 |
| | 114 |
|
Property and other taxes | 77 |
| | 78 |
|
Impairment charges | 1 |
| | 2 |
|
Total operating expenses | 763 |
| | 811 |
|
Operating Income | 196 |
| | 213 |
|
Other Income and Expenses, net | 16 |
| | 5 |
|
Interest Expense | 70 |
| | 41 |
|
Income Before Income Taxes | 142 |
| | 177 |
|
Income Tax Expense | 52 |
| | 67 |
|
Net Income | $ | 90 |
| | $ | 110 |
|
Other Comprehensive Income, net of tax |
| |
|
Unrealized gains on available-for-sale securities | 1 |
| | 1 |
|
Comprehensive Income | $ | 91 |
| | $ | 111 |
|
DUKE ENERGY FLORIDA, LLC
Condensed Consolidated Balance Sheets
(Unaudited)
|
| | | | | | | |
(in millions) | March 31, 2017 |
| | December 31, 2016 |
|
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 7 |
| | $ | 16 |
|
Receivables (net of allowance for doubtful accounts of $2 at 2017 and 2016) | 50 |
| | 61 |
|
Receivables of VIEs (net of allowance for doubtful accounts of $2 at 2017 and 2016) | 248 |
| | 288 |
|
Receivables from affiliated companies | 2 |
| | 5 |
|
Notes receivable from affiliated companies | 293 |
| | — |
|
Inventory | 599 |
| | 641 |
|
Regulatory assets (includes $53 at 2017 and $50 at 2016 related to VIEs) | 260 |
| | 213 |
|
Other (includes $14 at 2017 and $53 at 2016 related to VIEs) | 104 |
| | 125 |
|
Total current assets | 1,563 |
| | 1,349 |
|
Property, Plant and Equipment | | | |
Cost | 17,122 |
| | 16,434 |
|
Accumulated depreciation and amortization | (4,894 | ) | | (4,644 | ) |
Net property, plant and equipment | 12,228 |
| | 11,790 |
|
Other Noncurrent Assets | | | |
Regulatory assets (includes $1,131 at 2017 and $1,142 at 2016 related to VIEs) | 2,476 |
| | 2,480 |
|
Nuclear decommissioning trust funds | 726 |
| | 715 |
|
Other | 268 |
| | 278 |
|
Total other noncurrent assets | 3,470 |
| | 3,473 |
|
Total Assets | $ | 17,261 |
| | $ | 16,612 |
|
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 361 |
| | $ | 413 |
|
Accounts payable to affiliated companies | 77 |
| | 125 |
|
Notes payable to affiliated companies | — |
| | 297 |
|
Taxes accrued | 62 |
| | 33 |
|
Interest accrued | 76 |
| | 49 |
|
Current maturities of long-term debt (includes $55 at 2017 and $62 at 2016 related to VIEs) | 319 |
| | 326 |
|
Regulatory liabilities | 7 |
| | 31 |
|
Other | 309 |
| | 352 |
|
Total current liabilities | 1,211 |
| | 1,626 |
|
Long-Term Debt (includes $1,414 at 2017 and $1,442 at 2016 related to VIEs) | 6,662 |
| | 5,799 |
|
Other Noncurrent Liabilities | | | |
Deferred income taxes | 2,800 |
| | 2,694 |
|
Asset retirement obligations | 773 |
| | 778 |
|
Regulatory liabilities | 459 |
| | 448 |
|
Accrued pension and other post-retirement benefit costs | 261 |
| | 262 |
|
Other | 104 |
| | 105 |
|
Total other noncurrent liabilities | 4,397 |
| | 4,287 |
|
Commitments and Contingencies |
| |
|
Equity | | | |
Member's equity | 4,989 |
| | 4,899 |
|
Accumulated other comprehensive income | 2 |
| | 1 |
|
Total equity | 4,991 |
| | 4,900 |
|
Total Liabilities and Equity | $ | 17,261 |
| | $ | 16,612 |
|
DUKE ENERGY FLORIDA, LLC
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| | | | | | | |
| Three Months Ended |
| March 31, |
(in millions) | 2017 |
| | 2016 |
|
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income | $ | 90 |
| | $ | 110 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation, amortization and accretion | 134 |
| | 116 |
|
Equity component of AFUDC | (11 | ) | | (4 | ) |
Impairment charges | 1 |
| | 2 |
|
Deferred income taxes | 100 |
| | 83 |
|
Accrued pension and other post-retirement benefit costs | 1 |
| | 1 |
|
Payments for asset retirement obligations | (14 | ) | | (12 | ) |
(Increase) decrease in | | | |
Net realized and unrealized mark-to-market and hedging transactions | — |
| | 7 |
|
Receivables | 51 |
| | 52 |
|
Receivables from affiliated companies | (1 | ) | | 14 |
|
Inventory | 42 |
| | (12 | ) |
Other current assets | (33 | ) | | (44 | ) |
Increase (decrease) in | | | |
Accounts payable | (35 | ) | | 25 |
|
Accounts payable to affiliated companies | (48 | ) | | (40 | ) |
Taxes accrued | 29 |
| | (70 | ) |
Other current liabilities | (47 | ) | | (14 | ) |
Other assets | (13 | ) | | (30 | ) |
Other liabilities | (5 | ) | | (6 | ) |
Net cash provided by operating activities | 241 |
| | 178 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Capital expenditures | (538 | ) | | (370 | ) |
Purchases of available-for-sale securities | (153 | ) | | (143 | ) |
Proceeds from sales and maturities of available-for-sale securities | 165 |
| | 164 |
|
Proceeds from insurance | 4 |
| | 43 |
|
Notes receivable from affiliated companies | (293 | ) | | — |
|
Other | 9 |
| | (1 | ) |
Net cash used in investing activities | (806 | ) | | (307 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Proceeds from the issuance of long-term debt | 892 |
| | — |
|
Payments for the redemption of long-term debt | (38 | ) | | (2 | ) |
Notes payable to affiliated companies | (297 | ) | | 135 |
|
Other | (1 | ) | | — |
|
Net cash provided by financing activities | 556 |
| | 133 |
|
Net (decrease) increase in cash and cash equivalents | (9 | ) | | 4 |
|
Cash and cash equivalents at beginning of period | 16 |
| | 8 |
|
Cash and cash equivalents at end of period | $ | 7 |
| | $ | 12 |
|
Supplemental Disclosures: | | | |
Significant non-cash transactions: | | | |
Accrued capital expenditures | $ | 153 |
| | $ | 173 |
|
DUKE ENERGY FLORIDA, LLC
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
|
| | | | | | | | | | | |
| | | Accumulated | | |
| | | Other | | |
| | | Comprehensive | | |
| | | Income | | |
| | | Net Unrealized |
| | |
| | | Gains on |
| | |
| Member's |
| | Available-for-Sale |
| | Total |
|
(in millions) | Equity |
| | Securities |
| | Equity |
|
Balance at December 31, 2015 | $ | 5,121 |
| | $ | — |
| | $ | 5,121 |
|
Net income | 110 |
| | — |
| | 110 |
|
Other comprehensive income | — |
| | 1 |
| | 1 |
|
Balance at March 31, 2016 | $ | 5,231 |
| | $ | 1 |
| | $ | 5,232 |
|
| | | | | |
Balance at December 31, 2016 | $ | 4,899 |
| | $ | 1 |
| | $ | 4,900 |
|
Net income | 90 |
| | — |
| | 90 |
|
Other comprehensive income | — |
| | 1 |
| | 1 |
|
Balance at March 31, 2017 | $ | 4,989 |
| | $ | 2 |
| | $ | 4,991 |
|
DUKE ENERGY OHIO, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
|
| | | | | | | |
| Three Months Ended |
| March 31, |
(in millions) | 2017 |
| | 2016 |
|
Operating Revenues | | | |
Regulated electric | $ | 337 |
| | $ | 340 |
|
Regulated natural gas | 170 |
| | 170 |
|
Nonregulated electric and other | 11 |
| | 6 |
|
Total operating revenues | 518 |
| | 516 |
|
Operating Expenses | | | |
Fuel used in electric generation and purchased power – regulated | 97 |
| | 111 |
|
Fuel used in electric generation and purchased power – nonregulated | 15 |
| | 10 |
|
Cost of natural gas | 54 |
| | 49 |
|
Operation, maintenance and other | 130 |
| | 119 |
|
Depreciation and amortization | 67 |
| | 61 |
|
Property and other taxes | 72 |
| | 71 |
|
Total operating expenses | 435 |
| | 421 |
|
Gains on Sales of Other Assets and Other, net | — |
| | 1 |
|
Operating Income | 83 |
| | 96 |
|
Other Income and Expenses, net | 4 |
| | 2 |
|
Interest Expense | 22 |
| | 20 |
|
Income From Continuing Operations Before Income Taxes | 65 |
| | 78 |
|
Income Tax Expense From Continuing Operations | 23 |
| | 21 |
|
Income From Continuing Operations | 42 |
| | 57 |
|
Income From Discontinued Operations, net of tax | — |
| | 2 |
|
Net Income and Comprehensive Income | $ | 42 |
| | $ | 59 |
|
DUKE ENERGY OHIO, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
|
| | | | | | | |
(in millions) | March 31, 2017 |
| | December 31, 2016 |
|
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 13 |
| | $ | 13 |
|
Receivables (net of allowance for doubtful accounts of $2 at 2017 and 2016) | 63 |
| | 71 |
|
Receivables from affiliated companies | 88 |
| | 129 |
|
Notes receivable from affiliated companies | 179 |
| | 94 |
|
Inventory | 118 |
| | 137 |
|
Regulatory assets | 21 |
| | 37 |
|
Other | 34 |
| | 37 |
|
Total current assets | 516 |
| | 518 |
|
Property, Plant and Equipment | | | |
Cost | 8,236 |
| | 8,126 |
|
Accumulated depreciation and amortization | (2,611 | ) | | (2,579 | ) |
Net property, plant and equipment | 5,625 |
| | 5,547 |
|
Other Noncurrent Assets | | | |
Goodwill | 920 |
| | 920 |
|
Regulatory assets | 525 |
| | 520 |
|
Other | 23 |
| | 23 |
|
Total other noncurrent assets | 1,468 |
| | 1,463 |
|
Total Assets | $ | 7,609 |
| | $ | 7,528 |
|
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 252 |
| | $ | 282 |
|
Accounts payable to affiliated companies | 64 |
| | 63 |
|
Notes payable to affiliated companies | 8 |
| | 16 |
|
Taxes accrued | 127 |
| | 178 |
|
Interest accrued | 33 |
| | 19 |
|
Current maturities of long-term debt | 1 |
| | 1 |
|
Regulatory liabilities | 21 |
| | 21 |
|
Other | 83 |
| | 91 |
|
Total current liabilities | 589 |
| | 671 |
|
Long-Term Debt | 1,951 |
| | 1,858 |
|
Long-Term Debt Payable to Affiliated Companies | 25 |
| | 25 |
|
Other Noncurrent Liabilities | | | |
Deferred income taxes | 1,472 |
| | 1,443 |
|
Asset retirement obligations | 76 |
| | 77 |
|
Regulatory liabilities | 236 |
| | 236 |
|
Accrued pension and other post-retirement benefit costs | 56 |
| | 56 |
|
Other | 166 |
| | 166 |
|
Total other noncurrent liabilities | 2,006 |
| | 1,978 |
|
Commitments and Contingencies |
| |
|
Equity | | | |
Common stock, $8.50 par value, 120,000,000 shares authorized; 89,663,086 shares outstanding at 2017 and 2016 | 762 |
| | 762 |
|
Additional paid-in capital | 2,695 |
| | 2,695 |
|
Accumulated deficit | (419 | ) | | (461 | ) |
Total equity | 3,038 |
| | 2,996 |
|
Total Liabilities and Equity | $ | 7,609 |
| | $ | 7,528 |
|
DUKE ENERGY OHIO, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| | | | | | | |
| Three Months Ended |
| March 31, |
(in millions) | 2017 |
| | 2016 |
|
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income | $ | 42 |
| | $ | 59 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 68 |
| | 62 |
|
Equity component of AFUDC | (2 | ) | | (1 | ) |
Gains on sales of other assets | — |
| | (1 | ) |
Deferred income taxes | 30 |
| | 11 |
|
Accrued pension and other post-retirement benefit costs | 1 |
| | 1 |
|
Payments for asset retirement obligations | (2 | ) | | (1 | ) |
(Increase) decrease in | | | |
Net realized and unrealized mark-to-market and hedging transactions | 1 |
| | 2 |
|
Receivables | 7 |
| | (18 | ) |
Receivables from affiliated companies | 41 |
| | (9 | ) |
Inventory | 19 |
| | 1 |
|
Other current assets | 9 |
| | 78 |
|
Increase (decrease) in | | | |
Accounts payable | (10 | ) | | (1 | ) |
Accounts payable to affiliated companies | 1 |
| | — |
|
Taxes accrued | (52 | ) | | (31 | ) |
Other current liabilities | 9 |
| | 14 |
|
Other assets | (6 | ) | | (2 | ) |
Other liabilities | (3 | ) | | — |
|
Net cash provided by operating activities | 153 |
| | 164 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Capital expenditures | (143 | ) | | (85 | ) |
Notes receivable from affiliated companies | (85 | ) | | (19 | ) |
Other | (8 | ) | | (4 | ) |
Net cash used in investing activities | (236 | ) | | (108 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Proceeds from the issuance of long-term debt | 93 |
| | 95 |
|
Payments for the redemption of long-term debt | (1 | ) | | (51 | ) |
Notes payable to affiliated companies | (8 | ) | | (95 | ) |
Other | (1 | ) | | — |
|
Net cash provided by (used in) financing activities | 83 |
| | (51 | ) |
Net increase in cash and cash equivalents | — |
| | 5 |
|
Cash and cash equivalents at beginning of period | 13 |
| | 14 |
|
Cash and cash equivalents at end of period | $ | 13 |
| | $ | 19 |
|
Supplemental Disclosures: | | | |
Significant non-cash transactions: | | | |
Accrued capital expenditures | $ | 57 |
| | $ | 31 |
|
DUKE ENERGY OHIO, INC.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
|
| | | | | | | | | | | | | | | |
| | | Additional |
| | | | |
| Common |
| | Paid-in |
| | Accumulated |
| | Total |
|
(in millions) | Stock |
| | Capital |
| | Deficit |
| | Equity |
|
Balance at December 31, 2015 | $ | 762 |
| | $ | 2,720 |
| | $ | (698 | ) | | $ | 2,784 |
|
Net income | — |
| | — |
| | 59 |
| | 59 |
|
Balance at March 31, 2016 | $ | 762 |
| | $ | 2,720 |
| | $ | (639 | ) | | $ | 2,843 |
|
| | | | | | | |
Balance at December 31, 2016 | $ | 762 |
| | $ | 2,695 |
| | $ | (461 | ) | | $ | 2,996 |
|
Net income | — |
| | — |
| | 42 |
| | 42 |
|
Balance at March 31, 2017 | $ | 762 |
|
| $ | 2,695 |
|
| $ | (419 | ) |
| $ | 3,038 |
|
DUKE ENERGY INDIANA, LLC
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
|
| | | | | | | |
| Three Months Ended |
| March 31, |
(in millions) | 2017 |
| | 2016 |
|
Operating Revenues | $ | 758 |
| | $ | 714 |
|
Operating Expenses | | | |
Fuel used in electric generation and purchased power | 251 |
| | 228 |
|
Operation, maintenance and other | 174 |
| | 162 |
|
Depreciation and amortization | 125 |
| | 125 |
|
Property and other taxes | 22 |
| | 23 |
|
Total operating expenses | 572 |
| | 538 |
|
Operating Income | 186 |
| | 176 |
|
Other Income and Expenses, net | 8 |
| | 4 |
|
Interest Expense | 44 |
| | 44 |
|
Income Before Income Taxes | 150 |
| | 136 |
|
Income Tax Expense | 59 |
| | 41 |
|
Net Income | $ | 91 |
| | $ | 95 |
|
Other Comprehensive Loss, net of tax | | | |
Reclassification into earnings from cash flow hedges | — |
| | (1 | ) |
Comprehensive Income | $ | 91 |
| | $ | 94 |
|
DUKE ENERGY INDIANA, LLC
Condensed Consolidated Balance Sheets
(Unaudited)
|
| | | | | | | |
(in millions) | March 31, 2017 |
| | December 31, 2016 |
|
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 15 |
| | $ | 17 |
|
Receivables (net of allowance for doubtful accounts of $1 at 2017 and 2016) | 72 |
| | 105 |
|
Receivables from affiliated companies | 88 |
| | 114 |
|
Notes receivable from affiliated companies | 199 |
| | 86 |
|
Inventory | 478 |
| | 504 |
|
Regulatory assets | 156 |
| | 149 |
|
Other | 35 |
| | 45 |
|
Total current assets | 1,043 |
| | 1,020 |
|
Property, Plant and Equipment | | | |
Cost | 14,411 |
| | 14,241 |
|
Accumulated depreciation and amortization | (4,426 | ) | | (4,317 | ) |
Net property, plant and equipment | 9,985 |
| | 9,924 |
|
Other Noncurrent Assets | | | |
Regulatory assets | 1,066 |
| | 1,073 |
|
Other | 156 |
| | 147 |
|
Total other noncurrent assets | 1,222 |
| | 1,220 |
|
Total Assets | $ | 12,250 |
| | $ | 12,164 |
|
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 210 |
| | $ | 263 |
|
Accounts payable to affiliated companies | 75 |
| | 74 |
|
Taxes accrued | 72 |
| | 31 |
|
Interest accrued | 52 |
| | 61 |
|
Current maturities of long-term debt | 3 |
| | 3 |
|
Regulatory liabilities | 44 |
| | 40 |
|
Other | 75 |
| | 93 |
|
Total current liabilities | 531 |
| | 565 |
|
Long-Term Debt | 3,631 |
| | 3,633 |
|
Long-Term Debt Payable to Affiliated Companies | 150 |
| | 150 |
|
Other Noncurrent Liabilities | | | |
Deferred income taxes | 1,921 |
| | 1,900 |
|
Asset retirement obligations | 867 |
| | 866 |
|
Regulatory liabilities | 743 |
| | 748 |
|
Accrued pension and other post-retirement benefit costs | 77 |
| | 71 |
|
Investment tax credits | 148 |
| | 137 |
|
Other | 24 |
| | 27 |
|
Total other noncurrent liabilities | 3,780 |
| | 3,749 |
|
Commitments and Contingencies |
| |
|
Equity | | | |
Member's Equity | 4,158 |
| | 4,067 |
|
Total Liabilities and Equity | $ | 12,250 |
| | $ | 12,164 |
|
DUKE ENERGY INDIANA, LLC
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| | | | | | | |
| Three Months Ended |
| March 31, |
(in millions) | 2017 |
| | 2016 |
|
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income | $ | 91 |
| | $ | 95 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation, amortization and accretion | 126 |
| | 127 |
|
Equity component of AFUDC | (6 | ) | | (3 | ) |
Deferred income taxes | 37 |
| | (16 | ) |
Accrued pension and other post-retirement benefit costs | 1 |
| | 2 |
|
Payments for asset retirement obligations | (7 | ) | | (5 | ) |
(Increase) decrease in | | | |
Receivables | 44 |
| | 16 |
|
Receivables from affiliated companies | 26 |
| | 7 |
|
Inventory | 26 |
| | 45 |
|
Other current assets | (2 | ) | | (19 | ) |
Increase (decrease) in | | | |
Accounts payable | (32 | ) | | (44 | ) |
Accounts payable to affiliated companies | 1 |
| | (22 | ) |
Taxes accrued | 41 |
| | 30 |
|
Other current liabilities | (15 | ) | | (18 | ) |
Other assets | (11 | ) | | (4 | ) |
Other liabilities | (3 | ) | | (11 | ) |
Net cash provided by operating activities | 317 |
| | 180 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Capital expenditures | (189 | ) | | (151 | ) |
Purchases of available-for-sale securities | (4 | ) | | (5 | ) |
Proceeds from sales and maturities of available-for-sale securities | 2 |
| | 4 |
|
Notes receivable from affiliated companies | (113 | ) | | (19 | ) |
Other | (12 | ) | | (1 | ) |
Net cash used in investing activities | (316 | ) | | (172 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Payments for the redemption of long-term debt | (2 | ) | | — |
|
Other | (1 | ) | | — |
|
Net cash used in financing activities | (3 | ) | | — |
|
Net (decrease) increase in cash and cash equivalents | (2 | ) |
| 8 |
|
Cash and cash equivalents at beginning of period | 17 |
| | 9 |
|
Cash and cash equivalents at end of period | $ | 15 |
| | $ | 17 |
|
Supplemental Disclosures: | | | |
Significant non-cash transactions: | | | |
Accrued capital expenditures | $ | 84 |
| | $ | 42 |
|
DUKE ENERGY INDIANA, LLC
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | 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, 2015 | $ | 1 |
| | $ | 1,384 |
| | $ | 2,450 |
| | $ | — |
| | $ | 1 |
| | $ | 3,836 |
|
Net income | — |
| | — |
| | — |
| | 95 |
| | — |
| | 95 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Transfer to Member's Equity | (1 | ) | | (1,384 | ) | | (2,450 | ) | | 3,835 |
| | — |
| | — |
|
Balance at March 31, 2016 | $ | — |
| | $ | — |
| | $ | — |
|
| $ | 3,930 |
| | $ | — |
| | $ | 3,930 |
|
| | | | | | | | | | | |
Balance at December 31, 2016 | $ | — |
| | $ | — |
| | $ | — |
| | $ | 4,067 |
| | $ | — |
| | $ | 4,067 |
|
Net income | — |
| | — |
| | — |
| | 91 |
| | — |
| | 91 |
|
Balance at March 31, 2017 | $ | — |
| | $ | — |
| | $ | — |
|
| $ | 4,158 |
| | $ | — |
| | $ | 4,158 |
|
PIEDMONT NATURAL GAS COMPANY, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
|
| | | | | | | |
| Three Months Ended |
| March 31, |
| 2017 |
| | 2016 |
|
Operating Revenues | | | |
Regulated natural gas | $ | 498 |
| | $ | 481 |
|
Nonregulated natural gas and other | 2 |
| | 2 |
|
Total operating revenues | 500 |
| | 483 |
|
Operating Expenses | | | |
Cost of natural gas | 205 |
| | 197 |
|
Operation, maintenance and other | 77 |
| | 74 |
|
Depreciation and amortization | 35 |
| | 34 |
|
Property and other taxes | 13 |
| | 11 |
|
Total operating expenses | 330 |
| | 316 |
|
Operating Income | 170 |
| | 167 |
|
Equity in Earnings of Unconsolidated Affiliates | 3 |
| | 16 |
|
Interest Expense | 20 |
| | 17 |
|
Income Before Income Taxes | 153 |
| | 166 |
|
Income Tax Expense | 58 |
| | 63 |
|
Net Income and Comprehensive Income | $ | 95 |
| | $ | 103 |
|
PIEDMONT NATURAL GAS COMPANY, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
|
| | | | | | | |
(in millions) | March 31, 2017 | | December 31, 2016 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 15 |
| | $ | 25 |
|
Receivables (net of allowance for doubtful accounts of $5 at 2017 and $3 at 2016) | 193 |
| | 232 |
|
Receivables from affiliated companies | 7 |
| | 7 |
|
Inventory | 29 |
| | 66 |
|
Regulatory assets | 98 |
| | 124 |
|
Other | 21 |
| | 21 |
|
Total current assets | 363 |
| | 475 |
|
Property, Plant and Equipment | | | |
Cost | 6,297 |
| | 6,174 |
|
Accumulated depreciation and amortization | (1,390 | ) | | (1,360 | ) |
Net property, plant and equipment | 4,907 |
| | 4,814 |
|
Other Noncurrent Assets | | | |
Goodwill | 49 |
| | 49 |
|
Regulatory assets | 350 |
| | 373 |
|
Investments in equity method unconsolidated affiliates | 225 |
| | 212 |
|
Other | 19 |
| | 21 |
|
Total other noncurrent assets | 643 |
| | 655 |
|
Total Assets | $ | 5,913 |
| | $ | 5,944 |
|
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 104 |
| | $ | 155 |
|
Accounts payable to affiliated companies | 3 |
| | 8 |
|
Notes payable and commercial paper | — |
| | 330 |
|
Notes payable to affiliated companies | 261 |
| | — |
|
Taxes accrued | 69 |
| | 67 |
|
Interest accrued | 27 |
| | 33 |
|
Current maturities of long-term debt | 35 |
| | 35 |
|
Other | 70 |
| | 102 |
|
Total current liabilities | 569 |
| | 730 |
|
Long-Term Debt | 1,786 |
| | 1,786 |
|
Other Noncurrent Liabilities | | | |
Deferred income taxes | 981 |
| | 931 |
|
Asset retirement obligations | 14 |
| | 14 |
|
Regulatory liabilities | 613 |
| | 608 |
|
Accrued pension and other post-retirement benefit costs | 14 |
| | 14 |
|
Other | 169 |
| | 189 |
|
Total other noncurrent liabilities | 1,791 |
| | 1,756 |
|
Commitments and Contingencies |
| |
|
Equity | | | |
Common stock, no par value: 100 shares authorized and outstanding at 2017 and 2016 | 860 |
| | 860 |
|
Retained earnings | 907 |
| | 812 |
|
Total equity | 1,767 |
| | 1,672 |
|
Total Liabilities and Equity | $ | 5,913 |
| | $ | 5,944 |
|
PIEDMONT NATURAL GAS COMPANY, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| | | | | | | |
| Three Months Ended |
| March 31, |
(in millions) | 2017 |
| | 2016 |
|
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income | $ | 95 |
| | $ | 103 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 37 |
| | 37 |
|
Deferred income taxes | 50 |
| | 68 |
|
Equity in earnings from unconsolidated affiliates | (3 | ) | | (16 | ) |
Accrued pension and other post-retirement benefit costs | 3 |
| | 1 |
|
Payments for asset retirement obligations | — |
| | (1 | ) |
(Increase) decrease in | | | |
Net realized and unrealized mark-to-market and hedging transactions | (41 | ) | | — |
|
Receivables | 40 |
| | (14 | ) |
Inventory | 37 |
| | 49 |
|
Other current assets | 24 |
| | 20 |
|
Increase (decrease) in | | | |
Accounts payable | (31 | ) | | (21 | ) |
Accounts payable to affiliated companies | (5 | ) | | — |
|
Taxes accrued | 2 |
| | 3 |
|
Other current liabilities | (17 | ) | | (9 | ) |
Other assets | 25 |
| | 23 |
|
Other liabilities | (1 | ) | | (20 | ) |
Net cash provided by operating activities | 215 |
| | 223 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Capital expenditures | (141 | ) | | (132 | ) |
Contributions to equity method investments | (12 | ) | | (9 | ) |
Other | (3 | ) | | (1 | ) |
Net cash used in investing activities | (156 | ) | | (142 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Proceeds from the issuance of common stock | — |
| | 7 |
|
Notes payable and commercial paper | (330 | ) | | (80 | ) |
Notes payable to affiliated companies | 261 |
| | — |
|
Dividends paid | — |
| | (27 | ) |
Net cash used in financing activities | (69 | ) | | (100 | ) |
Net decrease in cash and cash equivalents | (10 | ) | | (19 | ) |
Cash and cash equivalents at beginning of period | 25 |
| | 33 |
|
Cash and cash equivalents at end of period | $ | 15 |
| | $ | 14 |
|
Supplemental Disclosures: | | | |
Significant non-cash transactions: | | | |
Accrued capital expenditures | $ | 24 |
| | $ | 43 |
|
PIEDMONT NATURAL GAS COMPANY, INC.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
|
| | | | | | | | | | | | | | | |
| | | | | Accumulated | | |
| | | | | Other | | |
| | | | | Comprehensive | | |
| | | | | Income | | |
| | | | | Net Loss on |
| | |
| | | | | Hedging Activities |
| | |
| Common |
| | Retained |
| | of Unconsolidated |
| | Total |
|
(in millions) | Stock |
| | Earnings |
| | Affiliates |
| | Equity |
|
Balance at December 31, 2015 | $ | 728 |
| | $ | 731 |
| | $ | (1 | ) | | $ | 1,458 |
|
Net income | — |
| | 103 |
| | — |
| | 103 |
|
Common stock issuances, including dividend reinvestments and employee benefits | 7 |
| | — |
| | — |
| | 7 |
|
Common stock dividends | — |
| | (27 | ) | | — |
| | (27 | ) |
Balance at March 31, 2016 | $ | 735 |
| | $ | 807 |
| | $ | (1 | ) | | $ | 1,541 |
|
| | | | | | | |
Balance at December 31, 2016 | $ | 860 |
| | $ | 812 |
| | $ | — |
| | $ | 1,672 |
|
Net income | — |
| | 95 |
| | — |
| | 95 |
|
Balance at March 31, 2017 | $ | 860 |
| | $ | 907 |
| | $ | — |
| | $ | 1,767 |
|
PART I
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 Condensed Consolidated Financial Statements – (Unaudited)
Index to Combined Notes to Condensed Consolidated Financial Statements
The unaudited notes to the condensed consolidated financial statements that follow are a combined presentation. The following list indicates the registrants to which the footnotes apply. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Applicable Notes |
Registrant | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | 8 | | 9 | | 10 | | 11 | | 12 | | 13 | | 14 | | 15 | | 16 | | 17 |
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. | • | | • | | • | | • | | • | | • | | • | | • | | • | | • | | • | | • | | | | • | | • | | • | | • |
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, (ii) subsidiaries that are not registrants but included in the consolidated Duke Energy balances and (iii) the Piedmont registrant not included in the consolidated Duke Energy results for the three months ended March 31, 2016, as Piedmont results were not consolidated by Duke Energy until after the acquisition date of October 3, 2016.
1. ORGANIZATION AND BASIS OF PRESENTATION
NATURE OF OPERATIONS AND BASIS OF CONSOLIDATION
Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) is an energy company headquartered in Charlotte, North Carolina, subject to regulation by the Federal Energy Regulatory Commission (FERC). Duke Energy operates in the United States (U.S.) primarily through its direct and indirect subsidiaries. Certain Duke Energy subsidiaries are also subsidiary registrants, including Duke Energy Carolinas, LLC (Duke Energy Carolinas); Progress Energy, Inc. (Progress Energy); Duke Energy Progress, LLC (Duke Energy Progress); Duke Energy Florida, LLC (Duke Energy Florida); Duke Energy Ohio, Inc. (Duke Energy Ohio), Duke Energy Indiana, LLC (Duke Energy Indiana) and Piedmont Natural Gas Company, Inc. (Piedmont). When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of its separate subsidiary registrants (collectively referred to as the Subsidiary Registrants), which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants.
On October 3, 2016, Duke Energy completed the acquisition of Piedmont. Piedmont's results of operations and cash flows are included in the accompanying condensed consolidated financial statements of Duke Energy for the three months ended March 31, 2017, but not for the three months ended March 31, 2016, as Piedmont's earnings and cash flows are only included in Duke Energy's consolidated results subsequent to the acquisition date. 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. (China Three Gorges) 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 Capital) (collectively, the International Disposal Group). See Note 2 for additional information on the sale of International Energy.
The results of operations of the International Disposal Group have been classified as Discontinued Operations on the Condensed 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 Condensed Consolidated Financial Statements exclude amounts related to discontinued operations. See Note 2 for additional information.
These Condensed Consolidated Financial Statements include, after eliminating intercompany transactions and balances, the accounts of the Duke Energy Registrants and subsidiaries where the respective Duke Energy Registrants have control. These Condensed Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain jointly owned generation and transmission facilities. Substantially all of the Subsidiary Registrants' operations qualify for regulatory accounting.
Duke Energy Carolinas is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Carolinas is subject to the regulatory provisions of the North Carolina Utilities Commission (NCUC), Public Service Commission of South Carolina (PSCSC), U.S. Nuclear Regulatory Commission (NRC) and FERC.
Progress Energy is a public utility holding company headquartered in Raleigh, North Carolina, subject to regulation by FERC. Progress Energy conducts operations through its wholly owned subsidiaries, Duke Energy Progress and Duke Energy Florida.
Duke Energy Progress is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Progress is subject to the regulatory provisions of the NCUC, PSCSC, NRC and FERC.
Duke Energy Florida is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Florida. Duke Energy Florida is subject to the regulatory provisions of the Florida Public Service Commission (FPSC), NRC and FERC.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (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 Condensed Consolidated Statements of Operations and Comprehensive Income. Operations in Kentucky are conducted through its wholly owned subsidiary, Duke Energy Kentucky, Inc. (Duke Energy Kentucky). References herein to Duke Energy Ohio collectively include Duke Energy Ohio and its subsidiaries, unless otherwise noted. Duke Energy Ohio is subject to the regulatory provisions of the Public Utilities Commission of Ohio (PUCO), Kentucky Public Service Commission (KPSC) and FERC.
Duke Energy Indiana is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Indiana. Duke Energy Indiana is subject to the regulatory provisions of the Indiana Utility Regulatory Commission (IURC) and FERC.
Piedmont is a regulated public utility primarily engaged in the distribution of natural gas in portions of North Carolina, South Carolina and Tennessee. Piedmont is also invested in joint venture, energy-related businesses, including regulated interstate natural gas transportation and storage and intrastate natural gas transportation businesses. Piedmont is subject to the regulatory provisions of the NCUC, PSCSC, Tennessee Public Utility Commission (formerly the Tennessee Regulatory Authority) (TPUC) and FERC.
BASIS OF PRESENTATION
Duke Energy completed the sale of Duke Energy Ohio's nonregulated Midwest generation business and Duke Energy Retail Sales (collectively, the Disposal Group), a retail sales business owned by Duke Energy, to Dynegy on April 2, 2015. The results of operations of these businesses prior to the date of sale have been classified as Discontinued Operations on the Condensed 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 Condensed Consolidated Financial Statements exclude amounts related to discontinued operations. See Note 2 for additional information.
These Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the U.S. for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, these Condensed Consolidated Financial Statements do not include all information and notes required by GAAP in the U.S. for annual financial statements. Since the interim Condensed Consolidated Financial Statements and Notes do not include all information and notes required by GAAP in the U.S. for annual financial statements, the Condensed Consolidated Financial Statements and other information included in this quarterly report should be read in conjunction with the Consolidated Financial Statements and Notes in the Duke Energy Registrants’ combined Annual Report on Form 10-K for the year ended December 31, 2015.2016, and the Consolidated Financial Statements and Notes in the Piedmont Annual Report on Form 10-K for the year ended October 31, 2016.
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.
The information in these combined notes relates to each of the Duke Energy Registrants as noted in the Index to Combined Notes to Condensed Consolidated Financial Statements. However, none of the registrants make any representations as to information related solely to Duke Energy or the subsidiaries of Duke Energy other than itself.
These Condensed Consolidated Financial Statements, in the opinion of the respective companies’ management, reflect all normal recurring adjustments necessary to fairly present the financial position and results of operations of each of the Duke Energy Registrants. Amounts reported in Duke Energy’s interim Condensed Consolidated Statements of Operations and each of the Subsidiary Registrants’ interim Condensed Consolidated Statements of Operations and Comprehensive Income are not necessarily indicative of amounts expected for the respective annual periods due to effects of seasonal temperature variations on energy consumption, regulatory rulings, timing of maintenance on electric generating units, changes in mark-to-market valuations, changing commodity prices and other factors.
In preparing financial statements that conform to GAAP, management 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.
Certain prior year amounts have been reclassified to conform to the current year presentation.
UNBILLED REVENUE
Revenues on sales of electricity and natural gas are recognized when service is provided or the product is delivered. Unbilled revenues are recognized by applying customer billing rates to the estimated volumes of energy and 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.schedules, and the impact of weather normalization or margin decoupling mechanisms.
Unbilled revenues which are included within Receivables and Receivables of variable interest entities (VIEs) on the Condensed Consolidated Balance Sheets are presentedas shown in the following table. | | (in millions) | June 30, 2016 |
| | December 31, 2015 |
| March 31, 2017 |
| | December 31, 2016 |
|
Duke Energy | $ | 840 |
| | $ | 748 |
| $ | 724 |
| | $ | 831 |
|
Duke Energy Carolinas | 330 |
| | 283 |
| 296 |
| | 313 |
|
Progress Energy | 209 |
| | 172 |
| 151 |
| | 161 |
|
Duke Energy Progress | 104 |
| | 102 |
| 84 |
| | 102 |
|
Duke Energy Florida | 105 |
| | 70 |
| 67 |
| | 59 |
|
Duke Energy Ohio | 2 |
| | 3 |
| 2 |
| | 2 |
|
Duke Energy Indiana | 38 |
| | 31 |
| 27 |
| | 32 |
|
Piedmont | | 38 |
| | 77 |
|
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
Additionally, Duke Energy Ohio and Duke Energy Indiana sell nearly all of their retail accounts receivable to an affiliate, Cinergy Receivables Company, LLC (CRC), on a revolving basis. These transfers of receivables are accounted for as sales and include receivables for unbilled revenues. Accordingly, the receivables sold are not reflected on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana. See Note 12 for further information. These receivables for unbilled revenues are shown in the table below. |
| | | | | | | |
(in millions) | June 30, 2016 |
| | December 31, 2015 |
|
Duke Energy Ohio | $ | 70 |
| | $ | 71 |
|
Duke Energy Indiana | 109 |
| | 97 |
|
PART I
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
Combined Notes to Condensed Consolidated Financial Statements – (Continued)
(Unaudited)
|
| | | | | | | |
(in millions) | March 31, 2017 |
| | December 31, 2016 |
|
Duke Energy Ohio | $ | 69 |
| | $ | 97 |
|
Duke Energy Indiana | 106 |
| | 123 |
|
AMOUNTS ATTRIBUTABLE TO CONTROLLING INTERESTS
Duke Energy's amount of Income (Loss) from Discontinued Operations, net of tax presented on the respective Condensed Consolidated Statements of Operations for the three months ended March 31, 2016, includes amounts attributable to noncontrolling interest. The following table presents Net Income Attributable to Duke Energy Corporation for continuing operations and Progress Energy is attributable only to controlling interests for all periods presented. Other comprehensive income reported on the Condensed Consolidated Statements of Changes in Equity for Progress Energy is attributable only to controlling interests for all periods presented.discontinued operations. |
| | | |
| Three Months Ended |
(in millions) | March 31, 2016 |
Income from Continuing Operations | $ | 577 |
|
Income from Continuing Operations Attributable to Noncontrolling Interests | 3 |
|
Income from Continuing Operations Attributable to Duke Energy Corporation | $ | 574 |
|
Income from Discontinued Operations, net of tax | $ | 122 |
|
Income from Discontinued Operations Attributable to Noncontrolling Interests, net of tax | 2 |
|
Income from Discontinued Operations Attributable to Duke Energy Corporation, net of tax | $ | 120 |
|
Net Income | $ | 699 |
|
Net Income Attributable to Noncontrolling Interests | 5 |
|
Net Income Attributable to Duke Energy Corporation | $ | 694 |
|
INVENTORY
Inventory is used for operations and is recorded primarily using the average cost method. Inventory related to regulated operations is valued at historical cost. Inventory related to nonregulated operations is valued at the lower of cost or market. Materials and supplies are recorded as inventory when purchased and subsequently charged to expense or capitalized to property, plant and equipment when installed. Inventory, including excess or obsolete inventory, is written-down to the lower of cost or market value. Once inventory has been written-down, it creates a new cost basis for the inventory that is not subsequently written-up. Provisions for inventory write-offs were not material for the three months ended March 31, 2017 and December 31, 2016. The components of inventory are presented in the tables below. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 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 | $ | 2,328 |
| | $ | 766 |
| | $ | 1,122 |
| | $ | 780 |
| | $ | 341 |
| | $ | 85 |
| | $ | 315 |
| | $ | 2 |
|
Coal | 724 |
| | 248 |
| | 297 |
| | 162 |
| | 135 |
| | 17 |
| | 161 |
| | — |
|
Natural gas, oil and other fuel | 314 |
| | 37 |
| | 233 |
| | 111 |
| | 123 |
| | 16 |
| | 2 |
| | 27 |
|
Total inventory | $ | 3,366 |
| | $ | 1,051 |
| | $ | 1,652 |
| | $ | 1,053 |
| | $ | 599 |
| | $ | 118 |
| | $ | 478 |
| | $ | 29 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
|
Materials and supplies | $ | 2,374 |
| | $ | 767 |
| | $ | 1,167 |
| | $ | 813 |
| | $ | 354 |
| | $ | 84 |
| | $ | 312 |
| | $ | 1 |
|
Coal | 774 |
| | 251 |
| | 314 |
| | 148 |
| | 166 |
| | 19 |
| | 190 |
| | — |
|
Natural gas, oil and other fuel | 374 |
| | 37 |
| | 236 |
| | 115 |
| | 121 |
| | 34 |
| | 2 |
| | 65 |
|
Total inventory | $ | 3,522 |
| | $ | 1,055 |
| | $ | 1,717 |
| | $ | 1,076 |
| | $ | 641 |
| | $ | 137 |
| | $ | 504 |
| | $ | 66 |
|
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, excise taxes are accounted for net.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
Excise taxes accounted for on a gross basis as both operating revenues and property and other taxes on the Condensed Consolidated Statements of Operations were as follows. | | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
(in millions) | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
| 2017 |
| | 2016 |
|
Duke Energy | $ | 87 |
|
| $ | 97 |
|
| $ | 178 |
|
| $ | 197 |
| $ | 91 |
|
| $ | 91 |
|
Duke Energy Carolinas | 7 |
| | 9 |
| | 15 |
| | 18 |
| 9 |
| | 8 |
|
Progress Energy | 50 |
| | 57 |
| | 96 |
| | 106 |
| 46 |
| | 47 |
|
Duke Energy Progress | 4 |
| | 4 |
| | 9 |
| | 8 |
| 5 |
| | 5 |
|
Duke Energy Florida | 46 |
| | 53 |
| | 87 |
| | 98 |
| 41 |
| | 42 |
|
Duke Energy Ohio | 22 |
| | 23 |
| | 51 |
| | 55 |
| 28 |
| | 28 |
|
Duke Energy Indiana | 8 |
| | 8 |
| | 16 |
| | 18 |
| 7 |
| | 8 |
|
Piedmont | | 1 |
| | 1 |
|
NEW ACCOUNTING STANDARDS
The new accounting standards adopted for 20162017 and 20152016 had no material impact on the presentation or results of operations, cash flows or financial position of the Duke Energy Registrants. TheWhile immaterial, adoption of the following accounting standard was adopted byhad the most significant impact on the Duke Energy Registrants during 2015.results of operations, cash flows and financial position for the three months ended March 31, 2017.
Balance Sheet Presentation of Debt Issuance Costs.Stock-Based Compensation and Income Taxes. In April and August of 2015, theMarch 2017, Duke Energy adopted Financial Accounting Standards Board (FASB) issuedguidance, which revised the accounting for stock-based compensation and the associated income taxes. The adopted guidance changes certain aspects of accounting for stock-based payment awards to employees including the presentation of debt issuance costs. The core principle of this revised accounting guidance is that debt issuance costs are not assets, but adjustments to the carrying cost of debt. For Duke Energy, this revised accounting guidance was adopted retrospectively.
The implementation of this accounting standard resulted in a reduction of Other within Regulatory Assetsfor income taxes and Deferred Debits and in Long-Term Debt of $192 million and $170 millionclassification on the Condensed Consolidated Balance SheetsStatements of Cash Flows. The primary impact to Duke Energy as a result of June 30, 2016,implementing this guidance was a cumulative-effect adjustment to retained earnings for tax benefits not previously recognized and Decemberhigher income tax expense for the three months ended March 31, 2015, respectively.2017. See the Duke Energy Condensed Consolidated Statements of Changes in Equity and Note 16 for further information.
The following new Accounting Standards Updates (ASUs) have been issued, but have not yet been adopted by Duke Energy, as of June 30, 2016.March 31, 2017.
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 income statement and does not require the disclosure of the location of net periodic costs on the Condensed Consolidated Statement of Operations. Under the amended guidance, the service cost component of net periodic costs must be included within Operating income within the same line as other compensation expenses. All other components of net periodic costs must be outside of Operating income. In addition, the updated guidance permits only the service cost component of net periodic costs to be capitalized to Inventory or Property, Plant and Equipment. This represents a change from current GAAP, which permits all components of net periodic costs to be capitalized. 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. 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. Duke Energy currently presents all of the components of net periodic costs that are not capitalized within Operation, maintenance and other on the Condensed Consolidated Statement of Operations. Under this updated guidance, Duke Energy will retrospectively move all the components of net periodic costs except for the service cost component to below Operating income. However, Duke Energy will continue to present the service cost component not capitalized within Operation, maintenance and other as this line item includes other compensation expense. Duke Energy is currently evaluating the financial statement impact, if any, of adopting this standard and whether or not the practical expedient will be utilized.
Goodwill Impairment. In January 2017, the FASB issued revised guidance for 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. For Duke Energy, this guidance is effective for interim and annual periods beginning January 1, 2020. However, Duke Energy expects to early adopt this guidance on a prospective basis for the next interim or annual goodwill impairment test. Duke Energy does not expect adopting this guidance will have a material impact to its results of operations or financial position.
Revenue from Contracts with Customers.Customers. In May 2014, the FASB issued revised accounting guidance for revenue recognition from contracts with customers. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this update also require disclosure of sufficient information to allow users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
Most of Duke Energy’s revenue is expected to be in scope of the new guidance. The majority of our sales, including energy provided to residential customers, are from tariff offerings that provide natural gas or electricity without a defined contractual term (‘at-will’). For such arrangements, Duke Energy expects that the revisedrevenue from contracts with customers will be equivalent to the electricity or natural gas supplied and billed in that period (including estimated billings). As such, Duke Energy does not expect that there will be a significant shift in the timing or pattern of revenue recognition for such sales. The evaluation of other revenue streams is ongoing, including long-term contracts with industrial customers and long-term purchase power agreements (PPA).
Duke Energy continues to evaluate what information would be most useful for users of the financial statements, including information already provided in disclosures outside of the financial statement footnotes. These additional disclosures could include the disaggregation of revenues by geographic location, type of service, customer class or by duration of contract (‘at-will’ versus contracted revenue). Revenues from contracts with customers, revenue recognized under regulated operations accounting guidance isand revenue from lease accounting will also be disclosed.
Duke Energy intends to use the modified retrospective method of adoption effective for interim and annual periods beginning January 1, 2018. The guidance canThis method results in a cumulative-effect adjustment that will be applied retrospectivelyrecorded to all prior reporting periods presented or retrospectively with a cumulative effectretained earnings as of January 1, 2018, as if the initial datestandard had always been in effect. Disclosures for 2018 will include a comparison to what would have been reported for 2018 under the current revenue recognition rules in order to assist financial statement users in understanding how revenue recognition has changed as a result of application. Duke Energy is currently evaluatingthis standard and to facilitate comparability with prior year reported results, which are not restated under the requirements. The ultimate impact of the new standard has not yet been determined.modified retrospective approach.
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, although it can be early adopted. The guidance is applied using a modified retrospective approach. Duke Energy is currently evaluating the requirements.financial statement impact of adopting this standard. Other than an expected increase in assets and liabilities, the ultimate impact of the new standard has not yet been determined. Significant system enhancements may be required to facilitate the identification, tracking and reporting of potential leases based upon requirements of the new lease standard.
Stock-Based Compensation and Income Taxes.Statement of Cash Flows. In MarchNovember 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, although it can be early adopted. The guidance will be applied using a retrospective transition method to each period presented. Upon adoption by Duke Energy, the revised guidance will result in a change to the amount of cash and cash equivalents and restricted cash explained when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Prior to adoption, the Duke Energy Registrants reflect changes in restricted cash within Cash Flows from Investing Activities on the Condensed Consolidated Statement of Cash Flows.
Financial Instruments Classification and Measurement. In January 2016, the FASB issued revised accounting guidance for stock-based compensationthe classification and measurement of financial instruments. Changes in the associatedfair value of all equity securities will be required to be recorded in net income. Current GAAP allows some changes in fair value for available-for-sale equity securities to be recorded in Accumulated other comprehensive income taxes. This standard changes certain aspects(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 for stock-based payment awards to employees includingare not included within the accounting for income taxes, statutory tax withholding requirements, as well asscope of the classification on the Condensed Consolidated Statements of Cash Flows. This guidance will be applied prospectively, retrospectively, or using a modified retrospective transition method depending on the item changed.new guidance.
For Duke Energy, thisthe revised accounting guidance is effective for interim and annual periods beginning January 1, 2017, although it can be early adopted.2018, by recording a cumulative-effect adjustment to retained earnings as of January 1, 2018. This guidance is expected to have minimal impact on the Duke Energy is currently evaluating the requirements. The primary change expected is an increaseRegistrant's Condensed Consolidated Statements of Operations and Comprehensive Income as changes in the volatilityfair value of income tax expense.most of the Duke Energy Registrants' available-for-sale equity securities are deferred as regulatory assets or liabilities pursuant to accounting guidance for regulated operations.
PART I
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
Combined Notes to Condensed Consolidated Financial Statements – (Continued)
(Unaudited)
2. ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
The Duke Energy Registrants consolidate assets and liabilities from acquisitions as of the purchase date, and include earnings from acquisitions in consolidated earnings after the purchase date.
Acquisition of Piedmont Natural Gas
On October 24, 2015,3, 2016, Duke Energy entered into an Agreementacquired all outstanding common stock of Piedmont for a total cash purchase price of $5.0 billion and Planassumed Piedmont's existing long-term debt, which had a fair value of Merger (Merger Agreement) with Piedmont Natural Gas Company, Inc. (Piedmont), a North Carolina corporation. Underapproximately $2.0 billion at the termstime of the Merger Agreement,acquisition. The acquisition provides a foundation for Duke Energy will acquireto 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 for approximately $4.9 billion in cash and Piedmont will becomebecame a wholly owned subsidiary of Duke Energy. In addition, Duke Energy will assume Piedmont's existing debt, which was approximately $2.0 billion at April 30, 2016, the end of Piedmont's most recent filed quarter. The excess of the purchase price over the fair value of Piedmont's assets and liabilities on the acquisition date will be recorded as goodwill. Duke Energy estimates the transaction would result in incremental goodwill of approximately $3.5 billion. Duke Energy expects to finance the transaction with a combination of debt, equity issuances and other cash sources. As of June 30, 2016, Duke Energy had entered into $1.4 billion of forward-starting interest rate swaps to manage interest rate exposure for the expected financing of the Piedmont acquisition. For additional information on the forward-starting swaps, see Note 9.
In March 2016, Duke Energy marketed an equity offering of 10.6 million shares of common stock. In lieu of issuing equity at the time of the offering, Duke Energy entered into equity forward sale agreements (the Equity Forwards) with Barclays Capital, Inc. (Barclays). Duke Energy expects to settle the Equity Forwards on or around the closing date of the Piedmont acquisition. The net proceeds received upon settlement are expected to be used to finance a portion of the acquisition of Piedmont. For additional information regarding the Equity Forwards, see Note 13.
In connection with the Merger Agreement with Piedmont, Duke Energy entered into a $4.9 billion senior unsecured bridge financing facility (Bridge Facility) with Barclays. The Bridge Facility, if drawn upon, may be used to (i) fund the cash consideration for the transaction and (ii) pay certain fees and expenses in connection with the transaction. In November 2015, Barclays syndicated its commitment under the Bridge Facility to a broader group of lenders. Duke Energy does not expect to draw upon the Bridge Facility. The amount of the Bridge Facility is reduced by any financings related to the Piedmont acquisition entered into by Duke Energy, and has accordingly been reduced to approximately $3.2 billion as a result of the Equity Forwards and $1 billion of the commitments under a term loan amended and restated as of August 1, 2016. See Note 6, Term Loan Facility, for more information.
Piedmont's shareholders have approved the company's acquisition by Duke Energy and the Federal Trade Commission (FTC) has granted early termination of the 30-day waiting period under the federal Hart-Scott-Rodino Antitrust Improvements Act of 1976. On January 15, 2016, Duke Energy and Piedmont filed an application with the NCUC for approval of the proposed business combination and associated financing transactions. On January 29, 2016, the NCUC approved Duke Energy's proposed financing transactions. On March 7, 2016, the KPSC granted Duke Energy's declaratory request that the transaction does not constitute a change in control and does not require KPSC approval. The Tennessee Regulatory Authority approved Duke Energy's and Piedmont's request of the change in control resulting from the transaction at its March 14, 2016, meeting. On June 10, 2016 the North Carolina Public Staff reached an agreement with Duke Energy and Piedmont on certain stipulations and conditions for approval of the transaction. Duke Energy and Piedmont have also entered into settlement agreements with the Environmental Defense Fund (EDF) and the Carolina Utility Customers Association, Inc. (CUCA) resolving EDF's and CUCA's issues in the case.
On July 19, 2016, the NCUC concluded an evidentiary hearing for the proposed business combination. Proposed orders are due from all parties by August 25, 2016, after which the NCUC will rule on the application. Subject to receipt of NCUC approval and meeting closing conditions, Duke Energy and Piedmont expect to close the transaction by the end of 2016.
The Merger Agreement contains certain termination rights for both Duke Energy and Piedmont, and provides that, upon termination of the Merger Agreement under specified circumstances, Duke Energy would be required to pay a termination fee of $250 million to Piedmont and Piedmont would be required to pay Duke Energy a termination fee of $125 million.
See Note 4 for additional information regarding Duke Energy and Piedmont's joint investment in Atlantic Coast Pipeline, LLC (ACP).
Purchase of NCEMPA's Generation
On July 31, 2015, Duke Energy Progress completed the purchase of North Carolina Eastern Municipal Power Agency’s (NCEMPA) ownership interests in certain generating assets, fuel and spare parts inventory jointly owned with and operated by Duke Energy Progress for approximately $1.25 billion. This purchase was accounted for as an asset acquisition. The purchase resulted in the acquisition of a total of approximately 700 megawatts (MW) of generating capacity at Brunswick Nuclear Plant, Shearon Harris Nuclear Plant, Mayo Steam Plant and Roxboro Steam Plant. In connection with this transaction, Duke Energy Progress and NCEMPA entered into a 30-year wholesale power agreement, whereby Duke Energy Progress will sell power to NCEMPA to continue to meet the needs of NCEMPA customers.
The purchase price exceeded the historical carrying value of the acquired assets by $350 million, which was recognized as an acquisition adjustment and recorded in property, plant and equipment. Duke Energy Progress established a rider in North Carolina to recover the costs to acquire, operate and maintain interests in the assets purchased as allocated to its North Carolina retail operations, including the purchase acquisition adjustment, and included the purchase acquisition adjustment in wholesale power formula rates. Duke Energy Progress received an order from the PSCSC to defer the recovery of the South Carolina retail allocated costs of the asset purchased until the Duke Energy Progress' next general rate case, which was filed in July 2016. See Note 4, for additional information on the South Carolina Rate Case.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
DISPOSITIONSPurchase Price Allocation
Potential SaleThe purchase price allocation of International Energythe Piedmont acquisition is as follows:In February 2016, |
| | | |
(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 were determined based on significant estimates and assumptions that are judgmental in nature, including projected future cash flows (including timing), discount rates reflecting risk inherent in the future cash flows and market prices of long-term debt.
The majority of Piedmont’s operations are subject to the rate-setting authority of the NCUC, the PSCSC and the TPUC and are accounted for pursuant to accounting guidance for regulated operations. The rate-setting and cost recovery provisions currently in place for Piedmont’s regulated operations provide revenues derived from costs, including a return on investment of assets and liabilities included in rate base. Thus, the fair value of Piedmont's assets and liabilities subject to these rate-setting provisions approximates the pre-acquisition carrying value and does not reflect any net valuation adjustments.
The significant assets and liabilities for which valuation adjustments were reflected within the purchase price allocation include the acquired equity method investments and long-term debt. The difference between the fair value and the pre-acquisition carrying value 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 announced itprimarily for establishing a broader, long-term strategic natural gas infrastructure platform, an improved risk profile and expected synergies resulting from the combined entities.
Under Securities and Exchange Commission (SEC) regulations, Duke Energy elected not to apply push down accounting to the stand-alone Piedmont financial statements.
Accounting Charges Related to the Acquisition
Duke Energy incurred pretax nonrecurring transaction and integration costs associated with the acquisition of $16 million and $101 million for the three months ended March 31, 2017 and 2016, respectively. The 2016 amount includes $100 million of Interest Expense, which was driven by $93 million of unrealized losses on forward-starting interest rate swaps related to the acquisition financing. See Note 9 for additional information on the swaps.
Pro Forma Financial Information
The following unaudited pro forma financial information reflects the combined results of operations of Duke Energy and Piedmont as if the merger had initiated a process to divest the International Energy business segment, excludingoccurred as of January 1, 2016. The pro forma financial information excludes potential cost savings, intercompany revenues, Piedmont’s earnings from the equity method investment in National Methanol Company (NMC). Duke Energy is actively marketingSouthStar sold immediately prior to the business. Non-binding offers have been receivedmerger, and are being evaluated. There is no assurance that this process will result in aafter-tax nonrecurring transaction and the timing for execution of a potential transaction is uncertain. Proceeds from a successful sale would be usedintegration costs incurred by Duke Energy to reduce debt and fund the operationsPiedmont of $63 million. See Note 3 for additional information on Piedmont's sale of SouthStar.
This information has been presented for illustrative purposes only and growth of domestic businesses. If the potential of a sale were to progress, it could result in classification of International Energy as assets held for sale and as a discontinued operation.
Based upon the advancementis not necessarily indicative of the marketing efforts, Duke Energy performed recoverability tests of the long-lived asset groups of International Energy as of June 30, 2016. As a result, Duke Energy determined the carrying value of certain assets in Central America is not fully recoverable and recorded a pretax impairment charge of $194 million, which is included within Impairment Charges on the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2016. The impairment charge represents the excess of carrying value over the estimated fair value of the assets. The fair value of the assets was primarily determined from the income approach using discounted cash flows but also considered market information obtained in 2016.
As of June 30, 2016, the International Energy segment had a carrying value of approximately $2.4 billion, adjusted for approximately $589 million of cumulative foreign currency translation losses currently classified as accumulated other comprehensive loss.
Midwest Generation Exit
Duke Energy, through indirect subsidiaries, completed the sale of the Disposal Group to a subsidiary of Dynegy on April 2, 2015, for approximately $2.8 billion in cash. The nonregulated Midwest generation business included generation facilities with approximately 5,900 MW of owned capacity located in Ohio, Pennsylvania and Illinois. On April 1, 2015, prior to the sale, Duke Energy Ohio distributed its indirect ownership interest in the nonregulated Midwest generation business to a subsidiary of Duke Energy Corporation.
The Disposal Group'sconsolidated results of operations are classified as discontinued operations inthat would have been achieved or the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income. The following table presents thefuture consolidated results of discontinued operations for the three and six months ended June 30, 2015.of Duke Energy. |
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2015 | | June 30, 2015 |
| | | Duke |
| | | | Duke |
|
| Duke |
| | Energy |
| | Duke |
| | Energy |
|
(in millions) | Energy |
| | Ohio |
| | Energy |
| | Ohio |
|
Operating Revenues | $ | — |
| | $ | — |
| | $ | 543 |
| | $ | 412 |
|
Gain (Loss) on disposition | 6 |
| | — |
| | (37 | ) | | (44 | ) |
| | | | | | | |
(Loss) Income before income taxes(a) | $ | (80 | ) | | $ | (88 | ) | | $ | 67 |
| | $ | 52 |
|
Income tax (benefit) expense | (21 | ) | | (23 | ) | | 30 |
| | 27 |
|
(Loss) Income from discontinued operations of the Disposal Group | (59 | ) | | (65 | ) | | 37 |
| | 25 |
|
Other, net of tax(b) | 2 |
| | — |
| | (3 | ) | | — |
|
(Loss) Income from Discontinued Operations, net of tax | $ | (57 | ) | | $ | (65 | ) | | $ | 34 |
| | $ | 25 |
|
| |
(a) | The (Loss) Income before income taxes includes the pretax impact of a $71 million and $81 million charge for the agreement in principle reached in a lawsuit related to the Disposal Group for the three and six months ended June 30, 2015, respectively. Refer to Note 5 for further information related to the lawsuit. |
| |
(b) | Relates to discontinued operations of businesses not related to the Disposal Group and includes indemnifications provided for certain legal, tax and environmental matters, and foreign currency translation adjustments. |
Commercial Portfolio utilized a revolving credit agreement (RCA) to support the operations of the nonregulated Midwest generation business. 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. Duke Energy Ohio had a power purchase agreement with the Disposal Group for a portion of its standard service offer (SSO) supply requirement. The agreement and the SSO expired in May 2015.
3. BUSINESS SEGMENTS
Duke Energy evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment income, as discussed below, includes intercompany revenues and expenses that are eliminated in the Condensed Consolidated Financial Statements. Certain governance costs are allocated to each segment. In addition, direct interest expense and income taxes are included in segment income. |
| | | |
| Three Months Ended |
(in millions) | March 31, 2016 |
Operating Revenues | $ | 5,840 |
|
Net Income Attributable to Duke Energy Corporation | 832 |
|
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
DISPOSITIONS
Sale of International Energy
In December 2016, Duke Energy sold its International Energy businesses, excluding the equity method investment in NMC (the International Disposal Group), in two separate transactions. Duke Energy sold its Brazilian business to China Three Gorges for approximately $1.2 billion, including the assumption of debt, and its remaining Central and South American businesses to I Squared Capital in a deal also valued at approximately $1.2 billion, including the assumption of debt. The transactions generated cash proceeds of $1.9 billion, excluding transaction costs, which were primarily used to reduce Duke Energy holding company debt.
The following table presents the results of the International Disposal Group, which are included in Income from Discontinued Operations, net of tax in Duke Energy's Condensed Consolidated Statements of Operations. 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. |
| | | |
| Three Months Ended |
(in millions) | March 31, 2016 |
Operating Revenues | $ | 246 |
|
Fuel used in electric generation and purchased power | 47 |
|
Cost of natural gas | 11 |
|
Operation, maintenance and other | 71 |
|
Depreciation and amortization | 22 |
|
Property and other taxes | 3 |
|
Other Income and Expenses, net | 10 |
|
Interest Expense | 22 |
|
Income before income taxes | 80 |
|
Income tax benefit(a) | (39 | ) |
Income from discontinued operations of the International Disposal Group | 119 |
|
Income from discontinued operations of other businesses | 3 |
|
Income from Discontinued Operations, net of tax | $ | 122 |
|
| |
(a) | Includes an income tax benefit of $95 million related to historical undistributed foreign earnings. See Note 16 for additional information. |
Duke Energy has elected not to separately disclose discontinued operations on the Condensed Consolidated Statements of Cash Flows. The following table summarizes Duke Energy's cash flows from discontinued operations related to the International Disposal Group. |
| | | |
| Three Months Ended |
(in millions) | March 31, 2016 |
Cash flows provided by (used in): | |
Operating activities | $ | 85 |
|
Investing activities | (9 | ) |
Other Sale Related Matters
Duke Energy will provide certain transition services to China Three Gorges and I Squared Capital for a period not to extend beyond November 2017 and December 2017, respectively. Cash flows related to providing the transition services are not material. In addition, Duke Energy will reimburse China Three Gorges and I Squared Capital for all tax obligations arising from the period preceding consummation on the transactions, totaling approximately $78 million. Duke Energy has not recorded any other liabilities, contingent liabilities or indemnifications related to the International Disposal Group.
3. BUSINESS SEGMENTS
Operating 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. During the first quarter of 2016, the Duke Energy chief operating decision-maker began to evaluate interim periodevaluates segment performance based on financial information that includes the impactsegment income. Segment income is defined as income from continuing operations net of income tax levelization within segment income. This represents a change fromattributable to noncontrolling interests. Segment income includes intercompany revenues and expenses that are eliminated in the previous measure, where the interim period impacts of income tax levelization were included within Other, and therefore excluded from segment income. As a result, prior period segment results presented have been recast to conform to this change.
Condensed Consolidated Financial Statements. Products and services are sold between affiliate companies and reportable segments of Duke Energy at cost. Segment assets as presented
Duke Energy
Due to the Piedmont acquisition and the sale of International Energy in the tables that follow exclude all intercompany assets.fourth quarter of 2016, Duke Energy's segment structure has been realigned to include the following segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables. Prior period information has been recast to conform to the current segment structure. See Note 2 for further information on the Piedmont and International Energy transactions.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
The Electric Utilities and Infrastructure segment includes Duke Energy hasEnergy's regulated electric utilities in the following reportable operating segments: Regulated Utilities, International EnergyCarolinas, Florida and Commercial Portfolio.
RegulatedUtilities conductsthe Midwest. The regulated electric and natural gasutilities conduct operations through the Subsidiary Registrants that are substantially all regulated and, accordingly, qualify for regulatory accounting treatment. TheseElectric Utilities and Infrastructure also includes Duke Energy's 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 mid-stream pipeline investments. Gas Utilities and Infrastructure's operations are primarily conducted through the Subsidiary Registrantssubstantially all regulated and, are subject to the rules and regulations of the FERC, NRC, NCUC, PSCSC, FPSC, PUCO, IURC and KPSC.
International Energy operates and manages power generation facilities and engages in sales and marketing of electric power, natural gas and natural gas liquids outside the U.S. Its activities principally target power generation in Latin America. Additionally, International Energy owns a 25 percent interest in NMC, a large regional producer of methyl tertiary butyl ether (MTBE) located in Saudi Arabia. The investment in NMC is accountedaccordingly, qualify for under the equity method of accounting. In February 2016, Duke Energy announced it had initiated a process to potentially divest its International Energy business segment, excluding the investment in NMC. See Note 2 for further information.regulatory accounting treatment.
Commercial Portfolio builds, develops and operatesRenewables is primarily comprised of nonregulated utility scale wind and solar renewable generation and storage and energy transmission projectsassets located throughout the U.S. For periods subsequent to the sale of the Disposal Group, beginning in the second quarter of 2015, certain immaterial results of operations and related assets previously presented in the Commercial Portfolio segment are presented in Regulated Utilities and Other.
Theremainder of Duke Energy’s operations is presented as Other, which is primarily comprised of unallocated corporate interest expense, unallocated corporate costs, contributions to the Duke Energy Foundation and the operations of Duke Energy’s wholly owned captive insurance subsidiary, Bison Insurance Company Limited (Bison). Other also includes Duke Energy's 25 percent interest in NMC, a large regional producer of methyl tertiary butyl ether (MTBE) located in Saudi Arabia. The investment in NMC is accounted for under the equity method of accounting.
Business segment information is presented in the following tables. Segment assets presented exclude intercompany assets. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2017 |
| Electric |
| | Gas |
| | | | Total |
| | | | | | |
| Utilities and |
| | Utilities and |
| | Commercial |
| | Reportable |
| | | | | | |
(in millions) | Infrastructure |
| | Infrastructure |
| | Renewables |
| | Segments |
| | Other |
| | Eliminations |
| | Consolidated |
|
Unaffiliated revenues | $ | 4,939 |
| | $ | 648 |
| | $ | 128 |
| | $ | 5,715 |
| | $ | 14 |
| | $ | — |
| | $ | 5,729 |
|
Intersegment revenues | 8 |
| | 22 |
| | — |
| | 30 |
| | 19 |
| | (49 | ) | | — |
|
Total revenues | $ | 4,947 |
| | $ | 670 |
| | $ | 128 |
| | $ | 5,745 |
| | $ | 33 |
| | $ | (49 | ) | | $ | 5,729 |
|
Segment income (loss) | $ | 635 |
| | $ | 133 |
| | $ | 25 |
| | $ | 793 |
| | $ | (77 | ) | | $ | — |
| | $ | 716 |
|
Add back noncontrolling interests | | | | | | | | | | | | | 1 |
|
Net income | | | | | | | | | | | | | $ | 717 |
|
Segment assets | $ | 115,766 |
| | $ | 10,866 |
| | $ | 4,400 |
| | $ | 131,032 |
| | $ | 2,898 |
| | $ | 178 |
| | $ | 134,108 |
|
| | | Three Months Ended June 30, 2016 | Three Months Ended March 31, 2016 |
| | | | | | | Total |
| | | | | | | Electric |
| | Gas |
| | | | Total |
| | | | | | |
| Regulated |
| | International |
| | Commercial |
| | Reportable |
| | | | | | | Utilities and |
| | Utilities and |
| | Commercial |
| | Reportable |
| | | | | | |
(in millions) | Utilities |
| | Energy |
| | Portfolio |
| | Segments |
| | Other |
| | Eliminations |
| | Consolidated |
| Infrastructure |
| | Infrastructure |
| | Renewables |
| | Segments |
| | Other |
| | Eliminations |
| | Consolidated |
|
Unaffiliated revenues | $ | 5,090 |
| | $ | 270 |
| | $ | 112 |
| | $ | 5,472 |
| | $ | 12 |
| | $ | — |
| | $ | 5,484 |
| $ | 5,081 |
| | $ | 169 |
| | $ | 114 |
| | $ | 5,364 |
| | $ | 13 |
| | $ | — |
| | $ | 5,377 |
|
Intersegment revenues | 9 |
| | — |
| | — |
| | 9 |
| | 17 |
| | (26 | ) | | — |
| 8 |
| | 1 |
| | — |
| | 9 |
| | 16 |
| | (25 | ) | | — |
|
Total revenues | $ | 5,099 |
| | $ | 270 |
| | $ | 112 |
| | $ | 5,481 |
| | $ | 29 |
| | $ | (26 | ) | | $ | 5,484 |
| $ | 5,089 |
| | $ | 170 |
| | $ | 114 |
| | $ | 5,373 |
| | $ | 29 |
| | $ | (25 | ) | | $ | 5,377 |
|
Segment income (loss)(b)(a) | $ | 718 |
| | $ | (102 | ) | | $ | 14 |
| | $ | 630 |
| | $ | (120 | ) | | $ | — |
| | $ | 510 |
| $ | 664 |
| | $ | 32 |
| | $ | 26 |
| | $ | 722 |
| | $ | (148 | ) | | $ | — |
| | $ | 574 |
|
Add back noncontrolling interests | | | | | | | | | | | | | 3 |
| | | | | | | | | | | | | 3 |
|
Loss from discontinued operations, net of tax | | | | | | | | | | | | | (1 | ) | |
Income from discontinued operations, net of tax | | | | | | | | | | | | | | 122 |
|
Net income | | | | | | | | | | | | | $ | 512 |
| | | | | | | | | | | | | $ | 699 |
|
Segment assets | $ | 112,754 |
| | $ | 3,131 |
| | $ | 4,329 |
| | $ | 120,214 |
| | $ | 2,260 |
| | $ | 180 |
| | $ | 122,654 |
| |
| |
(a) | Other includes $74 million of after-tax charges for costs to achieve mergers, of $69 million, primarily due to unrealizedincluding losses on forward-starting interest rate swaps related to the Piedmont acquisition and cost savings initiatives of $15 million primarily due to severance costs. See Notes 2 and 9 for additional information related to the forward-starting interest rate swaps. |
| |
(b) | International Energy includes an after-tax impairment charge of $145 million.financing. See Note 29 for additional information. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2015 |
| | | | | | | Total |
| | | | | | |
| Regulated |
| | International |
| | Commercial |
| | Reportable |
| | | | | | |
(in millions) | Utilities |
| | Energy |
| | Portfolio |
| | Segments |
| | Other |
| | Eliminations |
| | Consolidated |
|
Unaffiliated revenues | $ | 5,211 |
| | $ | 287 |
| | $ | 75 |
| | $ | 5,573 |
| | $ | 16 |
| | $ | — |
| | $ | 5,589 |
|
Intersegment revenues | 9 |
| | — |
| | — |
| | 9 |
| | 18 |
| | (27 | ) | | — |
|
Total revenues | $ | 5,220 |
| | $ | 287 |
| | $ | 75 |
| | $ | 5,582 |
| | $ | 34 |
| | $ | (27 | ) | | $ | 5,589 |
|
Segment income (loss)(a)(b) | $ | 632 |
| | $ | 52 |
| | $ | (30 | ) | | $ | 654 |
| | $ | (51 | ) | | $ | (3 | ) | | $ | 600 |
|
Add back noncontrolling interests | | | | | | | | | | | | | 4 |
|
Loss from discontinued operations, net of tax(c) | | | | | | | | | | | | | (57 | ) |
Net income | | | | | | | | | | | | | $ | 547 |
|
Duke Energy Ohio has two reportable operating segments, Electric Utilities and Infrastructure and Gas Utilities and Infrastructure.(a) Other includes after-tax costs to achieve the ProgressElectric Utilities and Infrastructure transmits and distributes electricity in portions of Ohio and generates, distributes and sells electricity in portions of Kentucky. Gas Utilities and Infrastructure transports and sells natural gas in portions of Ohio and northern Kentucky. It conducts operations primarily through Duke Energy merger of $14 million.Ohio and its wholly owned subsidiary, Duke Energy Kentucky.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
| |
(b) | Commercial Portfolio includes state tax expense of $41 million, resulting from changes to state apportionment factors due to the sale of the Disposal Group, that does not qualify for discontinued operations. Refer to Note 2 for further information related to the sale.
|
| |
(c) | Includes the after-tax impact of $46 million for the agreement in principle reached in a lawsuit related to the Disposal Group. Refer to Note 5 for further information related to the lawsuit.
|
Other 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 the Ohio Valley Electric Corporation's (OVEC) power plants. See Note 8 for additional information on related party transactions. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2017 |
| Electric |
| | Gas |
| | Total |
| | | | | | |
| Utilities and |
| | Utilities and |
| | Reportable |
| | | | | | |
(in millions) | Infrastructure |
| | Infrastructure |
| | Segments |
| | Other |
| | Eliminations |
| | Consolidated |
|
Total revenues | $ | 337 |
| | $ | 170 |
| | $ | 507 |
| | $ | 11 |
| | $ | — |
| | $ | 518 |
|
Segment income (loss)/Net Income | 24 |
| | 26 |
| | 50 |
| | (8 | ) | | — |
| | 42 |
|
Segment assets | 4,856 |
| | 2,696 |
| | 7,552 |
| | 71 |
| | (14 | ) | | 7,609 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2016 |
| Electric |
| | Gas |
| | Total |
| | | | | | |
| Utilities and |
| | Utilities and |
| | Reportable |
| | | | | | |
(in millions) | Infrastructure |
| | Infrastructure |
| | Segments |
| | Other |
| | Eliminations |
| | Consolidated |
|
Total revenues | $ | 340 |
| | $ | 170 |
| | $ | 510 |
| | $ | 6 |
| | $ | — |
| | $ | 516 |
|
Segment income (loss) | $ | 36 |
| | $ | 31 |
| | $ | 67 |
| | $ | (9 | ) | | $ | (1 | ) | | $ | 57 |
|
Income from discontinued operations, net of tax | | | | | | | | | | | 2 |
|
Net income | | | | | | | | | | | $ | 59 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2016 |
| | | | | | | Total |
| | | | | | |
| Regulated |
| | International |
| | Commercial |
| | Reportable |
| | | | | | |
(in millions) | Utilities |
| | Energy |
| | Portfolio |
| | Segments |
| | Other |
| | Eliminations |
| | Consolidated |
|
Unaffiliated revenues | $ | 10,340 |
| | $ | 516 |
| | $ | 227 |
| | $ | 11,083 |
| | $ | 23 |
| | $ | — |
| | $ | 11,106 |
|
Intersegment revenues | 18 |
| | — |
| | — |
| | 9 |
| | 35 |
| | (53 | ) | | — |
|
Total revenues | $ | 10,358 |
| | $ | 516 |
| | $ | 227 |
| | $ | 11,092 |
| | $ | 58 |
| | $ | (53 | ) | | $ | 11,106 |
|
Segment income (loss)(a)(b) | $ | 1,413 |
| | $ | 21 |
| | $ | 41 |
| | $ | 1,475 |
| | $ | (274 | ) | | $ | — |
| | $ | 1,201 |
|
Add back noncontrolling interests | | | | | | | | | | | | | 8 |
|
Income from discontinued operations, net of tax | | | | | | | | | | | | | 2 |
|
Net income | | | | | | | | | | | | | $ | 1,211 |
|
| |
(a) | Other includes after-tax charges for costs to achieve mergers of $143 million, primarily due to unrealized losses on forward-starting interest rate swaps related to the Piedmont acquisition, and cost savings initiatives of $27 million primarily due to severance costs. See Notes 2 and 9 for additional information related to the forward-starting interest rate swaps. |
| |
(b) | International Energy includes an after-tax impairment charge of $145 million. See Note 2 for additional information. |
DUKE ENERGY CAROLINAS, PROGRESS ENERGY, DUKE ENERGY PROGRESS, DUKE ENERGY FLORIDA, DUKE ENERGY INDIANA AND PIEDMONT |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2015 |
| | | | | | | Total |
| | | | | | |
| Regulated |
| | International |
| | Commercial |
| | Reportable |
| | | | | | |
(in millions) | Utilities |
| | Energy |
| | Portfolio |
| | Segments |
| | Other |
| | Eliminations |
| | Consolidated |
|
Unaffiliated revenues | $ | 10,924 |
| | $ | 560 |
| | $ | 148 |
| | $ | 11,632 |
| | $ | 22 |
| | $ | — |
| | $ | 11,654 |
|
Intersegment revenues | 19 |
| | — |
| | — |
| | 19 |
| | 39 |
| | (58 | ) | | — |
|
Total revenues | $ | 10,943 |
| | $ | 560 |
| | $ | 148 |
| | $ | 11,651 |
| | $ | 61 |
| | $ | (58 | ) | | $ | 11,654 |
|
Segment income (loss)(a)(b) | $ | 1,406 |
| | $ | 88 |
| | $ | (23 | ) | | $ | 1,471 |
| | $ | (94 | ) | | $ | (4 | ) | | $ | 1,373 |
|
Add back noncontrolling interests | | | | | | | | | | | | | 7 |
|
Income from discontinued operations, net of tax(c) | | | | | | | | | | | | | 34 |
|
Net income | | | | | | | | | | | | | $ | 1,414 |
|
(a)Piedmont has one reportable segment, Gas Utilities and Infrastructure, which transports and sells natural gas. The remainder of Piedmont's operations is classified as Other. While not considered a reportable segment, Other includes after-taxprimarily consists of certain unallocated corporate costs, including acquisition-related expenses, and Piedmont's equity method investment in SouthStar Energy Services, LLC (SouthStar) prior to achieveits sale. Piedmont sold its 15 percent membership interest in SouthStar on October 3, 2016. Piedmont's income, net of tax, from SouthStar for the Progress Energy merger of $27three months ended March 31, 2016 was $7 million.
| |
(b) | Commercial Portfolio includes state tax expense of $41 million, resulting from changes to state apportionment factors due to the sale of the Disposal Group, that does not qualify for discontinued operations. Refer to Note 2 for further information related to the sale.
|
| |
(c) | Includes after-tax impact of $53 million for the agreement in principle reached in a lawsuit related to the Disposal Group. Refer to Note 5 for further information related to the lawsuit.
|
SUBSIDIARY REGISTRANTS
The remaining Subsidiary Registrants each have one reportable operating segment, RegulatedElectric Utilities and Infrastructure, which generates, transmits, distributes and sells electricity, and for Duke Energy Ohio, also transports and sells natural gas.electricity. The remainder of each company's operations is primarily comprised of unallocated corporate costs and classified as Other. While not considered a reportable segment for any of these companies, Other consists of certain unallocated corporate costs. Other for Progress Energy also includes interest expense on corporate debt instruments of $55 million and $56 million for the three months ended March 31, 2017 and 2016, respectively. The following table providessummarizes the amountnet loss of Other net expense.for each of these entities. |
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| June 30, | June 30, |
(in millions) | 2016 |
| | 2015 |
| 2016 |
| | 2015 |
|
Duke Energy Carolinas | $ | (17 | ) | | $ | (10 | ) | $ | (34 | ) | | $ | (18 | ) |
Progress Energy(a) | (45 | ) | | (42 | ) | (94 | ) | | (84 | ) |
Duke Energy Progress | (8 | ) | | (4 | ) | (16 | ) | | (8 | ) |
Duke Energy Florida | (5 | ) | | (3 | ) | (9 | ) | | (6 | ) |
Duke Energy Ohio | (10 | ) | | (6 | ) | (19 | ) | | (8 | ) |
Duke Energy Indiana | (5 | ) | | (2 | ) | (7 | ) | | (4 | ) |
| |
(a) | Other for Progress Energy also includes interest expense on corporate debt instruments of $55 million and $111 million for the three and six months ended June 30, 2016, respectively, and $59 million and $119 million for the three and six months ended June 30, 2015, respectively. |
PART I
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
Combined Notes to Condensed Consolidated Financial Statements – (Continued)
(Unaudited)
|
| | | | | | | |
| Three Months Ended |
| March 31, |
(in millions) | 2017 |
| | 2016 |
|
Duke Energy Carolinas | $ | (6 | ) | | $ | (17 | ) |
Progress Energy | (43 | ) | | (49 | ) |
Duke Energy Progress | (3 | ) | | (8 | ) |
Duke Energy Florida | (2 | ) | | (4 | ) |
Duke Energy Indiana | (2 | ) | | (2 | ) |
Piedmont | (4 | ) | | 6 |
|
The assets of the Subsidiary Registrantsat Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana are substantially all included within the RegulatedElectric Utilities and Infrastructure segment at June 30, 2016.
Duke Energy Ohio
Duke Energy Ohio had two reportable operating segments, RegulatedMarch 31, 2017. The assets at Piedmont are substantially all included within the Gas Utilities and Commercial Portfolio, during 2015 prior to the sale of the nonregulated Midwest generation business. Duke Energy Ohio's Commercial PortfolioInfrastructure segment had total revenues of $14 million and segment loss of $9 million for the six months ended June 30, 2015. As a result of the sale discussed in Note 2, Commercial Portfolio no longer qualifies as a Duke Energy Ohio reportable operating segment. Therefore, beginning in the second quarter of 2015, all of the remaining assets and related results of operations previously presented in Commercial Portfolio are presented in Regulated Utilities and Other.at March 31, 2017.
4. 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 Kentucky and Indiana), as well as sales of transmission service. The FERC also regulates certification and siting of new interstate natural gas pipeline projects.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
Duke Energy Carolinas and Duke Energy Progress
Ash Basin Closure Costs Deferral
On July 13,December 30, 2016, in response to a joint petition of Duke Energy Carolinas and Duke Energy Progress filed a joint petition with the PSCSC issuedNCUC seeking an accounting order for the deferment into a regulatory accountauthorizing deferral of certain costs incurred in connection with federal and state environmental remediation requirements related to the permanent closure of ash basins and other ash storage units at coal-fired generating facilities that have provided or are providing generation to customers located in SouthNorth Carolina. The decision allows for ash basin closure expenses to be partially offset with excess regulatory liability amounts from the deferral of nuclear decommissioning costs that are collected from South Carolina retail customersInitial comments were received in March 2017, and for Duke Energy Progress to offset incurred ash basin closure costs with costs of removal amounts collected from customers. The PSCSC's ruling does not change retail rates or the tariff amounts and in no way limits the PSCSC's ability to challenge the reasonableness of expenditures in subsequent proceedings.
FERC Transmission Returnreply comments were filed on Equity Complaints
On January 7, 2016, a group of transmission service customers filed a complaint with the FERC that the rate of return on equity of 10.2 percent in Duke Energy Carolinas' transmission formula rates is excessive and should be reduced to no higher than 8.49 percent, effective upon the complaint date. On the same date a similar complaint was filed with the FERC claiming that the rate of return on equity of 10.8 percent in Duke Energy Progress' transmission formula rates is excessive and should be reduced to no higher than 8.49 percent, effective upon the complaint date. On April 21, 2016, the FERC issued an order which consolidated the cases, set a refund effective date of January 7, 2016, and set the consolidated case for settlement and hearing.19, 2017. Duke Energy Carolinas and Duke Energy Progress do not expectcannot predict the potential impact on resultsoutcome of operations, cash flows or financial position to be material.this matter.
Duke Energy Carolinas
Advanced Metering Infrastructure Deferral
On July 12, 2016, the PSCSC issued an accounting order for Duke Energy Carolinas to defer the financial effects of depreciation expense incurred for the installation of advanced metering infrastructure (AMI) meters, the carrying costs on the investment at its weighted average cost of capital and the carrying costs on the deferred costs at its weighted average cost of capital not to exceed $45 million. The decision also allows Duke Energy Carolinas to continue to depreciate the non-AMI meters to be replaced. Current retail rates will not change as a result of the decision and the PSCSC's ability to challenge the reasonableness of expenditures in subsequent proceedings is not limited.
William States Lee Combined Cycle Facility
On April 9, 2014, the PSCSC granted 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 MW750-MW combined-cycle natural gas-fired generating plant at Duke Energy Carolinas' existing William States Lee Generating Station in Anderson, South Carolina. Duke Energy Carolinas began construction in July 2015 and estimates a cost to build of $600 million for its share of the facility, including allowance for funds used during construction (AFUDC).AFUDC. The project is expected to be commercially available in late 2017. NCEMC will own approximately 13 percent of the project. On July 3, 2014, the South Carolina Coastal Conservation League (SCCL) and Southern Alliance for Clean Energy (SACE) jointly filed a Notice of Appeal with the Court of Appeals of South Carolina (S.C. Court of Appeals) seeking the court's review of the PSCSC's decision, claiming the PSCSC did not properly consider a request related to a proposed solar facility prior to granting approval of the CECPCN. The S.C. Court of Appeals affirmed the PSCSC's decision on February 10, 2016, and on March 24, 2016, denied a request for rehearing filed by SCCL and SACE. On April 21, 2016, SCCL and SACE petitioned the South Carolina Supreme Court for review of the S.C. Court of Appeals decision. On March 24, 2017, the South Carolina Supreme Court denied the request for review, thus concluding the matter.
William States Lee III Nuclear Station
In December 2007, Duke Energy Carolinas filed its response on June 13, 2016,applied to the NRC for combined operating licenses (COLs) for two Westinghouse Electric Company (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 SCCL and SACE filed a reply on June 23, 2016.PSCSC have concurred with the prudency of Duke Energy Carolinas cannot predictdecisions to incur certain project development and preconstruction costs through several separately issued orders, although full cost recovery is not guaranteed. In December 2016, the outcomeNRC issued a COL for each reactor. Duke Energy Carolinas is not required to build the nuclear reactors as a result of this matter.the COLs being issued.
PART I
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
Combined NotesOn March 29, 2017, Westinghouse filed for voluntary Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York. Duke Energy Carolinas is monitoring the bankruptcy proceedings to Condensed Consolidated Financial Statements – (Continued)
(Unaudited)
assess the impact it will have on the future construction of nuclear plants.
Duke Energy Progress
South Carolina Rate CaseStorm Cost Deferral Filing
On July 1,December 16, 2016, Duke Energy Progress filed an applicationa petition with the PSCSCNCUC requesting an average 14.5 percent increaseaccounting order to defer certain costs incurred in retail revenues. The requested rate change would increase annual revenues by approximately $79 million,connection with a rate of return on equity of 10.75 percent. The increase is designedresponse to recover the cost of investmentHurricane Matthew and other significant storms in new generation infrastructure, environmental expenditures including allocated historical ash basin closure costs and increased nuclear operating costs.2016. Duke Energy Progress hasproposed in the filing to true-up the total costs quarterly through August 2017. The current estimate of incremental operation and maintenance and capital costs is $116 million. On March 15, 2017, the Public Staff filed comments supporting deferral of a portion of Duke Energy Progress’ requested new rates to be effective January 1,amount. Duke Energy Progress filed reply comments on April 12, 2017. A hearing has been scheduled to begin on October 31, 2016. Duke Energy Progress cannot predict the outcome of this matter.
Western Carolinas Modernization Plan
On November 4, 2015, in response to community feedback, Duke Energy Progress announced a revised Western Carolinas Modernization Plan, with an estimated cost of $1.1 billion. The revised plan includeswhich included retirement of the existing Asheville coal-fired plant, the construction of two 280 280‑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 revised plan includesalso included upgrades to existing transmission lines and substations, but eliminates the need for a new transmission line and a new substation associated with the project in South Carolina. The revised plan has the same overall project cost as the original plan and the plans to installinstallation of solar generation remain unchanged. Duke Energy Progress has also proposed to addand 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. The plan requires various approvals including regulatory approvals in North Carolina.
Duke Energy Progress filed for a Certificate of Public Convenience and Necessity (CPCN) with the NCUC for the new natural gas units on January 15, 2016. On March 28, 2016, the NCUC issued an order approving the CPCNa Certificate of Public Convenience and Necessity (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. ConstructionOn 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 is scheduled to begin in 2016 and the plants arefall 2017, with an expected to bein-service date in service by late 2019. Duke Energy Progress plans to file for future approvals related to the proposed solar generation and pilot battery storage project.
On May 27, 2016, NC WARN and The Climate Times filed a notice of appeal from the CPCN order to the N.C. Court of Appeals. On May 31, 2016, Duke Energy Progress filed a motion to dismiss the notice of appeal with the NCUC due to NC WARN's and The Climate Times' failure to post a required appeal bond. After a series of filings, an NCUC order, petitions to the N.C. Court of Appeals and an evidentiary hearing, on July 8, 2016, the NCUC issued an order setting NC WARN's and The Climate Times' appeal bond at $98 million. On July 28, 2016, NC WARN and The Climate Times filed a notice of appeal and exceptions from the NCUC's July 8, 2016, appeal bond order. On August 2, 2016, the NCUC granted Duke Energy Progress' motion to dismiss NC WARN's and The Climate Times' notice of appeal from the CPCN order due to failure to post the requisite bond. Duke Energy Progress cannot predict the outcome of this matter.
The carrying value of the 376 MW376-MW Asheville coal-fired plant, including associated ash basin closure costs, of $506$471 million and $548$492 million are included in Generation facilities to be retired, net on Duke Energy Progress' Condensed Consolidated Balance Sheet as of June 30, 2016March 31, 2017 and December 31, 2015,2016, respectively.
Duke Energy Florida
Hines Chiller Uprate Project
On May 20, 2016, Duke Energy Florida filed a petition seeking approval to include in base rates the revenue requirement for a Chiller Uprate Project (Uprate Project) at the Hines station. Duke Energy Florida proposes to complete the Uprate Project in two phases: phase one work on Hines Units 1-3 and the common equipment to be completed and placed into service in October 2016; and phase two work on Hines Unit 4 to be completed and placed into service in January 2017. The final construction cost estimate for both phases of approximately $150 million is below the cost estimate provided during the need determination proceeding. Duke Energy Florida estimates the annual retail revenue requirements for phases one and two to be approximately $16 million and $3 million, respectively. Duke Energy Florida’s petition seeks approval of both revenue requirements, but only seeks to include the phase one revenue requirement in base rates and customer bills beginning November 2016, and will separately petition to include the phase two revenue requirement in base rates and customer bills beginning February 2017. Duke Energy Florida cannot predict the outcome of this matter.
Purchase of Osprey Energy Center
In December 2014, Duke Energy Florida and Osprey Energy Center, LLC, a wholly owned subsidiary of Calpine Corporation (Calpine), entered into an Asset Purchase and Sale Agreement for the purchase of a 599 MW combined-cycle natural gas plant in Auburndale, Florida (Osprey Plant acquisition) for approximately $166 million. In July 2015, the FERC and the FPSC issued separate orders of approval for the Osprey Plant acquisition. The Hart-Scott-Rodino waiting period expired on May 2, 2016. Closing of the acquisition is expected to occur by the first quarter of 2017, upon the expiration of an existing Power Purchase Agreement between Calpine and Duke Energy Florida. In anticipation of closing, in August 2016, Duke Energy Florida filed a petition seeking approval to include in base rates the revenue requirements for the Osprey Plant acquisition to be included in customer bills beginning in February 2017. Duke Energy Florida estimates the retail revenue requirements to be approximately $48 million.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
Crystal River Unit 3 Regulatory AssetDuke Energy Florida
In June 2015,Hines Chiller Uprate Project
On February 2, 2017, Duke Energy Florida filed a petition seeking approval to include in base rates the governorrevenue requirement for a Chiller Uprate Project (Uprate Project) at the Hines Energy Complex. The Uprate Project was placed into service in March 2017 at a cost of Florida signed legislation to allow utilities to issue nuclear asset-recovery bonds to finance the recovery of certain retired nuclear generation assets, with approval of the FPSC. In November 2015,approximately $150 million. The retail revenue requirement is approximately $19 million. On March 28, 2017, the FPSC issued a financingan order approving the revenue requirement which were included in base rates for the first billing cycle of April 2017.
Levy Nuclear Project
On July 28, 2008, Duke Energy Florida applied to the NRC for COLs for two Westinghouse AP1000 reactors at Levy. In 2008, the FPSC granted Duke Energy Florida’s request to issuepetition for an affirmative Determination of Need and related orders requesting cost recovery under Florida’s nuclear asset-recovery bonds to finance its unrecovered regulatory asset related to Crystal River Unit 3 (Crystal River 3) through a wholly owned special purpose entity.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 asset-recovery bonds replace the base rate recovery methodology authorized by the 2013 RevisedPlant Units 1 and Restated Stipulation and Settlement Agreement (2013 Agreement) 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 2016,2. Duke Energy Florida formedis not required to build the nuclear reactors as a result of the COLs being issued.
On January 28, 2014, Duke Energy Florida Project Finance, LLC (DEFPF), a wholly owned, bankruptcy remote special purpose subsidiary forterminated 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 fromLevy engineering, procurement and construction agreement (EPC). Duke Energy Florida andmay be required to pay transaction related expenses. The nuclear asset-recovery property includesfor work performed under 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 allEPC. Duke Energy Florida retail customers untilrecorded an exit obligation in 2014 for the bonds are paidtermination of the EPC. This liability was recorded within Other in full.Deferred Credits and Other Liabilities with an offset primarily to Regulatory assets on the Condensed Consolidated Balance Sheets. Duke Energy Florida began collectingis allowed to recover reasonable and prudent EPC cancellation costs from its retail customers. On May 1, 2017, Duke Energy Florida filed a request with the FPSC to recover approximately $82 million of Levy Nuclear Project costs from retail customers in 2018. A hearing is scheduled in August 2017. Duke Energy Florida cannot predict the outcome of this matter.
On March 29, 2017, Westinghouse filed for voluntary Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York. Duke Energy Florida is monitoring the bankruptcy proceedings to assess the impact it will have on the future construction of nuclear asset-recovery charge on behalf of DEFPF in customer rates in July 2016.
See Notes 6 and 12 for additional information.plants.
Duke Energy Ohio
Ohio Valley Electric Corporation
On March 31, 2017, Duke Energy Ohio filed for approval to adjust its existing price stabilization rider (Rider PSR) to pass through net costs related to its contractual entitlement to capacity and energy from the generating assets owned by OVEC. The PUCO approved Rider PSR, but set it at zero dollars in connection with the most recent electric security plan. The application seeks to adjust Rider PSR as of April 1, 2017. Duke Energy Ohio is seeking deferral authority for net costs incurred from April 1, 2017, until the new rates under Rider PSR are put into effect. See Note 12 for additional discussion of Duke Energy Ohio's ownership interest in OVEC. Duke Energy Ohio cannot predict the outcome of this proceeding.
East Bend Coal Ash Basin Filing
On December 2, 2016, Duke Energy Kentucky filed with the KPSC a request for a CPCN for construction projects necessary to close and repurpose an ash basin at the East Bend facility as a result of current and proposed U.S. Environmental Protection Agency (EPA) regulations. Duke Energy Kentucky estimated a total cost of approximately $93 million in the filing and expects in-service date in the fourth quarter of 2018. Duke Energy Kentucky expects the KPSC to issue an order in the second quarter of 2017.
Base Rate Case
Duke Energy Ohio filed with the PUCO an electric distribution base rate case application and supporting testimony in March 2017. Duke Energy Ohio has requested an estimated annual increase of approximately $15 million and a return on equity of 10.4 percent. The application also includes requests to continue certain current riders and establish new riders related to LED Outdoor Lighting Service and regulatory mandates. Duke Energy Ohio cannot predict the outcome of this matter.
Natural Gas Pipeline Extension
Duke Energy Ohio is proposing to install a new natural gas pipeline in its Ohio service territory to increase system reliability and enable the retirement of older infrastructure. On January 20, 2017, Duke Energy Ohio filed an amended application with the Ohio Power Siting Board for approval of one of two proposed routes. If approved, construction of the pipeline extension is expected to be completed before the 2019/2020 winter season. A public hearing is scheduled for June 15, 2017, and an adjudicatory hearing is scheduled to begin July 12, 2017. The proposed project involves the installation of a natural gas line and is estimated to cost between $100$86 million and $150 million. Duke Energy Ohio is currently evaluating potential routes and has conducted public informational meetings. Duke Energy Ohio will narrow the route options to two and then make a filing with the Ohio Power Siting Board for approval of one of the two proposed routes.$110 million, excluding AFUDC.
Advanced Metering Infrastructure
On April 25, 2016, Duke Energy Kentucky filed with the KPSC an application for approval of a certificate of public convenience and necessityCPCN for the construction of advanced metering infrastructure. Duke Energy Kentucky anticipates thatestimates the estimated $49 million project, if approved, will take about two years to complete. Duke Energy Kentucky also requested approval to establish a regulatory asset of approximately $10 million for the remaining book value of existing meter equipment and inventory that willto be replaced. On July 20, 2016,Duke Energy Kentucky and the Kentucky Attorney General the only intervenor in the proceeding, movedentered into a stipulation to dismisssettle matters related to the application. Duke Energy Kentucky filed its opposition toAn evidentiary hearing on the Kentucky Attorney General's motion to dismissapplication and stipulation was held on July 27,December 8, 2016. Duke Energy Kentucky cannot predict the outcome of this matter.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
Accelerated Natural Gas Service Line Replacement Rider
On January 20, 2015, Duke Energy Ohio filed an application for approval of an accelerated natural gas service line replacement program (ASRP). Under the ASRP, Duke Energy Ohio proposesproposed to replace certain natural gas service lines on an accelerated basis. The program is proposed to last 10 years. Through the ASRP,basis over a 10-year period. Duke Energy Ohio also proposesproposed to complete preliminary survey and investigation work related to natural gas service lines that are customer owned and for which it does not have valid records and, further, to relocate interior natural gas meters to suitable exterior locations where such relocation can be accomplished. Duke Energy Ohio projectsOhio's current projected total capital and operations and maintenance expenditures under the ASRP to approximate $320are approximately $240 million. The filing also seekssought approval of Rider ASRPa rider mechanism (Rider ASRP) to recover related expenditures. Duke Energy Ohio proposesproposed to update Rider ASRP on an annual basis. Duke Energy Ohio’s application is pending before the PUCO and it is uncertain when an order will be issued. Intervenors opposeopposed the ASRP, primarily because they believe the program is neither required nor necessary under federal pipeline regulation. On October 26, 2016, the PUCO issued an order denying the proposed ASRP. The hearing concluded on November 19, 2015,PUCO did, however, encourage Duke Energy Ohio to work with the PUCO Staff and initial and reply briefs wereintervenors. Duke Energy Ohio filed with briefing complete onan application for rehearing of the PUCO decision. In December 23, 2015.2016, the PUCO granted the request for the purpose of further review. Duke Energy Ohio cannot predict the outcome of this matter.
Energy Efficiency Cost Recovery
On March 28, 2014, Duke Energy Ohio filed an application for recovery of program costs, lost distribution revenue and performance incentives related to its energy efficiency and peak demand reduction programs. These programs are undertaken to comply with environmental mandates set forth in Ohio law. After a comment period, theThe PUCO approved Duke Energy Ohio’s application, but found that Duke Energy Ohio was not permitted to use banked energy savings from previous years in order to calculate the amount of allowed incentive. This conclusion represented a change to the cost recovery mechanism that had been agreed toupon by intervenors and approved by the PUCO in previous cases. The PUCO granted the applications for rehearing filed by Duke Energy Ohio and an intervenor on July 8, 2015. Substantive ruling on the application for rehearing is pending.intervenor. On January 6, 2016, Duke Energy Ohio and the PUCO Staff entered into a stipulation, pending PUCOthe PUCO's approval, resolving theto resolve issues related to among other things, performance incentives and the PUCO Staff audit of 2013 costs. Based oncosts, among other issues. In December 2015, based upon the stipulation, in December 2015, Duke Energy Ohio re-established approximately $20 million of the revenues that had been reversed inpreviously reversed. On October 26, 2016, the second quarter of 2015. A hearing onPUCO issued an order approving the stipulation commenced on March 10,without modification. Intervenors requested a rehearing of the PUCO decision. In December 2016, and the post-hearing briefing has concluded.PUCO granted a rehearing for the purpose of further review. Duke Energy Ohio cannot predict the outcome of this matter.
PART I
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
Combined Notes to Condensed Consolidated Financial Statements – (Continued)
(Unaudited)
2012 Natural Gas Rate Case/Manufactured Gas Plant Cost Recovery
On November 13, 2013, the PUCO issued an order approving a settlement of Duke Energy Ohio’s natural gas base rate case and authorizing the recovery of costs incurred between 2008 and 2012 for environmental investigation and remediation of two former manufactured gas plant (MGP) sites. The order contained deadlines for the recovery of such costs. Specifically, for the property known as the East End site, PUCO established a deadline of December 31, 2016, and for the West End site, a deadline of December 31, 2019. The PUCO authorized Duke Energy Ohio to seek to extend these deadlines due to certain circumstances. On May 16, 2016, Duke Energy Ohio filed an application to extend the deadline for cost recovery applicable to the East End site. The order also authorized Duke Energy Ohio to continue deferring MGP environmental investigation and remediation costs incurred subsequent to 2012 and to submit annual filings to adjust the MGP rider for future costs. Intervening parties appealed this decision to the Ohio Supreme Court and that appeal remains pending. Oral argument was heard on February 28, 2017. Incurred and projected investigation and remediation expenses at these MGP sites that have not been collected through the MGP rider are approximately $100 million and are recorded as Regulatory assets on Duke Energy Ohio submitted MGP rider update filings in 2014, 2015, and 2016 for recoveryOhio's Condensed Consolidated Balance Sheet as of costs incurred in 2013, 2014, and 2015, which are pending approval.March 31, 2017. Duke Energy Ohio cannot predict the outcome of this matter.
Regional Transmission Organization Realignment
Duke Energy Ohio, including Duke Energy Kentucky, transferred control of its transmission assets from Midcontinent Independent System Operator, Inc. (MISO) to PJM Interconnection, LLC (PJM), effective December 31, 2011. The PUCO approved a settlement related to Duke Energy Ohio’s recovery of certain costs of the Regional Transmission Organization (RTO) realignment via a non-bypassable rider. Duke Energy Ohio is allowed to recover all MISO Transmission Expansion Planning (MTEP) costs, including but not limited to Multi Value Project (MVP) costs, directly or indirectly charged to Ohio customers. Duke Energy Ohio also agreed to vigorously defend against any charges for MVP projects from MISO. The KPSC also approved a request to effect the RTO realignment, subject to a commitment not to seek double recovery in a future rate case of the transmission expansion fees that may be charged by MISO and PJM in the same period or overlapping periods.
Duke Energy Ohio had a recorded liability for its exit obligation and share of MTEP costs, excluding MVP, of $91$90 million and $92 million, respectively, at June 30, 2016March 31, 2017, and December 31, 2015,2016, recorded within Other in Current liabilities and Other in Deferred credits and other liabilitiesOther Noncurrent Liabilities on Duke Energy Ohio’sthe Condensed Consolidated Balance Sheets. The retail portionportions of MTEP costs billed by MISO are recovered by Duke Energy Ohio through a non-bypassable rider. As of June 30, 2016March 31, 2017, and December 31, 2015,2016, Duke Energy Ohio had $72$71 million recorded in Regulatory assets on the Condensed Consolidated Balance Sheets.
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,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. Duke Energy Ohio cannot predict the outcome of this matter.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
Duke Energy Indiana
Coal Combustion Residual Plan
On March 17, 2016, Duke Energy Indiana filed with the IURC a request for approval of its first group of federally mandated Coal Combustion Residual (CCR) rule compliance projects (Phase I CCR Compliance Projects) to comply with the U.S. Environmental Protection Agency's (EPA)EPA's CCR rule. The projects in this Phase I filing are CCR compliance projects, including the conversion of Cayuga and Gibson Stationsstations to dry bottom ash handling and related water treatment. Duke Energy Indiana has requested timely recovery of approximately $380 million in retail capital costs and incremental operating and maintenance costs, including AFUDC, under a federal mandate tracker whichthat provides for timely recovery of 80 percent of such costs and deferral with carrying costs of 20 percent of such costs for recovery in a subsequent retail base rate case. On January 24, 2017, Duke Energy Indiana and various Intervenors filed a settlement agreement with the IURC. Terms of the settlement include recovery of 60 percent of the estimated CCR compliance construction project capital costs through existing rider mechanisms and deferral of 40 percent of these costs until Duke Energy Indiana's next general retail rate case. The deferred costs will earn a return based on Duke Energy Indiana's long-term debt rate of 4.73 percent until costs are included in retail rates, at which time the deferred costs will earn a full return. Costs are to be capped at $365 million, plus actual AFUDC. Costs above the cap may be recoverable in the next rate case. Terms of the settlement agreement also require Duke Energy Indiana to perform certain reporting and groundwater monitoring. The settlement is subject to approval by the IURC. An evidentiary hearing is scheduled for November 2016.was held on February 23, 2017, and Duke Energy Indiana filed a proposed order with the IURC on March 30, 2017. Duke Energy Indiana cannot predict the outcome of this matter.
Edwardsport Integrated Gasification Combined Cycle Plant
On November 20, 2007, the IURC granted Duke Energy Indiana a CPCN for the construction of the Edwardsport Integrated Gasification Combined Cycle (IGCC) Plant. The Citizens Action Coalition of Indiana, Inc., Sierra Club, Inc., Save the Valley, Inc., and Valley Watch, Inc. (collectively, the Joint Intervenors) were intervenors in several matters related to the Edwardsport IGCC Plant. The Edwardsport IGCC Plant was placed in commercial operation in June 2013. Costs for the Edwardsport IGCC Plant are recovered from retail electric customers via a tracking mechanism, the IGCC rider.
The ninth semi-annual IGCC rider order was appealed by the Joint Intervenors. The proceeding has been remanded to the IURC for further proceedings and additional findings on the tax in-service issue. An evidentiary hearing has been set for September 13, 2016.
PART I
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
Combined Notes to Condensed Consolidated Financial Statements – (Continued)
(Unaudited)
The 11th through 15th semi-annual IGCC riders and a subdocket to Duke Energy Indiana's fuel adjustment clause remain pending at the IURC. Issues in these filings include the determination whether the IGCC plant was properly declared in-service for ratemaking purposes in June 2013 and a review of the operational performance of the plant. On September 17, 2015, Duke Energy Indiana, the Office of Utility Consumer Counselor, the Industrial Group and Nucor Steel Indiana reached a settlement agreement to resolve these pending issues. On January 15, 2016, The Citizens Action Coalition of Indiana, Inc., Sierra Club, Save the Valley and Valley Watch joined a revised settlement (IGCC settlement). The IGCC settlement will result in customers not being billed for previously incurred operating costs of $87.5 million, and for additional Duke Energy Indiana payments and commitments of $5.5 million for attorneys’ fees and amounts to fund consumer programs. Attorneys’ fees and expenses for the new settling parties will be addressed in a separate proceeding. Duke Energy Indiana recognized pretax impairment and related charges of $93 million in 2015. Additionally, under the IGCC settlement, the operating and maintenance expenses and ongoing maintenance capital at the plant are subject to certain caps during the years of 2016 and 2017. The IGCC settlement also includes 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 and not earn a carrying cost. The IGCC settlement, which is opposed by an intervenor, is subject to IURC approval. An evidentiary hearing on the IGCC settlement was held on April 18, 2016, and a decision is expected in the third quarter of 2016. As of June 30, 2016, deferred costs related to the project are approximately $175 million. Under the IGCC settlement, future IGCC riders will be filed annually, rather than every six months, with the next filing scheduled for first quarter 2017.
Duke Energy Indiana cannot predict the outcome of these matters or future IGCC rider proceedings.
FERC Transmission Return on Equity ComplaintComplaints
Customer groups have filed with the FERC complaints against MISO and its transmission-owning members, including Duke Energy Indiana, alleging, among other things, that the current base rate of return on equity earned by MISO transmission owners of 12.38 percent is unjust and unreasonable. The latest complaint, filed on February 12, 2015, claimscomplaints, among other things, claim that the current base rate of return on equity earned by MISO transmission owners should be reduced to 8.67 percent and requests a consolidation of complaints. The motion to consolidate complaints was denied.percent. On January 5, 2015, the FERC issued an order accepting the MISO transmission ownersowners' adder of 0.50 percent adder 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. A hearing in the base return on equity proceeding was held in August 2015. On December 22, 2015, the presiding FERC ALJ in the first complaint issued an Initial Decision in which he set 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 Decisions will be reviewedDecision 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 FERC.outcome of the complaints against Duke Energy Indiana. Duke Energy Indiana currently believes these matters will not have an immateriala material impact on its results of operations, cash flows and financial position.
Grid Infrastructure Improvement PlanPiedmont
North Carolina Integrity Management Rider Filings
In October 2016, Piedmont filed a petition with the NCUC under the integrity management rider (IMR) mechanism seeking authority to collect an additional $8 million in annual revenues, effective December 2016, based on the eligible capital investments closed to integrity and safety projects over the six-month period ending September 30, 2016. In November 2016, the NCUC approved the request.
On August 29, 2014, pursuant to a new statute, Duke Energy IndianaMay 1, 2017, Piedmont filed a seven-year grid infrastructure improvement planpetition with the IURC withNCUC under the IMR mechanism to collect an estimated cost of $1.9 billion, focusingadditional $11.6 million in annual revenues, effective June 2017, based on the reliability,eligible capital investments closed to integrity and modernization ofsafety projects over the transmission and distribution system. The plan also provided for cost recovery through a transmission and distribution rider (T&D Rider). six-month period ending March 31, 2017. A ruling from the NCUC is pending.
Tennessee IMR Filings
In May 2015,November 2016, Piedmont filed an annual report with the IURC deniedTPUC under the original proposal dueIMR mechanism seeking authority to collect an insufficient level of detailed projects and cost estimatesadditional $1.7 million in the plan. On December 7, 2015, Duke Energy Indiana filed a revised infrastructure improvement plan with an estimated cost of $1.8 billion in response to guidance from IURC orders and the Indiana Court of Appeals decisions related to this new statute. The revised plan uses a combination of advanced technology and infrastructure upgrades to improve service to customers and provide them with better information about their energy use. It also provides for cost recovery through a 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 decreasedannual revenues effective January 2017, based on the capital expenditures eligible for timely recovery of costsinvestments in integrity and safety projects over the seven-year plan to approximately $1.4 billion, including the removal of an AMI project.12-month period ending October 31, 2016. The settlement provided for deferral accounting for depreciation and post-in-service carrying costs for AMI projects outside the seven-year 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 seven-year plan. Under the settlement, the return on equity to be used in the T&D Rider is 10 percent. The IURCTPUC approved the settlement and issuedrequest at a final orderhearing on June 29, 2016.April 10, 2017.
OTHER REGULATORY MATTERS
Atlantic Coast Pipeline
On September 2, 2014, Duke Energy, Dominion Resources (Dominion), Piedmont and AGL ResourcesSouthern Company Gas announced the formation of a company, ACP,Atlantic Coast Pipeline, LLC (ACP) to build and own the proposed Atlantic Coast Pipeline (the(ACP pipeline), a 564-milean approximately 600-mile interstate natural gas pipeline.pipeline running from West Virginia to North Carolina. The ACP pipeline is designed to meet the needs identified in requests for proposalsRFPs by Duke Energy Carolinas, Duke Energy Progress and Piedmont. The ACP pipeline development costs are estimated between $5.0 billion to $5.5 billion. Dominion will build and operate the ACP pipeline and hasholds a 45 percentleading ownership percentage in ACP.ACP of 48 percent. Duke Energy hasowns a 4047 percent ownership interest in ACP through its Commercial PortfolioGas Utilities and Infrastructure segment. Piedmont owns 10Southern Company Gas maintains a 5 percent and the remaining share is owned by AGL Resources. Duke Energy Carolinas and Duke Energy Progress, among others, will be customers of the pipeline. Purchases will be made under several 20-year supply contracts, subject to state regulatory approval. In October 2014, the NCUC and PSCSC approved the Duke Energy Carolinas and Duke Energy Progress requests to enter into certain affiliate agreements, pay compensation to ACP and to grant a waiver of certain Code of Conduct provisions relating to contractual and jurisdictional matters. On September 18, 2015, ACP filed an application with the FERC requesting a CPCN authorizing ACP to construct the pipeline. FERC approval of the application is expected in early 2017 and construction is projected to begin in summer of 2017, with a targeted in-service date of late 2018. ACP is working with various agencies to develop the final pipeline route. ACP also requested approval of an open access tariff and the precedent agreements it entered into with future pipeline customers, including Duke Energy Carolinas and Duke Energy Progress.
On October 24, 2015, Duke Energy entered into a Merger Agreement with Piedmont. The ACP partnership agreement includes provisions to allow Dominion an option to purchaseinterest. See Note 12 for additional ownership interest in ACP to maintain a leading ownership percentage. Any change in ownership interests is not expected to be material to Duke Energy. Refer to Note 2 for further information related to Duke Energy's proposed acquisition of Piedmont.ownership interest.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
Duke Energy Carolinas, Duke Energy Progress and Piedmont, among others, will be customers of the pipeline. Purchases will be made under several 20-year supply contracts, subject to state regulatory approval. On September 18, 2015, ACP filed an application with the FERC requesting a CPCN authorizing ACP to construct the pipeline. ACP executed a construction agreement in September 2016. ACP also requested approval of an open access tariff and the precedent agreements it entered into with future pipeline customers. In December 2016, FERC issued a draft Environmental Impact Statement (EIS) indicating that the proposed pipeline would not cause significant harm to the environment or protected populations. The draft EIS comment period ended in April 2017, and ACP is working to resolve items identified through the comment process. The final EIS is expected in summer 2017. FERC approval of the application is expected within 90 days of the issuance of the final EIS. Construction is projected to begin in the second-half of 2017, with a targeted in-service date in the second half of 2019.
Sabal Trail Transmission, LLC Pipeline
On May 4, 2015, Duke Energy acquired a 7.5 percent ownership interest in Sabal Trail Transmission, LLC (Sabal Trail) from Spectra Energy Partners, LP, a master limited partnership, formed by Enbridge Inc. (formerly Spectra Energy Corp.). Spectra Energy Partners, LP holds a 50 percent ownership interest in the proposed 500-mile Sabal Trail natural gas pipeline. Spectra Energy will continue to own 59.5 percent of the Sabal Trail pipeline and NextEra Energy will own the remaining 33 percent.has a 42.5 percent ownership interest. Sabal Trail is a joint venture that is constructing 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 will traverse Alabama, Georgia and Florida to meet rapidly growing demand for natural gas in those states.Florida. The primary customers of the Sabal Trail pipeline, Duke Energy Florida and Florida Power & Light Company (FP&L), have each contracted to buy pipeline capacity for 25-year initial terms. On February 3, 2016, the FERC issued an order granting the request for a CPCN to construct and operate the Sabal Trail pipeline. On September 7, 2016, FERC denied the intervenors' rehearing requests. On September 21, 2016, intervenors filed an appeal of FERC's CPCN orders to the U.S. Court of Appeals for the District of Columbia Circuit. Oral argument on the appeal was held on April 18, 2017, and a decision is expected in the summer of 2017. The Sabal Trail pipeline requires additionalhas received other required regulatory approvals and construction began in the summer of 2016, with an expected in-service date in mid-2017. See Note 12 for additional information related to Duke Energy's ownership interest.
Constitution Pipeline
Duke Energy owns a 24 percent ownership interest in Constitution Pipeline Company, LLC (Constitution). Constitution is scheduleda natural gas pipeline project slated to begin servicetransport 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.
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. District Court for the Northern District of New York and 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. Both courts granted Constitution's motions to expedite the schedules for the legal actions. On November 16, 2016, oral arguments were heard in the U.S. Court of Appeals. On March 16, 2017, the U.S. District Court for the Northern District of New York dismissed without prejudice Constitution’s claim that New York State permits were preempted by the federal permitting process. The ruling on oral arguments made in the U.S. Court of Appeals regarding NYSDEC's denial of the water quality certification is currently expected in mid-2017.
Progress Energy Merger FERC MitigationConstitution remains steadfastly committed to pursuing the project and intends to pursue all available options to challenge the NYSDEC's decision. In light of the denial of the certification, Constitution revised its target in-service date of the project to be as early as the second half of 2018, assuming that the challenge process is satisfactorily and promptly concluded.
In June 2012,July 2016, Constitution requested, and the FERC approved, an extension of the mergerconstruction period and in-service deadline of the project to December 2018. Also in July, the FERC denied the New York Attorney General's (NYAG) complaint and request for a stay of the certificate order authorizing the project on the grounds that Constitution had improperly cut trees along the proposed route. The FERC found the complaint procedurally deficient and that there was no justification for a stay; it did find the filing constituted a valid request for investigation and thus referred the matter to FERC staff for further examination as may be appropriate. On November 22, 2016, the FERC denied the NYAG's request for reconsideration of this order.
Since April 2016, with Progress Energy, includingthe actions of the NYSDEC, Constitution stopped construction and discontinued capitalization of future development costs until the project's uncertainty is resolved. As a result, Duke Energy evaluated the investment in the Constitution project for other-than-temporary impairments (OTTIs). At this time, no OTTI has been determined and Progress Energy’s revised market power mitigation plan,therefore no impairment charge to reduce the Joint Dispatch Agreement (JDA) and the joint Open Access Transmission Tariff. The revised market power mitigation plan provided for the acceleration of one transmission project and the completion of seven other transmission projects (Long-Term FERC Mitigation) and interim firm power sale agreements during the completioncarrying value of the transmission projects (Interim FERC Mitigation). The Long-Term FERC Mitigation was expectedinvestment has been recorded. However, to increase power imported into the extent that the legal and regulatory proceedings have unfavorable outcomes, or if Constitution concludes that the project is not viable or does not go forward as legal and regulatory actions progress, the conclusions with respect to OTTIs could change and may require that an impairment charge of up to the recorded investment in the project, net of any cash and working capital returned, be recorded. Duke Energy Carolinaswill continue to monitor and Duke Energy Progress service areasupdate the OTTI analysis as required. Different assumptions could affect the timing and enhance competitive power supply options in the service areas. All of these projects were completed in or before 2014.
Following the closing of the merger, outside counsel reviewed Duke Energy’s 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 partiesany charge recorded in a certain quantity of firm transmission capacity from Duke Energy Carolinas to Duke Energy Progress during summer off-peak hours. The FERC also ordered that Duke Energy operate certain phase shifters to create additional import capability and that such operation be monitored by an independent monitor. The costs to comply with this order are not material. The FERC also referred Duke Energy’s failure to expressly designate the phase shifter reactivation as a mitigation project in the original mitigation plan filing in March 2012 to the FERC Office of Enforcement for further inquiry. In response, and since December 2014, the FERC Office of Enforcement has conducted a nonpublic investigation of Duke Energy's market power analyses included in the Progress merger filings submitted to FERC. Duke Energy cannot predictperiod.
Pending the outcome of this investigation.the matters described above, and when construction proceeds, Duke Energy remains committed to fund an amount in proportion to its ownership interest for the development and construction of the new pipeline. Duke Energy's total anticipated contributions are approximately $229 million.
Potential Coal Plant Retirements
The Subsidiary Registrants periodically file Integrated Resource Plans (IRP) with their state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (10See Note 12 for additional information related to 20 years),ownership interest and options being considered to meet those needs. Recent IRPs filed by the Subsidiary Registrants included planning assumptions to potentially retire certain coal-fired generating facilities in Florida and Indiana earlier than their current estimated useful lives. These facilities do not have the requisite emission control equipment, primarily to meet EPA regulations recently approved or proposed.
The table below contains the net carrying value of generating facilities planned for retirement or included in recent IRPs as evaluated for potential retirement due to a lack of requisite environmental control equipment. Dollar amounts in the table below are included in Net property, plant and equipment on the Condensed Consolidated Balance Sheets as of June 30, 2016.investment.
|
| | | | | |
| | | Remaining Net |
|
| Capacity |
| | Book Value(a) |
|
| (in MW) |
| | (in millions) |
|
Progress Energy and Duke Energy Florida | | | |
Crystal River Units 1 and 2 | 873 |
| | 126 |
|
Duke Energy Indiana | | | |
Wabash River Unit 6(b) | 318 |
| | 34 |
|
Gallagher Units 2 and 4(c) | 280 |
| | 135 |
|
Total Duke Energy | 1,471 |
| | 295 |
|
| |
(a) | Remaining net book value amounts exclude any capitalized asset retirement costs. |
| |
(b) | In April 2016, Wabash River 6 terminated coal burning operations and is targeted for retirement by the end of 2016. The total net book value of $93 million for the retail portion of Wabash River Unit 6 and the retail portion of capitalized asset retirement costs for Wabash River Units 2 through 6 is classified as Generation facilities to be retired, net on Duke Energy Indiana's Condensed Consolidated Balance Sheet at June 30, 2016. |
| |
(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 proposed settlement of Edwardsport IGCC matters. |
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
On October 23, 2015,Potential Coal Plant Retirements
The Subsidiary Registrants periodically file Integrated Resource Plans (IRP) with their state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (10 to 20 years) and options being considered to meet those needs. Recent IRPs filed by the Subsidiary Registrants included planning assumptions to potentially retire certain coal-fired generating facilities in North Carolina, Florida and Indiana earlier than their current estimated useful lives primarily because facilities do not have the requisite emission control equipment to meet EPA publishedregulations recently approved or proposed.
The table below contains the net carrying value of generating facilities planned for retirement or included in recent IRPs as evaluated for potential retirement. Dollar amounts in the Federal Registertable below are included in Net property, plant and equipment on the Clean Power Plan (CPP) rule for regulating carbon dioxide (CO2) emissions from existing fossil fuel-fired electric generating units (EGUs). The CPP establishes CO2 emission ratesCondensed Consolidated Balance Sheets as of March 31, 2017, and mass cap goals that apply to fossil fuel-fired generation. Under the CPP, states are required to develop and submit a final compliance plan, or an initial plan with an extension request, to the EPA by September 6, 2016, or no later than September 6, 2018, with an approved extension. These state plans are subject to EPA approval, with a federal plan applied to states that fail to submit a plan to the EPA or if a state plan is not approved. Legal challenges to the CPP have been filed by stakeholders and motions to stay the requirements of the rule pending the outcome of the litigation were granted by the U.S. Supreme Court in February 2016. Final resolution of these legal challenges could take several years. Compliance with CPP could cause the industry to replace coal generation with natural gas and renewables, especially in states that have significant CO2 reduction targets under the rule. Costs to operate coal-fired generation plants continue to grow due to increasing environmental compliance requirements, including ash management costs unrelated to CPP, and this may result in theexclude capitalized asset retirement of coal-fired generation plants earlier than the current end of useful lives. Duke Energy continues to evaluate the need to retire generating facilities and plans to seek regulatory recovery, where appropriate, for amounts that have not been recovered upon asset retirements. However, recovery is subject to future regulatory approval, including the recovery of carrying costs on remaining book values, and therefore cannot be assured.costs. |
| | | | | | |
| | | Remaining Net |
|
| Capacity |
| | Book Value |
|
| (in MW) |
| | (in millions) |
|
Duke Energy Carolinas | | | |
Allen Steam Station Units 1-3(a) | 585 |
| | $ | 167 |
|
Progress Energy and Duke Energy Florida | | | |
Crystal River Units 1 and 2(b) | 873 |
| | 117 |
|
Duke Energy Indiana | | | |
Gallagher Units 2 and 4(c) | 280 |
| | 135 |
|
Total Duke Energy | 1,738 |
| | $ | 419 |
|
| |
(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 will likely retire these coal units by 2018 to comply with environmental regulations. |
| |
(c) | Duke Energy Indiana committed to either retire or stop burning coal at Gallagher Units 2 and 4 by December 31, 2022, as part of the settlement of Edwardsport IGCC matters. |
Refer to the "Western Carolinas Modernization Plan" discussion above for details of Duke Energy Progress' planned retirements.
5. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
The Duke Energy is subject to international, federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. The Subsidiary Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time, imposing new obligations on the Duke Energy Registrants. The following environmental matters impact all of the Duke Energy Registrants.
Remediation Activities
In addition to Asset Retirement Obligationsasset retirement obligations (AROs) recorded as a result of various environmental regulations, 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.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 Condensed 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 Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Balance at beginning of period | $ | 97 |
| | $ | 10 |
| | $ | 17 |
| | $ | 3 |
| | $ | 14 |
| | $ | 54 |
| | $ | 12 |
|
Provisions/adjustments | 28 |
| | 3 |
| | 4 |
| | 1 |
| | 3 |
| | 1 |
| | 21 |
|
Cash reductions | (7 | ) | | (2 | ) | | (4 | ) | | (1 | ) | | (3 | ) | | (1 | ) | | (1 | ) |
Balance at end of period | $ | 118 |
| | $ | 11 |
| | $ | 17 |
| | $ | 3 |
| | $ | 14 |
| | $ | 54 |
| | $ | 32 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2015 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Balance at beginning of period | $ | 97 |
| | $ | 10 |
| | $ | 17 |
| | $ | 5 |
| | $ | 12 |
| | $ | 54 |
| | $ | 10 |
|
Provisions/adjustments | 5 |
| | — |
| | 2 |
| | — |
| | 2 |
| | 1 |
| | 3 |
|
Cash reductions | (4 | ) | | — |
| | (2 | ) | | (1 | ) | | (1 | ) | | (1 | ) | | (1 | ) |
Balance at end of period | $ | 98 |
| | $ | 10 |
| | $ | 17 |
| | $ | 4 |
| | $ | 13 |
| | $ | 54 |
| | $ | 12 |
|
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
The following tables contain information regarding reserves for probable and estimable costs related to the various environmental sites. These reserves are recorded in Other within Other Noncurrent Liabilities on the Condensed Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Balance at beginning of period | $ | 98 |
| | $ | 10 |
| | $ | 18 |
| | $ | 3 |
| | $ | 14 |
| | $ | 59 |
| | $ | 10 |
| | $ | 1 |
|
Provisions/adjustments | 6 |
| | 1 |
| | — |
| | — |
| | 1 |
| | 4 |
| | (1 | ) | | 1 |
|
Cash reductions | (6 | ) | | — |
| | (1 | ) | | — |
| | (1 | ) | | (4 | ) | | — |
| | — |
|
Balance at end of period | $ | 98 |
| | $ | 11 |
| | $ | 17 |
| | $ | 3 |
| | $ | 14 |
| | $ | 59 |
| | $ | 9 |
| | $ | 2 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Balance at beginning of period | $ | 94 |
| | $ | 10 |
| | $ | 17 |
| | $ | 3 |
| | $ | 14 |
| | $ | 54 |
| | $ | 12 |
| | $ | 1 |
|
Provisions/adjustments | 10 |
| | 2 |
| | 1 |
| | — |
| | 1 |
| | — |
| | 6 |
| | — |
|
Cash reductions | (3 | ) | | (1 | ) | | (2 | ) | | (1 | ) | | (1 | ) | | — |
| | — |
| | — |
|
Balance at end of period | $ | 101 |
| | $ | 11 |
| | $ | 16 |
| | $ | 2 |
| | $ | 14 |
| | $ | 54 |
| | $ | 18 |
| | $ | 1 |
|
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 | $ | 75 |
| $ | 71 |
|
Duke Energy Carolinas | 22 |
| 22 |
|
Duke Energy Ohio | 42 |
| 36 |
|
Duke Energy Indiana | 7 |
| 7 |
|
Piedmont | | 2 |
|
North Carolina and South Carolina Ash Basins
OnIn February 2, 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. On February 8, 2014, a permanent plug was installed in the stormwater pipe, stopping the release of materials into the 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 pending or future state or federal civil enforcement proceedings, future regulatory directives, natural resources damages, additional pending litigation, 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), formerly the North Carolina Department of Environment and Natural Resources, 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 matter discussed above,ash release, Duke Energy Carolinas and Duke Energy Progress have been served with a higher level of Notices of Violation (NOVs),NOVs, including assessed penalties for violations at L.V. Sutton Combined Cycle Plant (Sutton) and Dan River Steam Station. In August 2014, NCDEQ issued an NOV for alleged groundwater violations at Duke Energy Progress' L.V. Sutton Plant. On March 10, 2015, NCDEQ issued a civil penalty of approximately $25 million to Duke Energy Progress for environmental damages related to groundwater contamination at the L.V. Sutton Plant. On February 8, 2016, NCDEQ assessed a penalty of approximately $6.8 million, including enforcement costs, against Duke Energy Carolinas related to stormwater pipes and associated discharges at the Dan River Steam Station. Duke Energy Carolinas recorded a charge in December 2015 for this penalty. See "Litigation" section below for additional discussion of matters related to these penalties. These fines and penalties are unprecedented and were not consistent with historic enforcement practices of NCDEQ. Based on historic practices the expected liability of any existing notice of violations would not be material. 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.
Asset retirement obligations recorded on the Duke Energy Carolinas and Duke Energy Progress Condensed Consolidated Balance Sheets at June 30, 2016 and December 31, 2015, include the legal obligation See "NCDEQ Notices of Violation" section below for closure of coal ash basins and the disposal of related ash as a result of the North Carolina Coal Ash Management Act of 2014, as amended (Coal Ash Act), and other agreements. In January 2016, NCDEQ published draft proposed risk classifications for sites not specifically delineated by the Coal Ash Act as high priority. These risk rankings were generally determined based on three primary criteria: structural integrity of the impoundments and impact to both surface and groundwater. NCDEQ categorized 12 basins at four sites as intermediate risk and four basins at 3 plants as low risk. Basins at high priority sites (Dan River, Riverbend, Asheville and Sutton) require closure through excavation including a combination of transferring the ash to an appropriate engineered landfill or conversion of the ash for beneficial use. Closure of high priority basins is required to be completed no later than August 1, 2019, except for Asheville which is required to be completed no later than August 1, 2022. Intermediate risk basins require closure through excavation including a combination of converting the basin to a lined industrial landfill, transferring of the ash to an appropriate engineered landfill or conversion of the ash for beneficial use. Closure of intermediate risk basins is required to be completed no later than December 31, 2024. Low risk basins require closure through either the combination of the installation and maintenance of a cap system and groundwater monitoring system designed to minimize infiltration and erosion or other closure options available to intermediate-risk basins. Closure of low risk basins is required to be completed no later than December 31, 2029. NCDEQ also categorized nine basins at six plants as “low-to-intermediate” risk, thereby not assigning a definitive risk ranking at that time. On May 18, 2016, NCDEQ issued new proposed risk classifications, ranking all originally proposed low risk and "low-intermediate" risk sites as intermediate.
On July 14, 2016, the Governor of North Carolina signed legislation which amends the Coal Ash Act and 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 new legislation also ranks basins at the H.F. Lee, Cape Fear and Weatherspoon stations as intermediate risk consistent with Duke Energy's previously announced plans to excavate those basins. These specific intermediate basins require closure through excavation including a combination of transferring ash to an appropriate engineered landfill or conversion of the ash for beneficial use. Closure of these specific intermediate basins is required to be completed no later than August 1, 2028. Additionally, the new legislation requires the installation and operation of three large-scale coal ash beneficiation projects which are expected to produce reprocessed ash for use in the concrete industry. Closure of basins at sites with these beneficiation projects are required to be completed no later than December 31, 2029. Upon satisfactory completion of the dam improvement projects and installation of alternate drinking water sources by October 15, 2018, the legislation requires NCDEQ to reclassify intermediate risk sites, excluding H.F. Lee, Cape Fear and Weatherspoon, as low risk.
Per the Coal Ash Act, final proposed classifications were to be subject to Coal Ash Management Commission (Coal Ash Commission) approval. In March 2016, the Coal Ash Commission created by the Coal Ash Act was disbanded by the Governor of North Carolina based on a North Carolina Supreme Court ruling regarding the constitutionality of the body. The new legislation eliminates the Coal Ash Commission and transfers responsibility for ash basin closure oversight to the NCDEQ.
PART I
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
Combined Notes to Condensed Consolidated Financial Statements – (Continued)
(Unaudited)
Estimated asset retirement obligations, including impacts from the legislation signed by the Governor of North Carolina on July 14, 2016, have been recognized based on the assigned risk categories or a probability weighting of potential closure methods. Actual closure costs incurred could be materially different from current estimates that form the basis of the recorded asset retirement obligations. Costs incurred have been deferred as regulatory assets and recovery 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.
Coal Combustion Residuals
On April 17, 2015, the EPA published in the Federal Register a rule to regulate the disposal of CCR from electric utilities as solid waste. The federal regulation, which became effective in October 2015, classifies CCR as nonhazardous waste under Subtitle D of the Resource Conservation and Recovery Act and allows for beneficial use of CCR with some restrictions. The regulation applies to all new and existing landfills, new and existing surface impoundments receiving CCR and existing surface impoundments that are no longer receiving CCR but contain liquid located at stations currently generating electricity (regardless of fuel source). The rule establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring and protection procedures and other operational and reporting procedures to ensure the safe disposal and management of CCR. Various industry and environmental parties have appealed the EPA's CCR rule in the D.C. Circuit Court of Appeals. On April 18, 2016, the EPA filed an unopposed motion with the federal court to settle five issues raised in litigation. On June 14, 2016, the court approved the motion with respect to all of those issues. Duke Energy does not expect a material impact from the settlement or that it will result in additional asset retirement obligation adjustments.discussion.
In addition to the requirements of the federal CCR regulation, CCR landfills and surface impoundments will continue to be independently regulated by most states. As a result of the EPA rule, the Subsidiary Registrants recorded asset retirement obligation amounts during 2015.
LITIGATION
Duke Energy Carolinas and Duke Energy Progress
Ash Basin Shareholder Derivative LitigationClosure Costs Deferral
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 (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 and an alternative Motion to Dismiss. On August 31, 2015, the court issued an order staying the case which was lifted on March 24, 2016. On April 22,30, 2016, 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.
On March 5, 2015, shareholder Judy Mesirov filed a shareholder derivative complaint (Mesirov Complaint) in North Carolina state court. The lawsuit, styled Mesirov v. Good, is similar to the consolidated derivative action pending in Delaware Chancery Court and was filed against the same current directors and former directors and officers as the Delaware litigation. Duke Energy Corporation, Duke Energy Progress and Duke Energy Carolinas are named as nominal defendants. The Mesirov Complaint alleges that the Duke Energy Board of Directors was aware of Clean Water Act (CWA) compliance issues and failures to maintain structures in ash basins, but that the Board of Directors did not require Duke Energy Carolinas and Duke Energy Progress to take action to remedy deficiencies. The Mesirov Complaint further alleges that the Board of Directors sanctioned activities to avoid compliancefiled a joint petition with the law by allowing improper influenceNCUC seeking an accounting order authorizing deferral of NCDEQcertain costs incurred in connection with federal and state environmental remediation requirements related to minimize regulation and by opposing previously anticipated citizen suit litigation. The Mesirov Complaint seeks corporate governance reforms and damages relating to costs associated with the Dan River release, remediationpermanent closure of ash basins and other ash storage units at coal-fired generating facilities that have provided or are outproviding generation to customers located in North Carolina. Initial comments were received in March 2017, and reply comments were filed on April 19, 2017. Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of compliance withthis matter.
Duke Energy Carolinas
William States Lee Combined Cycle Facility
On April 9, 2014, the CWAPSCSC granted Duke Energy Carolinas and defendingNorth Carolina Electric Membership Corporation (NCEMC) a Certificate of Environmental Compatibility and paymentPublic Convenience and Necessity (CECPCN) for the construction and operation of fines, penaltiesa 750-MW combined-cycle natural gas-fired generating plant at Duke Energy Carolinas' existing William States Lee Generating Station in Anderson, South Carolina. Duke Energy Carolinas began construction in July 2015 and settlements relatingestimates a cost to criminal and civil investigations and lawsuits.build of $600 million for its share of the facility, including AFUDC. The case was stayed until July 1, 2016.project is expected to be commercially available in late 2017. NCEMC will own approximately 13 percent of the project. On July 5, 2016,3, 2014, the plaintiffSouth Carolina Coastal Conservation League (SCCL) and Southern Alliance for Clean Energy (SACE) jointly filed a Notice of Voluntary Dismissal Without Prejudice, closingAppeal with the Court of Appeals of South Carolina (S.C. Court of Appeals) seeking the court's review of the PSCSC's decision, claiming the PSCSC did not properly consider a request related to a proposed solar facility prior to granting approval of the CECPCN. The S.C. Court of Appeals affirmed the PSCSC's decision on February 10, 2016, and on March 24, 2016, denied a request for rehearing filed by SCCL and SACE. On April 21, 2016, SCCL and SACE petitioned the South Carolina Supreme Court for review of the S.C. Court of Appeals decision. On March 24, 2017, the South Carolina Supreme Court denied the request for review, thus concluding the matter.
William States Lee III Nuclear Station
In December 2007, Duke Energy Carolinas applied to the NRC for combined operating licenses (COLs) for two Westinghouse Electric Company (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 have concurred with the prudency of Duke Energy Carolinas decisions to incur 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 a result of the COLs being issued.
On March 29, 2017, Westinghouse filed for voluntary Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York. Duke Energy Carolinas is monitoring the bankruptcy proceedings to assess the impact it will have on the future construction of nuclear plants.
Duke Energy Progress
Storm Cost Deferral Filing
On December 16, 2016, Duke Energy Progress filed a petition with the NCUC requesting an accounting order to defer certain costs incurred in connection with response to Hurricane Matthew and other significant storms in 2016. Duke Energy Progress proposed in the filing to true-up the total costs quarterly through August 2017. The current estimate of incremental operation and maintenance and capital costs is $116 million. On March 15, 2017, the 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. Duke Energy Progress cannot predict the outcome of this matter.
In additionWestern 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 Certificate of Public Convenience and Necessity (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 is scheduled to begin in fall 2017, with an expected in-service date in late 2019. Duke Energy Progress plans to file for future approvals related to the above derivative complaints,proposed solar generation and pilot battery storage project.
The carrying value of the 376-MW Asheville coal-fired plant, including associated ash basin closure costs, of $471 million and $492 million are included in 2014,Generation facilities to be retired, net on Duke Energy also received two shareholder litigation demand letters. The letters alleged that the membersProgress' Condensed Consolidated Balance Sheet as of the Board of DirectorsMarch 31, 2017 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 responded to this request.December 31, 2016, respectively.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
Duke Energy Florida
Hines Chiller Uprate Project
On October 30, 2015, shareholder Saul BresalierFebruary 2, 2017, Duke Energy Florida filed a shareholder derivative complaint (Bresalier Complaint)petition seeking approval to include in base rates the revenue requirement for a Chiller Uprate Project (Uprate Project) at the Hines Energy Complex. The Uprate Project was placed into service in March 2017 at a cost of approximately $150 million. The retail revenue requirement is approximately $19 million. On March 28, 2017, the FPSC issued an order approving the revenue requirement which were included in base rates for the first billing cycle of April 2017.
Levy Nuclear Project
On July 28, 2008, Duke Energy Florida applied to the NRC for COLs for two Westinghouse AP1000 reactors at Levy. 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 obligation in 2014 for the termination of the EPC. This liability was recorded within Other in Deferred Credits and Other Liabilities with an offset primarily to Regulatory assets on the Condensed Consolidated Balance Sheets. Duke Energy Florida is allowed to recover reasonable and prudent EPC cancellation costs from its retail customers. On May 1, 2017, Duke Energy Florida filed a request with the FPSC to recover approximately $82 million of Levy Nuclear Project costs from retail customers in 2018. A hearing is scheduled in August 2017. Duke Energy Florida cannot predict the outcome of this matter.
On March 29, 2017, Westinghouse filed for voluntary Chapter 11 bankruptcy in the U.S. DistrictBankruptcy Court for the Southern District of Delaware. The lawsuit alleges that several current and formerNew York. Duke Energy officers and directors (Bresalier Defendants) breached their fiduciary duties in connection with coal ash environmental issues,Florida is monitoring the post-merger change in Chief Executive Officer (CEO) and oversightbankruptcy proceedings to assess the impact it will have on the future construction of political contributions. nuclear plants.
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. The Bresalier Defendants filed a Motion to Dismiss the Bresalier litigation on January 15, 2016. In lieu of a response to the Motion to Dismiss, the plaintiff filed a Motion to Convert the Bresalier Defendants' Motion to Dismiss into a Motion for Summary Judgment and also for limited discovery. Following a hearing on June 15, 2016, the court denied the plaintiff's Motion to Convert and is requiring the parties to complete briefing on the Bresalier Defendants' Motion to Dismiss. Ohio
Ohio Valley Electric Corporation
On July 29, 2016, the Bresalier Defendants filed an Amended Motion to Dismiss.
It is not possible to predict whetherMarch 31, 2017, Duke Energy will incur any liability orOhio filed for approval to estimateadjust its existing price stabilization rider (Rider PSR) to pass through net costs related to its contractual entitlement to capacity and energy from the damages, if any,generating assets owned by OVEC. The PUCO approved Rider PSR, but set it might incur in connection with these matters.
Progress Energy Merger Shareholder Litigation
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. The lawsuit names as defendants the 11 members of the Board of Directors who were also members of the pre-merger Board of Directors (Legacy Duke Energy Directors). Duke Energy is named as a nominal defendant. The case alleges claims for breach of fiduciary duties of loyalty and careat zero dollars in connection with the post-merger changemost recent electric security plan. The application seeks to adjust Rider PSR as of April 1, 2017. Duke Energy Ohio is seeking deferral authority for net costs incurred from April 1, 2017, until the new rates under Rider PSR are put into effect. See Note 12 for additional discussion of Duke Energy Ohio's ownership interest in CEO. OVEC. Duke Energy Ohio cannot predict the outcome of this proceeding.
East Bend Coal Ash Basin Filing
On December 10, 2015, the Legacy2, 2016, Duke Energy DirectorsKentucky filed with the KPSC a Motionrequest for a CPCN for construction projects necessary to Dismissclose and repurpose an ash basin at the litigation. The court heard oral argument on the motion on May 9, 2016.
Two shareholder Derivative Complaints, filed in 2012 in federal district court in Delaware, were consolidatedEast Bend facility as Tansey v. Rogers, et al. The case alleges claims against the Legacya result of current and proposed U.S. Environmental Protection Agency (EPA) regulations. Duke Energy DirectorsKentucky estimated a total cost of approximately $93 million in the filing and expects in-service date in the fourth quarter of 2018. Duke Energy Kentucky expects the KPSC to issue an order in the second quarter of 2017.
Base Rate Case
Duke Energy Ohio filed with the PUCO an electric distribution base rate case application and supporting testimony in March 2017. Duke Energy Ohio has requested an estimated annual increase of approximately $15 million and a return on equity of 10.4 percent. The application also includes requests to continue certain current riders and establish new riders related to LED Outdoor Lighting Service and regulatory mandates. Duke Energy Ohio cannot predict the outcome of this matter.
Natural Gas Pipeline Extension
Duke Energy Ohio is proposing to install a new natural gas pipeline in its Ohio service territory to increase system reliability and enable the retirement of older infrastructure. On January 20, 2017, Duke Energy Ohio filed an amended application with the Ohio Power Siting Board for breachapproval of fiduciary duty and wasteone of corporate assets, as well as claims under Section 14(a) and 20(a)two proposed routes. If approved, construction of the Exchange Act. Duke Energypipeline extension is named as a nominal defendant. On December 21, 2015, Plaintiff filed a Consolidated Amended Complaint assertingexpected to be completed before the same claims contained in the original complaints. The Legacy Duke Energy Directors filed a Motion to Dismiss on February 19, 2016. On March 18, 2016, the Chancery Court Plaintiffs moved to intervene in the Tansey proceeding, asking the federal district court to stay the federal litigation in favor of the Delaware Chancery litigation, which was denied on June 27, 2016. Oral argument on the Legacy Duke Energy Directors' Motion to Dismiss2019/2020 winter season. A public hearing is scheduled for August 24, 2016.June 15, 2017, and an adjudicatory hearing is scheduled to begin July 12, 2017. The proposed project involves the installation of a natural gas line and is estimated to cost between $86 million and $110 million, excluding AFUDC.
It is not possible to predict whetherAdvanced Metering Infrastructure
On April 25, 2016, Duke Energy will incur any liability or to estimate the damages, if any, it might incur in connectionKentucky filed with the remaining litigation.
Price Reporting Cases
KPSC an application for approval of a CPCN for the construction of advanced metering infrastructure. Duke Energy Trading and Marketing, LLC (DETM), a non-operatingKentucky estimates the $49 million project, if approved, will take two years to complete. Duke Energy affiliate, wasKentucky also requested approval to establish a defendant, along with numerous other energy companies, in four class action lawsuitsregulatory asset of approximately $10 million 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 fifth single-plaintiff lawsuit pending in a consolidated federal court proceeding in Nevada. Each of these lawsuits contains similar claims that defendants allegedly manipulated natural gas markets by various means, including providing false information to natural gas trade publications and entering into unlawful arrangements and agreements in violation of the antitrust laws of the respective states. Plaintiffs seek damages in unspecified amounts.
In February 2016, DETM reached agreements in principlestipulation to settle all ofmatters related to the pending lawsuits. Settlement ofapplication. An evidentiary hearing on the single-plaintiff settlementapplication and stipulation was finalized and paid in Marchheld on December 8, 2016. Settlement of the class action lawsuits are currently being finalized and will be subject to court approval. The settlement amounts are not material to Duke Energy.
Brazil Expansion Lawsuit
On August 9, 2011, the State of São Paulo sued Duke Energy International Geracao Paranapenema S.A. (DEIGP) in Brazilian state court. The lawsuit claims DEIGP is under a continuing obligation to expand installed generation capacity in the State of São Paulo by 15 percent pursuant to a stock purchase agreement under which DEIGP purchased generation assets from the state. On August 10, 2011, a judge granted an injunction ordering DEIGP to present a detailed expansion plan in satisfaction of the 15 percent obligation. DEIGP has previously taken a position that the expansion obligation is no longer viable given changes that have occurred in the electric energy sector since privatization. DEIGP submitted its proposed expansion plan on November 11, 2011, but reserved objections regarding enforceability. In January 2013, DEIGP filed appeals in the federal courts, which are still pending, regarding various procedural issues. A decision on the merits in the first instance court is also pending. It is not possible toKentucky cannot predict whether Duke Energy will incur any liability or to estimate the damages, if any, it might incur in connection with this matter.
Brazil Generation
Record drought conditions in Brazil during 2014 and 2015 negatively impacted DEIGP. A number of electric generators have filed lawsuits seeking relief in the Brazilian courts to mitigate hydrological exposure and diminishing dispatch levels. Some courts have granted injunction orders to limit the financial exposure of certain generators. The implication of these orders is that other electricity market participants not covered by the injunctions may be required to compensate for the financial impact of the liability limitations. The Independent Power Producer Association (APINE) filed one such lawsuit on behalf of DEIGP and other hydroelectric generators against the Brazilian electric regulatory agency (ANEEL). On July 2, 2015, an injunction was granted in favor of APINE limiting the financial exposure of DEIGP and the other plaintiff generators, until the merits of the lawsuit are determined. ANEEL's appeal of the injunction was denied on December 18, 2015. The outcome of these lawsuits is uncertain. It is not possible to predict the impact to Duke Energy from the outcome of these matters.this matter.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
Accelerated Natural Gas Service Line Replacement Rider
On January 20, 2015, Duke Energy Ohio filed an application for approval of an accelerated natural gas service line replacement program (ASRP). Under the ASRP, Duke Energy Ohio proposed to replace certain natural gas service lines on an accelerated basis over a 10-year period. Duke Energy Ohio also proposed to complete preliminary survey and investigation work related to natural gas service lines that are customer owned and for which it does not have valid records and, further, to relocate interior natural gas meters to suitable exterior locations where such relocation can be accomplished. Duke Energy Ohio's current projected total capital and operations and maintenance expenditures under the ASRP are approximately $240 million. The filing also sought approval of a rider mechanism (Rider ASRP) to recover related expenditures. Duke Energy Ohio proposed to update Rider ASRP on an annual basis. Intervenors opposed the ASRP, primarily because they believe the program is neither required nor necessary under federal pipeline regulation. On October 26, 2016, the PUCO issued an order denying the proposed ASRP. The PUCO did, however, encourage Duke Energy Ohio to work with the PUCO Staff and intervenors. Duke Energy Ohio filed an application for rehearing of the PUCO decision. In December 2016, the PUCO granted the request for the purpose of further review. Duke Energy Ohio cannot predict the outcome of this matter.
Energy Efficiency Cost Recovery
On March 28, 2014, Duke Energy Ohio filed an application for recovery of program costs, lost distribution revenue and performance incentives related to its energy efficiency and peak demand reduction programs. These programs are undertaken to comply with environmental mandates set forth in Ohio law. The PUCO approved Duke Energy Ohio’s application, but found that Duke Energy Ohio was not permitted to use banked energy savings from previous years in order to calculate the amount of allowed incentive. This conclusion represented a change to the cost recovery mechanism that had been agreed upon by intervenors and approved by the PUCO in previous cases. The PUCO granted the applications for rehearing filed by Duke Energy Ohio and an intervenor. On January 6, 2016, Duke Energy Ohio and the PUCO Staff entered into a stipulation, pending the PUCO's approval, to resolve issues related to performance incentives and the PUCO Staff audit of 2013 costs, among other issues. In December 2015, based upon the stipulation, Duke Energy Ohio re-established approximately $20 million of the revenues that had been previously reversed. On October 26, 2016, the PUCO issued an order approving the stipulation without modification. Intervenors requested a rehearing of the PUCO decision. In December 2016, the PUCO granted a rehearing for the purpose of further review. Duke Energy Ohio cannot predict the outcome of this matter.
2012 Natural Gas Rate Case/Manufactured Gas Plant Cost Recovery
On November 13, 2013, the PUCO issued an order approving a settlement of Duke Energy Ohio’s natural gas base rate case and authorizing the recovery of costs incurred between 2008 and 2012 for environmental investigation and remediation of two former manufactured gas plant (MGP) sites. The PUCO order also authorized Duke Energy Ohio to continue deferring MGP environmental investigation and remediation costs incurred subsequent to 2012 and to submit annual filings to adjust the MGP rider for future costs. Intervening parties appealed this decision to the Ohio Supreme Court and that appeal remains pending. Oral argument was heard on February 28, 2017. Incurred and projected investigation and remediation expenses at these MGP sites that have not been collected through the MGP rider are approximately $100 million and are recorded as Regulatory assets on Duke Energy Ohio's Condensed Consolidated Balance Sheet as of March 31, 2017. Duke Energy Ohio cannot predict the outcome of this matter.
Regional Transmission Organization Realignment
Duke Energy Ohio, including Duke Energy Kentucky, transferred control of its transmission assets from Midcontinent Independent System Operator, Inc. (MISO) to PJM Interconnection, LLC (PJM), effective December 31, 2011. The PUCO approved a settlement related to Duke Energy Ohio’s recovery of certain costs of the Regional Transmission Organization (RTO) realignment via a non-bypassable rider. Duke Energy Ohio is allowed to recover all MISO Transmission Expansion Planning (MTEP) costs, including but not limited to Multi Value Project (MVP) costs, directly or indirectly charged to Ohio customers. Duke Energy Ohio also agreed to vigorously defend against any charges for MVP projects from MISO. The KPSC also approved a request to effect the RTO realignment, subject to a commitment not to seek double recovery in a future rate case of the transmission expansion fees that may be charged by MISO and PJM in the same period or overlapping periods.
Duke Energy Ohio had a recorded liability for its exit obligation and share of MTEP costs, excluding MVP, of $90 million at March 31, 2017, and December 31, 2016, recorded within Other in Current liabilities and Other in Other Noncurrent Liabilities on the Condensed 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 March 31, 2017, and December 31, 2016, Duke Energy Ohio had $71 million recorded in Regulatory assets on the Condensed Consolidated Balance Sheets.
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. Duke Energy Ohio cannot predict the outcome of this matter.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
Duke Energy Indiana
Coal Combustion Residual Plan
On March 17, 2016, Duke Energy Indiana filed with the IURC a request for approval of its first group of federally mandated Coal Combustion Residual (CCR) rule compliance projects (Phase I CCR Compliance Projects) to comply with the EPA's CCR rule. The projects in this Phase I filing are CCR compliance projects, including the conversion of Cayuga and Gibson stations to dry bottom ash handling and related water treatment. Duke Energy Indiana has requested timely recovery of approximately $380 million in retail capital costs and incremental operating and maintenance costs, including AFUDC, under a federal mandate tracker that provides for timely recovery of 80 percent of such costs and deferral with carrying costs of 20 percent of such costs for recovery in a subsequent retail base rate case. On January 24, 2017, Duke Energy Indiana and various Intervenors filed a settlement agreement with the IURC. Terms of the settlement include recovery of 60 percent of the estimated CCR compliance construction project capital costs through existing rider mechanisms and deferral of 40 percent of these costs until Duke Energy Indiana's next general retail rate case. The deferred costs will earn a return based on Duke Energy Indiana's long-term debt rate of 4.73 percent until costs are included in retail rates, at which time the deferred costs will earn a full return. Costs are to be capped at $365 million, plus actual AFUDC. Costs above the cap may be recoverable in the next rate case. Terms of the settlement agreement also require Duke Energy Indiana to perform certain reporting and groundwater monitoring. The settlement is subject to approval by the IURC. An evidentiary hearing was held on February 23, 2017, and Duke Energy Indiana filed a proposed order with the IURC on March 30, 2017. Duke Energy Indiana cannot predict the outcome of this matter.
FERC Transmission Return on Equity Complaints
Customer groups have filed with the FERC complaints against MISO and its transmission-owning members, including Duke Energy Indiana, alleging, among other things, that the current base rate of return on equity earned by MISO transmission owners of 12.38 percent is unjust and unreasonable. The complaints, among other things, claim that the current base rate of return on equity earned by MISO transmission owners should be reduced to 8.67 percent. On January 5, 2015, the FERC issued an order accepting the MISO transmission owners' adder of 0.50 percent to the base rate of return on equity based on participation in an RTO subject to it being applied to a return on equity that is shown to be just and reasonable in the pending return on equity complaints. On December 22, 2015, the presiding FERC ALJ in the first complaint issued an Initial Decision in which the base rate of return on equity was set at 10.32 percent. On September 28, 2016, the Initial Decision in the first complaint was affirmed by FERC, but is subject to rehearing requests. On June 30, 2016, the presiding FERC ALJ in the second complaint issued an Initial Decision setting the base rate of return on equity at 9.70 percent. The Initial Decision in the second complaint is pending FERC review. On April 14, 2017, the U.S. Court of Appeals for the District of Columbia Circuit, in Emera Maine v. FERC, reversed and remanded certain aspects of the methodology employed by FERC to establish rates of return on equity. This decision may affect the outcome of the complaints against Duke Energy Indiana. Duke Energy Indiana currently believes these matters will not have a material impact on its results of operations, cash flows and financial position.
Piedmont
North Carolina Integrity Management Rider Filings
In October 2016, Piedmont filed a petition with the NCUC under the integrity management rider (IMR) mechanism seeking authority to collect an additional $8 million in annual revenues, effective December 2016, based on the eligible capital investments closed to integrity and safety projects over the six-month period ending September 30, 2016. In November 2016, the NCUC approved the request.
On May 1, 2017, Piedmont filed a petition with the NCUC under the IMR mechanism to collect an additional $11.6 million in annual revenues, effective June 2017, based on the eligible capital investments closed to integrity and safety projects over the six-month period ending March 31, 2017. A ruling from the NCUC is pending.
Tennessee IMR Filings
In November 2016, Piedmont filed an annual report with the TPUC under the IMR mechanism seeking authority to collect an additional $1.7 million in annual revenues effective January 2017, based on the capital investments in integrity and safety projects over the 12-month period ending October 31, 2016. The TPUC approved the request at a hearing on April 10, 2017.
OTHER REGULATORY MATTERS
Atlantic Coast Pipeline
On September 2, 2014, Duke Energy, Dominion Resources (Dominion), Piedmont and Southern Company Gas announced the formation of Atlantic Coast Pipeline, LLC (ACP) to build and own the proposed Atlantic Coast Pipeline (ACP pipeline), an approximately 600-mile interstate natural gas pipeline running from West Virginia to North Carolina. The ACP pipeline is designed to meet the needs identified in RFPs by Duke Energy Carolinas, Duke Energy Progress and Piedmont. The ACP pipeline development costs are estimated between $5.0 billion to $5.5 billion. Dominion will build and operate the ACP pipeline and holds a leading ownership percentage in ACP of 48 percent. Duke Energy owns a 47 percent interest through its Gas Utilities and Infrastructure segment. Southern Company Gas maintains a 5 percent interest. See Note 12 for additional information related to Duke Energy's ownership interest.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
Duke Energy Carolinas, Duke Energy Progress and Piedmont, among others, will be customers of the pipeline. Purchases will be made under several 20-year supply contracts, subject to state regulatory approval. On September 18, 2015, ACP filed an application with the FERC requesting a CPCN authorizing ACP to construct the pipeline. ACP executed a construction agreement in September 2016. ACP also requested approval of an open access tariff and the precedent agreements it entered into with future pipeline customers. In December 2016, FERC issued a draft Environmental Impact Statement (EIS) indicating that the proposed pipeline would not cause significant harm to the environment or protected populations. The draft EIS comment period ended in April 2017, and ACP is working to resolve items identified through the comment process. The final EIS is expected in summer 2017. FERC approval of the application is expected within 90 days of the issuance of the final EIS. Construction is projected to begin in the second-half of 2017, with a targeted in-service date in the second half of 2019.
Sabal Trail Transmission, LLC Pipeline
On May 4, 2015, Duke Energy acquired a 7.5 percent ownership interest in Sabal Trail Transmission, LLC (Sabal Trail) from Spectra Energy Partners, LP, a master limited partnership, formed by Enbridge Inc. (formerly Spectra Energy Corp.). Spectra Energy Partners, LP holds a 50 percent ownership interest in Sabal Trail and NextEra Energy has a 42.5 percent ownership interest. Sabal Trail is a joint venture that is constructing 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 will traverse Alabama, Georgia and Florida. The primary customers of the Sabal Trail pipeline, Duke Energy Florida and Florida Power & Light Company (FP&L), have each contracted to buy pipeline capacity for 25-year initial terms. On February 3, 2016, the FERC issued an order granting the request for a CPCN to construct and operate the pipeline. On September 7, 2016, FERC denied the intervenors' rehearing requests. On September 21, 2016, intervenors filed an appeal of FERC's CPCN orders to the U.S. Court of Appeals for the District of Columbia Circuit. Oral argument on the appeal was held on April 18, 2017, and a decision is expected in the summer of 2017. The Sabal Trail pipeline has received other required regulatory approvals and construction began in the summer of 2016, with an expected in-service date in mid-2017. See Note 12 for additional information related to Duke Energy's ownership interest.
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.
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. District Court for the Northern District of New York and 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. Both courts granted Constitution's motions to expedite the schedules for the legal actions. On November 16, 2016, oral arguments were heard in the U.S. Court of Appeals. On March 16, 2017, the U.S. District Court for the Northern District of New York dismissed without prejudice Constitution’s claim that New York State permits were preempted by the federal permitting process. The ruling on oral arguments made in the U.S. Court of Appeals regarding NYSDEC's denial of the water quality certification is currently expected in mid-2017.
Constitution remains steadfastly committed to pursuing the project and intends to pursue all available options to challenge the NYSDEC's decision. In light of the denial of the certification, Constitution revised its target in-service date of the project to be as early as the second half of 2018, assuming that the challenge process is satisfactorily and promptly concluded.
In July 2016, Constitution requested, and the FERC approved, an extension of the construction period and in-service deadline of the project to December 2018. Also in July, the FERC denied the New York Attorney General's (NYAG) complaint and request for a stay of the certificate order authorizing the project on the grounds that Constitution had improperly cut trees along the proposed route. The FERC found the complaint procedurally deficient and that there was no justification for a stay; it did find the filing constituted a valid request for investigation and thus referred the matter to FERC staff for further examination as may be appropriate. On November 22, 2016, the FERC denied the NYAG's request for reconsideration of this order.
Since April 2016, with the actions of the NYSDEC, Constitution stopped construction and discontinued capitalization of future development costs until the project's uncertainty is resolved. As a result, Duke Energy evaluated the investment in the Constitution project for other-than-temporary impairments (OTTIs). At this time, no OTTI has been determined and therefore no impairment charge to reduce the carrying value of the investment has been recorded. However, to the extent that the legal and regulatory proceedings have unfavorable outcomes, or if Constitution concludes that the project is not viable or does not go forward as legal and regulatory actions progress, the conclusions with respect to OTTIs could change and may require that an impairment charge of up to the recorded investment in the project, net of any cash and working capital returned, be recorded. Duke Energy will continue to monitor and update the OTTI analysis as required. Different assumptions could affect the timing and amount of any charge recorded in a period.
Pending the outcome of the matters described above, and when construction proceeds, Duke Energy remains committed to fund an amount in proportion to its ownership interest for the development and construction of the new pipeline. Duke Energy's total anticipated contributions are approximately $229 million.
See Note 12 for additional information related to ownership interest and carrying value of the investment.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
Potential Coal Plant Retirements
The Subsidiary Registrants periodically file Integrated Resource Plans (IRP) with their state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (10 to 20 years) and options being considered to meet those needs. Recent IRPs filed by the Subsidiary Registrants included planning assumptions to potentially retire certain coal-fired generating facilities in North Carolina, Florida and Indiana earlier than their current estimated useful lives primarily because facilities do not have the requisite emission control equipment to meet EPA regulations recently approved or proposed.
The table below contains the net carrying value of generating facilities planned for retirement or included in recent IRPs as evaluated for potential retirement. Dollar amounts in the table below are included in Net property, plant and equipment on the Condensed Consolidated Balance Sheets as of March 31, 2017, and exclude capitalized asset retirement costs. |
| | | | | | |
| | | Remaining Net |
|
| Capacity |
| | Book Value |
|
| (in MW) |
| | (in millions) |
|
Duke Energy Carolinas | | | |
Allen Steam Station Units 1-3(a) | 585 |
| | $ | 167 |
|
Progress Energy and Duke Energy Florida | | | |
Crystal River Units 1 and 2(b) | 873 |
| | 117 |
|
Duke Energy Indiana | | | |
Gallagher Units 2 and 4(c) | 280 |
| | 135 |
|
Total Duke Energy | 1,738 |
| | $ | 419 |
|
| |
(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 will likely retire these coal units by 2018 to comply with environmental regulations. |
| |
(c) | Duke Energy Indiana committed to either retire or stop burning coal at Gallagher Units 2 and 4 by December 31, 2022, as part of the settlement of Edwardsport IGCC matters. |
Refer to the "Western Carolinas Modernization Plan" discussion above for details of Duke Energy Progress' planned retirements.
5. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
The Duke Energy Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time, imposing new obligations on the Duke Energy Registrants. The following environmental matters impact all of the Duke Energy Registrants.
Remediation Activities
In addition to asset retirement obligations (AROs) recorded as a result of various environmental regulations, 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 Condensed Consolidated Statements of Operations unless regulatory recovery of the costs is deemed probable.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
The following tables contain information regarding reserves for probable and estimable costs related to the various environmental sites. These reserves are recorded in Other within Other Noncurrent Liabilities on the Condensed Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Balance at beginning of period | $ | 98 |
| | $ | 10 |
| | $ | 18 |
| | $ | 3 |
| | $ | 14 |
| | $ | 59 |
| | $ | 10 |
| | $ | 1 |
|
Provisions/adjustments | 6 |
| | 1 |
| | — |
| | — |
| | 1 |
| | 4 |
| | (1 | ) | | 1 |
|
Cash reductions | (6 | ) | | — |
| | (1 | ) | | — |
| | (1 | ) | | (4 | ) | | — |
| | — |
|
Balance at end of period | $ | 98 |
| | $ | 11 |
| | $ | 17 |
| | $ | 3 |
| | $ | 14 |
| | $ | 59 |
| | $ | 9 |
| | $ | 2 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Balance at beginning of period | $ | 94 |
| | $ | 10 |
| | $ | 17 |
| | $ | 3 |
| | $ | 14 |
| | $ | 54 |
| | $ | 12 |
| | $ | 1 |
|
Provisions/adjustments | 10 |
| | 2 |
| | 1 |
| | — |
| | 1 |
| | — |
| | 6 |
| | — |
|
Cash reductions | (3 | ) | | (1 | ) | | (2 | ) | | (1 | ) | | (1 | ) | | — |
| | — |
| | — |
|
Balance at end of period | $ | 101 |
| | $ | 11 |
| | $ | 16 |
| | $ | 2 |
| | $ | 14 |
| | $ | 54 |
| | $ | 18 |
| | $ | 1 |
|
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 | $ | 71 |
|
Duke Energy Carolinas | 22 |
|
Duke Energy Ohio | 36 |
|
Duke Energy Indiana | 7 |
|
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.
Duke Energy Carolinas and Duke Energy Progress
NCDEQ Notices of Violation
In August 2014, NCDEQ issued an NOV for alleged groundwater violations at Duke Energy Progress' L.V. Sutton Plant. On March 10, 2015, NCDEQ issued a civil penalty of approximately $25 million to Duke Energy Progress for environmental damages related to the groundwater contamination at the L.V. Sutton Plant. On April 9, 2015, Duke Energy Progress filed a Petition for Contested Case hearing in the Office of Administrative Hearings. In February 2015, NCDEQ issued an NOV for alleged groundwater violations at Duke Energy Progress' Asheville Plant. Duke Energy Progress responded to NCDEQ regarding this NOV.Ash Basin Closure Costs Deferral
On September 29, 2015, Duke Energy Progress and Duke Energy Carolinas entered into a settlement agreement with NCDEQ resolving all former, current and future groundwater penalties at all Duke Energy Carolinas and Duke Energy Progress coal facilities in North Carolina. Under the agreement, Duke Energy Progress paid approximately $6 million and Duke Energy Carolinas paid approximately $1 million. In addition to these payments, Duke Energy Progress and Duke Energy Carolinas will accelerate remediation actions at the Sutton, Asheville, Belews Creek and H.F. Lee plants. The ALJ entered a consent order resolving the contested case relating to the Sutton Plant and NCDEQ rescinded the NOVs relating to alleged groundwater violations at both the Sutton and Asheville plants.
On October 13, 2015, the Southern Environmental Law Center (SELC), representing multiple conservation groups, filed a lawsuit in North Carolina Superior Court seeking judicial review of the order approving the settlement agreement with NCDEQ. The conservation groups contend that the ALJ exceeded his statutory authority in approving a settlement that provided for past, present, and future resolution of groundwater issues at facilities which were not at issue in the penalty appeal. On December 18, 2015,30, 2016, Duke Energy Carolinas and Duke Energy Progress filed a Motionjoint petition with the NCUC seeking an accounting order authorizing deferral of certain costs incurred in connection with federal and state environmental remediation requirements related to Dismiss the complaint. permanent closure of ash basins and other ash storage units at coal-fired generating facilities that have provided or are providing generation to customers located in North Carolina. Initial comments were received in March 2017, and reply comments were filed on April 19, 2017. Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of this matter.
Duke Energy Carolinas
William States Lee Combined Cycle Facility
On February 12, 2016,April 9, 2014, the ALJ enteredPSCSC granted Duke Energy Carolinas and North Carolina Electric Membership Corporation (NCEMC) a new order clarifying thatCertificate of Environmental Compatibility and Public Convenience and Necessity (CECPCN) for the dismissalconstruction and operation of a 750-MW combined-cycle natural gas-fired generating plant at Duke Energy Carolinas' existing William States Lee Generating Station in Anderson, South Carolina. Duke Energy Carolinas began construction in July 2015 and estimates a cost to build of $600 million for its share of the contested case onlyfacility, including AFUDC. The project is expected to be commercially available in late 2017. NCEMC will own approximately 13 percent of the project. On July 3, 2014, the South Carolina Coastal Conservation League (SCCL) and Southern Alliance for Clean Energy (SACE) jointly filed a Notice of Appeal with the Court of Appeals of South Carolina (S.C. Court of Appeals) seeking the court's review of the PSCSC's decision, claiming the PSCSC did not properly consider a request related to a proposed solar facility prior to granting approval of the CECPCN. The S.C. Court of Appeals affirmed the PSCSC's decision on February 10, 2016, and on March 24, 2016, denied a request for rehearing filed by SCCL and SACE. On April 21, 2016, SCCL and SACE petitioned the South Carolina Supreme Court for review of the S.C. Court of Appeals decision. On March 24, 2017, the South Carolina Supreme Court denied the request for review, thus concluding the matter.
William States Lee III Nuclear Station
In December 2007, Duke Energy Carolinas applied to the specificNRC for combined operating licenses (COLs) for two Westinghouse Electric Company (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 have concurred with the prudency of Duke Energy Carolinas decisions to incur 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 a result of the COLs being issued.
On March 29, 2017, Westinghouse filed for voluntary Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York. Duke Energy Carolinas is monitoring the bankruptcy proceedings to assess the impact it will have on the future construction of nuclear plants.
Duke Energy Progress
Storm Cost Deferral Filing
On December 16, 2016, Duke Energy Progress filed a petition with the NCUC requesting an accounting order to defer certain costs incurred in connection with response to Hurricane Matthew and other significant storms in 2016. Duke Energy Progress proposed in the filing to true-up the total costs quarterly through August 2017. The current estimate of incremental operation and maintenance and capital costs is $116 million. On March 15, 2017, the 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. Duke Energy Progress cannot predict the outcome of 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 Certificate of Public Convenience and Necessity (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 is scheduled to begin in fall 2017, with an expected in-service date in late 2019. Duke Energy Progress plans to file for future approvals related to the proposed solar generation and pilot battery storage project.
The carrying value of the 376-MW Asheville coal-fired plant, including associated ash basin closure costs, of $471 million and $492 million are included in Generation facilities to be retired, net on Duke Energy Progress' Condensed Consolidated Balance Sheet as of March 31, 2017 and December 31, 2016, respectively.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
Duke Energy Florida
Hines Chiller Uprate Project
On February 2, 2017, Duke Energy Florida filed a petition seeking approval to include in base rates the revenue requirement for a Chiller Uprate Project (Uprate Project) at the Hines Energy Complex. The Uprate Project was placed into service in March 2017 at a cost of approximately $150 million. The retail revenue requirement is approximately $19 million. On March 28, 2017, the FPSC issued an order approving the revenue requirement which were included in base rates for the first billing cycle of April 2017.
Levy Nuclear Project
On July 28, 2008, Duke Energy Florida applied to the NRC for COLs for two Westinghouse AP1000 reactors at Levy. 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 obligation in 2014 for the termination of the EPC. This liability was recorded within Other in Deferred Credits and Other Liabilities with an offset primarily to Regulatory assets on the Condensed Consolidated Balance Sheets. Duke Energy Florida is allowed to recover reasonable and prudent EPC cancellation costs from its retail customers. On May 1, 2017, Duke Energy Florida filed a request with the FPSC to recover approximately $82 million of Levy Nuclear Project costs from retail customers in 2018. A hearing is scheduled in August 2017. Duke Energy Florida cannot predict the outcome of this matter.
On March 29, 2017, Westinghouse filed for voluntary Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York. Duke Energy Florida is monitoring the bankruptcy proceedings to assess the impact it will have on the future construction of nuclear plants.
Duke Energy Ohio
Ohio Valley Electric Corporation
On March 31, 2017, Duke Energy Ohio filed for approval to adjust its existing price stabilization rider (Rider PSR) to pass through net costs related to its contractual entitlement to capacity and energy from the generating assets owned by OVEC. The PUCO approved Rider PSR, but set it at zero dollars in connection with the most recent electric security plan. The application seeks to adjust Rider PSR as of April 1, 2017. Duke Energy Ohio is seeking deferral authority for net costs incurred from April 1, 2017, until the new rates under Rider PSR are put into effect. See Note 12 for additional discussion of Duke Energy Ohio's ownership interest in OVEC. Duke Energy Ohio cannot predict the outcome of this proceeding.
East Bend Coal Ash Basin Filing
On December 2, 2016, Duke Energy Kentucky filed with the KPSC a request for a CPCN for construction projects necessary to close and repurpose an ash basin at the East Bend facility as a result of current and proposed U.S. Environmental Protection Agency (EPA) regulations. Duke Energy Kentucky estimated a total cost of approximately $93 million in the filing and expects in-service date in the fourth quarter of 2018. Duke Energy Kentucky expects the KPSC to issue an order in the second quarter of 2017.
Base Rate Case
Duke Energy Ohio filed with the PUCO an electric distribution base rate case application and supporting testimony in March 2017. Duke Energy Ohio has requested an estimated annual increase of approximately $15 million and a return on equity of 10.4 percent. The application also includes requests to continue certain current riders and establish new riders related to LED Outdoor Lighting Service and regulatory mandates. Duke Energy Ohio cannot predict the outcome of this matter.
Natural Gas Pipeline Extension
Duke Energy Ohio is proposing to install a new natural gas pipeline in its Ohio service territory to increase system reliability and enable the retirement of older infrastructure. On January 20, 2017, Duke Energy Ohio filed an amended application with the Ohio Power Siting Board for approval of one of two proposed routes. If approved, construction of the pipeline extension is expected to be completed before the 2019/2020 winter season. A public hearing is scheduled for June 15, 2017, and an adjudicatory hearing is scheduled to begin July 12, 2017. The proposed project involves the installation of a natural gas line and is estimated to cost between $86 million and $110 million, excluding AFUDC.
Advanced Metering Infrastructure
On April 25, 2016, Duke Energy Kentucky filed with the KPSC an application for approval of a CPCN for the construction of advanced metering infrastructure. Duke Energy Kentucky estimates the $49 million project, if approved, will take two years to complete. Duke Energy Kentucky also requested approval to establish a regulatory asset of approximately $10 million for the remaining book value of existing meter equipment and inventory to be replaced. Duke Energy Kentucky and the Kentucky Attorney General entered into a stipulation to settle matters related to the application. An evidentiary hearing on the application and stipulation was held on December 8, 2016. Duke Energy Kentucky cannot predict the outcome of this matter.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
Accelerated Natural Gas Service Line Replacement Rider
On January 20, 2015, Duke Energy Ohio filed an application for approval of an accelerated natural gas service line replacement program (ASRP). Under the ASRP, Duke Energy Ohio proposed to replace certain natural gas service lines on an accelerated basis over a 10-year period. Duke Energy Ohio also proposed to complete preliminary survey and investigation work related to natural gas service lines that are customer owned and for which it does not have valid records and, further, to relocate interior natural gas meters to suitable exterior locations where such relocation can be accomplished. Duke Energy Ohio's current projected total capital and operations and maintenance expenditures under the ASRP are approximately $240 million. The filing also sought approval of a rider mechanism (Rider ASRP) to recover related expenditures. Duke Energy Ohio proposed to update Rider ASRP on an annual basis. Intervenors opposed the ASRP, primarily because they believe the program is neither required nor necessary under federal pipeline regulation. On October 26, 2016, the PUCO issued an order denying the proposed ASRP. The PUCO did, however, encourage Duke Energy Ohio to work with the PUCO Staff and intervenors. Duke Energy Ohio filed an application for rehearing of the PUCO decision. In December 2016, the PUCO granted the request for the purpose of further review. Duke Energy Ohio cannot predict the outcome of this matter.
Energy Efficiency Cost Recovery
On March 28, 2014, Duke Energy Ohio filed an application for recovery of program costs, lost distribution revenue and performance incentives related to its energy efficiency and peak demand reduction programs. These programs are undertaken to comply with environmental mandates set forth in Ohio law. The PUCO approved Duke Energy Ohio’s application, but found that Duke Energy Ohio was not permitted to use banked energy savings from previous years in order to calculate the amount of allowed incentive. This conclusion represented a change to the cost recovery mechanism that had been agreed upon by intervenors and approved by the PUCO in previous cases. The PUCO granted the applications for rehearing filed by Duke Energy Ohio and an intervenor. On January 6, 2016, Duke Energy Ohio and the PUCO Staff entered into a stipulation, pending the PUCO's approval, to resolve issues beforerelated 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. Intervenors requested a rehearing of the PUCO decision. In December 2016, the PUCO granted a rehearing for the purpose of further review. Duke Energy Ohio cannot predict the outcome of this matter.
2012 Natural Gas Rate Case/Manufactured Gas Plant Cost Recovery
On November 13, 2013, the PUCO issued an order approving a settlement of Duke Energy Ohio’s natural gas base rate case and authorizing the recovery of costs incurred between 2008 and 2012 for environmental investigation and remediation of two former manufactured gas plant (MGP) sites. The PUCO order also authorized Duke Energy Ohio to continue deferring MGP environmental investigation and remediation costs incurred subsequent to 2012 and to submit annual filings to adjust the MGP rider for future costs. Intervening parties appealed this decision to the Ohio Supreme Court and that appeal remains pending. Oral argument was heard on February 28, 2017. Incurred and projected investigation and remediation expenses at these MGP sites that have not been collected through the MGP rider are approximately $100 million and are recorded as Regulatory assets on Duke Energy Ohio's Condensed Consolidated Balance Sheet as of March 31, 2017. Duke Energy Ohio cannot predict the outcome of this matter.
Regional Transmission Organization Realignment
Duke Energy Ohio, including Duke Energy Kentucky, transferred control of its transmission assets from Midcontinent Independent System Operator, Inc. (MISO) to PJM Interconnection, LLC (PJM), effective December 31, 2011. The PUCO approved a settlement related to Duke Energy Ohio’s recovery of certain costs of the Regional Transmission Organization (RTO) realignment via a non-bypassable rider. Duke Energy Ohio is allowed to recover all MISO Transmission Expansion Planning (MTEP) costs, including but not limited to Multi Value Project (MVP) costs, directly or indirectly charged to Ohio customers. Duke Energy Ohio also agreed to vigorously defend against any charges for MVP projects from MISO. The KPSC also approved a request to effect the RTO realignment, subject to a commitment not to seek double recovery in a future rate case of the transmission expansion fees that may be charged by MISO and PJM in the same period or overlapping periods.
Duke Energy Ohio had a recorded liability for its exit obligation and share of MTEP costs, excluding MVP, of $90 million at March 31, 2017, and December 31, 2016, recorded within Other in Current liabilities and Other in Other Noncurrent Liabilities on the Condensed 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 March 31, 2017, and December 31, 2016, Duke Energy Ohio had $71 million recorded in Regulatory assets on the Condensed Consolidated Balance Sheets.
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. Duke Energy Ohio cannot predict the outcome of this matter.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
Duke Energy Indiana
Coal Combustion Residual Plan
On March 17, 2016, Duke Energy Indiana filed with the IURC a request for approval of its first group of federally mandated Coal Combustion Residual (CCR) rule compliance projects (Phase I CCR Compliance Projects) to comply with the EPA's CCR rule. The projects in this Phase I filing are CCR compliance projects, including the conversion of Cayuga and Gibson stations to dry bottom ash handling and related water treatment. Duke Energy Indiana has requested timely recovery of approximately $380 million in retail capital costs and incremental operating and maintenance costs, including AFUDC, under a federal mandate tracker that provides for timely recovery of 80 percent of such costs and deferral with carrying costs of 20 percent of such costs for recovery in a subsequent retail base rate case. On January 24, 2017, Duke Energy Indiana and various Intervenors filed a settlement agreement with the IURC. Terms of the settlement include recovery of 60 percent of the estimated CCR compliance construction project capital costs through existing rider mechanisms and deferral of 40 percent of these costs until Duke Energy Indiana's next general retail rate case. The deferred costs will earn a return based on Duke Energy Indiana's long-term debt rate of 4.73 percent until costs are included in retail rates, at which time the deferred costs will earn a full return. Costs are to be capped at $365 million, plus actual AFUDC. Costs above the cap may be recoverable in the next rate case. Terms of the settlement agreement also require Duke Energy Indiana to perform certain reporting and groundwater monitoring. The settlement is subject to approval by the IURC. An evidentiary hearing was held on February 23, 2017, and Duke Energy Indiana filed a proposed order with the IURC on March 30, 2017. Duke Energy Indiana cannot predict the outcome of this matter.
FERC Transmission Return on Equity Complaints
Customer groups have filed with the FERC complaints against MISO and its transmission-owning members, including Duke Energy Indiana, alleging, among other things, that the current base rate of return on equity earned by MISO transmission owners of 12.38 percent is unjust and unreasonable. The complaints, among other things, claim 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 Petition for Contested Case.first complaint issued an Initial Decision in which the base rate of return on equity was set at 10.32 percent. On March 10,September 28, 2016, the court dismissedInitial Decision in the SELC lawsuitfirst complaint was affirmed by FERC, but is subject to rehearing requests. On June 30, 2016, the presiding FERC ALJ in the second complaint issued an Initial Decision setting the base rate of return on equity at 9.70 percent. The Initial Decision in the second complaint is pending FERC review. On April 14, 2017, the U.S. Court of Appeals for the District of Columbia Circuit, in Emera Maine v. FERC, reversed and remanded certain aspects of the methodology employed by FERC to establish rates of return on equity. This decision may affect the outcome of the complaints against Duke Energy Indiana. Duke Energy Indiana currently believes these matters will not have a material impact on its results of operations, cash flows and financial position.
Piedmont
North Carolina Integrity Management Rider Filings
In October 2016, Piedmont filed a petition with the NCUC under the integrity management rider (IMR) mechanism seeking authority to collect an additional $8 million in annual revenues, effective December 2016, based on the ALJ's entryeligible capital investments closed to integrity and safety projects over the six-month period ending September 30, 2016. In November 2016, the NCUC approved the request.
On May 1, 2017, Piedmont filed a petition with the NCUC under the IMR mechanism to collect an additional $11.6 million in annual revenues, effective June 2017, based on the eligible capital investments closed to integrity and safety projects over the six-month period ending March 31, 2017. A ruling from the NCUC is pending.
Tennessee IMR Filings
In November 2016, Piedmont filed an annual report with the TPUC under the IMR mechanism seeking authority to collect an additional $1.7 million in annual revenues effective January 2017, based on the capital investments in integrity and safety projects over the 12-month period ending October 31, 2016. The TPUC approved the request at a hearing on April 10, 2017.
OTHER REGULATORY MATTERS
Atlantic Coast Pipeline
On September 2, 2014, Duke Energy, Dominion Resources (Dominion), Piedmont and Southern Company Gas announced the formation of Atlantic Coast Pipeline, LLC (ACP) to build and own the proposed Atlantic Coast Pipeline (ACP pipeline), an approximately 600-mile interstate natural gas pipeline running from West Virginia to North Carolina. The ACP pipeline is designed to meet the needs identified in RFPs by Duke Energy Carolinas, Duke Energy Progress and Piedmont. The ACP pipeline development costs are estimated between $5.0 billion to $5.5 billion. Dominion will build and operate the ACP pipeline and holds a leading ownership percentage in ACP of 48 percent. Duke Energy owns a 47 percent interest through its Gas Utilities and Infrastructure segment. Southern Company Gas maintains a 5 percent interest. See Note 12 for additional information related to Duke Energy's ownership interest.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
Duke Energy Carolinas, Duke Energy Progress and Piedmont, among others, will be customers of the pipeline. Purchases will be made under several 20-year supply contracts, subject to state regulatory approval. On September 18, 2015, ACP filed an application with the FERC requesting a CPCN authorizing ACP to construct the pipeline. ACP executed a construction agreement in September 2016. ACP also requested approval of an open access tariff and the precedent agreements it entered into with future pipeline customers. In December 2016, FERC issued a draft Environmental Impact Statement (EIS) indicating that the proposed pipeline would not cause significant harm to the environment or protected populations. The draft EIS comment period ended in April 2017, and ACP is working to resolve items identified through the comment process. The final EIS is expected in summer 2017. FERC approval of the application is expected within 90 days of the issuance of the final EIS. Construction is projected to begin in the second-half of 2017, with a targeted in-service date in the second half of 2019.
Sabal Trail Transmission, LLC Pipeline
On May 4, 2015, Duke Energy acquired a 7.5 percent ownership interest in Sabal Trail Transmission, LLC (Sabal Trail) from Spectra Energy Partners, LP, a master limited partnership, formed by Enbridge Inc. (formerly Spectra Energy Corp.). Spectra Energy Partners, LP holds a 50 percent ownership interest in Sabal Trail and NextEra Energy has a 42.5 percent ownership interest. Sabal Trail is a joint venture that is constructing 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 will traverse Alabama, Georgia and Florida. The primary customers of the Sabal Trail pipeline, Duke Energy Florida and Florida Power & Light Company (FP&L), have each contracted to buy pipeline capacity for 25-year initial terms. On February 3, 2016, the FERC issued an order granting the request for a CPCN to construct and operate the pipeline. On September 7, 2016, FERC denied the intervenors' rehearing requests. On September 21, 2016, intervenors filed an appeal of FERC's CPCN orders to the U.S. Court of Appeals for the District of Columbia Circuit. Oral argument on the appeal was held on April 18, 2017, and a decision is expected in the summer of 2017. The Sabal Trail pipeline has received other required regulatory approvals and construction began in the summer of 2016, with an expected in-service date in mid-2017. See Note 12 for additional information related to Duke Energy's ownership interest.
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.
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. District Court for the Northern District of New York and 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. Both courts granted Constitution's motions to expedite the schedules for the legal actions. On November 16, 2016, oral arguments were heard in the U.S. Court of Appeals. On March 16, 2017, the U.S. District Court for the Northern District of New York dismissed without prejudice Constitution’s claim that New York State permits were preempted by the federal permitting process. The ruling on oral arguments made in the U.S. Court of Appeals regarding NYSDEC's denial of the water quality certification is currently expected in mid-2017.
Constitution remains steadfastly committed to pursuing the project and intends to pursue all available options to challenge the NYSDEC's decision. In light of the denial of the certification, Constitution revised its target in-service date of the project to be as early as the second half of 2018, assuming that the challenge process is satisfactorily and promptly concluded.
In July 2016, Constitution requested, and the FERC approved, an extension of the construction period and in-service deadline of the project to December 2018. Also in July, the FERC denied the New York Attorney General's (NYAG) complaint and request for a stay of the certificate order authorizing the project on the grounds that Constitution had improperly cut trees along the proposed route. The FERC found the complaint procedurally deficient and that there was no justification for a stay; it did find the filing constituted a valid request for investigation and thus referred the matter to FERC staff for further examination as may be appropriate. On November 22, 2016, the FERC denied the NYAG's request for reconsideration of this order.
Since April 2016, with the actions of the NYSDEC, Constitution stopped construction and discontinued capitalization of future development costs until the project's uncertainty is resolved. As a result, Duke Energy evaluated the investment in the Constitution project for other-than-temporary impairments (OTTIs). At this time, no OTTI has been determined and therefore no impairment charge to reduce the carrying value of the investment has been recorded. However, to the extent that the legal and regulatory proceedings have unfavorable outcomes, or if Constitution concludes that the project is not viable or does not go forward as legal and regulatory actions progress, the conclusions with respect to OTTIs could change and may require that an impairment charge of up to the recorded investment in the project, net of any cash and working capital returned, be recorded. Duke Energy will continue to monitor and update the OTTI analysis as required. Different assumptions could affect the timing and amount of any charge recorded in a period.
Pending the outcome of the matters described above, and when construction proceeds, Duke Energy remains committed to fund an amount in proportion to its ownership interest for the development and construction of the new order.pipeline. Duke Energy's total anticipated contributions are approximately $229 million.
OnSee Note 12 for additional information related to ownership interest and carrying value of the investment.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
Potential Coal Plant Retirements
The Subsidiary Registrants periodically file Integrated Resource Plans (IRP) with their state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (10 to 20 years) and options being considered to meet those needs. Recent IRPs filed by the Subsidiary Registrants included planning assumptions to potentially retire certain coal-fired generating facilities in North Carolina, Florida and Indiana earlier than their current estimated useful lives primarily because facilities do not have the requisite emission control equipment to meet EPA regulations recently approved or proposed.
The table below contains the net carrying value of generating facilities planned for retirement or included in recent IRPs as evaluated for potential retirement. Dollar amounts in the table below are included in Net property, plant and equipment on the Condensed Consolidated Balance Sheets as of March 31, 2017, and exclude capitalized asset retirement costs. |
| | | | | | |
| | | Remaining Net |
|
| Capacity |
| | Book Value |
|
| (in MW) |
| | (in millions) |
|
Duke Energy Carolinas | | | |
Allen Steam Station Units 1-3(a) | 585 |
| | $ | 167 |
|
Progress Energy and Duke Energy Florida | | | |
Crystal River Units 1 and 2(b) | 873 |
| | 117 |
|
Duke Energy Indiana | | | |
Gallagher Units 2 and 4(c) | 280 |
| | 135 |
|
Total Duke Energy | 1,738 |
| | $ | 419 |
|
| |
(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 will likely retire these coal units by 2018 to comply with environmental regulations. |
| |
(c) | Duke Energy Indiana committed to either retire or stop burning coal at Gallagher Units 2 and 4 by December 31, 2022, as part of the settlement of Edwardsport IGCC matters. |
Refer to the "Western Carolinas Modernization Plan" discussion above for details of Duke Energy Progress' planned retirements.
5. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
The Duke Energy Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time, imposing new obligations on the Duke Energy Registrants. The following environmental matters impact all of the Duke Energy Registrants.
Remediation Activities
In addition to asset retirement obligations (AROs) recorded as a result of various environmental regulations, 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 Condensed Consolidated Statements of Operations unless regulatory recovery of the costs is deemed probable.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
The following tables contain information regarding reserves for probable and estimable costs related to the various environmental sites. These reserves are recorded in Other within Other Noncurrent Liabilities on the Condensed Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Balance at beginning of period | $ | 98 |
| | $ | 10 |
| | $ | 18 |
| | $ | 3 |
| | $ | 14 |
| | $ | 59 |
| | $ | 10 |
| | $ | 1 |
|
Provisions/adjustments | 6 |
| | 1 |
| | — |
| | — |
| | 1 |
| | 4 |
| | (1 | ) | | 1 |
|
Cash reductions | (6 | ) | | — |
| | (1 | ) | | — |
| | (1 | ) | | (4 | ) | | — |
| | — |
|
Balance at end of period | $ | 98 |
| | $ | 11 |
| | $ | 17 |
| | $ | 3 |
| | $ | 14 |
| | $ | 59 |
| | $ | 9 |
| | $ | 2 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Balance at beginning of period | $ | 94 |
| | $ | 10 |
| | $ | 17 |
| | $ | 3 |
| | $ | 14 |
| | $ | 54 |
| | $ | 12 |
| | $ | 1 |
|
Provisions/adjustments | 10 |
| | 2 |
| | 1 |
| | — |
| | 1 |
| | — |
| | 6 |
| | — |
|
Cash reductions | (3 | ) | | (1 | ) | | (2 | ) | | (1 | ) | | (1 | ) | | — |
| | — |
| | — |
|
Balance at end of period | $ | 101 |
| | $ | 11 |
| | $ | 16 |
| | $ | 2 |
| | $ | 14 |
| | $ | 54 |
| | $ | 18 |
| | $ | 1 |
|
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 | $ | 71 |
|
Duke Energy Carolinas | 22 |
|
Duke Energy Ohio | 36 |
|
Duke Energy Indiana | 7 |
|
Piedmont | 2 |
|
North Carolina and South Carolina Ash Basins
In February 8, 2016, NCDEQ assessed2014, a penaltybreak in a stormwater pipe beneath an ash basin at Duke Energy Carolinas’ retired Dan River Steam Station caused a release of approximately $6.8 million, including enforcement costs, againstash 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 storm water pipesthe Dan River release, including future state or federal civil enforcement proceedings, future regulatory directives, natural resources damages, future claims or litigation and associated dischargeslong-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 recordedand Duke Energy Progress cannot predict whether the NCDEQ will assess future penalties related to existing unresolved NOVs and if such penalties would be material. See "NCDEQ Notices of Violation" section below for additional discussion.
LITIGATION
Duke Energy
Duke Energy no longer has exposure to litigation matters related to the International Energy Disposal Group as a chargeresult 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.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
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 April 22, 2016, 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. On December 14, 2016, the Delaware Chancery Court entered an order dismissing the Amended Complaint. Plaintiffs filed an appeal to the Delaware Supreme Court on January 9, 2017. The parties have completed briefing in the case and a date for oral argument has not been set.
On October 30, 2015, shareholder Saul Bresalier filed a shareholder derivative complaint (Bresalier Complaint) in the U.S. District Court for this penalty. 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 appointed 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. A notice of appeal has not been filed. As discussed below, an agreement-in-principle has been reached to settle the merger related claims in the Bresalier Complaint, and those claims were also dismissed subject to that agreement.
It is not possible to predict whether Duke Energy will incur any liability or to estimate the damages, if any, it might incur in connection with these matters.
Progress Energy Merger Shareholder Litigation
On May 31, 2013, the Delaware Chancery Court consolidated four shareholder derivative lawsuits filed in 2012. The Court also appointed a lead plaintiff and counsel for plaintiffs and designated the case as In Re Duke Energy Corporation Derivative Litigation (Merger Chancery Litigation). The lawsuit names as defendants the Legacy Duke Energy Directors. Duke Energy is named as a nominal defendant. The case alleges claims for breach of fiduciary duties of loyalty and care in connection with the post-merger change in CEO.
Two shareholder Derivative Complaints, filed in 2012 in federal district court in Delaware, were consolidated as Tansey v. Rogers, et al. The case alleges claims against the Legacy Duke Energy Directors for breach of fiduciary duty and waste of corporate assets, as well as claims under Section 14(a) and 20(a) of the Exchange Act. Duke Energy is named as a nominal defendant. On December 21, 2015, Plaintiff filed a Consolidated Amended Complaint asserting the same claims contained in the original complaints.
The Legacy Duke Energy Directors have reached an agreement-in-principle to settle the Merger Chancery Litigation, conditioned on dismissal as well, of the Tansey v. Rogers, et al case and the merger related claims in the Bresalier Complaint discussed above, for a total of $27 million. The entire settlement amount is to be funded by insurance. The settlement amount, less court-approved attorney fees, will be payable to Duke Energy. Settlement documents have been submitted to the court for approval and a hearing has been set for July 13, 2017.
Price Reporting Cases
Duke Energy Trading and Marketing, LLC (DETM), a non-operating Duke Energy affiliate, was a defendant, along with numerous other energy companies, in four class-action lawsuits and a fifth single-plaintiff lawsuit in a consolidated federal court proceeding in Nevada. Each of these lawsuits contained similar claims that defendants allegedly manipulated natural gas markets by various means, including providing false information to natural gas trade publications and entering into unlawful arrangements and agreements in violation of the antitrust laws of the respective states. Plaintiffs sought damages in unspecified amounts. In February 2016, DETM reached agreements in principle to settle all of the pending lawsuits. Settlement of the single-plaintiff settlement was finalized and paid in March 2016, 2016. The proposed settlement of the class action lawsuits was submitted to the Court and preliminarily approved on January 26, 2017. The Court will consider final approval of the class settlement following notice to the class members. The settlement amounts are not material to Duke Energy.
Duke Energy Carolinas filed an appeal of this penalty. A summary judgment hearing is set for August 22, 2016, for this proceeding.and Duke Energy Progress
Coal Ash Insurance Coverage Litigation
In March 2017, Duke Energy Carolinas and Duke Energy Progress filed a civil action in North Carolina Superior Court against various insurance providers. The lawsuit seeks payment for coal ash related liabilities covered by third-party liability insurance policies. The insurance policies were issued between 1971 and 1986 and provide third-party liability insurance for property damage. The civil action seeks damages for breach of contract and indemnification for costs arising from the North Carolina Coal Ash Management Act of 2014, as amended, (Coal Ash Act) and the EPA CCR rule at 15 coal-fired plants in North Carolina and South Carolina. Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of this matter.
NCDEQ State Enforcement Actions
In the first quarter of 2013, SELC sent notices of intent to sue Duke Energy Carolinas and Duke Energy Progress related to alleged CWA violations from coal ash basins at two of their coal-fired power plants in North Carolina. The NCDEQ filed enforcement actions against Duke Energy Carolinas and Duke Energy Progress alleging violations of water discharge permits and North Carolina groundwater standards. The cases have been consolidated and are being heard before a single judge.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
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.
On July 10, 2015, Duke Energy Carolinas and Duke Energy Progress filed two MotionsThe court issued orders in 2016 granting Motions' for Partial Summary Judgment in the case on the basis that there is no longer either a genuine controversy or disputed material facts about the relief for seven of the 14 North Carolina plants with coal ash basins. On September 14, 2015,named in the court granted the Motions for Partial Summary Judgment pending court approval of the terms through an order. On April 4, 2016, the court issued an order granting Duke Energy Progress' Motion for Partial Summary Judgment for cases involving the H.F. Lee, Cape Fear and Weatherspoon plants. On June 1, 2016, the court issued an order granting Duke Energy Carolinas' and Duke Energy Progress' Motion for Partial Summary Judgment for cases involving the Asheville, Dan River, Riverbend and Sutton plants.enforcement actions. The litigation is concluded for these seven plants. Litigation continues for the remaining seven plants. In response to a motion for partial summary judgment on the groundwater claims filed by the environmental groups, on October 17, 2016, Duke Energy Carolinas and Duke Energy Progress filed a cross-motion for partial summary judgment on the groundwater claims. On February 13, 2017, the court issued an order denying both the environmental groups' motion for partial summary judgment and Duke Energy Carolinas and Duke Energy Progress' cross-motion for partial summary judgment. On March 15, 2017, Duke Energy Carolinas and Duke Energy Progress filed a Notice of Appeal to challenge the trial court’s denial of their cross-motion for partial summary judgment. The parties were unable to reach an agreement at mediation on April 18, 2017.
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
There are currently three cases filed in various North Carolina federal courts related to the Sutton, Buck and Mayo plants. Three other previously filed cases involving the Riverbend, Cape Fear and H.F. Lee plants were dismissed on June 7, 2016.
On September 12, 2013, Cape Fear River Watch, Inc., Sierra Club and Waterkeeper Alliance filed a citizen suit in the Federal District Court for the Eastern District of North Carolina. The lawsuit alleges unpermitted discharges to surface water and groundwater violations at the Sutton Plant. On June 9, 2014, the court granted Duke Energy Progress' request to dismiss the groundwater claims but rejected its request to dismiss the surface water claims. In response to a motion filed by the SELC on August 1, 2014, the court modified the original order to dismiss only the plaintiff's federal law claim based on hydrologic connections at Sutton Lake. The claims related to the alleged state court violations of the permits are back in the case. On August 26, 2015, the court suspended the proceedings until further order from the court.
PART I
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
Combined Notes to Condensed Consolidated Financial Statements – (Continued)
(Unaudited)
On September 3, 2014, three citizen suits were filed by various environmental groups: (i) a citizen suit in the United States Court for the Middle District of North Carolina alleging unpermitted discharges to surface water and groundwater violations at the Cape Fear Plant; (ii) in the United States Court for the Eastern District of North Carolina alleging unpermitted discharges to surface water and groundwater violations at the H.F. Lee Plant; and (iii) in the United States Court for the Middle District of North Carolina alleging unpermitted discharges to surface water and groundwater violations at the Buck Steam Station. Motions to Stay or Dismiss the proceedings were filed in each of the three cases. The proceedings related to Cape Fear and H.F. Lee were dismissed on June 8, 2016, closing these matters. On October 20, 2015, the court issued an order denying the motions to stay or dismiss in the Buck proceedings. Duke Energy Carolinas' motion seeking appellate review of the District Court's decision relating to Buck was denied on January 29, 2016. The court has set an April 2017 trial date in the Buck proceeding.
On June 13, 2016, the Roanoke River Basin Association 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 expectsfiled a Motion to fileDismiss. 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 permit provisions survived the motion to dismiss, and Duke Energy Progress’ response is due on May 10, 2017.
On March 16, 2017, the Roanoke River Basin Association served Duke Energy Progress with a response60-day notice of intent to bring suit pursuant to the complaint in third quartercitizen suit provision of 2016.the CWA for alleged violations of effluent standards and limitations at the Roxboro Plant.
It is not possible to predict whether Duke Energy Carolinas or Duke Energy Progress will incur any liability or to estimate the damages, if any, theyit might incur in connection with these matters.this matter.
Five previously filed cases involving the Riverbend, Cape Fear, H.F. Lee, Sutton and Buck plants were dismissed or settled in 2016.
Potential Groundwater Contamination Claims
Beginning in May 2015, a number of residents living in the vicinity of the North Carolina facilities with ash basins received letters from the NCDEQ advising them not to drink water from the private wells on their land tested by the NCDEQ as the samples were found to have certain substances at levels higher than the criteria set by the North Carolina Department of Health and Human Services (DHHS). The criteria, in some cases, are considerably more stringent than federal drinking water standards established to protect human health and welfare. The Coal Ash Act requires additional groundwater monitoring and assessments for each of the 14 coal-fired plants in North Carolina, including sampling of private water supply wells. The data gathered through these Comprehensive Site Assessments (CSAs) will be used by NCDEQ to determine whether the water quality of these private water supply wells has been adversely impacted by the ash basins. Duke Energy has submitted CSAs documenting the results of extensive groundwater monitoring around coal ash basins at all 14 of the plants with coal ash basins. Generally, the data gathered through the installation of new monitoring wells and soil and water samples across the state 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 impoundments,basins, as well as some municipal water supplies, contain similar levels of vanadium and hexavalent chromium, which leads investigators to believe these constituents are naturally occurring. In March 2016, DHHS rescinded the advisories.
Duke Energy Carolinas and Duke Energy Progress have received formal demand letters from residents near Duke Energy Carolinas' and Duke Energy Progress' coal ash basins. The residents claim damages for nuisance and diminution in property value, among other things. The parties held three days of mediation discussions that 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 received a letter from Plaintiffs' counsel indicating their intent to file suit on February 2, 2017, should a settlement not be reached by that date. Plaintiff’s counsel did not file suit upon the expiration of the tolling agreement on February 2, 2017, and no suit has been filed to date. Duke Energy Carolinas and Duke Energy Progress have recognized reserves of $18 million and $4 million, respectively.
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.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
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 June 30, 2016,March 31, 2017, there were 89111 asserted claims for non-malignant cases with the cumulative relief sought of up to $24$29 million, and 8358 asserted claims for malignant cases with the cumulative relief sought of up to $15$16 million. Based on Duke Energy Carolinas’ experience, it is expected that the ultimate resolution of most of these claims likely will be less than the amount claimed.
Duke Energy Carolinas has recognized asbestos-related reserves of $515$506 million at June 30, 2016March 31, 2017 and $536$512 million at December 31, 2015.2016. These reserves are classified in Other within Deferred Credits and Other Noncurrent Liabilities and Other within Current Liabilities on the Condensed Consolidated Balance Sheets. These reserves are based upon the minimum amount of the range of loss for current and future asbestos claims through 2033,2036, are recorded on an undiscounted basis and incorporate anticipated inflation. In light of the uncertainties inherent in a longer-term forecast, management does not believe they can reasonably estimate the indemnity and medical costs that might be incurred after 20332036 related to such potential claims. It is possible Duke Energy Carolinas may incur asbestos liabilities in excess of the recorded reserves.
Duke Energy Carolinas has third-party insurance to cover certain losses related to asbestos-related injuries and damages above an aggregate self-insured retention. Duke Energy Carolinas’ cumulative payments began to exceed the self-insurance retention in 2008. Future payments up to the policy limit will be reimbursed by the third-party insurance carrier. The insurance policy limit for potential future insurance recoveries indemnification and medical cost claim payments is $847$814 million in excess of the self-insured retention. Receivables for insurance recoveries were $600$587 million at June 30, 2016March 31, 2017 and $599 million at December 31, 2015.2016. These amounts are classified in Other within Investments and Other Noncurrent Assets and Receivables on the Condensed Consolidated Balance Sheets. Duke Energy Carolinas is not aware of any uncertainties regarding the legal sufficiency of insurance claims. Duke Energy Carolinas believes the insurance recovery asset is probable of recovery as the insurance carrier continues to have a strong financial strength rating.
Duke Energy Florida
Class Action Lawsuit
On February 22, 2016, a lawsuit was filed in the U.S. District Court for the Southern District of Florida on behalf of a putative class of Duke Energy Florida and FP&L’s customers in Florida. The suit alleges the State of Florida’s nuclear power plant cost recovery statutes (NCRS) are unconstitutional and pre-empted by federal law. Plaintiffs claim they are entitled to repayment of all money paid by customers of Duke Energy Florida and FP&L as a result of the NCRS, as well as an injunction against any future charges under those statutes. The constitutionality of the NCRS has been challenged unsuccessfully in a number of prior cases on alternative grounds. Duke Energy Florida and FP&L filed motions to dismiss the complaint on May 5, 2016. On September 21, 2016, the Court granted the motions to dismiss with prejudice. Plaintiffs filed a motion for reconsideration, which was denied. On January 4, 2017, plaintiffs filed a notice of appeal. Plaintiffs filed an appellate brief on March 16, 2017, and Duke Energy Florida filed responses on April 17, 2017. Duke Energy Florida cannot predict the outcome of this matter.
PART I
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
Combined Notes to Condensed Consolidated Financial Statements – (Continued)
(Unaudited)
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 Engineering, Procurement and Construction agreement (EPC)an 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.EPC.
On March 31, 2014, Westinghouse filed a lawsuit against Duke Energy Florida in U.S. District Court for the Western District of Pennsylvania. The Pennsylvania lawsuit alleged damages under the EPC in excess of $510 million for engineering and design work, costs to end supplier contracts and an alleged termination fee.
On June 9, 2014, the judge in the North Carolina case ruled that the litigation will proceed in the Western District of North Carolina. In November 2014, Westinghouse filed a Motion for Partial Judgment on the pleadings, which was denied on March 30, 2015. The trial date is set for October 17, 2016. 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 prejudgment interest. Westinghouse has appealed the trial court's order and Duke Energy Florida has cross-appealed.
It is not possible to predict the ultimate outcome of the litigation, whether Duke Energy Florida will ultimately have any liability for terminatingappeal of the EPC contract or to estimate the damages, if any, it might incur in connection with these matters.trial court's order. Ultimate resolution of these matters could have a material effect on the results of operations, financial position or cash flows of Duke Energy Florida. However, appropriate regulatory recovery will be pursued for the retail portion of any costs incurred in connection with such resolution.
On March 29, 2017, Westinghouse filed Chapter 11 bankruptcy in the Southern District of New York, which could delay the timing of the appeal. Additional impacts, if any, of this bankruptcy filing on the resolution of the pending appeal and cross-appeal are unknown at this time.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
MGP Cost Recovery Action
On December 30, 2011, Duke Energy Ohio
Antitrust Lawsuit
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 2008, four plaintiffs, including individual, industrial and nonprofit customers,2017, Duke Energy Florida appealed the decision to the U.S. Court of Appeals for the 6th Circuit. Duke Energy Florida cannot predict the outcome of this appeal.
Duke Energy Indiana
Benton County Wind Farm Dispute
On December 16, 2013, Benton County Wind Farm LLC (BCWF) filed a lawsuit against Duke Energy Ohio in federal court in the Southern District of Ohio. Plaintiffs allegedIndiana seeking damages for past generation losses totaling approximately $16 million alleging Duke Energy Ohio conspiredIndiana violated its obligations under a 2006 PPA by refusing to provide inequitable and unfair price advantages for certain large business consumers by entering into nonpublic option agreements in exchange for their withdrawal of challengesoffer 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 Ohio’s Rate Stabilization Plan implementedIndiana 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 early 2005. In March 2014, a federal judge certified this matter as a class action. Plaintiffs alleged claims of antitrust violations underorder to balance customer needs against BCWF's need to run. BCWF contends Duke Energy Indiana must bid at the federal Robinson Patman Act as well as fraudlowest 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 conspiracy allegations underthat is has reasonably balanced the federal Racketeer Influenced and Corrupt Organizations statute and the Ohio Corrupt Practices Act.
Duringparties' interests. On July 6, 2015, the parties received preliminary court approval of a settlement agreement. Duke Energy Ohio included a litigation reserve of $81 million in Other within Current Liabilities on the Consolidated Balance Sheet at December 31, 2015. Duke Energy Ohio recognized pretax charges of $71 million and $81 million in (Loss) Income from Discontinued Operations, net of tax in the Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2015, respectively. The settlement agreement was approved at a federal court hearing on April 19, 2016.
W.C. Beckjord Fuel Release
On August 18, 2014, approximately 9,000 gallons of fuel oil were inadvertently discharged into the Ohio River during a fuel oil transfer at the W.C. Beckjord generating station. The Ohio Environmental Protection Agency (Ohio EPA) issued a NOV related to the discharge. Duke Energy Ohio is cooperating with the Ohio EPA, the EPA and the U.S. AttorneyDistrict Court for the Southern District of Ohio. No NOVIndiana entered judgment against BCWF on all claims. BCWF appealed the decision and on December 9, 2016, the appeals court ruled in favor of BCWF. The matter has been issued byremanded to a lower court to determine damages. A settlement conference is scheduled on May 31, 2017. Duke Energy Indiana cannot predict the EPA and no penalty has been assessed. Total repair and remediationoutcome of this matter. Ultimate resolution of this matter could have a material effect on the results of operations, financial position or cash flows of Duke Energy Indiana. However, appropriate regulatory recovery will be pursued for the retail portion of any costs related to the release were not material. Other costs related to the release, including state or federal civil or criminal enforcement proceedings, cannot be reasonably estimated at this time.incurred in connection with such resolution.
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 relatedasbestos-related reserves and the exit obligation discussed above related to the termination of an EPC contract. Reserves are classified on the Condensed Consolidated Balance Sheets in Other within Deferred Credits and 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. |
| | | | | | | |
(in millions) | June 30, 2016 |
| | December 31, 2015 |
|
Reserves for Legal Matters | | | |
Duke Energy | $ | 110 |
| | $ | 166 |
|
Duke Energy Carolinas | 14 |
| | 11 |
|
Progress Energy | 52 |
| | 54 |
|
Duke Energy Progress | 6 |
| | 6 |
|
Duke Energy Florida | 30 |
| | 31 |
|
Duke Energy Ohio | 4 |
| | 80 |
|
PART I
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
Combined Notes to Condensed Consolidated Financial Statements – (Continued)
(Unaudited)
|
| | | | | | | |
(in millions) | March 31, 2017 |
| | December 31, 2016 |
|
Reserves for Legal Matters | | | |
Duke Energy | $ | 91 |
| | $ | 98 |
|
Duke Energy Carolinas | 23 |
| | 23 |
|
Progress Energy | 57 |
| | 59 |
|
Duke Energy Progress | 13 |
| | 14 |
|
Duke Energy Florida | 27 |
| | 28 |
|
Duke Energy Ohio | 4 |
| | 4 |
|
Piedmont | 2 |
| | 2 |
|
OTHER COMMITMENTS AND CONTINGENCIES
General
As part of their normal business, the Duke Energy Registrants are party to various financial guarantees, performance guarantees and other contractual commitments to extend guarantees of credit and other assistance to various subsidiaries, investees and other third parties. These guarantees involve elements of performance and credit risk, which are not fully recognized on the Condensed Consolidated Balance Sheets and have unlimited maximum potential payments. However, the Duke Energy Registrants do not believe these guarantees will have a material effect on their results of operations, cash flows or financial position.
In addition, the Duke Energy Registrants enter into various fixed-price, noncancelable commitments to purchase or sell power or natural gas, take-or-pay arrangements, transportation, or throughput agreements and other contracts that may or may not be recognized on their respective Condensed Consolidated Balance Sheets. Some of these arrangements may be recognized at fair value on their respective Condensed Consolidated Balance Sheets if such contracts meet the definition of a derivative and the normal purchase/normal sale (NPNS) exception does not apply. In most cases, the Duke Energy Registrants’ purchase obligation contracts contain provisions for price adjustments, minimum purchase levels and other financial commitments.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
6. DEBT AND CREDIT FACILITIES
SUMMARY OF SIGNIFICANT DEBT ISSUANCES
The following table summarizes significant debt issuances (in millions). |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Six Months Ended |
| | | | | June 30, 2016 |
| | | | | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Maturity | | Interest |
| | Duke |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
Issuance Date | Date | | Rate |
| | Energy |
| | (Parent) |
| | Carolinas |
| | Florida |
| | Ohio |
| | Indiana |
|
Unsecured | | | | | | | | | | | | | | | |
April 2016(a) | April 2023 | | 2.875 | % | | $ | 350 |
| | $ | 350 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
First Mortgage Bonds | | | | | | | | | | | | | | | |
March 2016(b) | March 2023 |
| 2.500 | % | | 500 |
| | — |
| | 500 |
| | — |
| | — |
| | — |
|
March 2016(b) | March 2046 |
| 3.875 | % | | 500 |
| | — |
| | 500 |
| | — |
| | — |
| | — |
|
May 2016(c) | May 2046 |
| 3.750 | % |
| 500 |
|
| — |
| | — |
| | — |
| | — |
| | 500 |
|
June 2016(b) | June 2046 |
| 3.700 | % |
| 250 |
|
| — |
| | — |
| | — |
| | 250 |
| | — |
|
Secured Debt |
|
|
| |
|
| | | |
|
| | | | | | |
June 2016(d) | March 2020 |
| 1.196 | % | | 183 |
| | — |
| | — |
| | 183 |
| | — |
| | — |
|
June 2016(d) | September 2022 |
| 1.731 | % |
| 150 |
|
| — |
| | — |
| | 150 |
| | — |
| | — |
|
June 2016(d) | September 2029 | | 2.538 | % | | 436 |
| | — |
| | — |
| | 436 |
| | — |
| | — |
|
June 2016(d) | March 2033 |
| 2.858 | % | | 250 |
| | — |
| | — |
| | 250 |
| | — |
| | — |
|
June 2016(d) | September 2036 |
| 3.112 | % | | 275 |
| | — |
| | — |
| | 275 |
| | — |
| | — |
|
Total issuances | | | | | $ | 3,394 |
| | $ | 350 |
|
| $ | 1,000 |
| | $ | 1,294 |
|
| $ | 250 |
|
| $ | 500 |
|
|
| | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, 2017 |
| | | | | | Duke |
| | Duke |
|
| Maturity | Interest |
| | Duke |
| | Energy |
| | Energy |
|
Issuance Date | Date | Rate |
| | Energy |
| | Florida |
| | Ohio |
|
Secured Debt | | | | | | | | |
February 2017(a) | June 2034 | 4.120 | % | | $ | 587 |
| | $ | — |
| | $ | — |
|
First Mortgage Bonds | | | | | | | | |
January 2017(b) | January 2020 | 1.850 | % | | 250 |
| | 250 |
| | — |
|
January 2017(b) | January 2027 | 3.200 | % | | 650 |
| | 650 |
| | — |
|
March 2017(c) | June 2046 | 3.700 | % |
| 100 |
|
| — |
| | 100 |
|
Total issuances | | | | $ | 1,587 |
| | $ | 900 |
|
| $ | 100 |
|
| |
(a) | Portfolio financing of four Texas and Oklahoma wind facilities. Secured by substantially all of the assets of these wind facilities and nonrecourse to Duke Energy. Proceeds were used to pay down outstanding commercial paperreimburse Duke Energy for a portion of previously funded construction expenditures. |
| |
(b) | Debt issued to fund capital expenditures for ongoing construction and capital maintenance, to repay at maturity a $250 million aggregate principal amount of bonds due September 2017 and for general corporate purposes. |
| |
(b)(c) | Proceeds were used to fund capital expenditures for ongoing construction, capital maintenance and for general corporate purposes. |
| |
(c) | ProceedsIn April 2017, Duke Energy (Parent) issued $420 million of unsecured notes with a fixed interest rate of 3.364 percent and maturity date of April 2025. The net 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. |
| |
(d) | Proceeds from the nuclear asset recovery bonds issued by DEFPF, a bankruptcy remote subsidiary of Duke Energy Florida, were used 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 12 for additional information.
|
PART I
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
Combined Notes to Condensed Consolidated Financial Statements – (Continued)refinance $400 million of unsecured debt at maturity and to repay outstanding commercial paper.
(Unaudited)
CURRENT MATURITIES OF LONG-TERM DEBT
The following table shows the significant components of Current maturitiesMaturities of long-term debtLong-Term Debt on the Condensed 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 |
| | June 30, 2016 |
| Maturity Date | | Interest Rate |
| | March 31, 2017 |
|
Unsecured Debt | | | | | | | | |
Duke Energy (Parent) | November 2016 | | 2.150 | % | | $ | 500 |
| August 2017 | | 1.625 | % | | $ | 700 |
|
Duke Energy (Parent) | April 2017 | | 1.009 | % | | 400 |
| |
Duke Energy | May 2017 | | 15.530 | % | | 56 |
| |
Piedmont | | September 2017 | | 8.510 | % | | 35 |
|
Secured Debt | | | | | | | | |
Duke Energy | June 2017 | | 2.075 | % | | 45 |
| June 2017 | | 2.605 | % | | 45 |
|
Duke Energy | | June 2017 | | 2.455 | % | | 34 |
|
First Mortgage Bonds | | | | | | | | |
Duke Energy Indiana | July 2016 | | 0.979 | % | | 150 |
| |
Duke Energy Florida | | September 2017 | | 5.800 | % | | 250 |
|
Duke Energy Progress | | November 2017 | | 1.252 | % | | 200 |
|
Duke Energy Carolinas | December 2016 | | 1.750 | % | | 350 |
| January 2018 | | 5.250 | % | | 400 |
|
Duke Energy Progress | March 2017 | | 0.880 | % | | 250 |
| |
Tax-exempt Bonds | | | | | |
Duke Energy Carolinas | February 2017 | | 3.600 | % | | 77 |
| |
Duke Energy Ohio(a) | August 2027 | | 1.280 | % | | 50 |
| |
Duke Energy Indiana(b) | May 2035 | | 1.092 | % | | 44 |
| |
Other(c) | | | | 420 |
| |
Other(a) | | | | | 313 |
|
Current maturities of long-term debt | | | | $ | 2,342 |
| | | | $ | 1,977 |
|
| |
(a) | Represents Duke Energy Kentucky's bonds with a mandatory put in December 2016. |
| |
(b) | The bonds have a mandatory put in December 2016. |
| |
(c) | Includes capital lease obligations, amortizing debt and small bullet maturities. |
(a) Includes capital lease obligations, amortizing debt and small bullet maturities.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
AVAILABLE CREDIT FACILITIES
Master Credit Facility
In March 2017, Duke Energy has aamended its Master Credit Facility with ato increase its capacity offrom $7.5 billion throughto $8 billion, and to extend the termination date of the facility from January 2020.30, 2020, to March 16, 2022. The amendment also added Piedmont as a borrower within the Master Credit Facility. Piedmont's separate $850 million credit facility was terminated in connection with the amendment. With the amendment, the Duke Energy Registrants, excluding Progress Energy (Parent), have borrowing capacity under the Master Credit Facility up to a specified sublimit 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. The table below includes the current borrowing sublimits and available capacity under the Master Credit Facility. | | | June 30, 2016 | March 31, 2017 | | |
|
|
| | 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 |
| Energy |
| | (Parent) |
| | Carolinas |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Facility size(a) | $ | 7,500 |
| | $ | 3,475 |
| | $ | 800 |
| | $ | 1,000 |
| | $ | 1,200 |
| | $ | 425 |
| | $ | 600 |
| $ | 8,000 |
| | $ | 3,400 |
| | $ | 1,100 |
| | $ | 1,000 |
| | $ | 950 |
| | $ | 450 |
| | $ | 600 |
| | $ | 500 |
|
Reduction to backstop issuances | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial paper(b) | (1,673 | ) | | (992 | ) | | (300 | ) | | (159 | ) | | (47 | ) | | (25 | ) | | (150 | ) | (3,134 | ) | | (1,822 | ) | | (469 | ) | | (402 | ) | | — |
| | (30 | ) | | (150 | ) | | (261 | ) |
Outstanding letters of credit | (77 | ) | | (70 | ) | | (4 | ) | | (2 | ) | | (1 | ) | | — |
| | — |
| (71 | ) | | (62 | ) | | (4 | ) | | (2 | ) | | (1 | ) | | — |
| | — |
| | (2 | ) |
Tax-exempt bonds | (116 | ) | | — |
| | (35 | ) | | — |
| | — |
| | — |
| | (81 | ) | (81 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (81 | ) | | — |
|
Coal ash set-aside | (500 | ) | | — |
| | (250 | ) | | (250 | ) | | — |
| | — |
| | — |
| (500 | ) | | — |
| | (250 | ) | | (250 | ) | | — |
| | — |
| | — |
| | — |
|
Available capacity | $ | 5,134 |
|
| $ | 2,413 |
|
| $ | 211 |
|
| $ | 589 |
|
| $ | 1,152 |
|
| $ | 400 |
|
| $ | 369 |
| $ | 4,214 |
|
| $ | 1,516 |
|
| $ | 377 |
|
| $ | 346 |
|
| $ | 949 |
|
| $ | 420 |
|
| $ | 369 |
| | $ | 237 |
|
| |
(a) | Represents the sublimit of each borrower. Certain sublimits were reallocated in May 2017 to provide additional liquidity to certain borrowers in light of near-term funding needs. |
| |
(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 Condensed Consolidated Balance Sheets. |
PART I
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
Combined Notes to Condensed Consolidated Financial Statements – (Continued)
(Unaudited)
Piedmont Bridge Facility
In connection with the Merger Agreement with Piedmont, Duke Energy entered into a $4.9 billion Bridge Facility with Barclays. The Bridge Facility, if drawn upon, may be used (i) to fund the cash consideration for the transaction and (ii) to pay certain fees and expenses in connection with the transaction. In November 2015, Barclays syndicated its commitment under the Bridge Facility to a broader group of lenders. Duke Energy does not expect to draw upon the Bridge Facility. The amount of the Bridge Facility is reduced by any financings related to the Piedmont acquisition entered into by Duke Energy, and has accordingly been reduced to approximately $3.2 billion as a result of the Equity Forwards described in Note 13 and $1 billion of commitments under a term loan amended and restated as of August 1, 2016, described below. Refer to Note 2 for additional information on the Piedmont acquisition.
Term Loan Facility
On February 22, 2016, Duke Energy entered into a six-month term loan facility with commitments totaling $1.0 billion (the February 2016 Term Loan). As of June 30, 2016, $100 million was outstanding under the February 2016 Term Loan. On August 1, 2016, Duke Energy and each of the lenders under the February 2016 Term Loan amended and restated certain terms of this facility, resulting in aggregate commitments of $1.5 billion and extending the maturity date to July 31, 2017.
As of August 1, 2016, $100 million has been drawn under the amended and restated term loan (the August 2016 Term Loan). The remaining $1.4 billion of commitments under the August 2016 Term Loan can be drawn in up to two separate borrowings, which must occur no later than 90 calendar days following August 1, 2016. Any borrowings under the August 2016 Term Loan will be used to manage short-term liquidity, including funding a portion of the Piedmont acquisition, and for general corporate purposes. The terms and conditions of the August 2016 Term Loan are generally consistent with those governing Duke Energy’s Master Credit Facility.
Solar Facilities Financing
In August 2016, Emerald State Solar, LLC, an indirect wholly owned subsidiary of Duke Energy, entered into a portfolio financing of approximately 22 North Carolina Solar facilities. The $333 million term loan facility consists of Tranche A of $228 million due in June 2034 secured by substantially all the assets of the solar facilities and Tranche B of $105 million due in June 2020 secured by an Equity Contribution Agreement with Duke Energy. The initial interest rate on the loans is six months London Interbank Offered Rate (LIBOR) plus an applicable margin. The initial applicable margin is 1.75 percent with 0.125 percent increases 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.
7. GOODWILL AND INTANGIBLE ASSETS
GOODWILL
Duke Energy
The following table presents the goodwill by reportable operating segment foron Duke Energy.
Duke EnergyEnergy's Condensed Consolidated Balance Sheets at March 31, 2017 and December 31, 2016. |
| | | | | | | | | | | | | | | |
| Regulated |
| | International |
| | Commercial |
| | |
(in millions) | Utilities |
| | Energy |
| | Portfolio |
| | Total |
|
Goodwill at December 31, 2015 | $ | 15,950 |
| | $ | 271 |
| | $ | 122 |
| | $ | 16,343 |
|
Foreign exchange changes | — |
| | 14 |
| | — |
| | 14 |
|
Goodwill at June 30, 2016 | $ | 15,950 |
| | $ | 285 |
| | $ | 122 |
| | $ | 16,357 |
|
|
| | | | | | | | | | | | | | | |
| Electric Utilities |
| | Gas Utilities |
| | Commercial |
| | |
(in millions) | and Infrastructure |
| | and Infrastructure |
| | Renewables |
| | Total |
|
Goodwill | $ | 17,379 |
| | $ | 1,924 |
| | $ | 122 |
| | $ | 19,425 |
|
Duke Energy Ohio
Duke Energy Ohio's Goodwill balance of $920 million, is included in the Regulatedallocated $596 million to Electric Utilities operating segment and Infrastructure and $324 million to Gas Utilities and Infrastructure, is presented net of accumulated impairment charges of $216 million on the Condensed Consolidated Balance Sheets at June 30, 2016March 31, 2017 and December 31, 2015.2016.
Progress Energy
Progress Energy's Goodwill is included in the RegulatedElectric Utilities and Infrastructure operating segment and there are no accumulated impairment charges.
Piedmont
Piedmont's Goodwill is included in the Gas Utilities and Infrastructure operating segment and there are no accumulated impairment charges. Effective November 1, 2016, Piedmont's fiscal year was changed from October 31 to December 31. Effective with this change, Piedmont changed the date of their annual impairment testing of goodwill from October 31 to August 31 to align with the other Duke Energy Registrants.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
8. RELATED PARTY TRANSACTIONS
The Subsidiary Registrants engage in related party transactions in accordance with applicable state and federal commission regulations. Refer to the Condensed 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 Condensed Consolidated Statements of Operations and Comprehensive Income are presented in the following table. | | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
(in millions) | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
| 2017 |
| | 2016 |
|
Duke Energy Carolinas | | | | | | | | | | |
Corporate governance and shared service expenses(a) | $ | 199 |
| | $ | 202 |
| | $ | 416 |
| | $ | 421 |
| $ | 199 |
| | $ | 217 |
|
Indemnification coverages(b) | 5 |
| | 6 |
| | 11 |
| | 12 |
| 6 |
| | 5 |
|
JDA revenue(c) | 2 |
| | 14 |
| | 11 |
| | 40 |
| 16 |
| | 9 |
|
JDA expense(c) | 50 |
| | 38 |
| | 91 |
| | 95 |
| 31 |
| | 41 |
|
Intercompany natural gas purchases(d) | | 1 |
| | — |
|
Progress Energy | | | | | | | | | | |
Corporate governance and shared service expenses(a) | $ | 160 |
| | $ | 172 |
| | $ | 334 |
| | $ | 339 |
| $ | 169 |
| | $ | 174 |
|
Indemnification coverages(b) | 9 |
| | 9 |
| | 17 |
| | 19 |
| 10 |
| | 9 |
|
JDA revenue(c) | 50 |
| | 38 |
| | 91 |
| | 95 |
| 31 |
| | 41 |
|
JDA expense(c) | 2 |
| | 14 |
| | 11 |
| | 40 |
| 16 |
| | 9 |
|
Intercompany natural gas purchases(d) | | 19 |
| | — |
|
Duke Energy Progress | | | | | | | | | | |
Corporate governance and shared service expenses(a) | $ | 89 |
| | $ | 93 |
| | $ | 189 |
| | $ | 194 |
| $ | 103 |
| | $ | 100 |
|
Indemnification coverages(b) | 4 |
| | 4 |
| | 7 |
| | 8 |
| 4 |
| | 4 |
|
JDA revenue(c) | 50 |
| | 38 |
| | 91 |
| | 95 |
| 31 |
| | 41 |
|
JDA expense(c) | 2 |
| | 14 |
| | 11 |
| | 40 |
| 16 |
| | 9 |
|
Intercompany natural gas purchases(d) | | 19 |
| | — |
|
Duke Energy Florida | | | | | | | | | | |
Corporate governance and shared service expenses(a) | $ | 71 |
| | $ | 79 |
| | $ | 145 |
| | $ | 145 |
| $ | 66 |
| | $ | 74 |
|
Indemnification coverages(b) | 5 |
| | 5 |
| | 10 |
| | 11 |
| 6 |
| | 5 |
|
Duke Energy Ohio | | | | | | | | | | |
Corporate governance and shared service expenses(a) | $ | 87 |
| | $ | 103 |
| | $ | 172 |
| | $ | 188 |
| $ | 90 |
| | $ | 85 |
|
Indemnification coverages(b) | 1 |
| | 1 |
| | 2 |
| | 4 |
| 1 |
| | 1 |
|
Duke Energy Indiana | | | | | | | | | | |
Corporate governance and shared service expenses(a) | $ | 89 |
| | $ | 83 |
| | $ | 183 |
| | $ | 172 |
| $ | 90 |
| | $ | 94 |
|
Indemnification coverages(b) | 2 |
| | 2 |
| | 4 |
| | 4 |
| 2 |
| | 2 |
|
Piedmont | | | | |
Corporate governance and shared service expenses(a) | | $ | 6 |
| | $ | — |
|
Indemnification coverages(b) | | 1 |
| | — |
|
Intercompany natural gas sales(d) | | 20 |
| | — |
|
| |
(a) | The Subsidiary Registrants are charged their proportionate share of corporate governance and other shared services costs, primarily related to human resources, and employee benefits, information technology, legal and accounting fees, as well as other third-party costs. These amounts are recorded in Operation, maintenance and other on the Condensed 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 Condensed 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 under the JDA are recorded in Operating Revenues on the Condensed Consolidated Statements of Operations and Comprehensive Income. Expenses from the purchase of power under the JDA are recorded in Fuel used in electric generation and purchased power on the Condensed Consolidated Statements of Operations and Comprehensive Income. |
| |
(d) | Piedmont provides long-term natural gas delivery service to Duke Energy Carolinas and Duke Energy Progress' natural gas-fired generation facilities. Piedmont recorded the sales in Operating Revenues – Regulated natural gas, and Duke Energy Carolinas and Duke Energy Progress recorded the related purchases in Operating Expenses – Cost of natural gas on their Condensed Consolidated Statements of Operations and Comprehensive Income. The amounts are not eliminated in accordance with rate-based accounting regulations. For the three months ended March 31, 2016, which was prior to the Piedmont acquisition, Piedmont recorded $19 million and $1 million of natural gas sales with Duke Energy Progress and Duke Energy Carolinas, respectively. |
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
In addition to the amounts presented above, the Subsidiary Registrants record the impact on net income of 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 to the Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2016 for more information regarding money pool. The net impact of these transactions was not material for the three and six months ended June 30,March 31, 2017 and 2016, and 2015 for the Subsidiary Registrants.
As discussed in Note 12, 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 also include a subordinated note from the affiliate for a portion of the purchase price.
Equity Method Investments
Duke Energy Ohio's nonregulated indirect subsidiary, Duke Energy Commercial Asset Management (DECAM), owned generating plantsPiedmont has related party transactions as a customer of its equity method investments in natural gas storage and transportation facilities. Below are expenses for the three months ended March 31, 2017 and 2016, which are included in the Disposal Group soldOperating Expenses – Cost of natural gas on Piedmont's Condensed Consolidated Statement of Operations and Comprehensive Income. |
| | | | | | | |
| | Three Months Ended March 31, |
(in millions) | Type of expense | 2017 | 2016 |
Cardinal | Transportation Costs | $ | 2 |
| $ | 2 |
|
Pine Needle | Gas Storage Costs | 2 |
| 3 |
|
Hardy Storage | Gas Storage Costs | 2 |
| 2 |
|
Total | | $ | 6 |
| $ | 7 |
|
In association with these transactions, Piedmont has accounts payable to Dynegy on April 2, 2015. On April 1, 2015, Duke Energy Ohio distributed its indirect ownership interestequity method investments of $2 million at March 31, 2017, and December 31, 2016. These amounts are included in DECAM to a Duke Energy subsidiary and non-cash settled DECAM's intercompany loanAccounts payable of $294 million. Refer to Note 2 for further information on the sale of the Disposal Group.
PART I
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
Combined Notes to Condensed Consolidated Financial Statements – (Continued)Balance Sheets.
(Unaudited)
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 |
| Duke |
| | Duke |
| Duke |
| Duke |
| Duke |
| |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| Energy |
| Progress |
| Energy |
| Energy |
| Energy |
| Energy |
| |
(in millions) | Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Carolinas |
| Energy |
| Progress |
| Florida |
| Ohio |
| Indiana |
| Piedmont |
|
June 30, 2016 | | |
March 31, 2017 | | |
Intercompany income tax receivable | $ | 10 |
| $ | 90 |
| $ | — |
| $ | — |
| $ | 15 |
| $ | 6 |
| $ | 19 |
| $ | 139 |
| $ | 47 |
| $ | 48 |
| $ | 8 |
| $ | — |
| $ | — |
|
Intercompany income tax payable | — |
| — |
| 11 |
| 48 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 23 |
| 44 |
|
| | |
December 31, 2015 | | |
December 31, 2016 | | |
Intercompany income tax receivable | $ | 122 |
| $ | 120 |
| $ | 104 |
| $ | — |
| $ | 54 |
| $ | — |
| $ | 1 |
| $ | — |
| $ | — |
| $ | 37 |
| $ | — |
| $ | — |
| $ | — |
|
Intercompany income tax payable | — |
| — |
| — |
| 96 |
| — |
| 47 |
| — |
| 37 |
| 90 |
| — |
| 1 |
| 3 |
| 38 |
|
9. 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 gas supply contracts to provide diversification, reliability and gas cost benefits to their customers. Interest rate swaps are used to manage interest rate risk associated with borrowings.
All derivative instruments not identified as NPNS are recorded at fair value as assets or liabilities on the Condensed Consolidated Balance Sheets. Cash collateral related to derivative instruments executed under master netting arrangements is offset against the collateralized derivatives on the Condensed Consolidated Balance Sheets. The cash impacts of settled derivatives are recorded as operating activities on the Condensed 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 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 I
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 Condensed Consolidated Financial Statements – (Unaudited) – (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 affectsimpacts earnings. Amounts for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt. Gains and losses reclassified out of Accumulated other comprehensive income (AOCI)AOCI for the three and six months ended June 30, 2016,March 31, 2017, were not material. Duke Energy's interest rate derivatives designated as hedges include interest rate swaps used to hedge existing debt within the International Energy and Renewables' businesses.Commercial Renewables business.
Undesignated Contracts
Undesignated contracts include contracts not designated as a hedge because they are accounted for under regulatory accounting and contracts that do not qualify for hedge accounting.
Duke Energy’s interest rate swaps for its Regulated Utilitiesregulated 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.
As of June 30,March 31, 2016, Duke Energy has entered into $1.4 billion of forward-starting interest rate swaps to manage interest rate exposure for the expected financing ofrelated to the Piedmont acquisition.acquisition financing. The swaps dodid not qualify for hedge accounting and arewere marked-to-market, with any gains or losses included within earnings. UnrealizedFor the three months ended March 31, 2016, unrealized losses on the swaps of $75 million and $168$93 million were included within Interest Expense on theDuke Energy's Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2016.Operations. The swaps will be terminatedwere unwound in August 2016 in conjunction with the acquisition financing. See Note 2 for additional information related to the Piedmont acquisition.
PART I
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
Combined Notes to Condensed Consolidated Financial Statements – (Continued)
(Unaudited)
The following table shows notional amounts of outstanding derivatives related to interest rate risk.risk as of March 31, 2017 and December 31, 2016. |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
|
Cash flow hedges(a) | $ | 663 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Undesignated contracts | 2,327 |
| | 400 |
| | 500 |
| | 250 |
| | 250 |
| | 27 |
|
Total notional amount | $ | 2,990 |
|
| $ | 400 |
|
| $ | 500 |
|
| $ | 250 |
|
| $ | 250 |
|
| $ | 27 |
|
| | | December 31, 2015 | | | | | | | | | | | | | |
| | | 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 |
| Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
|
Cash flow hedges(a) | $ | 700 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| $ | 750 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Undesignated contracts | 1,827 |
| | 400 |
| | 500 |
| | 250 |
| | 250 |
| | 27 |
| 927 |
| | 400 |
| | 500 |
| | 250 |
| | 250 |
| | 27 |
|
Total notional amount | $ | 2,527 |
| | $ | 400 |
| | $ | 500 |
| | $ | 250 |
| | $ | 250 |
| | $ | 27 |
| $ | 1,677 |
|
| $ | 400 |
|
| $ | 500 |
|
| $ | 250 |
|
| $ | 250 |
|
| $ | 27 |
|
(a) Duke Energy includes amounts related to consolidated VIEs of $750 million as of March 31, 2017 and December 31, 2016. | |
(a) |
Duke Energy includes amounts related to consolidated VIEs of $463 million at June 30, 2016 and $497 million at December 31, 2015. |
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.gas purchases, including Piedmont's 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.
Regulated public utilities may have cost-based rate regulations For the Subsidiary Registrants, bulk power electricity and variouscoal and natural gas purchases flow through fuel adjustment clauses, formula based contracts or other cost recovery mechanisms that resultsharing mechanisms. Differences between the costs included in a limited exposure to market volatility of commodity fuel prices. Financialrates and the incurred costs, including undesignated derivative contracts, where approved by the respective state regulatory commissions, can be used to manage the risk of price volatility. At June 30, 2016, substantially all of Duke Energy's open commodity derivative instruments were undesignated because they are accounted for under regulatory accounting. Mark-to-market gains or losses on contracts that use regulatory accounting arelargely deferred as regulatory liabilitiesassets or regulatory assets, respectively. Undesignated contracts expire as late as 2020.
The Subsidiary Registrants utilize cost-tracking mechanisms, commonly referred to as fuel adjustment clauses. These clausesliabilities. Piedmont policies allow for the recoveryuse of fuelfinancial instruments to hedge commodity price risks. The strategy and fuel-relatedobjective of these hedging programs are to use the financial instruments to reduce gas costs including settlements of undesignated derivativesvolatility for fuel commodities, and portions of purchased power costs through surcharges on customer rates. The difference between the costs incurred and the surcharge revenues is recorded as an adjustment to Fuel used in electric generation and purchased power – regulated or as Operating Revenues: Regulated electric on the Condensed Consolidated Statements of Operations, with an offsetting impact on regulatory assets or liabilities. Therefore, due to the regulatory accounting followed by the Subsidiary Registrants for undesignated derivatives, realized and unrealized gains and losses on undesignated commodity derivatives do not have an immediate impact on reported net income.customers.
Volumes
The tables below showinclude 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. | | | June 30, 2016 | March 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | |
| Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Indiana |
| | Piedmont |
|
Electricity (gigawatt-hours) | 7 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 7 |
| 184 |
| | — |
| | — |
| | — |
| | — |
| | 184 |
| | — |
|
Natural gas (millions of decatherms) | 418 |
| | 80 |
| | 338 |
| | 124 |
| | 214 |
| | — |
| | — |
| |
Natural gas (millions of dekatherms) | | 817 |
| | 85 |
| | 228 |
| | 105 |
| | 123 |
| | — |
| | 504 |
|
| | | December 31, 2015 | December 31, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | |
| Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Indiana |
| | Piedmont |
|
Electricity (gigawatt-hours) | 70 |
| | — |
| | — |
| | — |
| | — |
| | 34 |
| | 36 |
| 147 |
| | — |
| | — |
| | — |
| | — |
| | 147 |
| | — |
|
Natural gas (millions of decatherms) | 398 |
| | 66 |
| | 332 |
| | 117 |
| | 215 |
| | — |
| | — |
| |
Natural gas (millions of dekatherms) | | 890 |
| | 91 |
| | 269 |
| | 118 |
| | 151 |
| | 1 |
| | 529 |
|
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
LOCATION AND FAIR VALUE OF DERIVATIVE ASSETS AND LIABILITIES RECOGNIZED IN THE CONDENSED 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 Condensed 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 | | June 30, 2016 | | March 31, 2017 |
| | | | 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 |
| | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Commodity Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | 64 |
| | $ | 8 |
| | $ | 20 |
| | $ | 8 |
| | $ | 12 |
| | $ | 5 |
| | $ | 31 |
| | $ | 58 |
| | $ | 16 |
| | $ | 30 |
| | $ | 19 |
| | $ | 11 |
| | $ | — |
| | $ | 9 |
| | $ | 2 |
|
Noncurrent | | 28 |
| | 10 |
| | 18 |
| | 10 |
| | 8 |
| | — |
| | — |
| | 5 |
| | 1 |
| | 2 |
| | 1 |
| | 1 |
| | 1 |
| | — |
| | — |
|
Total Derivative Assets – Commodity Contracts | | $ | 92 |
| | $ | 18 |
| | $ | 38 |
| | $ | 18 |
| | $ | 20 |
| | $ | 5 |
| | $ | 31 |
| | $ | 63 |
| | $ | 17 |
| | $ | 32 |
| | $ | 20 |
| | $ | 12 |
| | $ | 1 |
| | $ | 9 |
| | $ | 2 |
|
Interest Rate Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Designated as Hedging Instruments | | | | | | | | | | | | | | | | | |
Noncurrent | | | $ | 18 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | 3 |
| | $ | — |
| | $ | 3 |
| | $ | 1 |
| | $ | 2 |
| | $ | — |
| | $ | — |
| | 2 |
| | — |
| | 2 |
| | — |
| | 2 |
| | — |
| | — |
| | — |
|
Noncurrent | | 13 |
| | — |
| | 13 |
| | 6 |
| | 7 |
| | — |
| | — |
| |
Total Derivative Assets – Interest Rate Contracts | | $ | 16 |
| | $ | — |
| | $ | 16 |
| | $ | 7 |
| | $ | 9 |
| | $ | — |
| | $ | — |
| | $ | 20 |
| | $ | — |
| | $ | 2 |
| | $ | — |
| | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Total Derivative Assets | | $ | 108 |
|
| $ | 18 |
|
| $ | 54 |
|
| $ | 25 |
|
| $ | 29 |
|
| $ | 5 |
|
| $ | 31 |
| | $ | 83 |
|
| $ | 17 |
|
| $ | 34 |
|
| $ | 20 |
|
| $ | 14 |
|
| $ | 1 |
|
| $ | 9 |
| | $ | 2 |
|
| | Derivative Liabilities | | June 30, 2016 | | March 31, 2017 |
| | | | 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 |
| | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Commodity Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | 84 |
| | $ | 7 |
| | $ | 77 |
| | $ | 18 |
| | $ | 59 |
| | $ | — |
| | $ | 1 |
| | $ | 32 |
| | $ | — |
| | $ | 17 |
| | $ | 1 |
| | $ | 17 |
| | $ | — |
| | $ | — |
| | $ | 14 |
|
Noncurrent | | 23 |
| | — |
| | 23 |
| | — |
| | 17 |
| | — |
| | — |
| | 145 |
| | 4 |
| | 11 |
| | 4 |
| | 1 |
| | — |
| | — |
| | 131 |
|
Total Derivative Liabilities – Commodity Contracts | | $ | 107 |
| | $ | 7 |
| | $ | 100 |
| | $ | 18 |
| | $ | 76 |
| | $ | — |
| | $ | 1 |
| | $ | 177 |
| | $ | 4 |
| | $ | 28 |
| | $ | 5 |
| | $ | 18 |
| | $ | — |
| | $ | — |
| | $ | 145 |
|
Interest Rate Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Designated as Hedging Instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | 9 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 8 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Noncurrent | | 52 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 9 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current(a) | | 170 |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| |
Current | | | 1 |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
|
Noncurrent | | 90 |
| | 82 |
| | — |
| | — |
| | — |
| | 7 |
| | — |
| | 21 |
| | 10 |
| | 6 |
| | 5 |
| | 1 |
| | 4 |
| | — |
| | — |
|
Total Derivative Liabilities – Interest Rate Contracts | | $ | 321 |
| | $ | 82 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 8 |
| | $ | — |
| | $ | 39 |
| | $ | 10 |
| | $ | 6 |
| | $ | 5 |
| | $ | 1 |
| | $ | 5 |
| | $ | — |
| | $ | — |
|
Total Derivative Liabilities | | $ | 428 |
|
| $ | 89 |
|
| $ | 100 |
|
| $ | 18 |
|
| $ | 76 |
|
| $ | 8 |
|
| $ | 1 |
| | $ | 216 |
|
| $ | 14 |
|
| $ | 34 |
|
| $ | 10 |
|
| $ | 19 |
|
| $ | 5 |
|
| $ | — |
| | $ | 145 |
|
| |
(a) | Duke Energy amount includes $168 million related to forward-starting interest rate swaps associated with the Piedmont acquisition. |
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
| | Derivative Assets | | December 31, 2015 | | December 31, 2016 |
| | | | 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 |
| | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Commodity Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | 12 |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | 3 |
| | $ | 7 |
| | $ | 108 |
| | $ | 23 |
| | $ | 61 |
| | $ | 35 |
| | $ | 26 |
| | $ | 4 |
| | $ | 16 |
| | $ | 3 |
|
Noncurrent | | 4 |
| | — |
| | 4 |
| | — |
| | 4 |
| | — |
| | — |
| | 32 |
| | 10 |
| | 21 |
| | 10 |
| | 11 |
| | 1 |
| | — |
| | — |
|
Total Derivative Assets – Commodity Contracts | | $ | 16 |
| | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | 5 |
| | $ | 3 |
| | $ | 7 |
| | $ | 140 |
| | $ | 33 |
| | $ | 82 |
| | $ | 45 |
| | $ | 37 |
| | $ | 5 |
| | $ | 16 |
| | $ | 3 |
|
Interest Rate Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Designated as Hedging Instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noncurrent | | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 19 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | 6 |
| | — |
| | 6 |
| | 2 |
| | 2 |
| | — |
| | — |
| | 3 |
| | — |
| | 3 |
| | 1 |
| | 2 |
| | — |
| | — |
| | — |
|
Total Derivative Assets – Interest Rate Contracts | | $ | 10 |
| | $ | — |
| | $ | 6 |
| | $ | 2 |
| | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | 22 |
| | $ | — |
| | $ | 3 |
| | $ | 1 |
| | $ | 2 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Total Derivative Assets | | $ | 26 |
| | $ | — |
| | $ | 11 |
| | $ | 2 |
| | $ | 7 |
| | $ | 3 |
| | $ | 7 |
| | $ | 162 |
| | $ | 33 |
| | $ | 85 |
| | $ | 46 |
| | $ | 39 |
| | $ | 5 |
| | $ | 16 |
| | $ | 3 |
|
| | Derivative Liabilities | | December 31, 2015 | | December 31, 2016 |
| | | | 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 |
| | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Commodity Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | 256 |
| | $ | 32 |
| | $ | 222 |
| | $ | 77 |
| | $ | 145 |
| | $ | — |
| | $ | — |
| | $ | 43 |
| | $ | — |
| | $ | 12 |
| | $ | — |
| | $ | 12 |
| | $ | — |
| | $ | 2 |
| | $ | 35 |
|
Noncurrent | | 100 |
| | 8 |
| | 92 |
| | 16 |
| | 71 |
| | — |
| | — |
| | 166 |
| | 1 |
| | 7 |
| | 1 |
| | — |
| | — |
| | — |
| | 152 |
|
Total Derivative Liabilities – Commodity Contracts | | $ | 356 |
| | $ | 40 |
| | $ | 314 |
| | $ | 93 |
| | $ | 216 |
| | $ | — |
| | $ | — |
| | $ | 209 |
| | $ | 1 |
| | $ | 19 |
| | $ | 1 |
| | $ | 12 |
| | $ | — |
| | $ | 2 |
| | $ | 187 |
|
Interest Rate Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Designated as Hedging Instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current | | $ | 11 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 8 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Noncurrent | | 33 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 8 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — |
|
Current | | 4 |
| | — |
| | 3 |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
|
Noncurrent | | 15 |
| | 5 |
| | 5 |
| | 5 |
| | — |
| | 6 |
| | — |
| | 26 |
| | 15 |
| | 6 |
| | 6 |
| | — |
| | 5 |
| | — |
| | — |
|
Total Derivative Liabilities – Interest Rate Contracts | | $ | 63 |
| | $ | 5 |
| | $ | 8 |
| | $ | 5 |
| | $ | — |
| | $ | 7 |
| | $ | — |
| | $ | 43 |
| | $ | 15 |
| | $ | 6 |
| | $ | 6 |
| | $ | — |
| | $ | 6 |
| | $ | — |
| | $ | — |
|
Total Derivative Liabilities | | $ | 419 |
| | $ | 45 |
| | $ | 322 |
| | $ | 98 |
| | $ | 216 |
| | $ | 7 |
| | $ | — |
| | $ | 252 |
| | $ | 16 |
| | $ | 25 |
| | $ | 7 |
| | $ | 12 |
| | $ | 6 |
| | $ | 2 |
| | $ | 187 |
|
OFFSETTING ASSETS AND LIABILITIES
The following tables present the line items on the Condensed Consolidated Balance Sheets where derivatives are reported. Substantially all of Duke Energy's outstanding derivative contracts are subject to enforceable master netting arrangements. The Gross amounts offset in the tables below show the effect of these netting arrangements on financial position, and include collateral posted to offset the net position. The amounts shown are calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
| | Derivative Assets | | June 30, 2016 | | March 31, 2017 |
| | | | 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 |
| | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Current | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 67 |
| | $ | 8 |
| | $ | 23 |
| | $ | 9 |
| | $ | 14 |
| | $ | 5 |
| | $ | 31 |
| | $ | 60 |
| | $ | 16 |
| | $ | 32 |
| | $ | 19 |
| | $ | 13 |
| | $ | — |
| | $ | 9 |
| | $ | 2 |
|
Gross amounts offset | | (15 | ) | | (3 | ) | | (13 | ) | | (6 | ) | | (7 | ) | | — |
| | — |
| | (7 | ) | | — |
| | (7 | ) | | (1 | ) | | (6 | ) | | — |
| | — |
| | — |
|
Net amounts presented in Current Assets: Other | | $ | 52 |
| | $ | 5 |
| | $ | 10 |
| | $ | 3 |
| | $ | 7 |
| | $ | 5 |
| | $ | 31 |
| | $ | 53 |
| | $ | 16 |
| | $ | 25 |
| | $ | 18 |
| | $ | 7 |
| | $ | — |
| | $ | 9 |
| | $ | 2 |
|
Noncurrent | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 41 |
| | $ | 10 |
| | $ | 31 |
| | $ | 16 |
| | $ | 15 |
| | $ | — |
| | $ | — |
| | $ | 23 |
| | $ | 1 |
| | $ | 2 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
Gross amounts offset | | (5 | ) | | — |
| | (5 | ) | | — |
| | (4 | ) | | — |
| | — |
| | (2 | ) | | (1 | ) | | (1 | ) | | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Net amounts presented in Investments and Other Assets: Other | | $ | 36 |
| | $ | 10 |
| | $ | 26 |
| | $ | 16 |
| | $ | 11 |
| | $ | — |
| | $ | — |
| |
Net amounts presented in Other Noncurrent Assets: Other | | | $ | 21 |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
| | Derivative Liabilities | | June 30, 2016 | | March 31, 2017 |
| | | | 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 |
| | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Current | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 263 |
| | $ | 7 |
| | $ | 77 |
| | $ | 18 |
| | $ | 59 |
| | $ | 1 |
| | $ | 1 |
| | $ | 41 |
| | $ | — |
| | $ | 17 |
| | $ | 1 |
| | $ | 17 |
| | $ | 1 |
| | $ | — |
| | $ | 14 |
|
Gross amounts offset | | (15 | ) | | (3 | ) | | (13 | ) | | (6 | ) | | (7 | ) | | — |
| | — |
| | (7 | ) | | — |
| | (7 | ) | | (1 | ) | | (6 | ) | | — |
| | — |
| | — |
|
Net amounts presented in Current Liabilities: Other | | $ | 248 |
| | $ | 4 |
| | $ | 64 |
| | $ | 12 |
| | $ | 52 |
| | $ | 1 |
| | $ | 1 |
| | $ | 34 |
| | $ | — |
| | $ | 10 |
| | $ | — |
| | $ | 11 |
| | $ | 1 |
| | $ | — |
| | $ | 14 |
|
Noncurrent | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 165 |
| | $ | 82 |
| | $ | 23 |
| | $ | — |
| | $ | 17 |
| | $ | 7 |
| | $ | — |
| | $ | 175 |
| | $ | 14 |
| | $ | 17 |
| | $ | 9 |
| | $ | 2 |
| | $ | 4 |
| | $ | — |
| | $ | 131 |
|
Gross amounts offset | | (5 | ) | | — |
| | (5 | ) | | — |
| | (4 | ) | | — |
| | — |
| | (2 | ) | | (1 | ) | | (1 | ) | | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Net amounts presented in Deferred Credits and Other Liabilities: Other | | $ | 160 |
| | $ | 82 |
| | $ | 18 |
| | $ | — |
| | $ | 13 |
| | $ | 7 |
| | $ | — |
| |
Net amounts presented in Other Noncurrent Liabilities: Other | | | $ | 173 |
| | $ | 13 |
| | $ | 16 |
| | $ | 8 |
| | $ | 2 |
| | $ | 4 |
| | $ | — |
| | $ | 131 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative Assets | | 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 | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 18 |
| | $ | — |
| | $ | 7 |
| | $ | 2 |
| | $ | 3 |
| | $ | 3 |
| | $ | 7 |
|
Gross amounts offset | | (3 | ) | | — |
| | (2 | ) | | — |
| | (2 | ) | | — |
| | — |
|
Net amounts presented in Current Assets: Other | | $ | 15 |
| | $ | — |
| | $ | 5 |
| | $ | 2 |
| | $ | 1 |
| | $ | 3 |
| | $ | 7 |
|
Noncurrent | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 8 |
| | $ | — |
| | $ | 4 |
| | $ | — |
| | $ | 4 |
| | $ | — |
| | $ | — |
|
Gross amounts offset | | (4 | ) | | — |
| | (4 | ) | | — |
| | (4 | ) | | — |
| | — |
|
Net amounts presented in Investments and Other Assets: Other | | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | Derivative Liabilities | | December 31, 2015 | |
Derivative Assets | | | December 31, 2016 |
| | | | 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 |
| | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Current | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 271 |
| | $ | 32 |
| | $ | 225 |
| | $ | 77 |
| | $ | 145 |
| | $ | 1 |
| | $ | — |
| | $ | 111 |
| | $ | 23 |
| | $ | 64 |
| | $ | 36 |
| | $ | 28 |
| | $ | 4 |
| | $ | 16 |
| | $ | 3 |
|
Gross amounts offset | | (22 | ) | | — |
| | (21 | ) | | (1 | ) | | (20 | ) | | — |
| | — |
| | (11 | ) | | — |
| | (11 | ) | | — |
| | (11 | ) | | — |
| | — |
| | — |
|
Net amounts presented in Current Liabilities: Other | | $ | 249 |
| | $ | 32 |
| | $ | 204 |
| | $ | 76 |
| | $ | 125 |
| | $ | 1 |
| | $ | — |
| |
Net amounts presented in Current Assets: Other | | | $ | 100 |
| | $ | 23 |
| | $ | 53 |
| | $ | 36 |
| | $ | 17 |
| | $ | 4 |
| | $ | 16 |
| | $ | 3 |
|
Noncurrent | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 148 |
| | $ | 13 |
| | $ | 97 |
| | $ | 21 |
| | $ | 71 |
| | $ | 6 |
| | $ | — |
| | $ | 51 |
| | $ | 10 |
| | $ | 21 |
| | $ | 10 |
| | $ | 11 |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
Gross amounts offset | | (16 | ) | | — |
| | (15 | ) | | — |
| | (15 | ) | | — |
| | — |
| | (2 | ) | | (1 | ) | | (1 | ) | | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Net amounts presented in Deferred Credits and Other Liabilities: Other | | $ | 132 |
| | $ | 13 |
| | $ | 82 |
| | $ | 21 |
| | $ | 56 |
| | $ | 6 |
| | $ | — |
| |
Net amounts presented in Other Noncurrent Assets: Other | | | $ | 49 |
| | $ | 9 |
| | $ | 20 |
| | $ | 9 |
| | $ | 11 |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 |
|
Current | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 52 |
| | $ | — |
| | $ | 12 |
| | $ | — |
| | $ | 12 |
| | $ | 1 |
| | $ | 2 |
| | $ | 35 |
|
Gross amounts offset | | (11 | ) | | — |
| | (11 | ) | | — |
| | (11 | ) | | — |
| | — |
| | — |
|
Net amounts presented in Current Liabilities: Other | | $ | 41 |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | 2 |
| | $ | 35 |
|
Noncurrent | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 200 |
| | $ | 16 |
| | $ | 13 |
| | $ | 7 |
| | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | 152 |
|
Gross amounts offset | | (2 | ) | | (1 | ) | | (1 | ) | | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Net amounts presented in Other Noncurrent Liabilities: Other | | $ | 198 |
| | $ | 15 |
| | $ | 12 |
| | $ | 6 |
| | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | 152 |
|
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. Amounts for Duke Energy Ohio, and Duke Energy Indiana and Piedmont were not material. | | | June 30, 2016 | March 31, 2017 |
| | | Duke |
| | | | Duke |
| | Duke |
| | | Duke |
| | | | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
|
Aggregate fair value of derivatives in a net liability position | $ | 348 |
| | $ | 89 |
| | $ | 90 |
| | $ | 18 |
| | $ | 72 |
| $ | 40 |
| | $ | 14 |
| | $ | 25 |
| | $ | 9 |
| | $ | 17 |
|
Fair value of collateral already posted | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered | 348 |
| | 89 |
| | 90 |
| | 18 |
| | 72 |
| 40 |
| | 14 |
| | 25 |
| | 9 |
| | 17 |
|
| | | December 31, 2015 | December 31, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | | Duke |
| | | | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
|
Aggregate fair value of derivatives in a net liability position | $ | 334 |
| | $ | 45 |
| | $ | 290 |
| | $ | 93 |
| | $ | 194 |
| $ | 34 |
| | $ | 16 |
| | $ | 18 |
| | $ | 6 |
| | $ | 12 |
|
Fair value of collateral already posted | 30 |
| | — |
| | 30 |
| | — |
| | 30 |
| — |
| | — |
| | — |
| | — |
| | — |
|
Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered | 304 |
| | 45 |
| | 260 |
| | 93 |
| | 164 |
| 34 |
| | 16 |
| | 18 |
| | 6 |
| | 12 |
|
The Duke Energy Registrants have elected to offset cash collateral and fair values of derivatives. For amounts to be netted, the derivative and cash collateral must be executed with the same counterparty under the same master netting arrangement. Amounts disclosed below represent the receivables related to the right to reclaim cash collateral under master netting arrangements. All receivables presented below were offset against net derivative positions on the Condensed Consolidated Balance Sheets. |
| | | | | | | |
| June 30, 2016 | | December 31, 2015 |
(in millions) | Receivables | | Receivables |
Duke Energy | $ | — |
| | $ | 30 |
|
Progress Energy | — |
| | 30 |
|
Duke Energy Florida | — |
| | 30 |
|
10. INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Duke Energy Registrants classify their investments in debt and equity securities as either trading or available-for-sale.
TRADING SECURITIES
Piedmont's investments in debt and equity securities held in rabbi trusts associated with certain deferred compensation plans are classified as trading securities. The fair value of these investments was $5 million as of March 31, 2017 and December 31, 2016.
AVAILABLE-FOR-SALE SECURITIES
All other investments in debt and equity securities are classified as available-for-sale.
Duke Energy’s available-for-sale securities are primarily comprised of investments held in (i) the nuclear decommissioning fund (NDTF) at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, (ii) grantor trusts at Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana related to Other Post-Retirement Benefit Obligations (OPEB) plans and (iii) Bison.
Duke Energy classifies all other investments in debt and equity securities as long term, unless otherwise noted.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
Investment Trusts
The investments within the NDTF investments and the Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana grantor trusts (Investment Trusts) are managed by independent investment managers with discretion to buy, sell, and invest pursuant to the objectives set forth by the trust agreements. The Duke Energy Registrants have limited oversight of the day-to-day management of these investments. As a result, the ability to hold investments in unrealized loss positions is outside the control of the Duke Energy Registrants. Accordingly, all unrealized losses associated with debt and equity securities within the Investment Trusts are considered other-than-temporary impairmentsOTTIs and are recognized immediately.
Investments within the Investment Trusts generally qualify for regulatory accounting, and accordingly realized and unrealized gains and losses are deferred as a regulatory asset or liability. However, certain investments held in Duke Energy Florida's NDTF, which were acquired in a settlement with Florida Municipal Joint Owners (FMJO), do not qualify for regulatory accounting. Except for other than temporary impairments of unrealized losses, unrealized gains and losses on these assets are included in other comprehensive income until realized. The other than temporary impairments of realized amounts and unrealized losses are included within Other income and expense, net on the Condensed Consolidated Statements of Operations. The value of these assets has not materially changed since the assets were acquired from FMJO. As a result, there is no material impact on earnings of the Duke Energy Registrants.
PART I
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
Combined Notes to Condensed Consolidated Financial Statements – (Continued)
(Unaudited)
Other Available-for-Sale Securities
Unrealized gains and losses on all other available-for-sale securities are included in other comprehensive income until realized, unless it is determined the carrying value of an investment is other-than-temporarily impaired. 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. If an other than temporary impairmentOTTI exists, the unrealized credit loss is included in earnings. There were no material credit losses as of June 30, 2016March 31, 2017 and December 31, 2015.2016.
DUKE ENERGY
The following table presents the estimated fair value of investments in available-for-sale securities. |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2016 | | December 31, 2015 |
| Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| Unrealized |
| | Unrealized |
| | Estimated |
| | Unrealized |
| | Unrealized |
| | Estimated |
|
| Holding |
| | Holding |
| | Fair |
| | Holding |
| | Holding |
| | Fair |
|
(in millions) | Gains |
| | Losses(b) |
| | Value |
| | Gains |
| | Losses(b) |
| | Value |
|
NDTF | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 189 |
| | $ | — |
| | $ | — |
| | $ | 179 |
|
Equity securities | 1,869 |
| | 78 |
| | 3,834 |
| | 1,823 |
| | 58 |
| | 3,590 |
|
Corporate debt securities | 22 |
| | 1 |
| | 480 |
| | 7 |
| | 8 |
| | 432 |
|
Municipal bonds | 12 |
| | 1 |
| | 307 |
| | 5 |
| | 1 |
| | 185 |
|
U.S. government bonds | 38 |
| | — |
| | 1,038 |
| | 11 |
| | 5 |
| | 1,254 |
|
Other debt securities | 1 |
| | 3 |
| | 144 |
| | — |
| | 4 |
| | 177 |
|
Total NDTF | $ | 1,942 |
| | $ | 83 |
| | $ | 5,992 |
| | $ | 1,846 |
| | $ | 76 |
| | $ | 5,817 |
|
Other Investments | | | | | | | |
| | |
| | |
|
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 27 |
| | $ | — |
| | $ | — |
| | $ | 29 |
|
Equity securities | 34 |
| | 1 |
| | 98 |
| | 32 |
| | 1 |
| | 95 |
|
Corporate debt securities | 2 |
| | 1 |
| | 97 |
| | 1 |
| | 3 |
| | 92 |
|
Municipal bonds | 6 |
| | 1 |
| | 80 |
| | 3 |
| | 1 |
| | 74 |
|
U.S. government bonds | 2 |
| | — |
| | 47 |
| | — |
| | — |
| | 45 |
|
Other debt securities | — |
| | 1 |
| | 57 |
| | — |
| | 2 |
| | 62 |
|
Total Other Investments(a) | $ | 44 |
| | $ | 4 |
| | $ | 406 |
| | $ | 36 |
| | $ | 7 |
| | $ | 397 |
|
Total Investments | $ | 1,986 |
| | $ | 87 |
| | $ | 6,398 |
| | $ | 1,882 |
| | $ | 83 |
| | $ | 6,214 |
|
(a) These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2017 | | December 31, 2016 |
| Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| Unrealized |
| | Unrealized |
| | Estimated |
| | Unrealized |
| | Unrealized |
| | Estimated |
|
| Holding |
| | Holding |
| | Fair |
| | Holding |
| | Holding |
| | Fair |
|
(in millions) | Gains |
| | Losses(a) |
| | Value |
| | Gains |
| | Losses(a) |
| | Value |
|
NDTF | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 114 |
| | $ | — |
| | $ | — |
| | $ | 111 |
|
Equity securities | 2,250 |
| | 32 |
| | 4,284 |
| | 2,092 |
| | 54 |
| | 4,106 |
|
Corporate debt securities | 10 |
| | 5 |
| | 576 |
| | 10 |
| | 8 |
| | 528 |
|
Municipal bonds | 3 |
| | 6 |
| | 336 |
| | 3 |
| | 10 |
| | 331 |
|
U.S. government bonds | 10 |
| | 8 |
| | 949 |
| | 10 |
| | 8 |
| | 984 |
|
Other debt securities | — |
| | 3 |
| | 132 |
| | — |
| | 3 |
| | 124 |
|
Total NDTF | $ | 2,273 |
| | $ | 54 |
| | $ | 6,391 |
| | $ | 2,115 |
| | $ | 83 |
| | $ | 6,184 |
|
Other Investments | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 18 |
| | $ | — |
| | $ | — |
| | $ | 25 |
|
Equity securities | 44 |
| | — |
| | 106 |
| | 38 |
| | — |
| | 104 |
|
Corporate debt securities | 1 |
| | — |
| | 60 |
| | 1 |
| | 1 |
| | 66 |
|
Municipal bonds | 2 |
| | 1 |
| | 84 |
| | 2 |
| | 1 |
| | 82 |
|
U.S. government bonds | — |
| | — |
| | 43 |
| | — |
| | 1 |
| | 51 |
|
Other debt securities | — |
| | 2 |
| | 42 |
| | — |
| | 2 |
| | 42 |
|
Total Other Investments(b) | $ | 47 |
| | $ | 3 |
| | $ | 353 |
| | $ | 41 |
| | $ | 5 |
| | $ | 370 |
|
Total Investments | $ | 2,320 |
| | $ | 57 |
| | $ | 6,744 |
| | $ | 2,156 |
| | $ | 88 |
| | $ | 6,554 |
|
| |
(b)(a) | Substantially all these amounts are considered other-than-temporary impairmentsOTTIs on investments within Investment Trusts that have been recognized immediately as a regulatory asset. |
| |
(b) | These amounts are recorded in Other within Other Noncurrent Assets on the Condensed Consolidated Balance Sheets. |
The table below summarizes the maturity date for debt securities. |
| | | |
(in millions) | June 30, 2016 |
|
Due in one year or less | $ | 88 |
|
Due after one through five years | 660 |
|
Due after five through 10 years | 511 |
|
Due after 10 years | 991 |
|
Total | $ | 2,250 |
|
Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. |
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
(in millions) | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
|
Realized gains | $ | 64 |
| | $ | 28 |
| | $ | 118 |
| | $ | 130 |
|
Realized losses | 42 |
| | 17 |
| | 92 |
| | 31 |
|
|
| | | |
(in millions) | March 31, 2017 |
|
Due in one year or less | $ | 82 |
|
Due after one through five years | 640 |
|
Due after five through 10 years | 514 |
|
Due after 10 years | 986 |
|
Total | $ | 2,222 |
|
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
DUKE ENERGY CAROLINAS
The following table presents the estimated fair value of investments in available-for-sale securities.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2016 | | December 31, 2015 |
| Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| Unrealized |
| | Unrealized |
| | Estimated |
| | Unrealized |
| | Unrealized |
| | Estimated |
|
| Holding |
| | Holding |
| | Fair |
| | Holding |
| | Holding |
| | Fair |
|
(in millions) | Gains |
| | Losses(b) |
| | Value |
| | Gains |
| | Losses(b) |
| | Value |
|
NDTF | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 66 |
| | $ | — |
| | $ | — |
| | $ | 34 |
|
Equity securities | 1,045 |
| | 44 |
| | 2,128 |
| | 1,021 |
| | 27 |
| | 2,094 |
|
Corporate debt securities | 13 |
| | 1 |
| | 309 |
| | 3 |
| | 5 |
| | 292 |
|
Municipal bonds | 2 |
| | — |
| | 42 |
| | 1 |
| | — |
| | 33 |
|
U.S. government bonds | 16 |
| | — |
| | 482 |
| | 3 |
| | 3 |
| | 438 |
|
Other debt securities | 1 |
| | 3 |
| | 136 |
| | — |
| | 4 |
| | 147 |
|
Total NDTF | $ | 1,077 |
| | $ | 48 |
|
| $ | 3,163 |
| | $ | 1,028 |
| | $ | 39 |
| | $ | 3,038 |
|
Other Investments | | | | | | | | | | | |
Other debt securities | $ | — |
| | $ | 1 |
| | $ | 3 |
| | $ | — |
| | $ | 1 |
| | $ | 3 |
|
Total Other Investments(a) | $ | — |
| | $ | 1 |
| | $ | 3 |
| | $ | — |
| | $ | 1 |
| | $ | 3 |
|
Total Investments | $ | 1,077 |
| | $ | 49 |
| | $ | 3,166 |
| | $ | 1,028 |
| | $ | 40 |
| | $ | 3,041 |
|
| |
(a) | These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. |
| |
(b) | Substantially all these amounts represent other-than-temporary impairments on investments within Investment Trusts that have been recognized immediately as a regulatory asset. |
The table below summarizes the maturity date for debt securities. |
| | | |
(in millions) | June 30, 2016 |
|
Due in one year or less | $ | 6 |
|
Due after one through five years | 198 |
|
Due after five through 10 years | 235 |
|
Due after 10 years | 533 |
|
Total | $ | 972 |
|
Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. | | | Three Months Ended | | Six Months Ended | Three Months Ended |
| June 30, | | June 30, | March 31, |
(in millions) | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
| 2017 |
| | 2016 |
|
Realized gains | $ | 33 |
| | $ | 17 |
| | $ | 67 |
| | $ | 107 |
| $ | 93 |
| | $ | 54 |
|
Realized losses | 19 |
| | 11 |
| | 56 |
| | 23 |
| 62 |
| | 50 |
|
DUKE ENERGY CAROLINAS
The following table presents the estimated fair value of investments in available-for-sale securities. |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2017 | | December 31, 2016 |
| Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| Unrealized |
| | Unrealized |
| | Estimated |
| | Unrealized |
| | Unrealized |
| | Estimated |
|
| Holding |
| | Holding |
| | Fair |
| | Holding |
| | Holding |
| | Fair |
|
(in millions) | Gains |
| | Losses(a) |
| | Value |
| | Gains |
| | Losses(a) |
| | Value |
|
NDTF | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 20 |
| | $ | — |
| | $ | — |
| | $ | 18 |
|
Equity securities | 1,229 |
| | 15 |
| | 2,366 |
| | 1,157 |
| | 28 |
| | 2,245 |
|
Corporate debt securities | 5 |
| | 4 |
| | 388 |
| | 5 |
| | 6 |
| | 354 |
|
Municipal bonds | 1 |
| | 1 |
| | 67 |
| | 1 |
| | 2 |
| | 67 |
|
U.S. government bonds | 3 |
| | 5 |
| | 431 |
| | 2 |
| | 5 |
| | 458 |
|
Other debt securities | — |
| | 3 |
| | 120 |
| | — |
| | 3 |
| | 116 |
|
Total NDTF | $ | 1,238 |
| | $ | 28 |
|
| $ | 3,392 |
| | $ | 1,165 |
| | $ | 44 |
| | $ | 3,258 |
|
Other Investments | | | | | | | | | | | |
Other debt securities | $ | — |
| | $ | 1 |
| | $ | 3 |
| | $ | — |
| | $ | 1 |
| | $ | 3 |
|
Total Other Investments(b) | $ | — |
| | $ | 1 |
| | $ | 3 |
| | $ | — |
| | $ | 1 |
| | $ | 3 |
|
Total Investments | $ | 1,238 |
| | $ | 29 |
| | $ | 3,395 |
| | $ | 1,165 |
| | $ | 45 |
| | $ | 3,261 |
|
| |
(a) | Substantially all amounts are considered OTTIs on investments within Investment Trusts that have been recognized immediately as a regulatory asset. |
| |
(b) | These amounts are recorded in Other within Other Noncurrent Assets on the Condensed Consolidated Balance Sheets. |
The table below summarizes the maturity date for debt securities. |
| | | |
(in millions) | March 31, 2017 |
|
Due in one year or less | $ | 2 |
|
Due after one through five years | 221 |
|
Due after five through 10 years | 269 |
|
Due after 10 years | 517 |
|
Total | $ | 1,009 |
|
Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. |
| | | | | | | |
| Three Months Ended |
| March 31, |
(in millions) | 2017 |
| | 2016 |
|
Realized gains | $ | 66 |
| | $ | 34 |
|
Realized losses | 40 |
| | 37 |
|
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
PROGRESS ENERGY
The following table presents the estimated fair value of investments in available-for-sale securities. |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2016 | | December 31, 2015 |
| Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| Unrealized |
| | Unrealized |
| | Estimated |
| | Unrealized |
| | Unrealized |
| | Estimated |
|
| Holding |
| | Holding |
| | Fair |
| | Holding |
| | Holding |
| | Fair |
|
(in millions) | Gains |
| | Losses(b) |
| | Value |
| | Gains |
| | Losses(b) |
| | Value |
|
NDTF | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 123 |
| | $ | — |
| | $ | — |
| | $ | 145 |
|
Equity securities | 824 |
| | 34 |
| | 1,706 |
| | 802 |
| | 31 |
| | 1,496 |
|
Corporate debt securities | 9 |
| | — |
| | 171 |
| | 4 |
| | 3 |
| | 140 |
|
Municipal bonds | 10 |
| | 1 |
| | 265 |
| | 4 |
| | 1 |
| | 152 |
|
U.S. government bonds | 22 |
| | — |
| | 556 |
| | 8 |
| | 2 |
| | 816 |
|
Other debt securities | — |
| | — |
| | 8 |
| | — |
| | — |
| | 30 |
|
Total NDTF | $ | 865 |
| | $ | 35 |
| | $ | 2,829 |
| | $ | 818 |
| | $ | 37 |
| | $ | 2,779 |
|
Other Investments | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 21 |
| | $ | — |
| | $ | — |
| | $ | 18 |
|
Municipal bonds | 4 |
| | — |
| | 47 |
| | 3 |
| | — |
| | 45 |
|
Total Other Investments(a) | $ | 4 |
| | $ | — |
| | $ | 68 |
| | $ | 3 |
| | $ | — |
| | $ | 63 |
|
Total Investments | $ | 869 |
| | $ | 35 |
| | $ | 2,897 |
| | $ | 821 |
| | $ | 37 |
| | $ | 2,842 |
|
(a) These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2017 | | December 31, 2016 |
| Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| Unrealized |
| | Unrealized |
| | Estimated |
| | Unrealized |
| | Unrealized |
| | Estimated |
|
| Holding |
| | Holding |
| | Fair |
| | Holding |
| | Holding |
| | Fair |
|
(in millions) | Gains |
| | Losses(a) |
| | Value |
| | Gains |
| | Losses(a) |
| | Value |
|
NDTF | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 94 |
| | $ | — |
| | $ | — |
| | $ | 93 |
|
Equity securities | 1,021 |
| | 17 |
| | 1,918 |
| | 935 |
| | 26 |
| | 1,861 |
|
Corporate debt securities | 5 |
| | 1 |
| | 188 |
| | 5 |
| | 2 |
| | 174 |
|
Municipal bonds | 2 |
| | 5 |
| | 269 |
| | 2 |
| | 8 |
| | 264 |
|
U.S. government bonds | 7 |
| | 3 |
| | 518 |
| | 8 |
| | 3 |
| | 526 |
|
Other debt securities | — |
| | — |
| | 12 |
| | — |
| | — |
| | 8 |
|
Total NDTF | $ | 1,035 |
| | $ | 26 |
| | $ | 2,999 |
| | $ | 950 |
| | $ | 39 |
| | $ | 2,926 |
|
Other Investments | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 12 |
| | $ | — |
| | $ | — |
| | $ | 21 |
|
Municipal bonds | 2 |
| | — |
| | 46 |
| | 2 |
| | — |
| | 44 |
|
Total Other Investments(b) | $ | 2 |
| | $ | — |
| | $ | 58 |
| | $ | 2 |
| | $ | — |
| | $ | 65 |
|
Total Investments | $ | 1,037 |
| | $ | 26 |
| | $ | 3,057 |
| | $ | 952 |
| | $ | 39 |
| | $ | 2,991 |
|
| |
(b)(a) | Substantially all these amounts represent other-than-temporary impairmentsare considered OTTIs on investments within Investment Trusts that have been recognized immediately as a regulatory asset. |
| |
(b) | These amounts are recorded in Other within Other Noncurrent Assets on the Condensed Consolidated Balance Sheets. |
The table below summarizes the maturity date for debt securities. | | (in millions) | June 30, 2016 |
| March 31, 2017 |
|
Due in one year or less | $ | 65 |
| $ | 72 |
|
Due after one through five years | 375 |
| 355 |
|
Due after five through 10 years | 200 |
| 189 |
|
Due after 10 years | 407 |
| 417 |
|
Total | $ | 1,047 |
| $ | 1,033 |
|
Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. | | | Three Months Ended | | Six Months Ended | Three Months Ended |
| June 30, | | June 30, | March 31, |
(in millions) | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
| 2017 |
| | 2016 |
|
Realized gains | $ | 31 |
| | $ | 9 |
| | $ | 50 |
| | $ | 21 |
| $ | 27 |
| | $ | 19 |
|
Realized losses | 23 |
| | 5 |
| | 36 |
| | 6 |
| 21 |
| | 13 |
|
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
DUKE ENERGY PROGRESS
The following table presents the estimated fair value of investments in available-for-sale securities. |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2016 | | December 31, 2015 |
| Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| Unrealized |
| | Unrealized |
| | Estimated |
| | Unrealized |
| | Unrealized |
| | Estimated |
|
| Holding |
| | Holding |
| | Fair |
| | Holding |
| | Holding |
| | Fair |
|
(in millions) | Gains |
| | Losses(b) |
| | Value |
| | Gains |
| | Losses(b) |
| | Value |
|
NDTF | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 58 |
| | $ | — |
| | $ | — |
| | $ | 110 |
|
Equity securities | 614 |
| | 28 |
| | 1,379 |
| | 596 |
| | 25 |
| | 1,178 |
|
Corporate debt securities | 7 |
| | — |
| | 118 |
| | 3 |
| | 2 |
| | 96 |
|
Municipal bonds | 10 |
| | 1 |
| | 265 |
| | 4 |
| | 1 |
| | 150 |
|
U.S. government bonds | 14 |
| | — |
| | 281 |
| | 6 |
| | 2 |
| | 486 |
|
Other debt securities | — |
| | — |
| | 5 |
| | — |
| | — |
| | 18 |
|
Total NDTF | $ | 645 |
| | $ | 29 |
| | $ | 2,106 |
| | $ | 609 |
| | $ | 30 |
| | $ | 2,038 |
|
Other Investments | | | | | | | |
| | |
| | |
|
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 1 |
|
Total Other Investments(a) | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 1 |
|
Total Investments | $ | 645 |
| | $ | 29 |
| | $ | 2,107 |
| | $ | 609 |
| | $ | 30 |
| | $ | 2,039 |
|
(a) These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2017 | | December 31, 2016 |
| Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| Unrealized |
| | Unrealized |
| | Estimated |
| | Unrealized |
| | Unrealized |
| | Estimated |
|
| Holding |
| | Holding |
| | Fair |
| | Holding |
| | Holding |
| | Fair |
|
(in millions) | Gains |
| | Losses(a) |
| | Value |
| | Gains |
| | Losses(a) |
| | Value |
|
NDTF | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 43 |
| | $ | — |
| | $ | — |
| | $ | 45 |
|
Equity securities | 772 |
| | 13 |
| | 1,541 |
| | 704 |
| | 21 |
| | 1,505 |
|
Corporate debt securities | 4 |
| | 1 |
| | 131 |
| | 4 |
| | 1 |
| | 120 |
|
Municipal bonds | 2 |
| | 5 |
| | 268 |
| | 2 |
| | 8 |
| | 263 |
|
U.S. government bonds | 5 |
| | 2 |
| | 284 |
| | 5 |
| | 2 |
| | 275 |
|
Other debt securities | — |
| | — |
| | 7 |
| | — |
| | — |
| | 5 |
|
Total NDTF | $ | 783 |
| | $ | 21 |
| | $ | 2,274 |
| | $ | 715 |
| | $ | 32 |
| | $ | 2,213 |
|
Other Investments | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 1 |
|
Total Other Investments(b) | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 1 |
|
Total Investments | $ | 783 |
| | $ | 21 |
| | $ | 2,275 |
| | $ | 715 |
| | $ | 32 |
| | $ | 2,214 |
|
| |
(b)(a) | Substantially all these amounts represent other-than-temporary impairmentsare considered OTTIs on investments within Investment Trusts that have been recognized immediately as a regulatory asset. |
| |
(b) | These amounts are recorded in Other within Other Noncurrent Assets on the Condensed Consolidated Balance Sheets. |
The table below summarizes the maturity date for debt securities. | | (in millions) | June 30, 2016 |
| March 31, 2017 |
|
Due in one year or less | $ | 14 |
| $ | 17 |
|
Due after one through five years | 191 |
| 215 |
|
Due after five through 10 years | 154 |
| 142 |
|
Due after 10 years | 310 |
| 316 |
|
Total | $ | 669 |
| $ | 690 |
|
Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. | | | Three Months Ended | | Six Months Ended | Three Months Ended |
| June 30, | | June 30, | March 31, |
(in millions) | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
| 2017 |
| | 2016 |
|
Realized gains | $ | 27 |
| | $ | 8 |
| | $ | 42 |
| | $ | 17 |
| $ | 24 |
| | $ | 15 |
|
Realized losses | 20 |
| | 4 |
| | 31 |
| | 5 |
| 19 |
| | 11 |
|
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
DUKE ENERGY FLORIDA
The following table presents the estimated fair value of investments in available-for-sale securities. |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2016 | | December 31, 2015 |
| Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| Unrealized |
| | Unrealized |
| | Estimated |
| | Unrealized |
| | Unrealized |
| | Estimated |
|
| Holding |
| | Holding |
| | Fair |
| | Holding |
| | Holding |
| | Fair |
|
(in millions) | Gains |
| | Losses(b) |
| | Value |
| | Gains |
| | Losses(b) |
| | Value |
|
NDTF | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 65 |
| | $ | — |
| | $ | — |
| | $ | 35 |
|
Equity securities | 210 |
| | 6 |
| | 327 |
| | 206 |
| | 6 |
| | 318 |
|
Corporate debt securities | 2 |
| | — |
| | 53 |
| | 1 |
| | 1 |
| | 44 |
|
Municipal bonds | — |
| | — |
| | — |
| | — |
| | — |
| | 2 |
|
U.S. government bonds | 8 |
| | — |
| | 275 |
| | 2 |
| | — |
| | 330 |
|
Other debt securities | — |
| | — |
| | 3 |
| | — |
| | — |
| | 12 |
|
Total NDTF | $ | 220 |
| | $ | 6 |
| | $ | 723 |
| | $ | 209 |
| | $ | 7 |
| | $ | 741 |
|
Other Investments | | | | | | | |
| | |
| | |
|
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | 6 |
|
Municipal bonds | 4 |
| | — |
| | 47 |
| | 3 |
| | — |
| | 45 |
|
Total Other Investments(a) | $ | 4 |
| | $ | — |
| | $ | 51 |
| | $ | 3 |
| | $ | — |
| | $ | 51 |
|
Total Investments | $ | 224 |
| | $ | 6 |
| | $ | 774 |
| | $ | 212 |
| | $ | 7 |
| | $ | 792 |
|
(a) These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2017 | | December 31, 2016 |
| Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| Unrealized |
| | Unrealized |
| | Estimated |
| | Unrealized |
| | Unrealized |
| | Estimated |
|
| Holding |
| | Holding |
| | Fair |
| | Holding |
| | Holding |
| | Fair |
|
(in millions) | Gains |
| | Losses(a) |
| | Value |
| | Gains |
| | Losses(a) |
| | Value |
|
NDTF | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 51 |
| | $ | — |
| | $ | — |
| | $ | 48 |
|
Equity securities | 249 |
| | 4 |
| | 377 |
| | 231 |
| | 5 |
| | 356 |
|
Corporate debt securities | 1 |
| | — |
| | 57 |
| | 1 |
| | 1 |
| | 54 |
|
Municipal bonds | — |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
U.S. government bonds | 2 |
| | 1 |
| | 234 |
| | 3 |
| | 1 |
| | 251 |
|
Other debt securities | — |
| | — |
| | 5 |
| | — |
| | — |
| | 3 |
|
Total NDTF(b) | $ | 252 |
| | $ | 5 |
| | $ | 725 |
| | $ | 235 |
| | $ | 7 |
| | $ | 713 |
|
Other Investments | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 4 |
|
Municipal bonds | 2 |
| | — |
| | 46 |
| | 2 |
| | — |
| | 44 |
|
Total Other Investments(c) | $ | 2 |
| | $ | — |
| | $ | 47 |
| | $ | 2 |
| | $ | — |
| | $ | 48 |
|
Total Investments | $ | 254 |
| | $ | 5 |
| | $ | 772 |
| | $ | 237 |
| | $ | 7 |
| | $ | 761 |
|
| |
(b)(a) | Substantially all these amounts represent other-than-temporary impairmentsare considered OTTIs on investments within Investment Trusts that have been recognized immediately as a regulatory asset. |
| |
(b) | During the three months ended March 31, 2017, Duke Energy Florida continued to receive reimbursements from the NDTF for costs related to ongoing commissioning activity of the Crystal River Unit 3 nuclear plant. |
| |
(c) | These amounts are recorded in Other within Other Noncurrent Assets on the Condensed Consolidated Balance Sheets. |
The table below summarizes the maturity date for debt securities. | | (in millions) | June 30, 2016 |
| March 31, 2017 |
|
Due in one year or less | $ | 51 |
| $ | 55 |
|
Due after one through five years | 184 |
| 140 |
|
Due after five through 10 years | 46 |
| 47 |
|
Due after 10 years | 97 |
| 101 |
|
Total | $ | 378 |
| $ | 343 |
|
Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were as follows. | | | Three Months Ended | | Six Months Ended | Three Months Ended |
| June 30, | | June 30, | March 31, |
(in millions) | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
| 2017 |
| | 2016 |
|
Realized gains | $ | 4 |
| | $ | 1 |
| | $ | 8 |
| | $ | 4 |
| $ | 3 |
| | $ | 4 |
|
Realized losses | 3 |
| | 1 |
| | 5 |
| | 1 |
| 2 |
| | 2 |
|
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
DUKE ENERGY INDIANA
The following table presents the estimated fair value of investments in available-for-sale securities. |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2016 | | December 31, 2015 |
| Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| Unrealized |
| | Unrealized |
| | Estimated |
| | Unrealized |
| | Unrealized |
| | Estimated |
|
| Holding |
| | Holding |
| | Fair |
| | Holding |
| | Holding |
| | Fair |
|
(in millions) | Gains |
| | Losses(b) |
| | Value |
| | Gains |
| | Losses(b) |
| | Value |
|
Other Investments | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2 |
|
Equity securities | 28 |
| | — |
| | 73 |
| | 27 |
| | — |
| | 71 |
|
Corporate debt securities | — |
| | — |
| | 2 |
| | — |
| | — |
| | 2 |
|
Municipal bonds | 1 |
| | 1 |
| | 29 |
| | — |
| | 1 |
| | 26 |
|
Total Other Investments(a) | $ | 29 |
| | $ | 1 |
|
| $ | 104 |
| | $ | 27 |
| | $ | 1 |
| | $ | 101 |
|
Total Investments | $ | 29 |
| | $ | 1 |
| | $ | 104 |
| | $ | 27 |
| | $ | 1 |
| | $ | 101 |
|
(a) These amounts are recorded in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2017 | | December 31, 2016 |
| Gross |
| | Gross |
| | | | Gross |
| | Gross |
| | |
| Unrealized |
| | Unrealized |
| | Estimated |
| | Unrealized |
| | Unrealized |
| | Estimated |
|
| Holding |
| | Holding |
| | Fair |
| | Holding |
| | Holding |
| | Fair |
|
(in millions) | Gains |
| | Losses(a) |
| | Value |
| | Gains |
| | Losses(a) |
| | Value |
|
Other Investments | | | | | | | | | | | |
Equity securities | $ | 38 |
| | $ | — |
| | $ | 84 |
| | $ | 33 |
| | $ | — |
| | $ | 79 |
|
Corporate debt securities | — |
| | — |
| | 2 |
| | — |
| | — |
| | 2 |
|
Municipal bonds | — |
| | 1 |
| | 28 |
| | — |
| | 1 |
| | 28 |
|
U.S. government bonds | — |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
Total Other Investments(b) | $ | 38 |
| | $ | 1 |
|
| $ | 115 |
| | $ | 33 |
| | $ | 1 |
| | $ | 110 |
|
Total Investments | $ | 38 |
| | $ | 1 |
| | $ | 115 |
| | $ | 33 |
| | $ | 1 |
| | $ | 110 |
|
| |
(b)(a) | Substantially all these amounts represent other-than-temporary impairmentsare considered OTTIs on investments within Investment Trusts that have been recognized immediately as a regulatory asset. |
| |
(b) | These amounts are recorded in Other within Other Noncurrent Assets on the Condensed Consolidated Balance Sheets. |
The table below summarizes the maturity date for debt securities. | | (in millions) | June 30, 2016 |
| March 31, 2017 |
|
Due in one year or less | $ | 2 |
| $ | 2 |
|
Due after one through five years | 16 |
| 15 |
|
Due after five through 10 years | 8 |
| 9 |
|
Due after 10 years | 5 |
| 5 |
|
Total | $ | 31 |
| $ | 31 |
|
Realized gains and losses, which were determined on a specific identification basis, from sales of available-for-sale securities were insignificant for the three and six months ended June 30, 2016March 31, 2017 and 2015.2016.
11. 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, (iii) and inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities and credit spreads. A Level 2 measurement cannot have more than an insignificant portion of its valuation based on unobservable inputs. Instruments in this category include non-exchange-traded derivatives, such as over-the-counter forwards, swaps and options; certain marketable debt securities; and financial instruments traded in less than activeless-than-active markets.
Level 3 – Any fair value measurement whichthat includes unobservable inputs for more than an insignificant portion of the valuation. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. Level 3 measurements may include longer-term instruments that extend into periods in which observable inputs are not available.
Not Categorized – Certain investments are not categorized within the Fair Value hierarchy. These investments are measured based on the fair value of the underlying investments but may not be readily redeemable at that fair value.
Fair value accounting guidance permits entities to elect to measure certain financial instruments that are not required to be accounted for at fair value, such as equity method investments or the company’s own debt, at fair value. The Duke Energy Registrants have not elected to record any of these items at fair value.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
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 three and six months ended June 30, 2016March 31, 2017 and 2015.2016.
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 Nasdaq Composite (NASDAQ) and New York Stock Exchange (NYSE). and Nasdaq Stock Market. Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. There was no after-hours market activity that was required to be reflected in the reported fair value measurements.
Investments in debt securities
Most investments in debt securities are valued using Level 2 measurements because the valuations use interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. If the market for a particular fixed incomefixed-income security is relatively inactive or illiquid, the measurement is Level 3.
Commodity derivatives
Commodity derivatives with clearinghouses are classified as Level 1. Other commodity derivatives, including Piedmont's gas supply contracts, are primarily valued using internally developed discounted cash flow models whichthat incorporate forward price, adjustments for liquidity (bid-ask spread) and credit or non-performance risk (after reflecting credit enhancements such as collateral), and are discounted to present value. Pricing inputs are derived from published exchange transaction prices and other observable data sources. In the absence of an active market, the last available price may be used. If forward price curves are not observable for the full term of the contract and the unobservable period had more than an insignificant impact on the valuation, the commodity derivative is classified as Level 3. In isolation, increases (decreases) in natural gas forward prices result in favorable (unfavorable) fair value adjustments for 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 whichthat 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 2 related to the acquisition of Piedmont in 2016. See Note 11 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2016 for a discussion of the valuation of goodwill and intangible assets.
DUKE ENERGY
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. | | | June 30, 2016 | March 31, 2017 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Not categorized |
| Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Not categorized |
|
Nuclear decommissioning trust fund equity securities | $ | 3,834 |
| $ | 3,666 |
| $ | 1 |
| $ | — |
| $ | 167 |
| $ | 4,284 |
| $ | 4,207 |
| $ | — |
| $ | — |
| $ | 77 |
|
Nuclear decommissioning trust fund debt securities | 2,158 |
| 744 |
| 1,414 |
| — |
| — |
| 2,107 |
| 602 |
| 1,505 |
| — |
| — |
|
Other available-for-sale equity securities | 98 |
| 98 |
| — |
| — |
| — |
| |
Other available-for-sale debt securities | 308 |
| 74 |
| 230 |
| 4 |
| — |
| |
Other trading and available-for-sale equity securities | | 110 |
| 110 |
| — |
| — |
| — |
|
Other trading and available-for-sale debt securities | | 248 |
| 61 |
| 182 |
| 5 |
| — |
|
Derivative assets | 108 |
| 2 |
| 72 |
| 34 |
| — |
| 83 |
| 2 |
| 71 |
| 10 |
| — |
|
Total assets | 6,506 |
| 4,584 |
| 1,717 |
| 38 |
| 167 |
| 6,832 |
| 4,982 |
| 1,758 |
| 15 |
| 77 |
|
Derivative liabilities | (428 | ) | (1 | ) | (427 | ) | — |
| — |
| (216 | ) | — |
| (71 | ) | (145 | ) | — |
|
Net assets | $ | 6,078 |
| $ | 4,583 |
| $ | 1,290 |
| $ | 38 |
| $ | 167 |
| |
Net assets (liabilities) | | $ | 6,616 |
| $ | 4,982 |
| $ | 1,687 |
| $ | (130 | ) | $ | 77 |
|
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
| | | December 31, 2015 | December 31, 2016 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Not categorized |
| Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Not categorized |
|
Nuclear decommissioning trust fund equity securities | $ | 3,590 |
| $ | 3,418 |
| $ | — |
| $ | — |
| $ | 172 |
| $ | 4,106 |
| $ | 4,029 |
| $ | — |
| $ | — |
| $ | 77 |
|
Nuclear decommissioning trust fund debt securities | 2,227 |
| 672 |
| 1,555 |
| — |
| — |
| 2,078 |
| 632 |
| 1,446 |
| — |
| — |
|
Other available-for-sale equity securities | 95 |
| 95 |
| — |
| — |
| — |
| |
Other available-for-sale debt securities | 302 |
| 75 |
| 222 |
| 5 |
| — |
| |
Other trading and available-for-sale equity securities | | 104 |
| 104 |
| — |
| — |
| — |
|
Other trading and available-for-sale debt securities | | 266 |
| 75 |
| 186 |
| 5 |
| — |
|
Derivative assets | 26 |
| — |
| 16 |
| 10 |
| — |
| 162 |
| 5 |
| 136 |
| 21 |
| — |
|
Total assets | 6,240 |
| 4,260 |
| 1,793 |
| 15 |
| 172 |
| 6,716 |
| 4,845 |
| 1,768 |
| 26 |
| 77 |
|
Derivative liabilities | (419 | ) | — |
| (419 | ) | — |
| — |
| (252 | ) | (2 | ) | (63 | ) | (187 | ) | — |
|
Net assets | $ | 5,821 |
| $ | 4,260 |
| $ | 1,374 |
| $ | 15 |
| $ | 172 |
| |
Net assets (liabilities) | | $ | 6,464 |
| $ | 4,843 |
| $ | 1,705 |
| $ | (161 | ) | $ | 77 |
|
The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. Amounts included in earnings for derivatives are primarily included in Operating Revenues. There was no change to the Level 3 balance during the three months ended June 30, 2015. |
| | | | | | | | | | | |
| Three Months Ended June 30, 2016 |
(in millions) | Investments |
| | Derivatives (net) |
| | Total |
|
Balance at beginning of period | $ | 4 |
| | $ | 2 |
| | $ | 6 |
|
Purchases, sales, issuances and settlements: | | | | |
|
|
Purchases | — |
| | 34 |
| | 34 |
|
Settlements | — |
| | (6 | ) | | (6 | ) |
Total gains included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities | — |
| | 4 |
| | 4 |
|
Balance at end of period | $ | 4 |
| | $ | 34 |
| | $ | 38 |
|
| | | Six Months Ended June 30, 2016 | Three Months Ended March 31, 2017 |
(in millions) | Investments |
| | Derivatives (net) |
| | Total |
| Investments |
| | Derivatives (net) |
| | Total |
|
Balance at beginning of period | $ | 5 |
| | $ | 10 |
| | $ | 15 |
| $ | 5 |
| | $ | (166 | ) | | $ | (161 | ) |
Purchases, sales, issuances and settlements: | | | | | | | | | | |
Purchases | — |
| | 34 |
| | 34 |
| |
Sales | (1 | ) | | — |
| | (1 | ) | |
Settlements | — |
| | (13 | ) | | (13 | ) | — |
| | (9 | ) | | (9 | ) |
Total gains included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities | — |
| | 3 |
| | 3 |
| |
Total amount included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities | | — |
| | 40 |
| | 40 |
|
Balance at end of period | $ | 4 |
| | $ | 34 |
| | $ | 38 |
| $ | 5 |
| | $ | (135 | ) | | $ | (130 | ) |
|
| | | | | | | | | | | |
| Six Months Ended June 30, 2015 |
(in millions) | Investments |
| | Derivatives (net) |
| | Total |
|
Balance at beginning of period | $ | 5 |
| | $ | (1 | ) | | $ | 4 |
|
Total pretax realized or unrealized gains included in earnings | — |
| | 18 |
| | 18 |
|
Purchases, sales, issuances and settlements: | | | | | |
Purchases | — |
| | 24 |
| | 24 |
|
Settlements | — |
| | (22 | ) | | (22 | ) |
Total gains included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities | — |
| | 4 |
| | 4 |
|
Balance at end of period | $ | 5 |
| | $ | 23 |
| | $ | 28 |
|
|
| | | | | | | | | | | |
| Three Months Ended March 31, 2016 |
(in millions) | Investments |
| | Derivatives (net) |
| | Total |
|
Balance at beginning of period | $ | 5 |
| | $ | 10 |
| | $ | 15 |
|
Purchases, sales, issuances and settlements: | | | | | |
Sales | (1 | ) | | — |
| | (1 | ) |
Settlements | — |
| | (7 | ) | | (7 | ) |
Total losses included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities | — |
| | (1 | ) | | (1 | ) |
Balance at end of period | $ | 4 |
| | $ | 2 |
| | $ | 6 |
|
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
DUKE ENERGY CAROLINAS
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. | | | June 30, 2016 | March 31, 2017 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Not categorized |
| Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Not categorized |
|
Nuclear decommissioning trust fund equity securities | $ | 2,128 |
| $ | 1,960 |
| $ | 1 |
| $ | — |
| $ | 167 |
| $ | 2,366 |
| $ | 2,289 |
| $ | — |
| $ | — |
| $ | 77 |
|
Nuclear decommissioning trust fund debt securities | 1,035 |
| 245 |
| 790 |
| — |
| — |
| 1,026 |
| 146 |
| 880 |
| — |
| — |
|
Other available-for-sale debt securities | 3 |
| — |
| — |
| 3 |
| — |
| 3 |
| — |
| — |
| 3 |
| — |
|
Derivative assets | 18 |
| — |
| 18 |
| — |
| — |
| 17 |
| — |
| 17 |
| — |
| — |
|
Total assets | 3,184 |
| 2,205 |
| 809 |
| 3 |
| 167 |
| 3,412 |
| 2,435 |
| 897 |
| 3 |
| 77 |
|
Derivative liabilities | (89 | ) | — |
| (89 | ) | — |
| — |
| (14 | ) | — |
| (14 | ) | — |
| — |
|
Net assets | $ | 3,095 |
| $ | 2,205 |
| $ | 720 |
| $ | 3 |
| $ | 167 |
| $ | 3,398 |
| $ | 2,435 |
| $ | 883 |
| $ | 3 |
| $ | 77 |
|
| | | December 31, 2015 | December 31, 2016 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Not categorized |
| Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Not categorized |
|
Nuclear decommissioning trust fund equity securities | $ | 2,094 |
| $ | 1,922 |
| $ | — |
| $ | — |
| $ | 172 |
| $ | 2,245 |
| $ | 2,168 |
| $ | — |
| $ | — |
| $ | 77 |
|
Nuclear decommissioning trust fund debt securities | 944 |
| 246 |
| 698 |
| — |
| — |
| 1,013 |
| 178 |
| 835 |
| — |
| — |
|
Other available-for-sale debt securities | 3 |
| — |
| — |
| 3 |
| — |
| 3 |
| — |
| — |
| 3 |
| — |
|
Derivative assets | | 33 |
| — |
| 33 |
| — |
| — |
|
Total assets | 3,041 |
| 2,168 |
| 698 |
| 3 |
| 172 |
| 3,294 |
| 2,346 |
| 868 |
| 3 |
| 77 |
|
Derivative liabilities | (45 | ) | — |
| (45 | ) | — |
| — |
| (16 | ) | — |
| (16 | ) | — |
| — |
|
Net assets | $ | 2,996 |
| $ | 2,168 |
| $ | 653 |
| $ | 3 |
| $ | 172 |
| $ | 3,278 |
| $ | 2,346 |
| $ | 852 |
| $ | 3 |
| $ | 77 |
|
There was no change to the Level 3 balance during the three and six months ended June 30, 2016March 31, 2017 and June 30, 2015.March 31, 2016. PROGRESS ENERGY
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. | | | June 30, 2016 | March 31, 2017 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Total Fair Value |
| Level 1 |
| Level 2 |
|
Nuclear decommissioning trust fund equity securities | $ | 1,706 |
| $ | 1,706 |
| $ | — |
| $ | 1,918 |
| $ | 1,918 |
| $ | — |
|
Nuclear decommissioning trust fund debt securities | 1,123 |
| 499 |
| 624 |
| 1,081 |
| 456 |
| 625 |
|
Other available-for-sale debt securities | 68 |
| 21 |
| 47 |
| 58 |
| 12 |
| 46 |
|
Derivative assets | 54 |
| — |
| 54 |
| 34 |
| — |
| 34 |
|
Total assets | 2,951 |
| 2,226 |
| 725 |
| 3,091 |
| 2,386 |
| 705 |
|
Derivative liabilities | (100 | ) | — |
| (100 | ) | (34 | ) | — |
| (34 | ) |
Net assets | $ | 2,851 |
| $ | 2,226 |
| $ | 625 |
| $ | 3,057 |
| $ | 2,386 |
| $ | 671 |
|
| | | December 31, 2015 | December 31, 2016 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Total Fair Value |
| Level 1 |
| Level 2 |
|
Nuclear decommissioning trust fund equity securities | $ | 1,496 |
| $ | 1,496 |
| $ | — |
| $ | 1,861 |
| $ | 1,861 |
| $ | — |
|
Nuclear decommissioning trust fund debt securities | 1,283 |
| 426 |
| 857 |
| 1,065 |
| 454 |
| 611 |
|
Other available-for-sale debt securities | 63 |
| 18 |
| 45 |
| 65 |
| 21 |
| 44 |
|
Derivative assets | 11 |
| — |
| 11 |
| 85 |
| — |
| 85 |
|
Total assets | 2,853 |
| 1,940 |
| 913 |
| 3,076 |
| 2,336 |
| 740 |
|
Derivative liabilities | (322 | ) | — |
| (322 | ) | (25 | ) | — |
| (25 | ) |
Net assets | $ | 2,531 |
| $ | 1,940 |
| $ | 591 |
| $ | 3,051 |
| $ | 2,336 |
| $ | 715 |
|
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
DUKE ENERGY PROGRESS
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. | | | June 30, 2016 | March 31, 2017 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Total Fair Value |
| Level 1 |
| Level 2 |
|
Nuclear decommissioning trust fund equity securities | $ | 1,379 |
| $ | 1,379 |
| $ | — |
| $ | 1,541 |
| $ | 1,541 |
| $ | — |
|
Nuclear decommissioning trust fund debt securities and other | 727 |
| 228 |
| 499 |
| 733 |
| 221 |
| 512 |
|
Other available-for-sale debt securities and other | 1 |
| 1 |
| — |
| 1 |
| 1 |
| — |
|
Derivative assets | 25 |
| — |
| 25 |
| 20 |
| — |
| 20 |
|
Total assets | 2,132 |
| 1,608 |
| 524 |
| 2,295 |
| 1,763 |
| 532 |
|
Derivative liabilities | (18 | ) | — |
| (18 | ) | (10 | ) | — |
| (10 | ) |
Net assets | $ | 2,114 |
| $ | 1,608 |
| $ | 506 |
| $ | 2,285 |
| $ | 1,763 |
| $ | 522 |
|
| | | December 31, 2015 | December 31, 2016 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Total Fair Value |
| Level 1 |
| Level 2 |
|
Nuclear decommissioning trust fund equity securities | $ | 1,178 |
| $ | 1,178 |
| $ | — |
| $ | 1,505 |
| $ | 1,505 |
| $ | — |
|
Nuclear decommissioning trust fund debt securities and other | 860 |
| 141 |
| 719 |
| 708 |
| 207 |
| 501 |
|
Other available-for-sale debt securities and other | 1 |
| 1 |
| — |
| 1 |
| 1 |
| — |
|
Derivative assets | 2 |
| — |
| 2 |
| 46 |
| — |
| 46 |
|
Total assets | 2,041 |
| 1,320 |
| 721 |
| 2,260 |
| 1,713 |
| 547 |
|
Derivative liabilities | (98 | ) | — |
| (98 | ) | (7 | ) | — |
| (7 | ) |
Net assets | $ | 1,943 |
| $ | 1,320 |
| $ | 623 |
| $ | 2,253 |
| $ | 1,713 |
| $ | 540 |
|
DUKE ENERGY FLORIDA
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. | | | June 30, 2016 | March 31, 2017 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Total Fair Value |
| Level 1 |
| Level 2 |
|
Nuclear decommissioning trust fund equity securities | $ | 327 |
| $ | 327 |
| $ | — |
| $ | 377 |
| $ | 377 |
| $ | — |
|
Nuclear decommissioning trust fund debt securities and other | 396 |
| 271 |
| 125 |
| 348 |
| 235 |
| 113 |
|
Other available-for-sale debt securities and other | 51 |
| 4 |
| 47 |
| 47 |
| 1 |
| 46 |
|
Derivative assets | 29 |
| — |
| 29 |
| 14 |
| — |
| 14 |
|
Total assets | 803 |
| 602 |
| 201 |
| 786 |
| 613 |
| 173 |
|
Derivative liabilities | (76 | ) | — |
| (76 | ) | (19 | ) | — |
| (19 | ) |
Net assets | $ | 727 |
| $ | 602 |
| $ | 125 |
| $ | 767 |
| $ | 613 |
| $ | 154 |
|
| | | December 31, 2015 | December 31, 2016 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Total Fair Value |
| Level 1 |
| Level 2 |
|
Nuclear decommissioning trust fund equity securities | $ | 318 |
| $ | 318 |
| $ | — |
| $ | 356 |
| $ | 356 |
| $ | — |
|
Nuclear decommissioning trust fund debt securities and other | 423 |
| 285 |
| 138 |
| 357 |
| 247 |
| 110 |
|
Other available-for-sale debt securities and other | 51 |
| 6 |
| 45 |
| 48 |
| 4 |
| 44 |
|
Derivative assets | 7 |
| — |
| 7 |
| 39 |
| — |
| 39 |
|
Total assets | 799 |
| 609 |
| 190 |
| 800 |
| 607 |
| 193 |
|
Derivative liabilities | (216 | ) | — |
| (216 | ) | (12 | ) | — |
| (12 | ) |
Net assets (liabilities) | $ | 583 |
| $ | 609 |
| $ | (26 | ) | |
Net assets | | $ | 788 |
| $ | 607 |
| $ | 181 |
|
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
DUKE ENERGY OHIO
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which are disclosed in Note 9. | | | June 30, 2016 | March 31, 2017 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
|
Derivative assets | $ | 5 |
| $ | — |
| $ | — |
| $ | 5 |
| $ | 1 |
| $ | — |
| $ | — |
| $ | 1 |
|
Derivative liabilities | (8 | ) | — |
| (8 | ) | — |
| (5 | ) | — |
| (5 | ) | — |
|
Net (liabilities) assets | $ | (3 | ) | $ | — |
| $ | (8 | ) | $ | 5 |
| $ | (4 | ) | $ | — |
| $ | (5 | ) | $ | 1 |
|
| | | December 31, 2015 | December 31, 2016 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
|
Derivative assets | $ | 3 |
| $ | — |
| $ | — |
| $ | 3 |
| $ | 5 |
| $ | — |
| $ | — |
| $ | 5 |
|
Derivative liabilities | (7 | ) | — |
| (7 | ) | — |
| (6 | ) | — |
| (6 | ) | — |
|
Net (liabilities) assets | $ | (4 | ) | $ | — |
| $ | (7 | ) | $ | 3 |
| $ | (1 | ) | $ | — |
| $ | (6 | ) | $ | 5 |
|
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) |
| Three Months Ended June 30, |
(in millions) | 2016 |
| | 2015 |
|
Balance at beginning of period | $ | — |
| | $ | 7 |
|
Total pretax realized or unrealized gains included in earnings | — |
| | (4 | ) |
Purchases, sales, issuances and settlements: | | | |
Purchases | 5 |
| | — |
|
Sales | — |
| | 5 |
|
Settlements | — |
| | (3 | ) |
Balance at end of period | $ | 5 |
| | $ | 5 |
|
| | | Derivatives (net) | Derivatives (net) |
| Six Months Ended June 30, | Three Months Ended March 31, |
(in millions) | 2016 |
| | 2015 |
| 2017 |
| | 2016 |
|
Balance at beginning of period | $ | 3 |
| | $ | (18 | ) | $ | 5 |
| | $ | 3 |
|
Total pretax realized or unrealized gains included in earnings | — |
| | 21 |
| |
Purchases, sales, issuances and settlements: | | | | | | |
Purchases | 5 |
| | — |
| |
Sales | — |
| | 5 |
| |
Settlements | (2 | ) | | (3 | ) | (1 | ) | | (2 | ) |
Total losses included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities | (1 | ) | | — |
| (3 | ) | | (1 | ) |
Balance at end of period | $ | 5 |
| | $ | 5 |
| $ | 1 |
| | $ | — |
|
PART I
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
Combined Notes to Condensed Consolidated Financial Statements – (Continued)
(Unaudited)
DUKE ENERGY INDIANA
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type. | | | June 30, 2016 | March 31, 2017 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
|
Other available-for-sale equity securities | $ | 73 |
| $ | 73 |
| $ | — |
| $ | — |
| $ | 84 |
| $ | 84 |
| $ | — |
| $ | — |
|
Other available-for-sale debt securities and other | 31 |
| — |
| 31 |
| — |
| 31 |
| — |
| 31 |
| — |
|
Derivative assets | 31 |
| 2 |
| — |
| 29 |
| 9 |
| — |
| — |
| 9 |
|
Total assets | 135 |
| 75 |
| 31 |
| 29 |
| |
Derivative liabilities | (1 | ) | (1 | ) | — |
| — |
| |
Net assets | $ | 134 |
| $ | 74 |
| $ | 31 |
| $ | 29 |
| $ | 124 |
| $ | 84 |
| $ | 31 |
| $ | 9 |
|
|
| | | | | | | | | | | | |
| December 31, 2015 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
|
Other available-for-sale equity securities | $ | 71 |
| $ | 71 |
| $ | — |
| $ | — |
|
Other available-for-sale debt securities and other | 30 |
| 2 |
| 28 |
| — |
|
Derivative assets | 7 |
| — |
| — |
| 7 |
|
Net assets | $ | 108 |
| $ | 73 |
| $ | 28 |
| $ | 7 |
|
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) |
| Three Months Ended June 30, |
(in millions) | 2016 |
| | 2015 |
|
Balance at beginning of period | $ | 2 |
| | $ | 3 |
|
Purchases, sales, issuances and settlements: |
| | |
Purchases | 29 |
| | 18 |
|
Settlements | (6 | ) | | (10 | ) |
Total gains included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities | 4 |
| | 6 |
|
Balance at end of period | $ | 29 |
| | $ | 17 |
|
|
| | | | | | | |
| Derivatives (net) |
| Six Months Ended June 30, |
(in millions) | 2016 |
| | 2015 |
|
Balance at beginning of period | $ | 7 |
| | $ | 14 |
|
Purchases, sales, issuances and settlements: | | | |
Purchases | 29 |
| | 18 |
|
Settlements | (11 | ) | | (19 | ) |
Total gains included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities | 4 |
| | 4 |
|
Balance at end of period | $ | 29 |
| | $ | 17 |
|
|
| | | | | | | | | | | | |
| December 31, 2016 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
|
Other available-for-sale equity securities | $ | 79 |
| $ | 79 |
| $ | — |
| $ | — |
|
Other available-for-sale debt securities and other | 31 |
| — |
| 31 |
| — |
|
Derivative assets | 16 |
| — |
| — |
| 16 |
|
Total assets | 126 |
| 79 |
| 31 |
| 16 |
|
Derivative liabilities | (2 | ) | (2 | ) | — |
| — |
|
Net assets | $ | 124 |
| $ | 77 |
| $ | 31 |
| $ | 16 |
|
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
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) |
| Three Months Ended March 31, |
(in millions) | 2017 |
| | 2016 |
|
Balance at beginning of period | $ | 16 |
| | $ | 7 |
|
Purchases, sales, issuances and settlements: | | | |
Settlements | (7 | ) | | (5 | ) |
Balance at end of period | $ | 9 |
| | $ | 2 |
|
PIEDMONT
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. See Note 10 for additional information related to investments. |
| | | | | | | | | |
| March 31, 2017 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 3 |
|
Other trading equity securities | 4 |
| 4 |
| — |
|
Other trading debt securities | 1 |
| 1 |
| — |
|
Derivative assets | 2 |
| 2 |
| — |
|
Total assets | 7 |
| 7 |
| — |
|
Derivative liabilities | (145 | ) | — |
| (145 | ) |
Net (liabilities) assets | $ | (138 | ) | $ | 7 |
| $ | (145 | ) |
|
| | | | | | | | | |
| December 31, 2016 |
(in millions) | Total Fair Value |
| Level 1 |
| Level 3 |
|
Other trading equity securities | $ | 4 |
| $ | 4 |
| $ | — |
|
Other trading debt securities | 1 |
| 1 |
| — |
|
Derivative assets | 3 |
| 3 |
| — |
|
Total assets | 8 |
| 8 |
| — |
|
Derivative liabilities | (187 | ) | — |
| (187 | ) |
Net (liabilities) assets | $ | (179 | ) | $ | 8 |
| $ | (187 | ) |
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
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) |
| Three Months Ended March 31, |
(in millions) | 2017 |
| | 2016 |
|
Balance at beginning of period | $ | (187 | ) | | $ | (149 | ) |
Total gains and settlements | 42 |
| | 23 |
|
Balance at end of period | $ | (145 | ) | | $ | (126 | ) |
QUANTITATIVE INFORMATION ABOUT UNOBSERVABLE INPUTS
The following table includes quantitative information about the Duke Energy Registrants' derivatives classified as Level 3. As of June 30, 2016 and December 31, 2015, all Level 3 derivatives were financial transmission rights (FTRs). | | | June 30, 2016 | March 31, 2017 |
| Fair Value of FTRs | | | | | Fair Value | | | | |
| (in millions) | Valuation Technique | Unobservable Input | Range | |
Investment Type | | (in millions) | Valuation Technique | Unobservable Input | Range |
Duke Energy Ohio | | |
| | | | |
Financial Transmission Rights (FTRs) | | $ | 1 |
| RTO auction pricing | FTR price – per megawatt-hour (MWh) | $ | 0.23 |
| - | $ | 2.02 |
|
Duke Energy Indiana | | |
| | | | |
FTRs | | 9 |
| RTO auction pricing | FTR price – per MWh | (1.08 | ) | - | 5.33 |
|
Piedmont | | | | | | |
Natural gas contracts | | (145 | ) | Discounted cash flow | Forward natural gas curves – price per million British thermal unit (MMBtu) | 2.08 |
| - | 3.57 |
|
Duke Energy | $ | 34 |
| RTO auction pricing | FTR price – per Megawatt-Hour (MWh) | $ | (1.64 | ) | - | $ | 8.64 |
| | | | | |
Duke Energy Ohio | 5 |
| RTO auction pricing | FTR price – per MWh | 0.36 |
| - | 2.47 |
| |
Duke Energy Indiana | 29 |
| RTO auction pricing | FTR price – per MWh | (1.64 | ) | - | 8.64 |
| |
Total Level 3 derivatives | | $ | (135 | ) | | | | |
| | | December 31, 2015 | December 31, 2016 |
| Fair Value of FTRs | | | | | Fair Value | | | | |
| (in millions) | Valuation Technique | Unobservable Input | Range | |
Investment Type | | (in millions) | Valuation Technique | Unobservable Input | Range |
Duke Energy Ohio | | |
| | | | |
FTRs | | $ | 5 |
| RTO auction pricing | FTR price – per MWh | $ | 0.77 |
| - | $ | 3.52 |
|
Duke Energy Indiana | | |
| | | | |
FTRs | | 16 |
| RTO auction pricing | FTR price – per MWh | (0.83 | ) | - | 9.32 |
|
Piedmont | | | | | | |
Natural gas contracts | | (187 | ) | Discounted cash flow | Forward natural gas curves – price per MMBtu | 2.31 |
| - | 4.18 |
|
Duke Energy | $ | 10 |
| RTO auction pricing | FTR price – per MWh | $ | (0.74 | ) | - | $ | 7.29 |
| | | | | |
Duke Energy Ohio | 3 |
| RTO auction pricing | FTR price – per MWh | 0.67 |
| - | 2.53 |
| |
Duke Energy Indiana | 7 |
| RTO auction pricing | FTR price – per MWh | (0.74 | ) | - | 7.29 |
| |
Total Level 3 derivatives | | $ | (166 | ) | | | | |
OTHER FAIR VALUE DISCLOSURES
The fair value and book value of long-term debt, including current maturities, is summarized in the following table. Estimates determined are not necessarily indicative of amounts that could have been settled in current markets. Fair value of long-term debt uses Level 2 measurements. | | | June 30, 2016 | | December 31, 2015 | March 31, 2017 | | December 31, 2016 |
(in millions) | Book Value |
| | Fair Value |
| | Book Value |
| | Fair Value |
| Book Value |
| | Fair Value |
| | Book Value |
| | Fair Value |
|
Duke Energy | $ | 42,273 |
| | $ | 47,953 |
| | $ | 39,569 |
| | $ | 42,537 |
| $ | 48,998 |
| | $ | 50,480 |
| | $ | 47,895 |
| | $ | 49,161 |
|
Duke Energy Carolinas | 9,360 |
| | 10,874 |
| | 8,367 |
| | 9,156 |
| 9,491 |
| | 10,405 |
| | 9,603 |
| | 10,494 |
|
Progress Energy | 15,486 |
| | 16,715 |
| | 14,464 |
| | 15,856 |
| 18,148 |
| | 19,742 |
| | 17,541 |
| | 19,107 |
|
Duke Energy Progress | 6,565 |
| | 7,344 |
| | 6,518 |
| | 6,757 |
| 6,761 |
| | 7,103 |
| | 7,011 |
| | 7,357 |
|
Duke Energy Florida | 5,540 |
| | 5,226 |
| | 4,266 |
| | 4,908 |
| 6,981 |
| | 7,596 |
| | 6,125 |
| | 6,728 |
|
Duke Energy Ohio | 1,887 |
| | 2,134 |
| | 1,598 |
| | 1,724 |
| 1,977 |
| | 2,122 |
| | 1,884 |
| | 2,020 |
|
Duke Energy Indiana | 3,937 |
| | 4,717 |
| | 3,768 |
| | 4,219 |
| 3,784 |
| | 4,292 |
| | 3,786 |
| | 4,260 |
|
Piedmont | | 1,821 |
| | 1,954 |
| | 1,821 |
| | 1,933 |
|
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
At both June 30, 2016March 31, 2017 and December 31, 2015,2016, fair value of cash and cash equivalents, accounts and notes receivable, accounts payable, notes payable and commercial paper, and non-recoursenonrecourse 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.
12. 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 the 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.
No financial support was provided to any of the consolidated VIEs during the sixthree months ended June 30, 2016March 31, 2017 and the year ended December 31, 2015,2016, or is expected to be provided in the future, that was not previously contractually required.
Receivables Financing – DERF / DEPR / DEFR
Duke Energy Receivables Finance Company, LLC (DERF), Duke Energy Progress Receivables, LLC (DEPR) and Duke Energy Florida Receivables, LLC (DEFR) are bankruptcy remote, special purpose subsidiaries of Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, respectively. DERF, DEPR and DEFR are wholly owned limited liability companies with separate legal existence from their parent companies, and their assets are not generally available to creditors of their parent companies. On a revolving basis, DERF, DEPR and DEFR buy certain accounts receivable arising from the sale of electricity and related services from their parent companies.
PART I
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
Combined Notes to Condensed Consolidated Financial Statements – (Continued)
(Unaudited)
DERF, DEPR and DEFR borrow amounts under credit facilities to buy these receivables. Borrowing availability from the credit facilities is limited to the amount of qualified receivables purchased. The sole source of funds to satisfy the related debt obligations is cash collections from the receivables. Amounts borrowed under the credit facilities are reflected on the Condensed Consolidated Balance Sheets as Long-Term Debt.
The most significant activity that impacts the economic performance of DERF, DEPR and DEFR are the decisions made to manage delinquent receivables. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida consolidate DERF, DEPR and DEFR, respectively, as they make those decisions.
Receivables Financing – CRC
CRC is a bankruptcy remote, special purpose entity indirectly owned by Duke Energy. On a revolving basis, CRC buys certain accounts receivable arising from the sale of electricity, natural gas and related services from Duke Energy Ohio and Duke Energy Indiana. CRC borrows amounts under a credit facility to buy the receivables from Duke Energy Ohio and Duke Energy Indiana. Borrowing availability from the credit facility is limited to the amount of qualified receivables sold to CRC. The sole source of funds to satisfy the related debt obligation is cash collections from the receivables. Amounts borrowed under the credit facility are reflected on Duke Energy's Condensed Consolidated Balance Sheets as Long-Term Debt.
The proceeds Duke Energy Ohio and Duke Energy Indiana receive from the sale of receivables to CRC are typically 75 percent cash and 25 percent in the form of a subordinated note from CRC. The subordinated note is a retained interest in the receivables sold. Depending on collection experience, additional equity infusions to CRC may be required by Duke Energy to maintain a minimum equity balance of $3 million.
CRC is considered a VIE because (i) equity capitalization is insufficient to support its operations, (ii) power to direct the activities that most significantly impact the economic performance of the entity are not performed by the equity holder, and (iii) deficiencies in net worth of CRC are funded by Duke Energy. The most significant activities that impact the economic performance of CRC are decisions made to manage delinquent receivables. Duke Energy consolidates CRC as it makes these decisions. Neither Duke Energy Ohio nor Duke Energy Indiana consolidate CRC.
Receivables Financing – Credit Facilities
The following table summarizes the amounts and expiration dates of the credit facilities described above. Amounts borrowed under the credit facilities are reflected on the |
| | | | | | | | | | | | | | | |
| Duke Energy |
| | | Duke Energy |
| | Duke Energy |
| | Duke Energy |
|
| | | Carolinas |
| | Progress |
| | Florida |
|
(in millions) | CRC |
| | DERF |
| | DEPR |
| | DEFR |
|
Expiration date | December 2018 |
| | December 2018 |
| | February 2019 |
| | April 2019 |
|
Credit facility amount | $ | 325 |
| | $ | 425 |
| | $ | 300 |
| | $ | 225 |
|
Amounts borrowed at March 31, 2017 | 325 |
| | 425 |
| | 300 |
| | 225 |
|
Amounts borrowed at December 31, 2016 | 325 |
| | 425 |
| | 300 |
| | 225 |
|
PART I
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 Condensed Consolidated Balance Sheets as Long-Term Debt.Financial Statements – (Unaudited) – (Continued)
|
| | | | | | | | | | | | | | | |
| Duke Energy |
| | | Duke Energy |
| | Duke Energy |
| | Duke Energy |
|
| | | Carolinas |
| | Progress |
| | Florida |
|
| CRC |
| | DERF |
| | DEPR |
| | DEFR |
|
Expiration date | December 2018 |
| | December 2018 |
| | February 2019 |
| | April 2019 |
|
Credit facility amount (in millions) | $ | 325 |
| | $ | 425 |
| | $ | 300 |
| | $ | 225 |
|
Amounts borrowed at June 30, 2016 | 325 |
| | 425 |
| | 300 |
| | 225 |
|
Amounts borrowed at December 31, 2015 | 325 |
| | 425 |
| | 254 |
| | 225 |
|
Nuclear Asset-Recovery Bonds – DEFPF
DEFPFDuke Energy Florida Project Finance, LLC (DEFPF) is a bankruptcy remote, wholly owned special purpose subsidiary of Duke Energy Florida. DEFPF was formed in 2016 for the sole purpose of issuing nuclear asset-recovery bonds to finance Duke Energy Florida's unrecovered regulatory asset related to Crystal River Unit 3.
In June 2016, DEFPF issued $1,294 million of senior secured bonds and used the proceeds to acquire nuclear asset-recovery property from Duke Energy Florida. The nuclear asset-recovery property acquired includes the right to impose, bill, collect and adjust a non-bypassable nuclear asset-recovery charge from all Duke Energy Florida retail customers until the bonds are paid in full and all financing costs have been recovered. The nuclear asset-recovery bonds are secured by the nuclear asset-recovery property, and cash collections from the nuclear asset-recovery charges are the sole source of funds to satisfy the debt obligation. The bondholders have no recourse to Duke Energy Florida. For additional information see NotesNote 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 Condensed Consolidated Balance Sheets. | | (in millions) | June 30, 2016 |
| March 31, 2017 |
| December 31, 2016 |
|
Regulatory Assets: Current | $ | 34 |
| |
Receivables of VIEs | | $ | 4 |
| $ | 6 |
|
Current Assets: Regulatory assets | | 53 |
| 50 |
|
Current Assets: Other | 7 |
| 14 |
| 53 |
|
Regulatory Assets and Deferred Debits: Regulatory assets | 1,194 |
| |
Other Noncurrent Assets: Regulatory assets | | 1,131 |
| 1,142 |
|
Current Liabilities: Other | | 3 |
| 17 |
|
Current maturities of long-term debt | 35 |
| 55 |
| 62 |
|
Long-Term Debt | 1,243 |
| 1,189 |
| 1,217 |
|
PART I
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
Combined Notes to Condensed Consolidated Financial Statements – (Continued)
(Unaudited)
Commercial Renewables
Certain of Duke Energy renewable energy facilities are VIEs due to long-term fixed-price power purchase agreements. These fixed-price agreements effectively transfer commodity price risk to the buyer of the power. Certain other Duke EnergyEnergy’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. For certain VIEs, assetsAssets are restricted and cannot be pledged as collateral or sold to third parties without prior approval of debt holders. The activities that most significantly impact the economic performance of these renewable energy facilities were decisions associated with siting, negotiating purchase power agreements,PPAs, engineering, procurement and construction and decisions associated with ongoing operations and maintenance-related activities. Duke Energy consolidates the entities as it is responsible for all of these decisions.
The table below presents material balances reported on Duke Energy's Condensed Consolidated Balance Sheets related to renewables VIEs. |
| | | | | | |
(in millions) | June 30, 2016 |
| December 31, 2015 |
|
Current Assets: Other | $ | 223 |
| $ | 138 |
|
Property, plant and equipment, cost | 2,578 |
| 2,015 |
|
Accumulated depreciation and amortization | (376 | ) | (321 | ) |
Current maturities of long-term debt | 154 |
| 108 |
|
Long-Term Debt | 866 |
| 968 |
|
Deferred Credits and Other Liabilities: Deferred income taxes | 31 |
| 289 |
|
Deferred Credits and Other Liabilities: Other | 277 |
| 33 |
|
NON-CONSOLIDATED VIEs
The following tables summarize the impact of non-consolidated VIEs on the Condensed Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | |
| June 30, 2016 |
| Duke Energy | | Duke |
| | Duke |
|
| | | | | | | Energy |
| | Energy |
|
(in millions) | Renewables |
| | Other |
| | Total |
| | Ohio |
| | Indiana |
|
Receivables from affiliated companies | $ | — |
| | $ | — |
| | $ | — |
| | $ | 39 |
| | $ | 58 |
|
Investments in equity method unconsolidated affiliates | 222 |
| | 252 |
| | 474 |
| | — |
| | — |
|
Total assets | $ | 222 |
| | $ | 252 |
| | $ | 474 |
| | $ | 39 |
| | $ | 58 |
|
Other current liabilities | — |
| | 3 |
| | 3 |
| | — |
| | — |
|
Deferred credits and other liabilities | — |
| | 13 |
| | 13 |
| | — |
| | — |
|
Total liabilities | $ | — |
| | $ | 16 |
| | $ | 16 |
| | $ | — |
| | $ | — |
|
Net assets | $ | 222 |
| | $ | 236 |
| | $ | 458 |
| | $ | 39 |
| | $ | 58 |
|
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2015 |
| Duke Energy | | Duke |
| | Duke |
|
| | | | | | | Energy |
| | Energy |
|
(in millions) | Renewables |
| | Other |
| | Total |
| | Ohio |
| | Indiana |
|
Receivables from affiliated companies | $ | — |
| | $ | — |
| | $ | — |
| | $ | 47 |
| | $ | 60 |
|
Investments in equity method unconsolidated affiliates | 235 |
| | 152 |
| | 387 |
| | — |
| | — |
|
Total assets | $ | 235 |
| | $ | 152 |
| | $ | 387 |
| | $ | 47 |
| | $ | 60 |
|
Other current liabilities | — |
| | 3 |
| | 3 |
| | — |
| | — |
|
Deferred credits and other liabilities | — |
| | 14 |
| | 14 |
| | — |
| | — |
|
Total liabilities | $ | — |
| | $ | 17 |
| | $ | 17 |
| | $ | — |
| | $ | — |
|
Net assets | $ | 235 |
| | $ | 135 |
| | $ | 370 |
| | $ | 47 |
| | $ | 60 |
|
The Duke Energy Registrants are not aware of any situations where the maximum exposure to loss significantly exceeds the carrying values shown above except for the power purchase agreement with Ohio Valley Electric Corporation (OVEC), which is discussed below, and various guarantees, reflected in the table above as Deferred credits and other liabilities. For more information on various guarantees, refer to Note 5.
Renewables
Duke Energy has investments in various renewable energy project entities. Some of these entities are VIEs due to long-term fixed-price power purchase agreements. These fixed-price agreements effectively transfer commodity price risk to the buyer of the power. Duke Energy does not consolidate these VIEs because power to direct and control key activities is shared jointly by Duke Energy and other owners. |
| | | | | | |
(in millions) | March 31, 2017 |
| December 31, 2016 |
|
Current Assets: Other | $ | 336 |
| $ | 223 |
|
Property, plant and equipment, cost | 3,671 |
| 3,419 |
|
Accumulated depreciation and amortization | (448 | ) | (453 | ) |
Current maturities of long-term debt | 227 |
| 198 |
|
Long-Term Debt | 1,645 |
| 1,097 |
|
Deferred income taxes | 321 |
| 275 |
|
Other Noncurrent Liabilities: Other | 251 |
| 252 |
|
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
NON-CONSOLIDATED VIEs
The following tables summarize the impact of non-consolidated VIEs on the Condensed Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2017 |
| Duke Energy | | Duke |
| | Duke |
| | |
| Pipeline |
| | Commercial |
| | Other |
| | | | Energy |
| | Energy |
| | |
(in millions) | Investments |
| | Renewables |
| | VIEs |
| | Total |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Receivables from affiliated companies | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 53 |
| | $ | 69 |
| | $ | — |
|
Investments in equity method unconsolidated affiliates | 673 |
| | 173 |
| | 92 |
| | 938 |
| | — |
| | — |
| | 152 |
|
Other noncurrent assets | 12 |
| | — |
| | — |
| | 12 |
| | — |
| | — |
| | — |
|
Total assets | $ | 685 |
| | $ | 173 |
| | $ | 92 |
| | $ | 950 |
| | $ | 53 |
| | $ | 69 |
| | $ | 152 |
|
Taxes accrued(a) | 23 |
| | — |
| | — |
| | 23 |
| | — |
| | — |
| | (1 | ) |
Other current liabilities | — |
| | — |
| | 2 |
| | 2 |
| | — |
| | — |
| | — |
|
Deferred income taxes(a) | (7 | ) | | — |
| | — |
| | (7 | ) | | — |
| | — |
| | 4 |
|
Other noncurrent liabilities | — |
| | — |
| | 13 |
| | 13 |
| | — |
| | — |
| | — |
|
Total liabilities | $ | 16 |
| | $ | — |
| | $ | 15 |
| | $ | 31 |
| | $ | — |
| | $ | — |
| | $ | 3 |
|
Net assets | $ | 669 |
| | $ | 173 |
| | $ | 77 |
| | $ | 919 |
| | $ | 53 |
| | $ | 69 |
| | $ | 149 |
|
| |
(a) | Taxes accrued and Deferred income taxes are netted by jurisdiction on a consolidated basis on the Condensed Consolidated Balance Sheets. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| Duke Energy | | Duke |
| | Duke |
| | |
| Pipeline |
| | Commercial |
| | Other |
| | | | Energy |
| | Energy |
| | |
(in millions) | Investments |
| | Renewables |
| | VIEs |
| | Total |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Receivables from affiliated companies | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 82 |
| | $ | 101 |
| | $ | — |
|
Investments in equity method unconsolidated affiliates | 487 |
| | 174 |
| | 90 |
| | 751 |
| | — |
| | — |
| | 139 |
|
Other noncurrent assets | 12 |
| | — |
| | — |
| | 12 |
| | — |
| | — |
| | — |
|
Total assets | $ | 499 |
| | $ | 174 |
| | $ | 90 |
| | $ | 763 |
| | $ | 82 |
| | $ | 101 |
| | $ | 139 |
|
Other current liabilities | — |
| | — |
| | 3 |
| | 3 |
| | — |
| | — |
| | — |
|
Other noncurrent liabilities | — |
| | — |
| | 13 |
| | 13 |
| | — |
| | — |
| | 4 |
|
Total liabilities | $ | — |
| | $ | — |
| | $ | 16 |
| | $ | 16 |
| | $ | — |
| | $ | — |
| | 4 |
|
Net assets | $ | 499 |
| | $ | 174 |
| | $ | 74 |
| | $ | 747 |
| | $ | 82 |
| | $ | 101 |
| | $ | 135 |
|
The Duke Energy Registrants are not aware of any situations where the maximum exposure to loss significantly exceeds the carrying values shown above except for the power purchase agreement with OVEC, which is discussed below, and various guarantees, some of which are reflected in the table above as Other noncurrent liabilities. For more information on various guarantees, refer to Note 5.
Pipeline Investments
Duke Energy has investments in various joint ventures with pipeline projects currently under construction. These entities are considered VIEs due to having insufficient equity to finance their own activities without subordinated financial support. Duke Energy does not have the power to direct the activities that most significantly impact the economic performance, the obligation to absorb losses or the right to receive benefits of these VIEs and therefore does not consolidate these entities.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
The table below presents the ownership interest and investment balances in these joint ventures. |
| | | | | | | | | | | | | | | | | | | | | |
| Duke Energy | | Piedmont |
| | | Investment Amount (in millions) | | | | Investment Amount (in millions) |
| Ownership | | March 31, | | December 31, | | Ownership | | March 31, | | December 31, |
Entity Name | Interest | | 2017 | | 2016 | | Interest(a) | | 2017 | | 2016 |
ACP | 47 | % | | $ | 403 |
| | $ | 265 |
| | 7 | % | | $ | 59 |
| | $ | 46 |
|
Sabal Trail | 7.5 | % | | 188 |
| | 140 |
| | | | | | |
Constitution(b) | 24 | % | | 82 |
| | 82 |
| | 24 | % | | 93 |
| | 93 |
|
Total | | | $ | 673 |
| | $ | 487 |
| | | | $ | 152 |
| | $ | 139 |
|
| |
(a) | On April 1, 2017, Piedmont transferred its ownership interests in ACP and Constitution to a wholly owned subsidiary of Duke Energy at Piedmont's book value. |
| |
(b) | Duke Energy's investment amount includes purchase accounting adjustments not recorded at the Piedmont registrant. |
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 VIEs
Duke Energy holds a 50 percent equity interest in Duke-American Transmission Company, LLC (DATC). DATC is considered a VIE due to having insufficient equity at risk to permit DATC to finance itstheir own activities without additional subordinated financial support. The activities that most significantly impact DATC’sDATC's economic performance are the decisions related to investing in existing and development of new transmission facilities. The power to direct these activities is jointly and equally shared by Duke Energy and the other joint venture partner, andAmerican Transmission Company, LLC, therefore Duke Energy does not consolidate DATC.
Duke Energy hasholds a 40 percent equity interest and a 7.550 percent equity interest in ACP and Sabal TrailPioneer Transmission, LLC (Sabal Trail), respectively. These entities are(Pioneer). Pioneer is considered VIEs as theira VIE due to having insufficient equity is not sufficient to permit the entities to finance their own activities without additional subordinated financial support. The activityactivities that most significantly impacts theimpact Pioneer's economic performance are decisions related to the development of both ACPnew transmission facilities. The power to direct these activities is jointly and Sabal Trail is construction.equally shared by Duke Energy and the other joint venture partner, American Electric Power, therefore Duke Energy does not control these activities and therefore does not consolidate ACP or Sabal Trail.Pioneer.
OVEC
Duke Energy Ohio’s 9 percent ownership interest in OVEC is considered a non-consolidated VIE. Through its ownership interest in OVEC,VIE due to having insufficient equity to finance their activities without subordinated financial support. As a counterparty to an inter-company power agreement (ICPA), Duke Energy Ohio has a contractual arrangement to buy powerreceive entitlements to capacity and energy from OVEC’s power plants through June 2040. Proceeds from the sale of power by OVEC to2040 commensurate with its power purchase agreement counterparties are designedparticipation ratio, which is equivalent to be sufficient to meet itsDuke Energy Ohio's ownership interest. Costs, including fuel, operating expenses, fixed costs, debt amortization, and interest expense as well as earn a returnare allocated to counterparties to the ICPA based on equity. Accordingly, thetheir power participation ratio. The value of this contractthe ICPA is subject to variability due to fluctuationsfluctuation in power prices and changes in OVEC’s costsOVEC's cost of business, including costs associated with its 2,256 MW of coal-fired generation capacity. Proposed environmental rulemakingDeterioration in the credit quality, or bankruptcy of one or more parties to the ICPA could increase the costs of OVEC, which would be passed through to Duke Energy Ohio.OVEC. In addition, certain proposed environmental rulemaking could result in future increased cost allocations.
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 turn over in less than two months, (ii) credit losses are reasonably predictable due to the broad customer base and lack of significant concentration, and (iii) the equity in CRC is subordinate to all retained interests and thus would absorb losses first. The hypothetical effect on fair value of the retained interests assuming both a 10 percent and a 20 percent unfavorable variation in credit losses or discount rates is not material due to the short turnover of receivables and historically low credit loss history. Interest accrues to Duke Energy Ohio and Duke Energy Indiana on the retained interests using the acceptable yield method. This method generally approximates the stated rate on the notes since the allocated basis and the face value are nearly equivalent. An impairment charge is recorded against the carrying value of both retained interests and purchased beneficial interest whenever it is determined that an other-than-temporary impairmentOTTI has occurred.
Key assumptions used in estimating fair value are detailed in the following table. |
| | | | | | | | | | | |
| Duke Energy Ohio | | Duke Energy Indiana |
| 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
|
Anticipated credit loss ratio | 0.5 | % | | 0.6 | % | | 0.3 | % | | 0.3 | % |
Discount rate | 1.4 | % | | 1.2 | % | | 1.4 | % | | 1.2 | % |
Receivable turnover rate | 13.2 | % | | 12.9 | % | | 10.6 | % | | 10.6 | % |
The following table shows the gross and net receivables sold. |
| | | | | | | | | | | | | | | |
| Duke Energy Ohio | | Duke Energy Indiana |
(in millions) | June 30, 2016 |
| | December 31, 2015 |
| | June 30, 2016 |
| | December 31, 2015 |
|
Receivables sold | $ | 208 |
| | $ | 233 |
| | $ | 279 |
| | $ | 260 |
|
Less: Retained interests | 39 |
| | 47 |
| | 58 |
| | 60 |
|
Net receivables sold | $ | 169 |
| | $ | 186 |
| | $ | 221 |
| | $ | 200 |
|
|
| | | | | | | | | | | |
| Duke Energy Ohio | | Duke Energy Indiana |
| 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
|
Anticipated credit loss ratio | 0.5 | % | | 0.5 | % | | 0.3 | % | | 0.3 | % |
Discount rate | 1.8 | % | | 1.5 | % | | 1.8 | % | | 1.5 | % |
Receivable turnover rate | 13.4 | % | | 13.3 | % | | 10.7 | % | | 10.6 | % |
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
The following table shows the gross and net receivables sold. |
| | | | | | | | | | | | | | | |
| Duke Energy Ohio | | Duke Energy Indiana |
(in millions) | March 31, 2017 |
| | December 31, 2016 |
| | March 31, 2017 |
| | December 31, 2016 |
|
Receivables sold | $ | 238 |
| | $ | 267 |
| | $ | 277 |
| | $ | 306 |
|
Less: Retained interests | 53 |
| | 82 |
| | 69 |
| | 101 |
|
Net receivables sold | $ | 185 |
| | $ | 185 |
| | $ | 208 |
| | $ | 205 |
|
The following table shows sales and cash flows related to receivables sold. | | | Duke Energy Ohio | | Duke Energy Indiana | Duke Energy Ohio | | Duke Energy Indiana |
| Three Months Ended | | Six Months Ended | | Three Months Ended | | Six Months Ended | Three Months Ended | | Three Months Ended |
| June 30, | | June 30, | | June 30, | | June 30, | March 31, | | March 31, |
(in millions) | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
| 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
|
Sales | | | | | | | | | | | | | | | | | | | | | | |
Receivables sold | $ | 429 |
| | $ | 425 |
| | $ | 961 |
| | $ | 1,069 |
| | $ | 623 |
| | $ | 637 |
| | $ | 1,258 |
| | $ | 1,353 |
| $ | 533 |
| | $ | 532 |
| | $ | 664 |
| | $ | 635 |
|
Loss recognized on sale | 2 |
| | 2 |
| | 5 |
| | 5 |
| | 2 |
| | 2 |
| | 5 |
| | 5 |
| 2 |
| | 3 |
| | 3 |
| | 3 |
|
Cash flows | | | | | | | | | | | | | | | | | | | | | | |
Cash proceeds from receivables sold | 427 |
| | 467 |
| | 964 |
| | 1,107 |
| | 612 |
| | 660 |
| | 1,255 |
| | 1,382 |
| $ | 559 |
| | $ | 537 |
| | $ | 693 |
| | $ | 643 |
|
Collection fees received | — |
| | 1 |
| | — |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| |
Return received on retained interests | — |
| | 1 |
| | 1 |
| | 2 |
| | 1 |
| | 1 |
| | 2 |
| | 3 |
| 1 |
| | 1 |
| | 2 |
| | 1 |
|
Cash flows from sales of receivables are reflected within Operating Activities on Duke Energy Ohio’s and Duke Energy Indiana’s Condensed 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 Condensed 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.
13. COMMON STOCK
Basic Earnings Per Share (EPS) is computed by dividing net income attributable to Duke Energy common stockholders, adjusted for distributed and undistributed earnings allocated to participating securities, by the weighted average number of common stockshares outstanding during the period. Diluted EPS is computed by dividing net income attributable to Duke Energy common stockholders, as adjusted for distributed and undistributed earnings allocated to participating securities, by the diluted weighted average number of common stockshares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other agreements to issue common stock, such as stock options and the Equity Forwards,equity forward sale agreements, were exercised or settled. Duke Energy’s participating securities are restricted stock units that are entitled to dividends declared on Duke Energy common stock during the restricted stock unit’s vesting periods.
The following table presents Duke Energy’s basic and diluted EPS calculations and reconciles the weighted average number of common stockshares outstanding to the diluted weighted average number of common shares outstanding. | | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
(in millions, except per-share amounts) | 2016 |
| | 2015 |
| | 2016 | | 2015 | |
(in millions, except per share amounts) | | 2017 |
| | 2016 |
|
Income from continuing operations attributable to Duke Energy common stockholders excluding impact of participating securities | $ | 508 |
| | $ | 600 |
| | $ | 1,199 |
| | $ | 1,372 |
| $ | 715 |
| | $ | 574 |
|
Weighted average shares outstanding – basic | 689 |
| | 692 |
| | 689 |
| | 700 |
| 700 |
| | 689 |
|
Equity Forwards | 1 |
| | — |
| | — |
| | — |
| |
Weighted average shares outstanding – diluted | 690 | | 692 | | 689 | | 700 | 700 | | 689 |
Earnings per share from continuing operations attributable to Duke Energy common stockholders | | | | | | | | | | |
Basic | $ | 0.74 |
| | $ | 0.87 |
| | $ | 1.74 |
| | $ | 1.96 |
| $ | 1.02 |
| | $ | 0.83 |
|
Diluted | $ | 0.74 |
| | $ | 0.87 |
| | $ | 1.74 |
| | $ | 1.96 |
| $ | 1.02 |
| | $ | 0.83 |
|
Potentially dilutive items excluded from the calculation(a) | 2 |
| | 2 |
| | 2 | | 2 | 2 | | 2 |
Dividends declared per common share | $ | 0.825 |
| | $ | 0.795 |
| | $ | 1.65 |
| | $ | 1.59 |
| $ | 0.855 |
| | $ | 0.825 |
|
| |
(a) | Performance stock awards were not included in the dilutive securities calculation because the performance measures related to the awards had not been met. |
Equity Forwards
In March 2016, Duke Energy marketed an equity offering of 10.6 million shares of common stock. In lieu of issuing equity at the time of the offering, Duke Energy entered into Equity Forwards with Barclays. No amounts have or will be recorded in Duke Energy’s Condensed Consolidated Financial Statements with respect to the equity offering until settlements of the Equity Forwards occur. The Equity Forwards require Duke Energy to, at its election prior to June 30, 2017, either physically settle the transactions by issuing the total of 10.6 million of its common stock to Barclays in exchange for net proceeds at the then-applicable forward sale price specified by the agreements (initially $69.84 per share) or Duke Energy can net settle the transactions in whole or in part through the delivery or receipt of cash or shares. If Duke Energy had elected to net share settle the contract as of June 30, 2016, Duke Energy would have been required to deliver 2.1 million shares. The forward sale price is subject to adjustment on a daily basis based on a floating interest rate factor and will decrease by other fixed amounts specified in the agreements. The net proceeds received upon settlement are expected to be used to finance a portion of the acquisition of Piedmont.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
Until settlementEquity Forwards
In March 2016, Duke Energy marketed an equity offering of 10.6 million shares of common stock. In lieu of issuing equity at the time of the offering, Duke Energy entered into equity forward sale agreements with Barclays (the Equity Forwards). The Equity Forwards earnings perrequired Duke Energy to either physically settle the transactions by issuing 10.6 million shares, or net settle in whole or in part through the delivery or receipt of cash or shares. As of March 31, 2016, share dilution resulting from the agreements will bewas determined under the treasury stock method.
Accelerated Stock Repurchase Program
On April 6, 2015, Duke Energy entered into agreements with each of Goldman, Sachs & Co. and JPMorgan Chase Bank, National Association (the Dealers) to repurchase a total of $1.5 billion of Duke Energy common stock under an accelerated stock repurchase program (the ASR). Duke Energy made payments of $750 million to eachphysically settled the Equity Forwards in full in October 2016 following the close of the Dealers and was delivered 16.6 million shares, with a total fair value of $1.275 billion, which represented approximately 85 percent ofPiedmont acquisition. See Note 2 for additional information related to 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.Piedmont acquisition.
14. STOCK-BASED COMPENSATION
For employee awards, equity classified stock-based compensation cost is measured at the service inception date or the grant date, based on the estimated achievement of certain performance metrics or the fair value of the award, and is recognized as expense or capitalized as a component of property, plant and equipment over the requisite service period.
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. | | | Three Months Ended | | Six Months Ended | | Three Months Ended |
| June 30, | | June 30, | | March 31, |
(in millions) | 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
| | 2017 |
| | 2016 |
|
Restricted stock unit awards | $ | 10 |
| | $ | 11 |
| | $ | 17 |
| | $ | 20 |
| | $ | 8 |
| | $ | 7 |
|
Performance awards | 5 |
| | 8 |
| | 10 |
| | 13 |
| | 7 |
| | 5 |
|
Pretax stock-based compensation cost | $ | 15 |
| | $ | 19 |
| | $ | 27 |
| | $ | 33 |
| | $ | 15 |
| | $ | 12 |
|
Tax benefit associated with stock-based compensation expense | $ | 5 |
| | $ | 7 |
| | $ | 9 |
| | $ | 12 |
| | $ | 5 |
| | $ | 4 |
|
Stock-based compensation costs capitalized | 1 |
| | 1 |
| | 2 |
| | 2 |
| | 1 |
| | 1 |
|
Prior to Duke Energy acquiring Piedmont, Piedmont had an incentive compensation plan for eligible officers and other participants. Piedmont's total stock-based compensation costs were approximately $2 million for the three months ended March 31, 2016.
15. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT RETIREMENT PLANS
Duke Energy maintains, and the Subsidiary Registrants participate in, qualified and non-qualified, non-contributory defined benefit retirement plans. The plans cover most U.S. employees using a cash balance formula. Under a cash balance formula, a plan participant accumulates a retirement benefit consisting of pay credits equal to a percentage of current eligible earnings based on age or the combination of age and years of service, and interest credits. Certain employees are covered under plans that use a final average earnings formula. Under these average earnings formulas, a plan participant accumulates a retirement benefit equal to the sum of percentages of their (i) highest three-year or four-year average earnings, (ii) highest three-year or four-year average earnings in excess of covered compensation per year of participation (maximum of 35 years) and/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 which cover certain executives. The qualified and non-qualified, non-contributory defined benefit plans are closed to new and rehired non-union and certain unionized employees.
Duke Energy’s policy is to fund amounts on an actuarial basis to provide assets sufficient to meet benefit payments to be paid to plan participants. The following table includes information related to the Duke Energy Registrants’ contributions to its U.S. qualified defined benefit pension plans. Duke Energy did not make any contributions to its U.S. qualified defined benefit pension plans during the sixthree months ended June 30,March 31, 2017 and 2016. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2015 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Contributions | $ | 132 |
| | $ | 42 |
| | $ | 42 |
| | $ | 21 |
| | $ | 21 |
| | $ | 1 |
| | $ | 9 |
|
Net periodic benefit costs disclosed in the tables below represent the cost of the respective benefit plan for the periods presented. However, portions of the net periodic benefit costs disclosed in the tables below have been capitalized as a component of property, plant and equipment. Amounts presented in the tables below for the Subsidiary Registrants represent the amounts of pension and other post-retirement benefit costs allocated by Duke Energy for employees of the Subsidiary Registrants. Additionally, the Subsidiary Registrants are allocated their proportionate share of pension and post-retirement benefit costs for employees of Duke Energy’s shared services affiliate that provides support to the Subsidiary Registrants. These allocated amounts are included in the governance and shared service costs discussed in Note 8. Duke Energy uses a December 31 measurement date for its defined benefit retirement plan assets and obligations.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
QUALIFIED PENSION PLANS
The following tables include the components of net periodic pension costs for qualified pension plans. | | | Three Months Ended June 30, 2016 | Three Months Ended March 31, 2017 |
| | | 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 |
| Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Service cost | $ | 37 |
| | $ | 12 |
| | $ | 10 |
| | $ | 6 |
| | $ | 5 |
| | $ | 1 |
| | $ | 2 |
| $ | 40 |
| | $ | 12 |
| | $ | 12 |
| | $ | 6 |
| | $ | 5 |
| | $ | 1 |
| | $ | 2 |
| | $ | 3 |
|
Interest cost on projected benefit obligation | 83 |
| | 22 |
| | 27 |
| | 13 |
| | 14 |
| | 5 |
| | 7 |
| 82 |
| | 20 |
| | 25 |
| | 12 |
| | 13 |
| | 5 |
| | 7 |
| | 3 |
|
Expected return on plan assets | (129 | ) | | (36 | ) | | (42 | ) | | (20 | ) | | (21 | ) | | (7 | ) | | (11 | ) | (136 | ) | | (35 | ) | | (43 | ) | | (21 | ) | | (21 | ) | | (7 | ) | | (11 | ) | | (6 | ) |
Amortization of actuarial loss | 33 |
| | 8 |
| | 13 |
| | 5 |
| | 7 |
| | 1 |
| | 3 |
| 36 |
| | 8 |
| | 14 |
| | 6 |
| | 7 |
| | 1 |
| | 3 |
| | 3 |
|
Amortization of prior service credit | (4 | ) | | (2 | ) | | (1 | ) | | (1 | ) | | — |
| | — |
| | — |
| (6 | ) | | (2 | ) | | (1 | ) | | — |
| | — |
| | — |
| | — |
| | (1 | ) |
Other | 1 |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| 2 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net periodic pension costs | $ | 21 |
| | $ | 4 |
| | $ | 7 |
| | $ | 4 |
| | $ | 5 |
| | $ | — |
| | $ | 1 |
| $ | 18 |
| | $ | 3 |
| | $ | 8 |
| | $ | 3 |
| | $ | 4 |
| | $ | — |
| | $ | 1 |
| | $ | 2 |
|
| | | Three Months Ended June 30, 2015 | Three Months Ended March 31, 2016 |
| | | 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 |
| Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Service cost | $ | 39 |
| | $ | 12 |
| | $ | 11 |
| | $ | 6 |
| | $ | 5 |
| | $ | 1 |
| | $ | 2 |
| $ | 36 |
| | $ | 12 |
| | $ | 11 |
| | $ | 6 |
| | $ | 5 |
| | $ | 1 |
| | $ | 2 |
| | $ | 3 |
|
Interest cost on projected benefit obligation | 81 |
| | 20 |
| | 26 |
| | 12 |
| | 13 |
| | 4 |
| | 7 |
| 83 |
| | 21 |
| | 26 |
| | 12 |
| | 14 |
| | 5 |
| | 7 |
| | 2 |
|
Expected return on plan assets | (129 | ) | | (33 | ) | | (41 | ) | | (21 | ) | | (22 | ) | | (7 | ) | | (11 | ) | (129 | ) | | (35 | ) | | (42 | ) | | (21 | ) | | (21 | ) | | (7 | ) | | (10 | ) | | (6 | ) |
Amortization of actuarial loss | 44 |
| | 10 |
| | 17 |
| | 9 |
| | 8 |
| | 3 |
| | 4 |
| 33 |
| | 8 |
| | 14 |
| | 6 |
| | 7 |
| | 1 |
| | 3 |
| | 2 |
|
Amortization of prior service credit | (3 | ) | | (2 | ) | | (1 | ) | | (1 | ) | | (1 | ) | | — |
| | — |
| (4 | ) | | (2 | ) | | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Other | 2 |
| | — |
| | — |
| | 1 |
| | 1 |
| | — |
| | — |
| 3 |
| | 1 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net periodic pension costs | $ | 34 |
| | $ | 7 |
| | $ | 12 |
| | $ | 6 |
| | $ | 4 |
| | $ | 1 |
| | $ | 2 |
| $ | 22 |
| | $ | 5 |
| | $ | 9 |
| | $ | 3 |
| | $ | 5 |
| | $ | — |
| | $ | 2 |
| | $ | 1 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Service cost | $ | 73 |
| | $ | 24 |
| | $ | 21 |
| | $ | 12 |
| | $ | 10 |
| | $ | 2 |
| | $ | 4 |
|
Interest cost on projected benefit obligation | 166 |
| | 43 |
| | 53 |
| | 25 |
| | 28 |
| | 10 |
| | 14 |
|
Expected return on plan assets | (258 | ) | | (71 | ) | | (84 | ) | | (41 | ) | | (42 | ) | | (14 | ) | | (21 | ) |
Amortization of actuarial loss | 66 |
| | 16 |
| | 27 |
| | 11 |
| | 14 |
| | 2 |
| | 6 |
|
Amortization of prior service credit | (8 | ) | | (4 | ) | | (2 | ) | | (1 | ) | | — |
| | — |
| | — |
|
Other | 4 |
| | 1 |
| | 1 |
| | 1 |
| | — |
| | — |
| | — |
|
Net periodic pension costs | $ | 43 |
| | $ | 9 |
| | $ | 16 |
| | $ | 7 |
| | $ | 10 |
| | $ | — |
| | $ | 3 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2015 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Service cost | $ | 79 |
| | $ | 25 |
| | $ | 22 |
| | $ | 12 |
| | $ | 10 |
| | $ | 2 |
| | $ | 5 |
|
Interest cost on projected benefit obligation | 163 |
| | 41 |
| | 52 |
| | 24 |
| | 27 |
| | 9 |
| | 14 |
|
Expected return on plan assets | (258 | ) | | (69 | ) | | (84 | ) | | (41 | ) | | (44 | ) | | (13 | ) | | (21 | ) |
Amortization of actuarial loss | 87 |
| | 20 |
| | 34 |
| | 17 |
| | 16 |
| | 5 |
| | 7 |
|
Amortization of prior service credit | (7 | ) | | (4 | ) | | (2 | ) | | (1 | ) | | (1 | ) | | — |
| | — |
|
Other | 4 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | — |
| | — |
|
Net periodic pension costs | $ | 68 |
| | $ | 14 |
| | $ | 23 |
| | $ | 12 |
| | $ | 9 |
| | $ | 3 |
| | $ | 5 |
|
NON-QUALIFIED PENSION PLANS
Net periodic costs for non-qualified pension plans were not material for the three months ended March 31, 2017 and 2016. 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.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
NON-QUALIFIED PENSION PLANS
The following tables include the components of net periodic pension costs for non-qualified pension plans for registrants with non-qualified pensionother post-retirement benefit costs. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 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 | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Interest cost on accumulated post-retirement benefit obligation | 9 |
| | 2 |
| | 4 |
| | 2 |
| | 2 |
| | — |
| | — |
| | — |
|
Expected return on plan assets | (3 | ) | | (2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Amortization of actuarial loss (gain) | 2 |
| | (1 | ) | | 5 |
| | 3 |
| | 2 |
| | — |
| | — |
| | — |
|
Amortization of prior service credit | (29 | ) | | (2 | ) | | (21 | ) | | (14 | ) | | (8 | ) | | — |
| | — |
| | — |
|
Net periodic other post-retirement benefit | $ | (20 | ) | | $ | (3 | ) | | $ | (12 | ) | | $ | (9 | ) | | $ | (4 | ) | | $ | — |
| | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | |
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | |
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Service cost | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Interest cost on accumulated post-retirement benefit obligation | 8 |
| | 2 |
| | 4 |
| | 2 |
| | 2 |
| | — |
| | 1 |
| | — |
|
Expected return on plan assets | (3 | ) | | (2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Amortization of actuarial loss (gain) | 1 |
| | (1 | ) | | 5 |
| | 3 |
| | 2 |
| | — |
| | (1 | ) | | — |
|
Amortization of prior service credit | (35 | ) | | (3 | ) | | (26 | ) | | (17 | ) | | (9 | ) | | — |
| | — |
| | — |
|
Net periodic other post-retirement benefit | $ | (28 | ) | | $ | (4 | ) | | $ | (17 | ) | | $ | (12 | ) | | $ | (5 | ) | | $ | — |
| | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
|
Service cost | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Interest cost on projected benefit obligation | 3 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
|
Amortization of actuarial loss | 2 |
| | — |
| | — |
| | — |
| | — |
|
Net periodic pension costs | $ | 6 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
|
DEFINED CONTRIBUTION RETIREMENT PLANS |
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2015 |
| | | Duke |
| | | | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
|
Service cost | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Interest cost on projected benefit obligation | 3 |
| | — |
| | 1 |
| | 1 |
| | 1 |
|
Amortization of actuarial loss | 1 |
| | — |
| | 1 |
| | — |
| | — |
|
Net periodic pension costs | $ | 5 |
| | $ | — |
| | $ | 2 |
| | $ | 1 |
| | $ | 1 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
|
Service cost | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Interest cost on projected benefit obligation | 7 |
| | 1 |
| | 2 |
| | 1 |
| | 1 |
|
Amortization of actuarial loss | 4 |
| | — |
| | 1 |
| | — |
| | — |
|
Net periodic pension costs | $ | 12 |
| | $ | 1 |
| | $ | 3 |
| | $ | 1 |
| | $ | 1 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2015 |
| | | Duke |
| | | | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
|
Service cost | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
Interest cost on projected benefit obligation | 7 |
| | 1 |
| | 2 |
| | 1 |
| | 1 |
|
Amortization of actuarial loss | 3 |
| | — |
| | 1 |
| | — |
| | 1 |
|
Net periodic pension costs | $ | 11 |
| | $ | 1 |
| | $ | 4 |
| | $ | 1 |
| | $ | 2 |
|
OTHER POST-RETIREMENT BENEFIT PLANSEMPLOYEE SAVINGS PLAN
Duke Energy provides,sponsors, and the Subsidiary Registrants participate in, some health careemployee savings plans that cover substantially all U.S. employees.
The following table presents employer contributions made by Duke Energy and life insurance benefits for retired employees on a contributoryexpensed 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 |
|
Three Months Ended March 31, | | | | | | | | | | | | | | | |
2017 | $ | 65 |
| | $ | 22 |
| | $ | 18 |
| | $ | 13 |
| | $ | 5 |
| | $ | 1 |
| | $ | 3 |
| | $ | 2 |
|
2016 | 52 |
| | 18 |
| | 15 |
| | 11 |
| | 4 |
| | 1 |
| | 2 |
| | 2 |
|
MONEY PURCHASE PENSION PLAN
Duke Energy provides, and non-contributory basis. Employees are eligible for these benefits if they have met age and service requirements at retirement, as set forthPiedmont participates in, the plans. The health care benefits include medical, dental, vision,Money Purchase Pension (MPP) plan, which is a defined contribution pension plan that allows employees to direct investments and prescription drug coverage and are subjectassume risk of investment returns. In January 2017, a $2 million contribution was made to certain limitations, such as deductibles and co-payments.the MPP plan.
PART I
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 Condensed Consolidated Financial Statements – (Unaudited) – (Continued)
(Unaudited)
The following tables include the components of net periodic other post-retirement benefit costs. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2016 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Service cost | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Interest cost on accumulated post-retirement benefit obligation | 9 |
| | 2 |
| | 3 |
| | 2 |
| | 1 |
| | 1 |
| | 1 |
|
Expected return on plan assets | (4 | ) | | (2 | ) | | — |
| | — |
| | — |
| | — |
| | (1 | ) |
Amortization of actuarial loss (gain) | 2 |
| | (1 | ) | | 6 |
| | 3 |
| | 3 |
| | (1 | ) | | — |
|
Amortization of prior service credit | (36 | ) | | (3 | ) | | (25 | ) | | (17 | ) | | (9 | ) | | — |
| | — |
|
Net periodic other post-retirement benefit costs | $ | (28 | ) | | $ | (4 | ) | | $ | (16 | ) | | $ | (12 | ) | | $ | (5 | ) | | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2015 |
| | | Duke |
| | | | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Duke |
| | Energy |
| | Progress |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
(in millions) | Energy |
| | Carolinas |
| | Energy |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
|
Service cost | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Interest cost on accumulated post-retirement benefit obligation | 9 |
| | 2 |
| | 3 |
| | 2 |
| | 1 |
| | 1 |
| | 2 |
|
Expected return on plan assets | (3 | ) | | (2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Amortization of actuarial loss (gain) | 7 |
| | (1 | ) | | 7 |
| | 4 |
| | 2 |
| | — |
| | (1 | ) |
Amortization of prior service credit | (35 | ) | | (3 | ) | | (25 | ) | | (16 | ) | | (7 | ) | | — |
| | — |
|
Net periodic other post-retirement benefit costs | $ | (21 | ) | | $ | (3 | ) | | $ | (14 | ) | | $ | (10 | ) | | $ | (4 | ) | | $ | 1 |
| | $ | 1 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 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 accumulated post-retirement benefit obligation | 17 |
| | 4 |
| | 7 |
| | 4 |
| | 3 |
| | 1 |
| | 2 |
|
Expected return on plan assets | (7 | ) | | (4 | ) | | — |
| | — |
| | — |
| | — |
| | (1 | ) |
Amortization of actuarial loss (gain) | 3 |
| | (2 | ) | | 11 |
| | 6 |
| | 5 |
| | (1 | ) | | (1 | ) |
Amortization of prior service credit | (71 | ) | | (6 | ) | | (51 | ) | | (34 | ) | | (18 | ) | | — |
| | — |
|
Net periodic other post-retirement benefit costs | $ | (56 | ) | | $ | (8 | ) | | $ | (33 | ) | | $ | (24 | ) | | $ | (10 | ) | | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 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 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Interest cost on accumulated post-retirement benefit obligation | 18 |
| | 4 |
| | 7 |
| | 4 |
| | 3 |
| | 1 |
| | 2 |
|
Expected return on plan assets | (6 | ) | | (4 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Amortization of actuarial loss (gain) | 13 |
| | (1 | ) | | 14 |
| | 9 |
| | 5 |
| | — |
| | (1 | ) |
Amortization of prior service credit | (70 | ) | | (7 | ) | | (51 | ) | | (33 | ) | | (16 | ) | | — |
| | — |
|
Net periodic other post-retirement benefit costs | $ | (42 | ) | | $ | (7 | ) | | $ | (29 | ) | | $ | (20 | ) | | $ | (8 | ) | | $ | 1 |
| | $ | 1 |
|
PART I
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
Combined Notes to Condensed Consolidated Financial Statements – (Continued)
(Unaudited)
EMPLOYEE SAVINGS PLAN
Duke Energy sponsors, and the Subsidiary Registrants participate in, an employee savings plan that covers substantially all U.S. employees. Most employees participate in a matching contribution formula where Duke Energy provides a matching contribution generally equal to 100 percent of employee before-tax and Roth 401(k) contributions of up to 6 percent of eligible pay per pay period. Dividends on Duke Energy shares held by the savings plan are charged to retained earnings when declared and shares held in the plan are considered outstanding in the calculation of basic and diluted earnings per share.
For new and rehired non-union and certain unionized employees who are not eligible to participate in Duke Energy’s defined benefit plans, an additional employer contribution of 4 percent of eligible pay per pay period, subject to a three-year vesting requirement, is provided to the employee’s savings plan account.
The following table presents employer 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 |
|
Three Months Ended June 30, | | | | | | | | | | |
2016 | $ | 39 |
| | $ | 13 |
| | $ | 12 |
| | $ | 8 |
| | $ | 4 |
| | $ | 1 |
| | $ | 2 |
|
2015 | 37 |
| | 13 |
| | 12 |
| | 8 |
| | 3 |
| | 1 |
| | 2 |
|
Six Months Ended June 30, | | | | | | | | | | |
2016 | $ | 91 |
| | $ | 31 |
| | $ | 27 |
| | $ | 19 |
| | $ | 8 |
| | $ | 2 |
| | $ | 4 |
|
2015 | 86 |
| | 29 |
| | 26 |
| | 19 |
| | 7 |
| | 2 |
| | 4 |
|
16. INCOME TAXES
TAXES ON FOREIGN EARNINGS
As of December 31, 2015, Duke Energy's intention was to indefinitely reinvest foreign earnings of International Energy earned after December 31, 2014. In February 2016, Duke Energy announced it had initiated a process to divest the International Energy business segment, excluding the investment in NMC. Accordingly, Duke Energy no longer intends to indefinitely reinvest the undistributed earnings of International Energy. The Company recorded U.S. income taxes of approximately $4 million and $16 million for the three and six months ended June 30, 2016, respectively, related to such earnings and will prospectively provide U.S. income taxes on future foreign earnings.
This change in the Company's intent, combined with the extension of bonus depreciation by Congress in late 2015, allows Duke Energy to more efficiently utilize foreign tax credits and reduce U.S. deferred tax liabilities associated with historic unremitted foreign earnings by approximately $95 million for the six months ended June 30, 2016.
EFFECTIVE TAX RATES
The effective tax rates from continuing operations for each of the Duke Energy Registrants are included in the following table. | | | Three Months Ended | | Six Months Ended | Three Months Ended |
| June 30, | | June 30, | March 31, |
| 2016 |
| | 2015 |
| | 2016 |
| | 2015 |
| 2017 |
| | 2016 |
|
Duke Energy | 31.8 | % | | 35.6 | % | | 27.2 | % | | 33.6 | % | 32.4 | % | | 30.4 | % |
Duke Energy Carolinas | 35.1 | % | | 36.6 | % | | 34.6 | % | | 36.2 | % | 35.4 | % | | 34.1 | % |
Progress Energy | 36.0 | % | | 39.2 | % | | 36.3 | % | | 37.1 | % | 34.1 | % | | 36.7 | % |
Duke Energy Progress | 35.5 | % | | 40.6 | % | | 35.4 | % | | 36.0 | % | 34.1 | % | | 35.4 | % |
Duke Energy Florida | 37.6 | % | | 38.7 | % | | 37.7 | % | | 38.6 | % | 36.6 | % | | 37.9 | % |
Duke Energy Ohio | 34.3 | % | | 35.0 | % | | 29.2 | % | | 36.8 | % | 35.4 | % | | 26.9 | % |
Duke Energy Indiana | 36.1 | % | | 36.4 | % | | 33.1 | % | | 36.5 | % | 39.3 | % | | 30.2 | % |
Piedmont | | 37.9 | % | | 38.0 | % |
The decreaseincrease in the effective tax rate (ETR) for Duke Energy for the three and six months ended June 30, 2016,March 31, 2017, is driven by lower income taxes on foreign earningsprimarily due to a more efficient utilization of foreignlower investment tax credits as described above,due to lower solar investments in the current year, the inclusion of Piedmont's earnings at a higher ETR, and favorable impactsa tax charge related to the implementation of finalizing federala new accounting standard related to stock compensation; partially offset by higher production tax audits. Refercredits related to "Taxes on Foreign Earnings" abovewind projects placed in service. See Note 1 for additional information.information on the new accounting standard.
The decreaseincrease in the effective tax rateETR for Duke Energy Carolinas for the three and six months ended June 30, 2016,March 31, 2017, is primarily due to a favorable state resolution booked in 2016 related to prior-yearprior year tax returns and favorable impacts of finalizing tax audits.returns.
The decrease in the effective tax rateETR for Progress Energy for the three months ended June 30, 2016,March 31, 2017, is primarily due to a change in tax levelization.higher AFUDC equity and the amortization of excess North Carolina deferred tax.
The decrease in the effective tax rateETR for Duke Energy Progress for the three months ended June 30, 2016,March 31, 2017, is primarily due to a change in tax levelization.
PART I
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
Combined Notes to Condensed Consolidated Financial Statements – (Continued)
(Unaudited)
the amortization of excess North Carolina deferred tax.
The decrease in the effective tax rateETR for Duke Energy Florida for the three months ended June 30, 2016,March 31, 2017, is primarily due to an increase inhigher AFUDC equity.
The decreaseincrease in the effective tax rateETR for Duke Energy Ohio for the sixthree months ended June 30, 2016,March 31, 2017, is primarily due to a favorable prior-periodan immaterial out of period adjustment for depreciation and otherin the prior year related to deferred tax balances associated with property, plant and equipment.
The decreaseincrease in the effective tax rateETR for Duke Energy Indiana for the sixthree months ended June 30, 2016,March 31, 2017, is primarily due to a favorable prior-periodan immaterial out of period adjustment for depreciation and otherin the prior year related to deferred tax balances associated with property, plant and equipment.
TAXES ON FOREIGN EARNINGS
PART I
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
Combined NotesAs of December 31, 2015, Duke Energy's intention was to indefinitely reinvest any future undistributed foreign earnings earned after December 31, 2014. 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 historical unremitted foreign earnings by approximately $95 million for the three months ended March 31, 2016. Due to the classification of the International Disposal Group as discontinued operations, income tax amounts related to the International Disposal Group's foreign earnings are presented within Income from Discontinued Operations, net of tax on the Condensed Consolidated Financial Statements – (Continued)of Operations. See Note 2 for additional information related to the sale of the International Disposal Group.
(Unaudited)
17. SUBSEQUENT EVENTS
For information on additional subsequent events related to acquisitions, regulatory matters, commitments and contingencies, and debt and credit facilities, and variable interest entities see Notes 2, 4, 5, 6 and 6,12, respectively.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 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) and, Duke Energy Indiana, LLC (Duke Energy Indiana) and Piedmont Natural Gas Company, Inc. (Piedmont) (collectively referred to as the Subsidiary Registrants). 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.
DUKE ENERGY
Duke Energy is an energy company headquartered in Charlotte, North Carolina. Duke Energy operates in the United States (U.S.) primarily through its wholly owned subsidiaries, Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, and Duke Energy Indiana as well as in Latin America.
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 includes financial information prepared in accordance with generally accepted accounting principles (GAAP) in the U.S., as well as certain non-GAAP financial measures such as adjusted earnings, adjusted diluted earnings per share (EPS) and adjusted segment income, discussed below. Generally, a non-GAAP financial measure is a numerical measure Piedmont's results of financial performance, financial position or cash flows that excludes (or includes) amounts thatoperations are included in (or excluded from)Duke Energy's results for the most directly comparable measure calculated and presentedthree months ended March 31, 2017, but not for the three months ended March 31, 2016, as Piedmont's earnings are only included in accordance with GAAP. The non-GAAP financial measures should be viewed as a supplementDuke Energy's consolidated results subsequent to and not a substitutethe acquisition date. See below for financial measures presented in accordance with GAAP. Non-GAAP measures presented herein may not be comparable to similarly titled measures used by other companies.additional information regarding the acquisition.
Management’s Discussion and Analysis should be read in conjunction with the Condensed Consolidated Financial Statements and Notes for the sixthree months ended June 30, 2016,March 31, 2017, and with Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015.2016, Piedmont's Annual Report on Form 10-K for the year ended October 31, 2016, and the transition report filed by Piedmont on Form 10-Q (Form 10-QT) as of December 31, 2016, for the transition period from November 1, 2016 to December 31, 2016.
Executive Overview
Acquisition of Piedmont Natural Gas
On October 24, 2015,3, 2016, Duke Energy entered into an Agreement and Plancompleted the acquisition of Merger (Merger Agreement) with Piedmont Natural Gas Company, Inc., (Piedmont) a North Carolina corporation. Under the terms of the Merger Agreement, Duke Energy will acquire Piedmont for approximately $4.9a total cash purchase price of $5.0 billion in cash and Piedmont will become a wholly owned subsidiary of Duke Energy. In addition, Duke Energy will assumeassumed Piedmont's existing long-term debt, which washad a fair value of approximately $2.0 billion at April 30, 2016, the end of Piedmont's most recent filed quarter. The excesstime of the purchase price overacquisition. 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 fair value of Piedmont's assetsMidwest.
Duke Energy incurred pretax nonrecurring transaction and liabilities onintegration costs associated with the acquisition date will be recorded as goodwill. Duke Energy estimatesof $16 million and $101 million for the transaction would result in incremental goodwillthree months ended March 31, 2017 and 2016, respectively. The 2016 amount includes $100 million of approximately $3.5 billion.Interest Expense, which was driven by unrealized losses on forward-starting interest rate swaps related to the acquisition financing. Duke Energy expects to finance the transaction with a combination of debt, equity issuancesincur system integration and other cash sources. As of June 30, 2016, Duke Energy entered into $1.4 billion of forward-starting interest rate swapsacquisition-related transition costs, primarily through 2018, that are necessary to manage interest rate exposure for the expected financing of the Piedmont acquisition. For additional information on the forward-starting swaps, seeachieve certain anticipated cost savings, efficiencies and other benefits. See Note 92 to the Condensed Consolidated Financial Statements, "Derivatives"Acquisitions and Hedging.Dispositions,"
In March 2016, Duke Energy marketed an equity offering of 10.6 million shares of Duke Energy common stock. In lieu of issuing equity at the time of the offering, Duke Energy entered into equity forward sale agreements (the Equity Forwards) with Barclays Capital, Inc. (Barclays). Duke Energy expects to settle the Equity Forwards on or around the closing date of the Piedmont acquisition. The net proceeds received upon settlement are expected to be used to finance a portion of the acquisition of Piedmont. For for additional information regarding the Equity Forwards, seetransaction.
Sale of International Energy
In December 2016, Duke Energy sold its Latin American generation businesses (International Disposal Group) in two separate transactions for a combined enterprise value of $2.4 billion. Duke Energy sold its Brazilian business to China Three Gorges for approximately $1.2 billion, including the assumption of debt, and its remaining Central and South American businesses to I Squared Capital in a deal also valued at approximately $1.2 billion, including the assumption of debt. The transactions generated cash proceeds of $1.9 billion, excluding transaction costs, which were primarily used to reduce Duke Energy holding company debt. Existing favorable tax attributes resulted in no immediate U.S. federal-level cash tax impacts.
Due to the transactions, results of the International Disposal Group are classified as discontinued operations. See Note 132 to the Condensed Consolidated Financial Statements, "Common Stock."
In connection with the Merger Agreement with Piedmont, Duke Energy entered into a $4.9 billion senior unsecured bridge financing facility (Bridge Facility) with Barclays. The Bridge Facility, if drawn upon, may be used to (i) fund the cash consideration for the transaction"Acquisitions and (ii) pay certain fees and expenses in connection with the transaction. In November 2015, Barclays syndicated its commitment under the Bridge Facility to a broader group of lenders. Duke Energy does not expect to draw upon the Bridge Facility. The amount of the Bridge Facility is reduced by any financings related to the Piedmont acquisition entered into by Duke Energy, and has accordingly been reduced to $3.2 billion as a result of the Equity Forwards and $1 billion of the commitments under a term loan amended and restated as of August 1, 2016. See Note 6 to the Condensed Consolidated Financial Statements, "Debt and Credit Facilities,"Dispositions" for additional information.
Piedmont's shareholders have approved the company's acquisition by Duke Energy and the Federal Trade Commission (FTC) has granted early termination of the 30-day waiting period under the federal Hart-Scott-Rodino Antitrust Improvements Act of 1976. On January 15, 2016, Duke Energy and Piedmont filed an application with the North Carolina Utilities Commission (NCUC) for approval of the proposed business combination and associated financing transactions. On January 29, 2016, the NCUC approved Duke Energy's proposed financing transactions. On March 7, 2016, the Kentucky Public Service Commission (KPSC) granted Duke Energy's declaratory request that the transaction does not constitute a change in control and does not require KPSC approval. The Tennessee Regulatory Authority approved Duke Energy's and Piedmont's request of the change in control resulting from the transaction at its March 14, 2016, meeting. On June 10, 2016 the North Carolina Public Staff reached an agreement with Duke Energy and Piedmont on certain stipulations and conditions for approval of the transaction. Duke Energy and Piedmont have also entered into settlement agreements with the Environmental Defense Fund (EDF) and the Carolina Utility Customers Association, Inc. (CUCA) resolving EDF's and CUCA's issues in the case.
On July 19, 2016, the NCUC concluded an evidentiary hearing for the proposed business combination. Proposed orders are due from all parties by August 25, 2016, after which the NCUC will rule on the application. Subject to receipt of NCUC approval, and meeting closing conditions, Duke Energy and Piedmont expect to close the transaction by the end of 2016. Upon closing of the proposed acquisition, Duke Energy expects to record expenses of $175 million to $200 million, representing accruals for commitments made in conjunction with the transaction, such as funding charitable and community support contributions, professional fees and severance.
The Merger Agreement contains certain termination rights for both Duke Energy and Piedmont, and provides that, upon termination of the Merger Agreement under specified circumstances, Duke Energy would be required to pay a termination fee of $250 million to Piedmont and Piedmont would be required to pay Duke Energy a termination fee of $125 million.
Upon closing of the proposed acquisition of Piedmont, the chief operating decision-maker may determine that changes to business segments are necessary. The final outcome has not been determined.
See Note 4 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information regarding Duke Energy and Piedmont's joint investment in Atlantic Coast Pipeline, LLC (ACP).
Change In Segment Income
During the first quarter of 2016, the Duke Energy chief operating decision-maker began to evaluate interim period segment performance based on financial information that includes the impact of income tax levelization within segment income. This represents a change from the previous measure, where the interim period impacts of income tax levelization were included within Other, and therefore excluded from segment income. As a result, prior period segment results presented have been recast to conform to this change.
Potential Sale of International Energy
In February 2016, Duke Energy announced it had initiated a process to divest the International Energy business segment, excluding the equity method investment in National Methanol Company (NMC). Duke Energy is actively marketing the business. Non-binding offers have been received and are being evaluated. There is no assurance that this process will result in a transaction and the timing for execution of a potential transaction is uncertain. Proceeds from a successful sale would be used by Duke Energy to reduce debt and fund the operations and growth of domestic businesses. If the potential of a sale were to progress, it could result in classification of International Energy as assets held for sale and as a discontinued operation.
Based upon the advancement of the marketing efforts Duke Energy performed recoverability tests of the long-lived asset groups of International Energy as of June 30, 2016. As a result, Duke Energy determined the carrying value of certain assets in Central America is not fully recoverable and recorded a pretax impairment charge of $194 million, which is included within Impairment Charges on the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2016. The impairment charge represents the excess of carrying value over the estimated fair value of the assets. The fair value of the assets was primarily determined from the income approach using discounted cash flows but also considered market information obtained in 2016.
As of June 30, 2016, the International Energy segment had a carrying value of approximately $2.4 billion, adjusted for approximately $589 million of cumulative foreign currency translation losses currently classified as accumulated other comprehensive loss.
Results of Operations
In this section, Non-GAAP Measures
Management’s Discussion and Analysis includes financial information prepared in accordance with generally accepted accounting principles (GAAP) in the U.S., as well as certain non-GAAP financial measures. 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. 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 presented may not be comparable to similarly titled measures used by other companies because other companies may not calculate the measures in the same manner.
Duke Energy provides analysis and discussion of earnings and factors affecting earnings on both a GAAP and non-GAAP basis.
Managementmanagement evaluates financial performance in part based on non-GAAP financial measures, including adjusted earnings and adjusted diluted EPS. These itemsAdjusted earnings and adjusted diluted EPS represent income from continuing operations net of income (loss) attributable to noncontrolling interests,Duke Energy, adjusted for the dollar and per-shareper share impact of special items. SpecialAs discussed below, special items represent certain charges and credits, which management believes are not indicative of Duke Energy's ongoing performance, as discussed below. 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, employees, stockholders, analysts and investors concerning Duke Energy’s financial performance.investors. Adjusted diluted EPS is also used as a basis for employee incentive bonuses. The most directly comparable GAAP measures for adjusted earnings and adjusted diluted EPS are Net Income Attributable to Duke Energy Corporation (GAAP Reported Earnings) and Diluted EPS Attributable to Duke Energy Corporation common stockholders.stockholders (GAAP Reported EPS), respectively.
Special items included in the periods presented include the following:following items, which management believes do not reflect ongoing costs:
Costs to achieve mergers and International impairmentAchieve Mergers represent charges that result from potential or completed strategic acquisitionsacquisitions.
Cost Savings Initiatives represents severance charges related to company-wide initiatives, excluding merger integration, to standardize processes and divestitures that do not reflect ongoing costs of the business.systems, leverage technology and workforce optimization.
Costs savings initiatives represent restructuring charges incurred to reduce future expenses and do not represent ongoing costs.
Midwest generation operations represents theAdjusted earnings also include operating results of the nonregulated Midwest generation business and Duke Energy Retail Sales (collectively, theInternational Disposal Group),Group, which have been classified as discontinued operations. Management believes inclusion of the Disposal Group's operating results of the Disposal Group within adjusted earnings and adjusted diluted EPS results in a better reflection of Duke Energy's financial performance during the period.
Management evaluates segment performance based on segment income. Segment income is defined as income from continuing operations netReconciliation of income attributableGAAP Reported Amounts to noncontrolling interests. Segment income includes intercompany revenues and expenses that are eliminated in the Condensed Consolidated Financial Statements. Management also uses adjusted segment income as a measure of historical and anticipated future segment performance. Adjusted segment income is aAmounts
The following table reconciles non-GAAP financial measure, as it is based upon segment income adjusted for special items, which are discussed above. Management believes the presentation of adjusted segment income as presented provides useful informationmeasures to investors, as it provides them with an additional relevant comparison of a segment’s performance across periods. Thetheir most directly comparable GAAP measure for adjusted segment income is segment income.
measures.Duke Energy’s adjusted earnings, adjusted diluted EPS, and adjusted segment income may not be comparable to similarly titled measures of another company because other entities may not calculate the measures in the same manner.
See Note 3 to the Condensed Consolidated Financial Statements, “Business Segments,” for a discussion of Duke Energy’s segment structure.
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2017 | | 2016 |
(in millions, except per-share amounts) | Earnings | | EPS | | Earnings | | EPS |
GAAP Reported Earnings/GAAP Reported EPS | $ | 716 |
| | $ | 1.02 |
| | $ | 694 |
| | $ | 1.01 |
|
Adjustments to Reported: | | | | | | | |
Costs to Achieve Mergers(a) | 10 |
| | 0.02 |
| | 74 |
| | 0.11 |
|
Cost Savings Initiatives(b) | — |
| | — |
| | 12 |
| | 0.02 |
|
Discontinued Operations(c) | — |
| | — |
| | (3 | ) | | (0.01 | ) |
Adjusted Earnings/Adjusted Diluted EPS | $ | 726 |
| | $ | 1.04 |
| | $ | 777 |
| | $ | 1.13 |
|
| |
(a) | Net of tax of $6 million in 2017 and $46 million in 2016. |
| |
(b) | Net of tax of $8 million in 2016. |
| |
(c) | The 2016 amount represents GAAP reported Income from Discontinued Operations, less the International Disposal Group operating results, which are included in adjusted earnings. |
Executive Overview
Reported EPS attributable to Duke Energy Corporation common stockholders (Reported EPS) was $0.74 for the second quarter of 2016Three Months Ended March 31, 2017 as compared to $0.78 for the second quarter of 2015.March 31, 2016
GAAP Reported EPS was $1.02 for the first quarter of 2017 compared to $1.01 for the first quarter of 2016. The increase in GAAP Reported EPS was driven by the inclusion of Piedmont's earnings, lower duecosts to an impairment of certain assetsachieve mergers including losses in Central America, unrealized lossesthe prior year on forward-starting interest rate swaps related to the proposed Piedmont acquisition financing, as well as lower operations and lower revenues due to less favorable weather;maintenance expense at Electric Utilities and Infrastructure; partially offset by higher retail revenues from pricing and rider recoveries, and chargeswarm winter weather in the priorcurrent year related toand the absence of the International Disposal Group.Group's earnings.
As discussed above, management also evaluates financial performance based on adjusted diluted EPS. Duke Energy’s secondfirst quarter 20162017 adjusted diluted EPS was $1.07$1.04 compared to $0.95$1.13 for the secondfirst quarter of 2015.2016.
The following table reconciles non-GAAP measures, including adjusted diluted EPS, to their most directly comparable GAAP measures. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2016 |
(in millions, except per-share amounts) | Regulated Utilities |
| | International Energy |
| | Commercial Portfolio |
| | Total Reportable Segments |
| | Other |
| | Eliminations/ Discontinued Operations |
| | Duke Energy |
| | Per Diluted Share |
|
Reported Net Income Attributable to Duke Energy Corporation/Reported EPS | $ | 718 |
| | $ | (102 | ) | | $ | 14 |
| | $ | 630 |
| | $ | (120 | ) | | $ | (1 | ) | | $ | 509 |
| | $ | 0.74 |
|
Costs to achieve, mergers(a) | — |
| | — |
| | — |
| | — |
| | 69 |
| | — |
| | 69 |
| | 0.10 |
|
International impairment(b) | — |
| | 145 |
| | — |
| | 145 |
| | — |
| | — |
| | 145 |
| | 0.21 |
|
Cost savings initiatives(c) | — |
| | — |
| | — |
| | — |
| | 15 |
| | — |
| | 15 |
| | 0.02 |
|
Discontinued operations | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | 1 |
| | — |
|
Adjusted earnings/Adjusted EPS | $ | 718 |
| | $ | 43 |
| | $ | 14 |
| | $ | 775 |
| | $ | (36 | ) | | $ | — |
| | $ | 739 |
| | $ | 1.07 |
|
| |
(a) | Net of $42 million tax benefit. Primarily consists of unrealized losses on forward-starting interest rate swaps utilized to manage interest rate exposure for the expected financing of the Piedmont acquisition. |
| |
(b) | Net of $49 million tax benefit. Impairment of certain assets in Central America. |
| |
(c) | Net of $9 million tax benefit. Primarily consists of severance costs. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2015 |
(in millions, except per-share amounts) | Regulated Utilities |
| | International Energy |
| | Commercial Portfolio |
| | Total Reportable Segments |
| | Other |
| | Eliminations/ Discontinued Operations |
| | Duke Energy |
| | Per Diluted Share |
|
Reported Net Income Attributable to Duke Energy Corporation/Reported EPS | $ | 632 |
| | $ | 52 |
| | $ | (30 | ) | | $ | 654 |
| | $ | (51 | ) | | $ | (60 | ) | | $ | 543 |
| | $ | 0.78 |
|
Costs to achieve Progress Energy merger(a) | — |
| | — |
| | — |
| | — |
| | 14 |
| | — |
| | 14 |
| | 0.02 |
|
Discontinued operations | — |
| | — |
| | 41 |
| | 41 |
| | — |
| | 60 |
| | 101 |
| | 0.15 |
|
Adjusted earnings/Adjusted EPS | $ | 632 |
| | $ | 52 |
| | $ | 11 |
| | $ | 695 |
| | $ | (37 | ) | | $ | — |
| | $ | 658 |
| | $ | 0.95 |
|
| |
(a) | Net of $8 million tax benefit. |
The increasedecrease in adjusted earnings for the three months ended June 30, 2016,March 31, 2017, compared to the same period in 2015,2016, was primarily due to:
Higher regulatedThe prior year operating results due to increased retail pricing and riders, including energy efficiency programs, partially offset by less favorable weather;
Lower operations and maintenance expense primarily due to lower outage costs and cost savings initiatives;
Improved results in Brazil primarily due to favorable hydrology, partially offset by weaker foreign currency exchange rates; and
Incremental earnings from the additional ownership interest in generating assets acquired from North Carolina Eastern Municipal Power Agency (NCEMPA).
Partially offset by:
Lower earnings from International Energy's equity method investment in NMC, primarily due to lower methyl tertiary butyl ether (MTBE) and methanol prices.
Duke Energy's Reported EPS was $1.74 for the six months ended June 30, 2016 compared to $2.01 for the six months ended June 30, 2015. Reported EPS was lower due to an impairment of certain assets in Central America, unrealized losses on interest rate swaps related to the proposed Piedmont acquisition, and lower revenues due to less favorable weather; partially offset by higher retail revenues from pricing and rider recoveries, and a favorable tax adjustment at International Energy.
As discussed above, management also evaluates financial performance based on adjusted diluted EPS. Duke Energy’s adjusted diluted EPS was $2.20 for the six months ended June 30, 2016, which is consistent with adjusted diluted EPS for the six months ended June 30, 2015.
The following table reconciles non-GAAP measures, including adjusted diluted EPS, to their most directly comparable GAAP measures. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2016 |
(in millions, except per-share amounts) | Regulated Utilities |
| | International Energy |
| | Commercial Portfolio |
| | Total Reportable Segments |
| | Other |
| | Eliminations/ Discontinued Operations |
| | Duke Energy |
| | Per Diluted Share |
|
Net Income Attributable to Duke Energy Corporation/Reported EPS | $ | 1,413 |
| | $ | 21 |
| | $ | 41 |
| | $ | 1,475 |
| | $ | (274 | ) | | $ | 2 |
| | $ | 1,203 |
| | $ | 1.74 |
|
Costs to achieve, mergers(a) | — |
| | — |
| | — |
| | — |
| | 143 |
| | — |
| | 143 |
| | 0.21 |
|
International impairment(b) | — |
| | 145 |
| | — |
| | 145 |
| | — |
| | — |
| | 145 |
| | 0.21 |
|
Cost savings initiatives(c) | — |
| | — |
| | — |
| | — |
| | 27 |
| | — |
| | 27 |
| | 0.04 |
|
Discontinued operations | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) | | — |
|
Adjusted earnings/Adjusted EPS | $ | 1,413 |
| | $ | 166 |
| | $ | 41 |
| | $ | 1,620 |
| | $ | (104 | ) | | $ | — |
| | $ | 1,516 |
| | $ | 2.20 |
|
| |
(a) | Net of $88 million tax benefit. Primarily consists of unrealized losses on forward-starting interest rate swaps utilized to manage interest rate exposure for the expected financing of the Piedmont acquisition. |
| |
(b) | Net of $49 million tax benefit. Impairment of certain assets in Central America. |
| |
(c) | Net of $17 million tax benefit. Primarily consists of severance costs. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2015 |
(in millions, except per-share amounts) | Regulated Utilities |
| | International Energy |
| | Commercial Portfolio |
| | Total Reportable Segments |
| | Other |
| | Eliminations/ Discontinued Operations |
| | Duke Energy |
| | Per Diluted Share |
|
Net Income Attributable to Duke Energy Corporation/Reported EPS | $ | 1,406 |
| | $ | 88 |
| | $ | (23 | ) | | $ | 1,471 |
| | $ | (94 | ) | | $ | 30 |
| | $ | 1,407 |
| | $ | 2.01 |
|
Midwest generation operations | — |
| | — |
| | 94 |
| | 94 |
| | — |
| | (94 | ) | | — |
| | — |
|
Costs to achieve Progress Energy merger(a) | — |
| | — |
| | — |
| | — |
| | 27 |
| | — |
| | 27 |
| | 0.04 |
|
Discontinued operations | — |
| | — |
| | 41 |
| | 41 |
| | — |
| | 64 |
| | 105 |
| | 0.15 |
|
Adjusted earnings/Adjusted EPS | $ | 1,406 |
| | $ | 88 |
| | $ | 112 |
| | $ | 1,606 |
| | $ | (67 | ) | | $ | — |
| | $ | 1,539 |
| | $ | 2.20 |
|
| |
(a) | Net of $16 million tax benefit. |
The decrease in adjusted earnings for the six months ended June 30, 2016, compared to the same period in 2015, was primarily due to:
Lower results due to the absence of earnings from the Disposal Group sold in April 2015;
Increased depreciation and amortization expense primarily due to a higher amount of property, plant and equipment in service; and
Lower earnings from International Energy's equity method investment in NMC, primarily due to lower MTBE and methanol prices.
Partially offset by:
Lower income tax expense as a result of the Company's intent to no longer indefinitely reinvest the foreign earnings of the International Energy segment combined with more efficient utilizationDisposal Group, which was sold in December 2016. The 2016 operating results included a benefit from the revaluation of foreign tax credits, net of additional tax expense recognized in 2016 on International Energy's unremitted earnings.deferred income taxes. See Note 16 to the Condensed Consolidated Financial Statements, "Income Taxes," for additional information; and
HigherLower regulated resultselectric revenues due to increased retail pricing and riders, including energy efficiency programs, partiallywarm winter weather in the current year.
Partially offset by less favorable weather;by:
Higher results in Latin America primarilyPiedmont's earnings contribution, net of financing costs, due to favorable hydrology in Brazil, partially offset by weaker foreign currency exchange rates;the acquisition on October 3, 2016;
Lower operations and maintenance expense primarilyat Electric Utilities and Infrastructure due to lower outage costs andongoing cost efficiency initiatives, partially offset by an increase inefforts and significant storm restoration costs due to more severe winter storms in the Carolinas;
Incremental earnings from the additional ownership interest in generating assets acquired from NCEMPA;prior year; and
ReductionHigher regulated electric revenues from increased pricing and riders driven by new rates in weighted average shares outstanding primarily due to the prior-year accelerated stock repurchase.DEP South Carolina, base rate adjustments in Florida, and energy efficiency rider revenues in North Carolina, as well as growth in retail volumes.
SEGMENT RESULTS
Management evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment income includes intercompany revenues and expenses that are eliminated in the Condensed Consolidated Financial Statements.
Due to the Piedmont acquisition and the sale of International Energy in the fourth quarter of 2016, Duke Energy's segment structure has been realigned to include the following segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables. The remaining information in this discussionremainder of results ofDuke Energy’s operations is presented as Other. Prior period information has been recast to conform to the current segment structure. See Note 2 to the Condensed Consolidated Financial Statements, "Acquisitions and Dispositions," for further information on a GAAP basis.the Piedmont acquisition and International Energy sale and Note 3, “Business Segments,” for additional information on Duke Energy’s segments.
RegulatedElectric Utilities and Infrastructure | | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
(in millions) | 2016 |
| | 2015 |
| | Variance |
| | 2016 |
| | 2015 |
| | Variance |
| 2017 |
| | 2016 |
| | Variance |
|
Operating Revenues | $ | 5,099 |
| | $ | 5,220 |
| | $ | (121 | ) | | $ | 10,358 |
| | $ | 10,943 |
| | $ | (585 | ) | $ | 4,947 |
| | $ | 5,089 |
| | $ | (142 | ) |
Operating Expenses | 3,772 |
| | 4,003 |
| | (231 | ) | | 7,739 |
| | 8,308 |
| | (569 | ) | | | | | |
Fuel used in electric generation and purchased power | | 1,454 |
| | 1,577 |
| | (123 | ) |
Operation, maintenance and other | | 1,271 |
| | 1,298 |
| | (27 | ) |
Depreciation and amortization | | 737 |
| | 709 |
| | 28 |
|
Property and other taxes | | 261 |
| | 262 |
| | (1 | ) |
Impairment charges | | — |
| | 2 |
| | (2 | ) |
Total operating expenses | | 3,723 |
| | 3,848 |
| | (125 | ) |
Gains on Sales of Other Assets and Other, net | 1 |
| | 2 |
| | (1 | ) | | 2 |
| | 9 |
| | (7 | ) | 3 |
| | 1 |
| | 2 |
|
Operating Income | 1,328 |
| | 1,219 |
| | 109 |
| | 2,621 |
| | 2,644 |
| | (23 | ) | 1,227 |
| | 1,242 |
| | (15 | ) |
Other Income and Expenses, net | 74 |
| | 59 |
| | 15 |
| | 138 |
| | 131 |
| | 7 |
| |
Other Income and Expenses | | 79 |
| | 63 |
| | 16 |
|
Interest Expense | 278 |
| | 274 |
| | 4 |
| | 555 |
| | 549 |
| | 6 |
| 315 |
| | 270 |
| | 45 |
|
Income Before Income Taxes | 1,124 |
| | 1,004 |
| | 120 |
| | 2,204 |
| | 2,226 |
| | (22 | ) | 991 |
| | 1,035 |
| | (44 | ) |
Income Tax Expense | 406 |
| | 372 |
| | 34 |
| | 791 |
| | 820 |
| | (29 | ) | 356 |
| | 371 |
| | (15 | ) |
Segment Income | $ | 718 |
| | $ | 632 |
| | $ | 86 |
| | $ | 1,413 |
| | $ | 1,406 |
| | $ | 7 |
| $ | 635 |
| | $ | 664 |
| | $ | (29 | ) |
| | | | | | | | | | |
|
| | | | |
|
|
Duke Energy Carolinas Gigawatt-hours (GWh) sales | 20,757 |
| | 21,306 |
| | (549 | ) | | 42,382 |
| | 43,774 |
| | (1,392 | ) | 20,781 |
| | 21,625 |
| | (844 | ) |
Duke Energy Progress GWh sales | 16,829 |
| | 14,952 |
| | 1,877 |
| | 33,978 |
| | 31,717 |
| | 2,261 |
| 15,637 |
| | 17,149 |
| | (1,512 | ) |
Duke Energy Florida GWh sales | 10,646 |
| | 10,802 |
| | (156 | ) | | 19,102 |
| | 19,275 |
| | (173 | ) | 8,305 |
| | 8,456 |
| | (151 | ) |
Duke Energy Ohio GWh sales | 5,796 |
| | 6,233 |
| | (437 | ) | | 11,903 |
| | 13,000 |
| | (1,097 | ) | 6,059 |
| | 6,107 |
| | (48 | ) |
Duke Energy Indiana GWh sales | 8,157 |
| | 7,705 |
| | 452 |
| | 17,551 |
| | 16,433 |
| | 1,118 |
| 8,208 |
| | 9,394 |
| | (1,186 | ) |
Total Regulated Utilities GWh sales | 62,185 |
| | 60,998 |
| | 1,187 |
| | 124,916 |
| | 124,199 |
| | 717 |
| |
Total Electric Utilities and Infrastructure GWh sales | | 58,990 |
| | 62,731 |
| | (3,741 | ) |
Net proportional Megawatt (MW) capacity in operation | | | | |
|
| | 49,620 |
| | 49,528 |
| | 92 |
| 48,964 |
| | 50,111 |
| | (1,147 | ) |
Three Months Ended June 30, 2016March 31, 2017 as Compared to June 30, 2015March 31, 2016
Regulated Utilities’Electric Utilities and Infrastructure’s results were impacted by warm winter weather and increased rate ridersdepreciation and retail pricing,amortization expense, partially offset by increased rider revenues and lower operations and maintenance expenses, and an increase in wholesale power margins. These impacts were partially offset by less favorable weather in the Carolinas and Florida.expense. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
a $223$159 million decrease in retail sales, net of fuel revenues, due to warm winter weather in the current year; and
a $108 million decrease in fuel revenues driven by lower fuel prices included in electric rates and overall lower retail volumes; and
a $43 million decrease in electric retail sales net of fuel revenue, due to less favorable weather in the Carolinas and Florida compared to the prior year.volumes.
Partially offset by:
a $112$108 million increase in rate riders, including increasedrider revenues related to energy efficiency programs, Duke Energy Florida's nuclear asset securitization revenues, and the additional ownership interest in certain generating assets acquired from NCEMPA in the third quarter of 2015, andDuke Energy Indiana's clean coal equipment, as well as increased retail electric pricing primarily due to lower sales volumes which resulted in higher average customer rates;the Duke Energy Progress South Carolina rate case and Duke Energy Florida's base rate adjustment for the Osprey acquisition; and
a $38an $11 million increase in wholesale power revenues, primarily dueweather-normal sales volumes to additional volumes and capacity charges forretail customers served under long-term contracts, includingin the NCEMPA wholesale contract that became effective August 1, 2015.current year.
Operating Expenses. The variance was driven primarily by:
a $215$123 million decrease in fuel expense, (includingincluding purchased power, and natural gas purchases for resale) primarily due to lower sales volumes and lower coal prices, partially offset by higher natural gas and coal prices, and decreased generation due to lower sales volumes;prices; and
a $42$27 million decrease in operations and maintenance expense primarily due to lower outagestorm restoration costs and decreased labor costs, savings initiatives.partially offset by higher environmental costs.
Partially offset by:
a $28 million increase in depreciation and amortization expense primarily due to additional plant in service.
Other Income and Expenses, net.Expenses. The variance was driven primarily by higher allowance for funds used during construction (AFUDC) equity.
Interest Expense. The increase was primarily due to higher debt outstanding in the current year.
Income Tax Expense. The variance was primarily due to an increase in pretax income, partially offset by a lower effective tax rate. The effective tax rates for the three months ended June 30, 2016 and 2015 were 36.1 percent and 37.1 percent, respectively. The decrease in the effective tax rate is primarily due to favorable impacts of finalizing tax audits.
Six Months Ended June 30, 2016 as Compared to June 30, 2015
Regulated Utilities’ results were impacted by increased rate riders and retail pricing, an increase in wholesale power margins and lower operations and maintenance expense. These impacts were partially offset by less favorable weather, increased depreciation and amortization expense, and higher property and other tax expense. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
a $635 million decrease in fuel revenues driven by lower fuel prices included in electric rates and overall lower volumes; and
a $157 million decrease in electric retail sales, net of fuel revenue, due to less favorable weather across all the jurisdictions compared to the prior year.
Partially offset by:
a $169 million increase in rate riders including increased revenues related to energy efficiency programs and the additional ownership interest in certain generating assets acquired from NCEMPA in the third quarter of 2015, and retail electric pricing primarily due to lower sales volumes, which resulted in higher average customer rates; and
a $52 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 that became effective August 1, 2015.
Operating Expenses. The variance was driven primarily by:
a $627 million decrease in fuel expense (including purchased power and natural gas purchases for resale) primarily due to lower natural gas and coal prices, decreased generation due to lower sales volumes, and lower natural gas volumes and prices to full-service retail natural gas customers; and
a $29 million decrease in operations and maintenance expense primarily due to lower outage costs and cost savings initiatives, partially offset by higher storm restoration costs.
Partially offset by:
a $44 million increase in depreciation and amortization expense primarily due to additional plant in service, including the additional ownership interest in generating assets acquired from NCEMPA in the third quarter of 2015; and
a $40 million increase in property and other taxes primarily due to higher sales and use tax at Duke Energy Indiana and higher property taxes across multiple jurisdictions.
Income Tax Expense. The variance is due to a decrease in the effective tax rate and lower pretax income. The effective tax rates for both the sixthree months ended June 30,March 31, 2017 and 2016 and 2015 were 35.9 percent and 36.8 percent, respectively.percent.
Matters Impacting Future RegulatedElectric Utilities and Infrastructure Results
An order from regulatory authorities disallowing recovery of costs related to closure of ash impoundments could have an adverse impact on Electric Utilities and Infrastructure's financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 9 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2016, "Asset Retirement Obligations," for additional information.
On May 18, 2016, the North Carolina Department of Environmental Quality (NCDEQ)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 signed by the former North Carolina governor on July 14, 2016. Regulated Utilities'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, and the closure work progresses and the closure method scope isand 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 Regulated Utilities’Electric Utilities and Infrastructure's financial position. See Note 9 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2016, "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 Condensed 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 isProgress service territory. Duke Energy Progress filed a partypetition with the North Carolina Utilities Commission (NCUC) requesting an accounting order to multiple lawsuitsdefer incremental operation and could be subjectmaintenance and capital costs incurred in response to finesHurricane Matthew and other penalties related tosignificant 2016 storms. Current estimated incremental costs are approximately $116 million. The NCUC has not ruled on the Dan River coal ash releasepetition. A final order from the NCUC that disallows the deferral and operations at other North Carolina facilities with ash basins. The outcomefuture recovery of these lawsuits and potential fines and penaltiesall or a significant portion of the incremental storm restoration costs incurred could haveresult in an adverse impact on Regulated Utilities’ financial position, results of operationsElectric Utilities and cash flows. See Note 5 to the Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.
An order from regulatory authorities disallowing recovery of costs related to closure of ash impoundments could have an adverse impact on Regulated Utilities' financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 9 in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015, "Asset Retirement Obligations," for additional information.
Duke Energy Indiana entered into a revised settlement agreement with multiple parties that will resolve 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 Integrated Gasification Combined Cycle (IGCC) generating facility. The agreement is subject to Indiana Utility Regulatory Commission (IURC) approval. Pursuant to the terms of this agreement, Duke Energy Indiana recognized an impairment and related charges of $93 million for the year ended December 31, 2015. The agreement stipulates that recovery of the remaining regulatory asset will be over an eight-year period and confirms an in-service date for accounting and ratemaking purposes of June 7, 2013. The agreement, if approved, will also impose a cost cap for recoverable operations and maintenance retail costs in the second half of 2016, and 2017, as well as a cost cap for ongoing capital expenditures through 2017. As part of the settlement, Duke Energy Indiana committed to either retire or cease burning coal at Gallagher Station by December 31, 2022. If the settlement agreement is not approved, outstanding issues before the IURC related to Edwardsport would resume and the resolution of such could have an adverse impact on Regulated Utilities' financial position, results of operations and cash flows. In addition, an inability to manage operating and capital costs in accordance with caps imposed pursuant to the agreement could have an adverse impact on Regulated Utilities'Infrastructure's financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information.
Duke Energy Carolinas and Duke Energy Progress intend to file rate cases in North Carolina in 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 Progress has filed notice with the NCUC that it intends to file a general rate case on or about June 1, 2017. In March 2017, Duke Energy Ohio filed an electric distribution base rate case application and supporting testimony. Electric Utilities and Infrastructure's earnings could be adversely impacted if these rate cases are delayed or denied by the NCUC or PUCO.
International EnergyGas Utilities and Infrastructure |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | 2016 |
| | 2015 |
| | Variance |
| | 2016 |
| | 2015 |
| | Variance |
|
Operating Revenues | $ | 270 |
| | $ | 287 |
| | $ | (17 | ) | | $ | 516 |
| | $ | 560 |
| | $ | (44 | ) |
Operating Expenses | 382 |
| | 232 |
| | 150 |
| | 536 |
| | 439 |
| | 97 |
|
Loss on Sales of Other Assets and Other, net | (1 | ) | | (1 | ) | | — |
| | (1 | ) | | (1 | ) | | — |
|
Operating (Loss) Income | (113 | ) | | 54 |
| | (167 | ) | | (21 | ) | | 120 |
| | (141 | ) |
Other Income and Expense, net | 23 |
| | 31 |
| | (8 | ) | | 39 |
| | 45 |
| | (6 | ) |
Interest Expense | 22 |
| | 22 |
| | — |
| | 44 |
| | 45 |
| | (1 | ) |
(Loss) Income Before Income Taxes | (112 | ) | | 63 |
| | (175 | ) | | (26 | ) | | 120 |
| | (146 | ) |
Income Tax (Benefit) Expense | (13 | ) | | 10 |
| | (23 | ) | | (52 | ) | | 30 |
| | (82 | ) |
Less: Income Attributable to Noncontrolling Interests | 3 |
| | 1 |
| | 2 |
| | 5 |
| | 2 |
| | 3 |
|
Segment (Loss) Income | $ | (102 | ) | | $ | 52 |
| | $ | (154 | ) | | $ | 21 |
| | $ | 88 |
| | $ | (67 | ) |
| | | | | | | | | | | |
Sales, GWh | 5,625 |
| | 4,520 |
| | 1,105 |
| | 11,505 |
| | 8,990 |
| | 2,515 |
|
Net proportional MW capacity in operation | | | | |
|
| | 4,315 |
| | 4,333 |
| | (18 | ) |
|
| | | | | | | | | | | | |
| | Three Months Ended March 31, |
(in millions) | | 2017 |
| | 2016 |
| | Variance |
|
Operating Revenues | | $ | 670 |
| | $ | 170 |
| | $ | 500 |
|
Operating Expenses | | | | | | |
Cost of natural gas | | 258 |
| | 49 |
| | 209 |
|
Operation, maintenance and other | | 105 |
| | 32 |
| | 73 |
|
Depreciation and amortization | | 57 |
| | 20 |
| | 37 |
|
Property and other taxes | | 30 |
| | 18 |
| | 12 |
|
Total operating expenses | | 450 |
| | 119 |
| | 331 |
|
Operating Income | | 220 |
| | 51 |
| | 169 |
|
Other Income and Expenses | | 18 |
| | 3 |
| | 15 |
|
Interest Expense | | 26 |
| | 7 |
| | 19 |
|
Income Before Income Taxes | | 212 |
| | 47 |
| | 165 |
|
Income Tax Expense | | 79 |
| | 15 |
| | 64 |
|
Segment Income | | $ | 133 |
| | $ | 32 |
| | $ | 101 |
|
| | | | | | |
Piedmont LDC throughput (dekatherms) (a) | | 133,276,787 |
| | — |
| | 133,276,787 |
|
Duke Energy Midwest LDC throughput (MCF) | | 30,830,999 |
| | 34,741,520 |
| | (3,910,521 | ) |
(a) Includes throughput subsequent to Duke Energy's acquisition of Piedmont on October 3, 2016.
Three Months Ended June 30, 2016March 31, 2017 as Compared to June 30, 2015March 31, 2016
International Energy’sGas Utilities and Infrastructure’s higher results were impacted by an impairmentalmost entirely due to the inclusion of certain assetsPiedmont's earnings in Central America, lowerthe current year as a result of Duke Energy's acquisition of Piedmont on October 3, 2016. Piedmont's earnings fromincluded in Gas Utilities and Infrastructure's results were $99 million for the equity method investment in NMCthree months ended March 31, 2017. All variances are related to the inclusion of Piedmont's results of operations, except for the following:
Other Income and weaker exchange rates; partially offset by improved hydrology in Brazil. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues.Expenses. The variance was driven primarily by a $14 million decrease in Central America due to lower average prices partially offset by higher volumes. Higher revenues at Brazil due to improved hydrologyearnings from Duke Energy's mid-stream gas pipeline investments that were offset by weaker exchange rates.
Operating Expenses.The variance was driven primarily by:
a $181 million increase in Central America dueowned prior to the assetPiedmont acquisition.
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. 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 partially offset by lower purchased power costs.
Partially offset by:
a $28 million decrease in Brazil duecharge of up to lower purchased power costs due to improved hydrology and weaker foreign currency exchange rates, partially offset by higher variable costs.
Other Income and Expense, net. The variance was primarily due to lower earnings from the equity methodrecorded investment in NMC, as a resultthe project, net of lower average MTBEany cash and methanol prices.
Income Tax (Benefit) Expense. The variance was primarily dueworking capital returned, may be recorded. With the project on hold, funding of project costs has ceased until resolution of legal actions. Duke Energy is contractually obligated to a tax benefit associated withprovide funding of required operating costs, including the impairmentownership percentage of certain assets in Central America. The effective tax rateslegal expenses to obtain the necessary permitting for the three months ended June 30, 2016project and 2015 were 11.6 percent and 15.9 percent, respectively.
Six Months Ended June 30, 2016 as Comparedproject costs incurred prior to June 30, 2015
International Energy’s results were impacted by an impairment of certain assets in Central America, lower earnings from the equity method investment in NMC and weaker exchange rates in Latin America; partially offset by lower income taxes as a resultdenial of the Company's intentwater permit. If the legal actions result in an outcome where the project is abandoned, Constitution is obligated under various contracts to no longer indefinitely reinvest foreign earningspay breakage fees that Gas Utilities and improved hydrologyInfrastructure would be obligated to fund up to the ownership percentage, or potentially up to $10 million.
In 2013, the PUCO issued an order (PUCO order) approving Duke Energy Ohio’s recovery of costs incurred between 2008 and 2012 for environmental investigation and remediation of two former MGP sites. At March 31, 2017, Duke Energy Ohio had recorded in Brazil. The following is a detailed discussionRegulatory assets on the Condensed Consolidated Balance Sheet approximately $100 million of estimated MGP remediation costs not yet recovered through the MGP rider mechanism. Intervenors have appealed to the Ohio Supreme Court the PUCO order authorizing recovery of these amounts. That appeal remains pending. Duke Energy Ohio cannot predict the outcome of the variance driversappeal before the Ohio Supreme Court or future action by line item.
Operating Revenues.The variance was driven primarily by:
a $26 million decreasethe PUCO. If Duke Energy Ohio is not able to recover these remediation costs in Central America due to lower average prices partially offset by higher volumes;rates, the costs could have an adverse impact on Gas Utilities and
a $17 million decrease in Brazil due to weaker foreign currency exchange rates partially offset by higher volumes.
Operating Expenses.The variance was driven primarily by:
a $164 million increase in Central America due Infrastructure's financial position, results of operations and cash flows. See Note 4 to the asset impairment, partially offset by lower purchased power costs.Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
Partially offset by:
a $66 million decrease in Brazil due to lower purchased power costs due to improved hydrology and weaker foreign currency exchange rates, partially offset by higher variable costs.
Other Income and Expense, net. The variance was primarily due to lower earnings from the equity method investment in NMC, primarily due to lower average MTBE and methanol prices, as well as lower MTBE sales volumes driven by planned maintenance; partially offset by lower butane costs.
Income Tax (Benefit) Expense. The variance was due to an increase in the effective tax rate and a decrease in pretax income. The increase in the effective tax rate was primarily a result of Duke Energy's ability to more efficiently utilize foreign tax credits. See Note 16 to the Condensed Consolidated Financial Statements, "Income Taxes," for additional information.
Matters Impacting Future International Energy Results
International Energy's operations include conventional hydroelectric power generation facilities located in Brazil. The weather and recessionary economic conditions in Brazil during recent years have resulted in higher energy prices, lower electricity demand and unfavorable impacts to the exchange rate of Brazil's currency. These weather and economic conditions have also resulted in lawsuits brought to the Brazilian courts by certain hydroelectric generators to limit the financial exposure to the generators. International Energy's earnings and future cash flows could be adversely impacted if reservoir levels return to the recent low levels, from a further decline of the economic and political conditions within Brazil, or as a result of the outcome of legal matters in the Brazilian courts.
International Energy's earnings from an equity method investment in NMC reflect sales of methanol and MTBE, which generate margins that are directionally correlated with Brent crude oil prices. The recent decline in crude oil prices have reduced the earnings realized from NMC. Further weakness in the market price of Brent crude oil and related commodities may result in a further decline in earnings.
In February 2016, Duke Energy announced it had initiated a process to divest the International Energy business segment, excluding the equity method investment in NMC. Duke Energy is actively marketing the business. Non-binding offers have been received and are being evaluated. There is no assurance that this process will result in a transaction and the timing for execution of a potential transaction is uncertain. Proceeds from a successful sale would be used by Duke Energy to reduce debt and fund the operations and growth of domestic businesses. If the potential of a sale were to progress, it could result in classification of International Energy as assets held for sale and as a discontinued operation. As of June 30, 2016, the International Energy segment had a carrying value of approximately $2.4 billion, adjusted for $589 million of cumulative foreign currency translation losses currently classified as accumulated other comprehensive loss.
Commercial PortfolioRenewables | | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
(in millions) | 2016 |
| | 2015 |
| | Variance |
| | 2016 |
| | 2015 |
| | Variance |
| 2017 |
| | 2016 |
| | Variance |
|
Operating Revenues | $ | 112 |
| | $ | 75 |
| | $ | 37 |
| | $ | 226 |
| | $ | 148 |
| | $ | 78 |
| $ | 128 |
| | $ | 114 |
| | $ | 14 |
|
Operating Expenses | 121 |
| | 84 |
| | 37 |
| | 232 |
| | 173 |
| | 59 |
| | | | | |
Operation, maintenance and other | | 77 |
| | 73 |
| | 4 |
|
Depreciation and amortization | | 39 |
| | 30 |
| | 9 |
|
Property and other taxes | | 9 |
| | 6 |
| | 3 |
|
Total operating expenses | | 125 |
| | 109 |
| | 16 |
|
Gains on Sales of Other Assets and Other, net | 1 |
| | 6 |
| | (5 | ) | | 2 |
| | 6 |
| | (4 | ) | 2 |
| | 1 |
| | 1 |
|
Operating Loss | (8 | ) | | (3 | ) | | (5 | ) | | (4 | ) | | (19 | ) | | 15 |
| |
Other Income and Expense, net | 4 |
| | (2 | ) | | 6 |
| | 6 |
| | — |
| | 6 |
| |
Operating Income | | 5 |
| | 6 |
| | (1 | ) |
Other Income and Expenses | | (1 | ) | | (2 | ) | | 1 |
|
Interest Expense | 11 |
| | 10 |
| | 1 |
| | 23 |
| | 22 |
| | 1 |
| 19 |
| | 11 |
| | 8 |
|
Loss Before Income Taxes | (15 | ) | | (15 | ) | | — |
| | (21 | ) | | (41 | ) | | 20 |
| (15 | ) | | (7 | ) | | (8 | ) |
Income Tax (Benefit) Expense | (28 | ) | | 15 |
| | (43 | ) | | (61 | ) | | (18 | ) | | (43 | ) | |
Less: Income Attributable to Noncontrolling Interests | (1 | ) | | — |
| | (1 | ) | | (1 | ) | | — |
| | (1 | ) | |
Segment Income (Loss) | $ | 14 |
|
| $ | (30 | ) | | $ | 44 |
| | $ | 41 |
| | $ | (23 | ) | | $ | 64 |
| |
Income Tax Benefit | | (39 | ) | | (33 | ) | | (6 | ) |
Less: Loss Attributable to Noncontrolling Interests | | (1 | ) | | — |
| | (1 | ) |
Segment Income | | $ | 25 |
| | $ | 26 |
| | $ | (1 | ) |
| | | | | | | | | | | | | | | | |
Renewable plant production, GWh | 1,758 |
| | 1,373 |
| | 385 |
| | 3,818 |
| | 2,683 |
| | 1,135 |
| 2,285 |
| | 2,060 |
| | 225 |
|
Net proportional MW capacity in operation | | | | |
|
| | 1,978 |
| | 1,634 |
| | 344 |
| 2,907 |
| | 1,963 |
| | 944 |
|
Three Months Ended June 30, 2016March 31, 2017 as Compared to June 30, 2015March 31, 2016
Commercial Renewables' results were impacted by higher financing costs and new renewables projects placed in service.
Commercial Portfolio’s higher earnings areOperating Revenues and Operating Expenses. The increases were primarily due to a state tax charge recorded in the prior year related to the Disposal Group. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
a $26 million increase in electric revenues due to growth in the REC Solar business; and
a $9 million increase in electric revenues from new wind and solar generation placed in service.
Operating Expenses.Interest Expense. The variance was driven primarily by:
a $24 million increase in operating expenses due to growth in the REC Solar business; and
a $9 million increase in operating expenses fromby new wind project financings and solar generation placed in service.less capitalized interest.
Income Tax (Benefit) Expense.Benefit. The variance was primarily due to a $41 million chargean increase in pretax losses and higher production tax credits (PTCs) related to wind projects placed in service, partially offset by lower investment tax credits (ITCs) due to lower solar investments in the prior yearcurrent year.
Matters Impacting Future Commercial Renewables Results
Changes or variability in assumptions used in calculating the fair value of the Commercial Renewables reporting units for goodwill testing purposes including but not limited to, legislative actions related to changes in state tax apportionment factors on deferred taxes resulting fromcredit extensions, long-term growth rates and discount rates, could significantly impact the saleestimated fair value of the Disposal GroupCommercial Renewables reporting units. In the event of a significant decline in the second quarterestimated fair value of 2015.the Commercial Renewables reporting units, goodwill impairment charges could be recorded. The carrying value of goodwill within Commercial Renewables was approximately $122 million at March 31, 2017.
Six Months Ended June 30, 2016 as Compared to June 30, 2015
Commercial Portfolio’s higher earnings arePersistently low market pricing for wind resources, primarily due to a state tax charge recorded in the prior year relatedEnergy Reliability Council of Texas West market, and the future expiration of tax incentives including ITCs and PTCs could result in adverse impacts to the Midwest generation business, operating expenses recorded in the prior year related to residual Midwest Generation operations that were shifted outfuture results of Commercial Portfolio and new wind and solar generation placed in service. The following is a detailed discussion of the variance drivers by line item.Renewables.
Operating Revenues. The variance was driven primarily by:
a $56 million increase in electric revenues due to acquisition and growth of REC Solar; and
a $31 million increase in electric revenues from new wind and solar generation placed in service and improved wind production.
Operating Expenses. The variance was driven primarily by:
a $55 million increase in operating expenses due to acquisition and growth of REC Solar; and
a $24 million increase in operating expenses from new wind and solar generation placed in service.
Partially offset by:
a $28 million decrease due to the shift of the residual Midwest generation business out of Commercial Portfolio following the sale of the Disposal Group. See Note 3 to the Condensed Consolidated Financial Statements, “Business Segments” for additional information.
Income Tax (Benefit) Expense.The variance was primarily due to a $41 million charge in the prior year related to changes in state tax apportionment factors on deferred taxes resulting from the sale of the Disposal Group in the second quarter of 2015.
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
(in millions) | 2016 |
| | 2015 |
| | Variance |
| | 2016 |
| | 2015 |
| | Variance |
| 2017 |
| | 2016 |
| | Variance |
|
Operating Revenues | $ | 30 |
| | $ | 34 |
| | $ | (4 | ) | | $ | 59 |
| | $ | 61 |
| | $ | (2 | ) | $ | 33 |
| | $ | 29 |
| | $ | 4 |
|
Operating Expenses | 96 |
| | 63 |
| | 33 |
| | 188 |
| | 113 |
| | 75 |
| | | | | |
Fuel used in electric generation and purchased power | | 15 |
| | 11 |
| | 4 |
|
Operation, maintenance and other | | 8 |
| | 36 |
| | (28 | ) |
Depreciation and amortization | | 26 |
| | 34 |
| | (8 | ) |
Property and other taxes | | 3 |
| | 9 |
| | (6 | ) |
Impairment charges | | — |
| | 2 |
| | (2 | ) |
Total operating expenses | | 52 |
| | 92 |
| | (40 | ) |
Gains on Sales of Other Assets and Other, net | 4 |
| | 6 |
| | (2 | ) | | 11 |
| | 13 |
| | (2 | ) | 5 |
| | 5 |
| | — |
|
Operating Loss | (62 | ) | | (23 | ) | | (39 | ) | | (118 | ) | | (39 | ) | | (79 | ) | (14 | ) | | (58 | ) | | 44 |
|
Other Income and Expense, net | 8 |
| | 9 |
| | (1 | ) | | 18 |
| | 10 |
| | 8 |
| |
Other Income and Expenses | | 21 |
| | 17 |
| | 4 |
|
Interest Expense | 191 |
| | 97 |
| | 94 |
| | 396 |
| | 194 |
| | 202 |
| 134 |
| | 205 |
| | (71 | ) |
Loss Before Income Taxes | (245 | ) | | (111 | ) | | (134 | ) | | (496 | ) | | (223 | ) | | (273 | ) | (127 | ) | | (246 | ) | | 119 |
|
Income Tax Benefit | (126 | ) | | (63 | ) | | (63 | ) | | (226 | ) | | (134 | ) | | (92 | ) | (52 | ) | | (101 | ) | | 49 |
|
Less: Income Attributable to Noncontrolling Interests | 1 |
| | 3 |
| | (2 | ) | | 4 |
| | 5 |
| | (1 | ) | 2 |
| | 3 |
| | (1 | ) |
Net Expense | $ | (120 | ) | | $ | (51 | ) | | $ | (69 | ) | | $ | (274 | ) | | $ | (94 | ) | | $ | (180 | ) | $ | (77 | ) | | $ | (148 | ) | | $ | 71 |
|
Three Months Ended June 30, 2016March 31, 2017 as Compared to June 30, 2015March 31, 2016
Other's higherlower net expense was driven by unrealized losses on forward-startinglower interest rate swapsexpense related to the expected financing of the Piedmont acquisition as well asfinancing, decreased severance accruals.accruals and decreased charitable donations. The following is a detailed discussion of the variance drivers by line item.
Operating Expenses. The increasevariance was primarily due to an increasea decrease in severance accruals.accruals and a decrease in donations to the Duke Energy Foundation. The Duke Energy Foundation is a nonprofit organization funded by Duke Energy shareholders that makes charitable contributions to selected nonprofits and government subdivisions.
Other Income and Expenses. The increase was primarily driven by higher earnings from NMC due to higher commodity prices.
Interest Expense. The increasedecrease was primarily due to Piedmont acquisition financing costs in the prior year, including $93 million of unrealized losses on forward-starting interest rate swaps related to the expected financing of the Piedmont acquisition. For additional information see Notes 2 and 9 to the Condensed Consolidated Financial Statements, "Acquisitions and Dispositions" and "Derivatives and Hedging," respectively.
Income Tax Benefit. The variance was primarily due to an increase in pretax losses, partially offset by a decrease in the effective tax rate. The effective tax rates for the three months ended June 31, 2016 and 2015 were 51.4 percent and 56.8 percent, respectively. The decrease in the effective tax rate was primarily due to an increase in pretax losses, partially offset by favorable impacts of finalizing federal tax audits.
Six Months Ended June 30, 2016 as Compared to June 30, 2015
Other's higher net expense was due to unrealized losses on forward-starting interest rate swaps related to the expected financing of the Piedmont acquisition, as well as severance accruals. The following is a detailed discussion of the variance drivers by line item.
Operating Expenses. The increase was primarily due to severance accruals and higher charges in the current year due to the shift of the residual Midwest Generation business from the Commercial Portfolio segment to Other in the second quarter of 2015. See Note 3 to the Condensed Consolidated Financial Statements, “Business Segments” for additional information.
Interest Expense. The increase was primarily due to unrealized losses on forward-starting interest rate swaps related to the expected financing of the Piedmont acquisition.swaps. For additional information see Notes 2 and 9 to the Condensed Consolidated Financial Statements, "Acquisitions and Dispositions" and "Derivatives and Hedging," respectively.
Income Tax Benefit. The variance was primarily due to an increase in pretax losses, partially offset by a decrease in the effective tax rate.pretax losses. The effective tax rates for the sixthree months ended June 30,March 31, 2017 and 2016 and 2015 were 45.640.9 percent and 60.141.1 percent, respectively. The decrease in the effective tax rate was primarily due to an increase in pretax losses, partially offset by favorable impacts of finalizing federal tax audits.
Matters Impacting Future Other Results
Included in Other is Duke Energy Ohio’sOhio's 9 percent ownership interest in 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.
The retired Beckjord generating station (Beckjord), previously an asset of Commercial Portfolio, became an asset of Other after the sale of the Disposal Group. Beckjord, a nonregulated facility retired during 2014, is not subject to the U.S. Environmental Protection Agency (EPA)EPA rule related to the disposal of Coal Combustion Residuals (CCR)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.
Earnings from an equity method investment in NMC reflect sales of methanol and methyl tertiary butyl ether (MTBE), which generate margins that are directionally correlated with Brent crude oil prices. Weakness in the market price of Brent crude oil and related commodities may result in a decline in earnings. Duke Energy's economic ownership interest will decrease from 25 percent to 17.5 percent upon successful startup of NMC's polyacetal production facility, which is expected to occur in the second quarter of 2017.
U.S. federal tax reform has become an important priority of the current Congress and Administration. Any substantial revision to the U.S. tax code, including a loss of the ability to deduct interest expense, could adversely impact Duke Energy's future earnings, cash flows or financial position.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX
Three Months Ended June 30, 2016March 31, 2017 as Compared to June 30, 2015March 31, 2016
Discontinued Operations, Net of Tax. The variance was primarily driven by a litigation reserve recorded2016 earnings from the International Disposal Group, which was sold in 2015, as discussed inDecember 2016. See Note 5, "Commitments and Contingencies,"2 to the Condensed Consolidated Financial Statements.
Six Months Ended June 30, 2016 as Compared to June 30, 2015
Discontinued Operations, Net of Tax. The variance was primarily driven by the Disposal Group's operating results in 2015, partially offset by a litigation reserve recorded in 2015, as discussed in Note 5, "CommitmentsStatements, "Acquisitions and Contingencies,Dispositions," to the Condensed Consolidated Financial Statements.for additional information.
DUKE ENERGY CAROLINAS
Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the sixthree months ended June 30,March 31, 2017 and 2016 and 2015 and the Annual Report on Form 10-K for the year ended December 31, 2015.2016.
| | | Six Months Ended June 30, | Three Months Ended March 31, |
(in millions) | 2016 |
| | 2015 |
| | Variance |
| 2017 |
| | 2016 |
| | Variance |
|
Operating Revenues | $ | 3,415 |
| | $ | 3,608 |
| | $ | (193 | ) | $ | 1,716 |
| | $ | 1,740 |
| | $ | (24 | ) |
Operating Expenses | 2,470 |
| | 2,610 |
| | (140 | ) | | | | | |
Fuel used in electric generation and purchased power | | 428 |
| | 421 |
| | 7 |
|
Operation, maintenance and other | | 482 |
| | 512 |
| | (30 | ) |
Depreciation and amortization | | 254 |
| | 259 |
| | (5 | ) |
Property and other taxes | | 68 |
| | 67 |
| | 1 |
|
Total operating expenses | | 1,232 |
| | 1,259 |
| | (27 | ) |
Operating Income | 945 |
| | 998 |
| | (53 | ) | 484 |
| | 481 |
| | 3 |
|
Other Income and Expenses, net | 82 |
| | 83 |
| | (1 | ) | |
Other Income and Expenses | | 37 |
| | 37 |
| | — |
|
Interest Expense | 214 |
| | 208 |
| | 6 |
| 103 |
| | 107 |
| | (4 | ) |
Income Before Income Taxes | 813 |
| | 873 |
| | (60 | ) | 418 |
| | 411 |
| | 7 |
|
Income Tax Expense | 281 |
| | 316 |
| | (35 | ) | 148 |
| | 140 |
| | 8 |
|
Net Income | $ | 532 |
| | $ | 557 |
| | $ | (25 | ) | $ | 270 |
| | $ | 271 |
| | $ | (1 | ) |
The following table shows the percent changes in GWh sales and average number of customers. The percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized. |
| | |
Increase (Decrease) increase over prior year | 20162017 |
|
Residential sales | (6.99.4 | )% |
General service sales | (1.52.1 | )% |
Industrial sales | (0.60.3 | )% |
Wholesale power sales | 2.71.8 | % |
Joint dispatch sales | (59.769.2 | )% |
Total sales | (3.23.9 | )% |
Average number of customers | 1.4 | % |
SixThree Months Ended June 30, 2016March 31, 2017 as Compared to June 30, 2015March 31, 2016
Operating Revenues. The variance was driven primarily by:
a $215an $84 million decrease in fuel revenues driven by lower fuel prices included in electric retail and wholesale rates and overall lower volumes; and
a $59 million decrease in electric sales, net of fuel revenues, to retail customers due to less favorablewarm winter weather compared toin the priorcurrent year.
Partially offset by:
a $65$31 million increase in retail pricing and rate riders, which primarily reflects increasedrider revenues related to energy efficiency programsprograms;
a $23 million increase in fuel revenues due to changes in generation mix, partially offset by lower sales volumes; and the expiration
a $5 million increase in weather-normal retail sales volumes, net of the North Carolina cost of removal decrement rider.fuel revenues.
Operating Expenses. The variance was driven primarily by:
by a $195$30 million decrease in fuel used in electric generationoperations and purchased power primarily related to lower natural gas and coal prices, and decreased generationmaintenance expense due to lower sales volumes.
Partially offset by:
a $30 million increase in operating and maintenance expense primarily due to higher storm restoration costs and severance expenses related to cost savings initiatives; and
a $24 million increase in depreciation and amortization expense primarily due todecreased labor costs, partially offset by higher amount of property, plant and equipment in service.energy efficiency program costs.
Income Tax Expense. The variance was primarily due to a decreasean increase in pretax income and a reduction in thehigher effective tax rate. The effective tax rates for the sixthree months ended June 30,March 31, 2017 and 2016 and 2015 were 34.635.4 percent and 36.234.1 percent, respectively. The decreaseincrease in the effective tax rate was primarily due to a favorable state resolution booked in 2016 related to prior-yearprior year tax returns and favorable impacts of finalizing tax audits.returns.
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 Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 9 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2016, "Asset Retirement Obligations," 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 signed by the former North Carolina governor on July 14, 2016. Duke Energy Carolinas' estimated asset retirement obligationsAROs 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, and the closure work progresses, and the closure method scope isand 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, results of operations and cash flows.position. See Note 5 to9 in Duke Energy's Annual Report on Form 10-K for the Condensed Consolidated Financial Statements, “Commitments and Contingencies,”year ended December 31, 2016, "Asset Retirement Obligations," for additional information.
Duke Energy Carolinas is a party to multiple lawsuits and subject to fines and other penalties related to the Dan River coal ash release and operations at othercertain 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 Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.
An order from regulatory authorities disallowing recoveryDuke Energy Carolinas intends to file a rate case in North Carolina in 2017 to recover costs of complying with CCR regulations and the Coal Ash Act, as well as costs relatedof capital investments in generation, transmission and distribution systems and any increase in expenditures subsequent to closure of ash impoundments could have an adverse impact onprevious rate cases. Duke Energy Carolinas' financial position, results of operations and cash flows. See Notes 4 toearnings could be adversely impacted if the Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 9 in Duke Energy’s Annual Report on Form 10-K forrate case is delayed or denied by the year ended December 31, 2015, "Asset Retirement Obligations," for additional information.NCUC.
PROGRESS ENERGY
Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the sixthree months ended June 30,March 31, 2017 and 2016 and 2015 and the Annual Report on Form 10-K for the year ended December 31, 2015.2016.
| | | Six Months Ended June 30, | Three Months Ended March 31, |
(in millions) | 2016 |
| | 2015 |
| | Variance |
| 2017 |
| | 2016 |
| | Variance |
|
Operating Revenues | $ | 4,680 |
| | $ | 5,012 |
| | $ | (332 | ) | $ | 2,179 |
| | $ | 2,332 |
| | $ | (153 | ) |
Operating Expenses | 3,657 |
| | 3,973 |
| | (316 | ) | | | | | |
Fuel used in electric generation and purchased power | | 726 |
| | 860 |
| | (134 | ) |
Operation, maintenance and other | | 544 |
| | 592 |
| | (48 | ) |
Depreciation and amortization | | 313 |
| | 290 |
| | 23 |
|
Property and other taxes | | 117 |
| | 119 |
| | (2 | ) |
Impairment charges | | — |
| | 2 |
| | (2 | ) |
Total operating expenses | | 1,700 |
| | 1,863 |
| | (163 | ) |
Gains on Sales of Other Assets and Other, net | 12 |
| | 14 |
| | (2 | ) | 8 |
| | 6 |
| | 2 |
|
Operating Income | 1,035 |
| | 1,053 |
| | (18 | ) | 487 |
| | 475 |
| | 12 |
|
Other Income and Expenses, net | 48 |
| | 46 |
| | 2 |
| |
Other Income and Expenses | | 24 |
| | 20 |
| | 4 |
|
Interest Expense | 320 |
| | 334 |
| | (14 | ) | 206 |
| | 160 |
| | 46 |
|
Income From Continuing Operations Before Taxes | 763 |
| | 765 |
| | (2 | ) | |
Income Tax Expense From Continuing Operations | 277 |
| | 284 |
| | (7 | ) | |
Income From Continuing Operations | 486 |
| | 481 |
| | 5 |
| |
Loss From Discontinued Operations, net of tax | — |
| | (1 | ) | | 1 |
| |
Income Before Income Taxes | | 305 |
| | 335 |
| | (30 | ) |
Income Tax Expense | | 104 |
| | 123 |
| | (19 | ) |
Net Income | 486 |
| | 480 |
| | 6 |
| 201 |
| | 212 |
| | (11 | ) |
Less: Net Income Attributable to Noncontrolling Interest | 5 |
| | 5 |
| | — |
| |
Less: Net Income Attributable to Noncontrolling Interests | | 2 |
| | 3 |
| | (1 | ) |
Net Income Attributable to Parent | $ | 481 |
| | $ | 475 |
| | $ | 6 |
| $ | 199 |
| | $ | 209 |
| | $ | (10 | ) |
SixThree Months Ended June 30, 2016March 31, 2017 as Compared to June 30, 2015March 31, 2016
Operating Revenues. The variance was driven primarily by:
a $336$126 million decrease in fuel and capacity revenues fromdriven by lower retail customers primarily due to lower natural gas prices,sales and changes in generation mix andat Duke Energy Progress, as well as decreased demand from retail customers; partially offset by increasedand capacity rates to retail customers at Duke Energy Florida; and
a $67 million decrease in retail sales, net of fuel revenue, to retail customers due to less favorable weather compared to the prior year.
Partially offset by:
a $46 million increase in rate riders, including increased revenues related to energy efficiency programs and the additional ownership interest in certain generating assets acquired from NCEMPA in the third quarter of 2015, partially offset by lower nuclear cost recovery clause rider revenues, due to suspending recovery forwarm winter weather in the Levy nuclear project;current year; and
a $32$10 million increasedecrease in wholesale power revenues primarily due to a new NCEMPA contract effective August 1, 2015,contracts that expired in the prior year at Duke Energy Florida, partially offset by lowerhigher peak demand at Duke Energy Progress.
Partially offset by:
a $29 million increase in rider revenues related to energy efficiency programs at Duke Energy Progress, and nuclear asset securitization revenues beginning in July 2016 at Duke Energy Florida; and
a $15 million increase in retail pricing due to the Duke Energy Progress South Carolina rate case and Duke Energy Florida's base rate adjustment for the Osprey acquisition.
Operating Expenses. The variance was driven primarily by:
a $323$134 million decrease in fuel used in electric generation and purchased powerexpense primarily due to lower fuel prices, decreased demand from retail customerssales and changes in generation mix;mix at Duke Energy Progress, as well as lower deferred fuel costs and decreased purchased power at Duke Energy Florida; and
a $16$48 million decrease in operations and maintenance expense primarily due to lower outagestorm restoration costs as well as decreased labor and cost savings initiatives, partially offset by higher storm costs, an increase in costs recoverable through the energy conservation cost recovery clause and an increase in employee benefitplant outage costs.
Partially offset by:
a $16$23 million increase in depreciation and amortization expense primarily due to additional plant in service including the additional ownership interest in generating assets acquired from NCEMPA, partially offset reductions in the amounts recorded through theand nuclear cost recovery clause at Duke Energy Florida.regulatory asset amortization.
Interest Expense.The variance was driven by accelerated Crystal River Unit 3 regulatory asset cost recovery in 2015, which resulted in a lowerprimarily due to higher debt return in 2015, as well as lower outstanding debt.outstanding.
Income Tax Expense. The variance was primarily due to a decrease in pretax income and a lower effective tax rate. The effective tax rates for the sixthree months ended June 30,March 31, 2017 and 2016 and 2015 were 36.334.1 percent and 37.136.7 percent, respectively. The decrease in the effective tax rate was primarily due to higher AFUDC equity and the amortization of excess North Carolina deferred tax.
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 Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 9 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2016, "Asset Retirement Obligations," 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 signed by the former North Carolina governor on July 14, 2016. Progress Energy's estimated asset retirement obligationsAROs 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, and the closure work progresses, and the closure method scope isand 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, results of operations and cash flows.position. See Note 5 to9 in Duke Energy's Annual Report on Form 10-K for the Condensed Consolidated Financial Statements, “Commitments and Contingencies,”year ended December 31, 2016, "Asset Retirement Obligations," for additional information.
Duke Energy Progress Energy 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 Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.
AnIn 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 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. Current estimated incremental costs are approximately $116 million. The NCUC has not ruled on the petition. A final order from regulatory authorities disallowingthe NCUC that disallows the deferral and future recovery of all or a significant portion of the incremental storm restoration costs related to closure of ash impoundmentsincurred could haveresult in an adverse impact on Progress Energy’sEnergy's financial position, results of operations and cash flows. See Notes 4
On May 2, 2017, Duke Energy Progress filed notice with the NCUC that it intends to file a general rate case on or about June 1, 2017. Duke Energy Progress will seek to recover costs of complying with CCR regulations and the Condensed Consolidated Financial Statements, “Regulatory Matters”Coal Ash Act, as well as costs of capital investments in generation, transmission and Note 9distribution systems and any increase in Duke Energy’s Annual Report on Form 10-K forexpenditures subsequent to previous rate cases. Progress Energy's earnings could be adversely impacted if the year ended December 31, 2015, "Asset Retirement Obligations," for additional information.rate case is delayed or denied by the NCUC.
DUKE ENERGY PROGRESS
Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the sixthree months ended June 30,March 31, 2017 and 2016 and 2015 and the Annual Report on Form 10-K for the year ended December 31, 2015.2016.
| | | Six Months Ended June 30, | Three Months Ended March 31, |
(in millions) | 2016 |
| | 2015 |
| | Variance |
| 2017 |
| | 2016 |
| | Variance |
|
Operating Revenues | $ | 2,520 |
| | $ | 2,642 |
| | $ | (122 | ) | $ | 1,219 |
| | $ | 1,307 |
| | $ | (88 | ) |
Operating Expenses | 2,008 |
| | 2,143 |
| | (135 | ) | | | | | |
Fuel used in electric generation and purchased power | | 364 |
| | 448 |
| | (84 | ) |
Operation, maintenance and other | | 350 |
| | 386 |
| | (36 | ) |
Depreciation and amortization | | 181 |
| | 175 |
| | 6 |
|
Property and other taxes | | 40 |
| | 41 |
| | (1 | ) |
Total operating expenses | | 935 |
| | 1,050 |
| | (115 | ) |
Gains on Sales of Other Assets and Other, net | 1 |
| | 1 |
| | — |
| 2 |
| | 1 |
| | 1 |
|
Operating Income | 513 |
| | 500 |
| | 13 |
| 286 |
| | 258 |
| | 28 |
|
Other Income and Expenses, net | 29 |
| | 35 |
| | (6 | ) | |
Other Income and Expenses | | 19 |
| | 17 |
| | 2 |
|
Interest Expense | 127 |
| | 116 |
| | 11 |
| 82 |
| | 63 |
| | 19 |
|
Income Before Income Taxes | 415 |
| | 419 |
| | (4 | ) | 223 |
| | 212 |
| | 11 |
|
Income Tax Expense | 147 |
| | 151 |
| | (4 | ) | 76 |
| | 75 |
| | 1 |
|
Net Income and Comprehensive Income | $ | 268 |
| | $ | 268 |
| | $ | — |
| $ | 147 |
| | $ | 137 |
| | $ | 10 |
|
The following table shows the percent changes in GWh sales and average number of customers. The percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized. |
| | |
Increase (Decrease) Increase over prior period | 20162017 |
|
Residential sales | (8.97.3 | )% |
General service sales | (1.33.0 | )% |
Industrial sales | (0.32.1 | )% |
Wholesale power sales | 23.4(11.6 | )% |
Joint dispatch sales | 59.9(18.5 | )% |
Total sales | 7.1(8.8 | )% |
Average number of customers | 1.3 | % |
SixThree Months Ended June 30, 2016March 31, 2017 as Compared to June 30, 2015March 31, 2016
Operating Revenues. The variance was driven primarily by:
a $151$76 million decrease in fuel revenues driven by lower natural gas prices,retail sales and changes in generation mix and decreased demand from retail customers;mix; and
a $50$40 million decrease in electricretail sales, net of fuel revenue, to retail customersrevenues, due to less favorablewarm winter weather compared toin the priorcurrent year.
Partially offset by:
a $68$13 million increase in rate rider revenues related to energy efficiency programs;
a $9 million increase in retail pricing due to the purchase of NCEMPA’s ownership interest in certain generating assets and energy efficiency programs;Duke Energy Progress South Carolina rate case; and
a $32an $8 million increase in wholesale power revenues primarily due to a new NCEMPA contract effective August 1, 2015, partially offset by lowerhigher peak demand.
Operating Expenses. The variance was driven primarily by:
a $152an $84 million decrease in fuel used in electric generation and purchased powerexpense primarily due to decreased demand fromlower retail customers, lower natural gas prices,sales and changes in generation mix; and
a $30$36 million decrease in operations and maintenance expense mostlyprimarily due to lower nuclear outage costs, net of nuclear levelization impacts, driven by fewer outages in 2016, partially offset by higher storm restoration costs.
Partially offset by:
a $35 million increase in depreciation and amortization expenses primarily due to additional plant in service, including the additional ownership interest in generating assets acquired from NCEMPA in the third quarter of 2015; and
a $12 million increase in property and other taxes due to a 2015 North Carolina Franchise Tax refund and increases in current year property taxes in North Carolina and South Carolina.
Interest Expense. The variance was primarily driven bydue to higher debt outstanding, as well as interest related to new debt issuances in 2015.charges on North Carolina fuel overcollections.
Income Tax Expense. The variance was primarily due to an increase in pretax income, partially offset by a lower effective tax rate. The effective tax rates for the sixthree months ended June 30,March 31, 2017 and 2016 were 34.1 percent and 2015 were 35.4 percent, and 36.0 percent, respectively. The decrease in the effective tax rate was primarily due to the amortization of excess North Carolina deferred tax.
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 Progress’ financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 9 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2016, "Asset Retirement Obligations," 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 signed by the former North Carolina governor on July 14, 2016. Duke Energy Progress' estimated asset retirement obligationsAROs 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, and the closure work progresses, and the closure method scope isand 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, results of operations and cash flows.position. See Note 5 to9 in Duke Energy's Annual Report on Form 10-K for the Condensed Consolidated Financial Statements, “Commitments and Contingencies,”year ended December 31, 2016, "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 Condensed Consolidated Financial Statements, “Commitments and Contingencies,” for additional information.
AnIn 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 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. Current estimated incremental costs are approximately $116 million. The NCUC has not ruled on the petition. A final order from regulatory authorities disallowingthe NCUC that disallows the deferral and future recovery of all or a significant portion of the incremental storm restoration costs related to closure of ash impoundmentsincurred could haveresult in an adverse impact on Duke Energy Progress’Progress' financial position, results of operations and cash flows. See Notes 4
On May 2, 2017, Duke Energy Progress filed notice with the NCUC that it intends to file a general rate case on or about June 1, 2017. Duke Energy Progress will seek to recover costs of complying with CCR regulations and the Condensed Consolidated Financial Statements, “Regulatory Matters”Coal Ash Act, as well as costs of capital investments in generation, transmission and Note 9distribution systems and any increase in expenditures subsequent to previous rate cases. Duke Energy’s Annual Report on Form 10-K forEnergy Progress' earnings could be adversely impacted if the year ended December 31, 2015, "Asset Retirement Obligations," for additional information.rate case is delayed or denied by the NCUC.
DUKE ENERGY FLORIDA
Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the sixthree months ended June 30,March 31, 2017 and 2016 and 2015 and the Annual Report on Form 10-K for the year ended December 31, 2015.2016.
| | | Six Months Ended June 30, | Three Months Ended March 31, |
(in millions) | 2016 |
| | 2015 |
| | Variance |
| 2017 |
| | 2016 |
| | Variance |
|
Operating Revenues | $ | 2,157 |
| | $ | 2,367 |
| | $ | (210 | ) | $ | 959 |
| | $ | 1,024 |
| | $ | (65 | ) |
Operating Expenses | 1,644 |
| | 1,825 |
| | (181 | ) | | | | | |
Fuel used in electric generation and purchased power | | 362 |
| | 412 |
| | (50 | ) |
Operation, maintenance and other | | 191 |
| | 205 |
| | (14 | ) |
Depreciation and amortization | | 132 |
| | 114 |
| | 18 |
|
Property and other taxes | | 77 |
| | 78 |
| | (1 | ) |
Impairment charges | | 1 |
| | 2 |
| | (1 | ) |
Total operating expenses | | 763 |
| | 811 |
| | (48 | ) |
Operating Income | 513 |
| | 542 |
| | (29 | ) | 196 |
| | 213 |
| | (17 | ) |
Other Income and Expenses, net | 19 |
| | 10 |
| | 9 |
| |
Other Income and Expenses | | 16 |
| | 5 |
| | 11 |
|
Interest Expense | 81 |
| | 99 |
| | (18 | ) | 70 |
| | 41 |
| | 29 |
|
Income Before Income Taxes | 451 |
| | 453 |
| | (2 | ) | 142 |
| | 177 |
| | (35 | ) |
Income Tax Expense | 170 |
| | 175 |
| | (5 | ) | 52 |
| | 67 |
| | (15 | ) |
Net Income | $ | 281 |
| | $ | 278 |
| | $ | 3 |
| $ | 90 |
| | $ | 110 |
| | $ | (20 | ) |
The following table shows the percent changes in GWh sales and average number of customers. The 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, public and private utilities and power marketers. Amounts are not weather-normalized. |
| | |
Increase (decrease)(Decrease) over prior period | 20162017 |
|
Residential sales | —(8.4 | )% |
General service sales | (0.4 | )% |
Industrial sales | (1.10.4 | )% |
Wholesale and other | 1.75.1 | % |
Total sales | (0.91.8 | )% |
Average number of customers | 1.61.4 | % |
SixThree Months Ended June 30, 2016March 31, 2017 as Compared to June 30, 2015March 31, 2016
Operating Revenues. The variance was driven primarily by:
a $185$50 million decrease in fuel and capacity revenues primarily due to decreased fuel prices to retail customers, partially offset by increaseddemand and capacity rates to retail customers;
a $22$27 million decrease in rider revenues primarily due to a decrease in nuclear cost recovery clause revenues as a resultretail sales, net of suspending Levy recovery in 2015, partially offset by an increase in energy conservation cost recovery clause and environmental cost recovery clausefuel revenues, due to higher recovery rateswarm winter weather in 2016;the current year; and
a $17an $18 million decrease in wholesale power revenues primarily due to less favorable weather compared todriven by contracts that expired in the prior year.
Partially offset by:
a $17$16 million increase in other revenuerider revenues primarily due to a transmission customer settlement charge takennuclear asset securitization revenues beginning in the prior year and July 2016;
an $11 million increase in nonregulated customer products and servicesweather-normal sales volumes to retail customers in the current year.year; and
a $6 million increase in retail pricing due to the base rate adjustment for the Osprey acquisition.
Operating Expenses. The variance was driven primarily by:
a $170$50 million decrease in fuel used in electric generation and purchased powerexpense primarily due to lower deferred fuel pricescosts and lower usage;decreased purchased power, partially offset by higher generation costs; and
a $20$14 million decrease in operations and maintenance expense primarily due to decreased labor costs and planned outage costs.
Partially offset by:
an $18 million increase in depreciation and amortization expense primarily due to reductions in the amounts recorded through the nuclear cost recovery clause, partially offset by increased depreciation due to additional plant in service.
Partially offset by:
a $14 million increase in operations and maintenance expense primarily due to an increase in costs recoverable through the energy conservation cost recovery clause, an increase in expenses associated with fleet outages and an increase in employee benefit costs; partially offset by a decrease in expenses due to routine fleet maintenance work.service, as well as nuclear regulatory asset amortization.
Interest Expense.Other Income and Expenses. The variance was driven by accelerated Crystal River Unit 3 regulatory asset cost recoveryhigher AFUDC equity return on the Citrus County Combined Cycle and Hines Energy Complex Chiller Uprate projects in 2015, which resulted in athe current year and gains on insurance policies.
Interest Expense. The variance was primarily due to higher debt outstanding and lower debt returns, driven by the CR3 debt return recorded prior to the securitization of CR3 in 2015, as well as lower outstanding debt.June of 2016.
Income Tax Expense. The variance was primarily due to a decrease in pretax income and a decrease in effective tax rate. The effective tax rates for the sixthree months ended June 30,March 31, 2017 and 2016 and 2015 were 37.736.6 percent and 38.637.9 percent, respectively. The decrease in the effective tax rate was primarily due to higher AFUDC equity.
DUKE ENERGY OHIO
Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the sixthree months ended June 30,March 31, 2017 and 2016 and 2015 and the Annual Report on Form 10-K for the year ended December 31, 2015.2016.
| | | Six Months Ended June 30, | Three Months Ended March 31, |
(in millions) | 2016 |
| | 2015 |
| | Variance |
| 2017 |
| | 2016 |
| | Variance |
|
Operating Revenues | $ | 944 |
| | $ | 991 |
| | $ | (47 | ) | | | | | |
Regulated electric | | $ | 337 |
| | $ | 340 |
| | $ | (3 | ) |
Regulated natural gas | | 170 |
| | 170 |
| | — |
|
Nonregulated electric and other | | 11 |
| | 6 |
| | 5 |
|
Total operating revenues | | 518 |
| | 516 |
| | 2 |
|
Operating Expenses | 794 |
| | 845 |
| | (51 | ) | | | | | |
Fuel used in electric generation and purchased power – regulated | | 97 |
| | 111 |
| | (14 | ) |
Fuel used in electric generation and purchased power – nonregulated | | 15 |
| | 10 |
| | 5 |
|
Cost of natural gas | | 54 |
| | 49 |
| | 5 |
|
Operation, maintenance and other | | 130 |
| | 119 |
| | 11 |
|
Depreciation and amortization | | 67 |
| | 61 |
| | 6 |
|
Property and other taxes | | 72 |
| | 71 |
| | 1 |
|
Total operating expenses | | 435 |
| | 421 |
| | 14 |
|
Gains on Sales of Other Assets and Other, net | 1 |
| | 8 |
| | (7 | ) | — |
| | 1 |
| | (1 | ) |
Operating Income | 151 |
| | 154 |
| | (3 | ) | 83 |
| | 96 |
| | (13 | ) |
Other Income and Expenses, net | 3 |
| | (2 | ) | | 5 |
| |
Other Income and Expenses | | 4 |
| | 2 |
| | 2 |
|
Interest Expense | 41 |
| | 38 |
| | 3 |
| 22 |
| | 20 |
| | 2 |
|
Income from Continuing Operations Before Income Taxes | 113 |
| | 114 |
| | (1 | ) | 65 |
| | 78 |
| | (13 | ) |
Income Tax Expense from Continuing Operations | 33 |
| | 42 |
| | (9 | ) | 23 |
| | 21 |
| | 2 |
|
Income from Continuing Operations | 80 |
| | 72 |
| | 8 |
| 42 |
| | 57 |
| | (15 | ) |
Income from Discontinued Operations, net of tax | 2 |
| | 25 |
| | (23 | ) | — |
| | 2 |
| | (2 | ) |
Net Income | $ | 82 |
| | $ | 97 |
| | $ | (15 | ) | $ | 42 |
| | $ | 59 |
| | $ | (17 | ) |
The following table shows the percent changes in Regulated Utilities' GWh sales and average number of customers. The percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized. |
| | |
Increase (Decrease) increase over prior year | 20162017 |
|
Residential sales | (9.52.9 | )% |
General service sales | (2.21.7 | )% |
Industrial sales | (0.90.2 | )% |
Wholesale power sales | (76.9153.2 | )% |
Total sales | (8.40.8 | )% |
Average number of customers | 0.70.8 | % |
SixThree Months Ended June 30, 2016March 31, 2017 as Compared to June 30, 2015March 31, 2016
Operating Revenues.The variance was driven primarily by:
an $8 million increase in PJM transmission revenues;
a $45$6 million increase in rider revenues primarily due to energy efficiency programs and a rate increase for the distribution capital investment rider, partially offset by a decrease in the percentage of income payment plan rider due to a rate decrease: and
a $5 million increase in other revenues related to Ohio Valley Electric Corporation (OVEC).
Partially offset by:
an $11 million decrease in fuel revenues driven byprimarily due to lower electric fuel prices and sales volumes, partially offset by higher costs passed through to natural gas pricescustomers due to higher natural gas prices; and decreased
an $8 million decrease in electric retail sales, volumes;net of fuel revenues, due to warm winter weather in the current year.
Operating Expenses. The variance was driven primarily by:
an $11 million increase in operations and maintenance expense due to higher energy efficiency program costs, higher storm costs, and higher transmission and distribution operations costs; and
a $15$6 million decreaseincrease in depreciation and amortization expense due to less favorable weather compared to the prior year.additional plant in service.
Partially offset by:
a $23 million increase in the energy efficiency rider due to a prior year unfavorable regulatory order limiting the ability to utilize energy efficiency banked savings.
Operating Expenses. The variance was driven by a $51$14 million decrease in cost of natural gas, primarily due to decreasedfuel expense driven by lower sales volumes and lower natural gas prices.electric fuel costs.
Income Tax Expense. The variance was primarily due to a decrease in thepretax income, partially offset by a higher effective tax rate. The effective tax ratesrate for the sixthree months ended June 30,March 31, 2017 and 2016 and 2015 were 29.235.4 percent and 36.826.9 percent, respectively. The decreaseincrease in the effective tax rate was primarily due to a favorable prior-periodan immaterial out of period adjustment for depreciation and otherin the prior year related to deferred tax balances associated with property, plant and equipment.
Discontinued Operations, Net of Tax. The variance was primarily driven by the Disposal Group's operating results in 2015.
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 NotesNote 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 9 in Duke Energy’sEnergy's Annual Report on Form 10-K for the year ended December 31, 2015,2016, "Asset Retirement Obligations," 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.
In 2013, the PUCO issued an order (PUCO order) approving Duke Energy Ohio’s recovery of costs incurred between 2008 and 2012 for environmental investigation and remediation of two former MGP sites. At March 31, 2017, Duke Energy Ohio had recorded in Regulatory assets on the Condensed Consolidated Balance Sheet approximately $100 million of estimated MGP remediation costs not yet recovered through the MGP rider mechanism. Intervenors have appealed to the Ohio Supreme Court the PUCO order authorizing recovery of these amounts. That appeal remains pending. Duke Energy Ohio cannot predict the outcome of the appeal before the Ohio Supreme Court or future action by the PUCO. If Duke Energy Ohio is not able to recover these remediation costs in rates, the costs could have an adverse impact on Duke Energy Ohio's financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
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 Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
DUKE ENERGY INDIANA
Management’s Discussion and Analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes for the sixthree months ended June 30,March 31, 2017 and 2016 and 2015 and the Annual Report on Form 10-K for the year ended December 31, 2015.2016.
| | | Six Months Ended June 30, | Three Months Ended March 31, |
(in millions) | 2016 |
| | 2015 |
| | Variance |
| 2017 |
| | 2016 |
| | Variance |
|
Operating Revenues | $ | 1,416 |
| | $ | 1,474 |
| | $ | (58 | ) | $ | 758 |
| | $ | 714 |
| | $ | 44 |
|
Operating Expenses | 1,066 |
| | 1,119 |
| | (53 | ) | | | | | |
Gains of Sales of Other Assets and Other, net | — |
| | 1 |
| | (1 | ) | |
Fuel used in electric generation and purchased power | | 251 |
| | 228 |
| | 23 |
|
Operation, maintenance and other | | 174 |
| | 162 |
| | 12 |
|
Depreciation and amortization | | 125 |
| | 125 |
| | — |
|
Property and other taxes | | 22 |
| | 23 |
| | (1 | ) |
Total operating expenses | | 572 |
| | 538 |
| | 34 |
|
Operating Income | 350 |
| | 356 |
| | (6 | ) | 186 |
| | 176 |
| | 10 |
|
Other Income and Expenses, net | 10 |
| | 9 |
| | 1 |
| |
Other Income and Expenses | | 8 |
| | 4 |
| | 4 |
|
Interest Expense | 91 |
| | 88 |
| | 3 |
| 44 |
| | 44 |
| | — |
|
Income Before Income Taxes | 269 |
| | 277 |
| | (8 | ) | 150 |
| | 136 |
| | 14 |
|
Income Tax Expense | 89 |
| | 101 |
| | (12 | ) | 59 |
| | 41 |
| | 18 |
|
Net Income | $ | 180 |
| | $ | 176 |
| | $ | 4 |
| $ | 91 |
| | $ | 95 |
| | $ | (4 | ) |
The following table shows the percent changes in GWh sales and average number of customers. The percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized. |
| | |
Increase (Decrease) increase over prior year | 20162017 |
|
Residential sales | (8.74.1 | )% |
General service sales | (2.91.3 | )% |
Industrial sales | 0.9— | % |
Wholesale power sales | 64.3(42.7 | )% |
Total sales | 6.8(12.6 | )% |
Average number of customers | 1.01.2 | % |
SixThree Months Ended June 30, 2016March 31, 2017 as Compared to June 30, 2015March 31, 2016
Operating Revenues. The variance was driven primarily by:
a $67$28 million decreaseincrease in rider revenues related to Edwardsport IGCC and energy efficiency programs; and
a $17 million increase in fuel revenues including emission allowances, primarily due to a decrease in fuel priceshigher purchased power costs passed through to customers and lower sales volumes; and
a $15 million decrease in electric sales, net of fuel revenue, to retail customers due to less favorable weather compared to the prior year.
Partially offset by:
a $20 million increase in retail pricing and rate rider revenues due to increased revenues related to clean coal equipment.higher financial transmission right (FTR) revenues.
Operating Expenses. The variance was driven primarily by:
an $81a $23 million decreaseincrease in fuel used in electric generation and purchased power expense, primarily due to higher purchased power volumes and prices, partially offset by lower fuel prices;costs due to lower generation; and
a $10$14 million decreaseincrease in operations and maintenance expense due to a decreasegrowth in outage workenergy efficiency programs and higher expenses at generation plants.Edwardsport IGCC.
Partially offset by:
a $27 million increase in propertyOther Income and other taxes,Expenses. The variance was primarily driven by higher sales and use tax due to the partial reversal in 2015 of a tax reserve upon settlement of the matter; and
an $11 million increase in depreciation and amortization expenses primarily due to a higher amount of property, plant and equipment in service.AFUDC equity.
Income Tax Expense. The variance was primarily due to an increase in pretax income and a decrease in thehigher effective tax rate. The effective tax rates for the sixthree months ended June 30,March 31, 2017 and 2016 and 2015 were 33.139.3 percent and 36.530.2 percent, respectively. The decreaseincrease in the effective tax rate was primarily due to a favorable prior-periodan immaterial out of period adjustment for depreciation and otherin the prior year related to deferred tax balances associated with property, plant and equipment.
Matters Impacting Future Results
On April 17, 2015, the EPA published in the Federal Register a rule to regulate the disposal of CCR from electric utilities as solid waste. Duke Energy Indiana has interpreted the rule to identify the coal ash basin sites impacted and has assessed the amounts of coal ash subject to the rule and a method of compliance. Duke Energy Indiana's interpretation of the requirements of the CCR rule is subject to potential legal challenges and further regulatory approvals, which could result in additional ash basin closure requirements, higher costs of compliance and greater asset retirement obligations.AROs. 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.
The IURC approved a settlement agreement between Duke Energy Indiana entered into a revised settlement agreement withand multiple parties that will resolveresolves 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 agreement is subject to IURC approval. Pursuant to the terms of this agreement, Duke Energy Indiana recognized an impairment and related charges of $93 million for the year ended December 31, 2015. The agreement stipulates that recovery of the remaining regulatory asset will be over an eight-year period and confirms an in-service date for accounting and ratemaking purposes of June 7, 2013. The agreement, if approved, will also imposeimposes a cost cap for retail recoverable operations and maintenance retail costs in the second half of 2016, and 2017, as well as a cost cap for ongoing capital expenditures through 2017. As part of the settlement, Duke Energy Indiana committed to either retire or cease burning coal at Gallagher Station by December 31, 2022. If the settlement agreement is not approved, outstanding issues before the IURC related to Edwardsport would resume and the resolution of such could have an adverse impact on Duke Energy Indiana's financial position, results of operations and cash flows. In addition, anAn inability to manage operating and capital costs in accordance with caps imposed pursuant to the agreement could have an adverse impact on Duke Energy Indiana's financial position, results of operations and cash flows. See Note 4 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information.
Duke Energy Indiana agreed as part of the grid infrastructure improvement plan to defer depreciation
PART I
PIEDMONT
Management’s Discussion and other post-in-service carrying costs related to a planned automated metering infrastructure (AMI) project until the next retail base rate case. Duke Energy Indiana also agreed to withdraw its request for the creation of a regulatory asset for the remaining book value of existing meters that wouldAnalysis should be replaced as part of the AMI project. If Duke Energy Indiana proceedsread in conjunction with the AMI project, an impairment charge could be incurred for some or all of the remaining book value of the existing meters. See Note 4 to the Condensed Consolidated Financial Statements “Regulatory Matters,”and Notes for the three months ended March 31, 2017, Piedmont's Annual Report on Form 10-K for the year ended October 31, 2016, and the transition report 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.
|
| | | | | | | | | | | |
| Three Months Ended March 31, |
(in millions) | 2017 |
| | 2016 |
| | Variance |
|
Operating Revenues | | | | | |
Regulated natural gas | $ | 498 |
| | $ | 481 |
| | 17 |
|
Nonregulated natural gas and other | 2 |
| | 2 |
| | — |
|
Total operating revenues | 500 |
| | 483 |
| | 17 |
|
Operating Expenses | | | | | |
Cost of natural gas | 205 |
| | 197 |
| | 8 |
|
Operation, maintenance and other | 77 |
| | 74 |
| | 3 |
|
Depreciation and amortization | 35 |
| | 34 |
| | 1 |
|
Property and other taxes | 13 |
| | 11 |
| | 2 |
|
Total operating expenses | 330 |
| | 316 |
| | 14 |
|
Operating Income | 170 |
| | 167 |
| | 3 |
|
Equity in Earnings of Unconsolidated Affiliates | 3 |
| | 16 |
| | (13 | ) |
Interest Expense | 20 |
| | 17 |
| | 3 |
|
Income Before Income Taxes | 153 |
| | 166 |
| | (13 | ) |
Income Tax Expense | 58 |
| | 63 |
| | (5 | ) |
Net Income | $ | 95 |
| | $ | 103 |
| | $ | (8 | ) |
The following table shows the percent changes in dekatherms delivered and average number of customers. The percentages for all throughput deliveries represent billed and unbilled sales. Amounts are not weather-normalized. |
| | |
Increase (Decrease) over prior year | 2017 |
|
Residential deliveries | (23.2 | )% |
Commercial deliveries | (19.9 | )% |
Industrial deliveries | (7.1 | )% |
Power generation deliveries | (12.4 | )% |
For resale | (12.7 | )% |
Total throughput deliveries | (14.3 | )% |
Secondary market volumes | (1.7 | )% |
Average number of customers | 1.5 | % |
Piedmont's throughput was 133,276,787 dekatherms and 155,446,586 dekatherms for the three months ended March 31, 2017 and 2016, respectively. Due to the margin decoupling mechanism in North Carolina and weather normalization adjustment (WNA) mechanisms in South Carolina and Tennessee, changes in throughput deliveries do not have a material impact on Piedmont's revenues or earnings. The margin decoupling mechanism adjusts for variations in residential and commercial use per customer, including those due to weather and conservation. The WNA mechanisms mostly offset the impact of weather on bills rendered, but do not ensure full recovery of approved margin during periods when winter weather is significantly warmer or colder than normal.
Three Months Ended March 31, 2017 as Compared to March 31, 2016
Operating Revenues.The variance was driven primarily by:
a $13 million increase in revenues to residential and commercial customers, net of natural gas costs passed through to customers, primarily due to IMR rate adjustments and customer growth, partially offset by decreased volumes delivered due to warmer weather; and
an $8 million increase due to higher natural gas costs passed through to customers, primarily due to higher natural gas prices.
Partially offset by:
a $3 million decrease in secondary market activity primarily due to lower margin sales.
Operating Expenses.The variance was driven by:
An $8 million increase in costs of natural gas, primarily due to higher natural gas prices and decreased opportunity for capacity release transactions; and
A $6 million increase in other operating expenses, primarily due to higher severance expense, increased property taxes and depreciation attributable to additional information.plant in service.
Equity in Earnings of Unconsolidated Affiliates. The variance was primarily due to equity earnings from the investment in SouthStar in the prior year. Piedmont sold its 15 percent membership interest in SouthStar on October 3, 2016.
Income Tax Expense. The variance was primarily due to a decrease in pretax income. The effective tax rates for the three months ended March 31, 2017 and 2016 were 37.9 percent and 38.0 percent, respectively.
Matters Impacting Future Results
On April 1, 2017, Piedmont transferred its ownership interests in Atlantic Coast Pipeline, LLC (ACP) and Constitution to a wholly owned subsidiary of Duke Energy at book value. As a result, Piedmont will not recognize equity earnings (or losses) from these investments in future periods.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Duke Energy relies primarily upon cash flows from operations, debt issuances and its existing cash and cash equivalents to fund its domestic 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. See Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015,2016, for a summary and detailed discussion of projected primary sources and uses of cash for 20162017 to 2018.
On October 24, 2015, Duke Energy entered into a Merger Agreement with Piedmont, a North Carolina corporation. Under the terms of the Merger Agreement, Duke Energy will acquire Piedmont for $4.9 billion in cash. In addition, Duke Energy will assume Piedmont's existing debt, which was approximately $2.0 billion at April 30, 2016, the end of Piedmont's most recent filed fiscal quarter. Duke Energy expects to finance the transaction with a combination of debt, equity issuances and other cash sources. As of June 30, 2016, Duke Energy had entered into $1.4 billion of forward-starting interest rate swaps to manage interest rate exposure for the expected financing of the Piedmont acquisition. For additional information on the Piedmont acquisition, refer to Note 2 to the Condensed Consolidated Financial Statements, “Acquisitions and Dispositions."
In March 2016, Duke Energy marketed an equity offering of 10.6 million shares of common stock. In lieu of issuing equity at the time of the offering, Duke Energy entered into the Equity Forwards with Barclays. Duke Energy expects to settle the Equity Forwards on or around the closing date of the Piedmont acquisition. The net proceeds received upon settlement are expected to be used to finance a portion of the acquisition of Piedmont. For additional information regarding the Equity Forwards, see Note 13 to the Condensed Consolidated Financial Statements, "Common Stock."2019.
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 (Parent), 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.
Duke Energy and the Subsidiary Registrants, excluding Progress Energy (Parent), 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 may at times 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 business.
CREDIT FACILITIES AND REGISTRATION STATEMENTS
Master Credit Facility Summary
In March 2017, Duke Energy has aamended its Master Credit Facility with ato increase its capacity offrom $7.5 billion throughto $8 billion, and to extend the termination date of the facility from January 2020.30, 2020, to March 16, 2022. The amendment also added Piedmont as a borrower within the Master Credit Facility. Piedmont's separate $850 million credit facility was terminated in connection with the amendment. With the amendment, the Duke Energy Registrants, excluding Progress Energy (Parent), have borrowing capacity under the Master Credit Facility up to a specified sublimit 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. The table below includes the current borrowing sublimits and available capacity under the Master Credit Facility. | | | June 30, 2016 | March 31, 2017 |
| | | 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 |
| Energy |
| | (Parent) |
| | Carolinas |
| | Progress |
| | Florida |
| | Ohio |
| | Indiana |
| | Piedmont |
|
Facility size(a) | $ | 7,500 |
| | $ | 3,475 |
| | $ | 800 |
| | $ | 1,000 |
| | $ | 1,200 |
| | $ | 425 |
| | $ | 600 |
| $ | 8,000 |
| | $ | 3,400 |
| | $ | 1,100 |
| | $ | 1,000 |
| | $ | 950 |
| | $ | 450 |
| | $ | 600 |
| | $ | 500 |
|
Reduction to backstop issuances | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial paper(b) | (1,673 | ) | | (992 | ) | | (300 | ) | | (159 | ) | | (47 | ) | | (25 | ) | | (150 | ) | (3,134 | ) | | (1,822 | ) | | (469 | ) | | (402 | ) | | — |
| | (30 | ) | | (150 | ) | | (261 | ) |
Outstanding letters of credit | (77 | ) | | (70 | ) | | (4 | ) | | (2 | ) | | (1 | ) | | — |
| | — |
| (71 | ) | | (62 | ) | | (4 | ) | | (2 | ) | | (1 | ) | | — |
| | — |
| | (2 | ) |
Tax-exempt bonds | (116 | ) | | — |
| | (35 | ) | | — |
| | — |
| | — |
| | (81 | ) | (81 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (81 | ) | | — |
|
Coal ash set-aside | (500 | ) | | — |
| | (250 | ) | | (250 | ) | | — |
| | — |
| | — |
| (500 | ) | | — |
| | (250 | ) | | (250 | ) | | — |
| | — |
| | — |
| | — |
|
Available capacity | $ | 5,134 |
|
| $ | 2,413 |
|
| $ | 211 |
|
| $ | 589 |
|
| $ | 1,152 |
|
| $ | 400 |
|
| $ | 369 |
| $ | 4,214 |
|
| $ | 1,516 |
|
| $ | 377 |
|
| $ | 346 |
|
| $ | 949 |
|
| $ | 420 |
|
| $ | 369 |
| | $ | 237 |
|
| |
(a) | Represents the sublimit of each borrower. Certain sublimits were reallocated in May 2017 to provide additional liquidity to certain borrowers in light of near-term funding needs. |
| |
(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 Condensed Consolidated Balance Sheets. |
Piedmont Bridge Facility
In connection with the Merger Agreement with Piedmont, Duke Energy entered into a $4.9 billion Bridge Facility with Barclays. The Bridge Facility, if drawn upon, may be used (i) to fund the cash consideration for the transaction and (ii) to pay certain fees and expenses in connection with the transaction. In November 2015, Barclays syndicated its commitment under the Bridge Facility to a broader group of lenders. Duke Energy does not expect to draw upon the Bridge Facility. The amount of the Bridge Facility is reduced by any financings related to the Piedmont acquisition entered into by Duke Energy, and has accordingly been reduced to approximately $3.2 billion as a result of the Equity Forwards described above and $1 billion of commitments under a term loan amended and restated as of August 1, 2016, described below.
Term Loan Facility
On February 22, 2016, Duke Energy entered into a six-month term loan facility with commitments totaling $1.0 billion (the February 2016 Term Loan). As of June 30, 2016, $100 million was outstanding under the February 2016 Term Loan. On August 1, 2016, Duke Energy and each of the lenders under the February 2016 Term Loan amended and restated certain terms of this facility, resulting in aggregate commitments of $1.5 billion and extending the maturity date to July 31, 2017.
As of August 1, 2016, $100 million has been drawn under the amended and restated term loan (the August 2016 Term Loan). The remaining $1.4 billion of commitments under the August 2016 Term Loan can be drawn in up to two separate borrowings, which must occur no later than 90 calendar days following August 1, 2016. Any borrowings under the August 2016 Term Loan will be used to manage short-term liquidity, including funding a portion of the Piedmont acquisition, and for general corporate purposes. The terms and conditions of the August 2016 Term Loan are generally consistent with those governing Duke Energy’s Master Credit Facility.
Solar Facilities Financing
In August 2016, Emerald State Solar, LLC, an indirect wholly owned subsidiary of Duke Energy, entered into a portfolio financing of approximately 22 North Carolina Solar facilities. The $333 million term loan facility consists of Tranche A of $228 million due in June 2034 secured by substantially all the assets of the solar facilities and Tranche B of $105 million due in June 2020 secured by an Equity Contribution Agreement with Duke Energy. The initial interest rate on the loans is six months LIBOR plus an applicable margin. The initial applicable margin is 1.75 percent with 0.125 percent increases 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.
Shelf Registration
In September 2013,2016, Duke Energy filed a Form S-3registration statement (Form S-3) with the Securities and Exchange Commission (SEC).SEC. Under this Form S-3, which is uncapped, the Duke Energy Registrants, excluding Progress Energy, may issue debt and other securities in the future at amounts, prices and with terms to be determined at the time of future offerings. The registration statement also allows for the issuance of common stock by Duke Energy.
In January 2017, Duke Energy will file a newamended its Form S-3 to be effective prior toadd Piedmont as a registrant and included in the expiration ofamendment a prospectus for Piedmont under which it may issue debt securities in the current registration statement in September 2016.same manner as other Duke Energy Registrants.
DEBT MATURITIES
The following table shows the significant components of Current maturities of long-term debtLong-Term Debt on the Condensed 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 |
| | June 30, 2016 |
| Maturity Date | | Interest Rate |
| | March 31, 2017 |
|
Unsecured Debt | | | | | | | | |
Duke Energy (Parent) | November 2016 | | 2.150 | % | | $ | 500 |
| August 2017 | | 1.625 | % | | 700 |
|
Duke Energy (Parent) | April 2017 | | 1.009 | % | | 400 |
| |
Duke Energy | May 2017 | | 15.530 | % | | 56 |
| |
Piedmont | | September 2017 | | 8.510 | % | | 35 |
|
Secured Debt | | | | | | | | |
Duke Energy | June 2017 | | 2.075 | % | | 45 |
| June 2017 | | 2.605 | % | | 45 |
|
Duke Energy | | June 2017 | | 2.455 | % | | 34 |
|
First Mortgage Bonds | | | | | | | | |
Duke Energy Indiana | July 2016 | | 0.979 | % | | 150 |
| |
Duke Energy Florida | | September 2017 | | 5.800 | % | | 250 |
|
Duke Energy Progress | | November 2017 | | 1.252 | % | | 200 |
|
Duke Energy Carolinas | December 2016 | | 1.750 | % | | 350 |
| January 2018 | | 5.250 | % | | 400 |
|
Duke Energy Progress | March 2017 | | 0.880 | % | | 250 |
| |
Tax-exempt Bonds | | | | | |
Duke Energy Carolinas | February 2017 | | 3.600 | % | | 77 |
| |
Duke Energy Ohio(a) | August 2027 | | 1.280 | % | | 50 |
| |
Duke Energy Indiana(b) | May 2035 | | 1.092 | % | | 44 |
| |
Other(c) | | | | 420 |
| |
Other(a) | | | | | 313 |
|
Current maturities of long-term debt | | | | $ | 2,342 |
| | | | $ | 1,977 |
|
| |
(a) | Represents Duke Energy Kentucky, Inc.'s bonds with a mandatory put in December 2016. |
| |
(b) | The bonds have a mandatory put in December 2016. |
| |
(c) | Includes capital lease obligations, amortizing debt and small bullet maturities. |
CASH FLOWS FROM OPERATING ACTIVITIES
The relatively stable operating cash flows of Regulated Utilities compose a substantial portion of Duke Energy’s cashCash flows from operations. Regulated Utilities’ 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, and legal costs and related settlements can affect the timing and level of cash flows from operations.
Duke Energy believes it has sufficient liquidity resources through the commercial paper markets, and ultimately the Master Credit Facility, to support these operations. Cash flows from operations are subject to a number of other factors, including but not limited to regulatory constraints, economic trends and market volatility (see “Item 1A. Risk Factors,” in the Duke Energy Registrants’ Annual ReportReports on Form 10-K for the year ended December 31, 2015, for additional information).
At June 30, 2016, Duke Energy had cash and cash equivalents of $676 million, of which $454 million is held by entities domiciled in foreign jurisdictions. In December 2014, Duke Energy declared a taxable dividend of historical foreign earnings in the form of notes payable to repatriate approximately $2.7 billion of cash held and expected to be generated by International Energy over a period of up to eight years. As of June 30, 2016, approximately $1.6 billion has been remitted.
Proceeds received from the notes described above or resulting from a sale of International Energy would be used by Duke Energy to reduce debt and fund the operations and growth of domestic businesses. For further information on the potential sale of International Energy, refer to Note 2 to the Condensed Consolidated Financial Statements, "Acquisitions and Dispositions."
As of December 31, 2015, Duke Energy’s intention was to indefinitely reinvest foreign earnings of International Energy earned after December 31, 2014. In February 2016, Duke Energy announced it had initiated a process to divest the International Energy business segment, excluding the investment in NMC. Accordingly, Duke Energy no longer intends to indefinitely reinvest the undistributed earnings of International Energy. As of June 30, 2016, Duke Energy recorded U.S. income taxes of approximately $16 million related to such earnings and will prospectively provide U.S. income taxes on future foreign earnings.
This change in Duke Energy's intent, combined with the extension of bonus depreciation by Congress in late 2015, allows Duke Energy to more efficiently utilize foreign tax credits and reduce U.S. deferred tax liabilities associated with historic unremitted foreign earnings by approximately $95 million.
Restrictive Debt Covenants
The Duke Energy Registrants’ debt and credit agreements contain various financial and other covenants. The Master Credit Facility contains a covenant requiring the debt-to-total capitalization ratio not to not exceed 65 percent for each borrower.all borrowers except Piedmont. The debt-to-total capitalization ratio for Piedmont is not to exceed 70 percent. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements. As of June 30, 2016,March 31, 2017, each of the Duke Energy Registrants were 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 the 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.
Credit Ratings
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 deteriorate, credit ratings could be negatively impacted.
The Duke Energy Registrants each hold credit ratings by Fitch Ratings, Inc. (Fitch), Moody’s Investors Service, Inc. (Moody’s) and Standard & Poor’s Rating Services (S&P). TheIn April 2017, Fitch Ratings, Inc. (Fitch) withdrew credit ratings of the Subsidiary Registrants, with the exclusion of Piedmont who was not previously rated by Fitch, due to commercial reasons. Fitch will continue to provide credit ratings for Duke Energy Registrants' credit ratings and outlooks from Fitch, Moody's and S&P have not changed since February 2016.Corporation.
Cash Flow Information
The following table summarizes Duke Energy’s cash flows. | | | | Six Months Ended | | Three Months Ended |
| | June 30, | | March 31, |
(in millions) | | 2016 |
| | 2015 |
| | 2017 |
| | 2016 |
|
Cash flows provided by (used in): | | | | | | | | |
Operating activities | | $ | 3,206 |
| | $ | 2,879 |
| | $ | 1,289 |
| | $ | 1,682 |
|
Investing activities | | (3,608 | ) | | (294 | ) | | (2,399 | ) | | (1,758 | ) |
Financing activities | | 221 |
| | (3,661 | ) | | 1,596 |
| | (3 | ) |
Net decrease in cash and cash equivalents | | (181 | ) | | (1,076 | ) | |
Changes in cash and cash equivalents included in assets held for sale | | | — |
| | 30 |
|
Net increase (decrease) in cash and cash equivalents | | | 486 |
| | (49 | ) |
Cash and cash equivalents at beginning of period | | 857 |
| | 2,036 |
| | 392 |
| | 383 |
|
Cash and cash equivalents at end of period | | $ | 676 |
| | $ | 960 |
| | $ | 878 |
| | $ | 334 |
|
OPERATING CASH FLOWS
The following table summarizes key components of Duke Energy’s operating cash flows. |
| | | | | | | | |
| | Six Months Ended |
| | June 30, |
(in millions) | | 2016 |
| | 2015 |
|
Net income | | $ | 1,211 |
| | $ | 1,414 |
|
Non-cash adjustments to net income | | 2,231 |
| | 2,409 |
|
Contributions to qualified pension plans | | — |
| | (132 | ) |
Payments for asset retirement obligations | | (263 | ) | | (125 | ) |
Working capital | | 27 |
| | (687 | ) |
Net cash provided by operating activities | | $ | 3,206 |
| | $ | 2,879 |
|
|
| | | | | | | | |
| | Three Months Ended |
| | March 31, |
(in millions) | | 2017 |
| | 2016 |
|
Net income | | $ | 717 |
| | $ | 699 |
|
Non-cash adjustments to net income | | 1,237 |
| | 1,060 |
|
Payments for asset retirement obligations | | (134 | ) | | (112 | ) |
Working capital | | (531 | ) | | 35 |
|
Net cash provided by operating activities | | $ | 1,289 |
| | $ | 1,682 |
|
The variance was driven primarily due to:
a $714$566 million increasedecrease in cash flows from working capital primarily due to unrealized losses on forward-starting interest rate swaps related to the expected financingabsence of the Piedmont acquisition, higher property tax accrualsInternational Disposal Group's operating cash flows, lower regulated electric revenues due to warmer winter weather in the current year and the timing of payments, and lower coal stock inventory due to managementpayment of high inventory levels and timing of shipments partially due to higher utilization as a result of warmer than normal weather;accruals.
Partially offset by:
a $381$195 million decreaseincrease in net income after non-cash adjustments, primarily due to the absence ofadditional earnings fromattributed to the Disposal Group sold in April 2015 and less favorable weather in 2016 compared to prior year, partially offset by increased retail pricing and riders.Piedmont acquisition.
INVESTING CASH FLOWS
The following table summarizes key components of Duke Energy’s investing cash flows. | | | | Six Months Ended | | Three Months Ended |
| | June 30, | | March 31, |
(in millions) | | 2016 |
| | 2015 |
| | 2017 |
| | 2016 |
|
Capital, investment and acquisition expenditures | | $ | (3,529 | ) | | $ | (3,189 | ) | | $ | (2,335 | ) | | $ | (1,704 | ) |
Available for sale securities, net | | 26 |
| | 13 |
| | 19 |
| | 15 |
|
Proceeds from sales of the Disposal Group | | — |
| | 2,792 |
| |
Other investing items | | (105 | ) | | 90 |
| | (83 | ) | | (69 | ) |
Net cash used in investing activities | | $ | (3,608 | ) | | $ | (294 | ) | | $ | (2,399 | ) | | $ | (1,758 | ) |
The variance was primarily due to:
a $2,832 million decrease in proceeds mainly due to prior year sale of the Disposal Group to Dynegy; and
a $340$631 million increase in capital, investment and acquisition expenditures primarily due to growth in regulated generation investments and natural gas infrastructure and renewable energy projects.infrastructure.
FINANCING CASH FLOWS
The following table summarizes key components of Duke Energy’s financing cash flows. | | | | Six Months Ended | | Three Months Ended |
| | June 30, | | March 31, |
(in millions) | | 2016 |
| | 2015 |
| | 2017 |
| | 2016 |
|
Issuance of common stock related to employee benefit plans | | $ | 7 |
| | $ | 16 |
| |
Issuances (Redemptions) of long-term debt, net | | 2,719 |
| | (672 | ) | |
Issuances of long-term debt, net | | | $ | 1,155 |
| | $ | 751 |
|
Notes payable and commercial paper | | (1,341 | ) | | (365 | ) | | 1,063 |
| | (158 | ) |
Dividends paid | | (1,140 | ) | | (1,115 | ) | | (600 | ) | | (570 | ) |
Repurchase of common shares | | — |
| | (1,500 | ) | |
Other financing items | | (24 | ) | | (25 | ) | | (22 | ) | | (26 | ) |
Net cash provided by (used in) financing activities | | $ | 221 |
| | $ | (3,661 | ) | | $ | 1,596 |
| | $ | (3 | ) |
The variance was due primarily to:
a $3,391$1,221 million increase in net proceeds from issuances of notes payable and commercial paper primarily as a result of the repayment of commercial paper at the end of 2016 with proceeds from the sale of the international business; and
a $404 million increase in proceeds from net issuances of long-term debt driven by the issuance of $1,294 million of senior secured bonds used to finance the recovery of certain retired nuclear generation assets and other issuances primarily used to fund capital expenditures, repay debt maturities and pay down outstanding commercial paper; and
a $1,500 million decrease in cash outflowsmainly due to the prior year repurchasetiming of 19.8 million common shares under the accelerated stock repurchase program.issuances and redemptions of long-term debt.
Partially offset by:
a $976 million increase in net payments of notes payable and commercial paper, primarily due to repayment of commercial paper. These cash outflows were primarily made with proceeds from long-term debt issuances.
Summary of Significant Debt Issuances
The following table summarizes significant debt issuances (in millions). |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Six Months Ended |
| | | | | June 30, 2016 |
| | | | | | | Duke |
| | Duke |
| | Duke |
| | Duke |
| | Duke |
|
| Maturity | | Interest |
| | Duke |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
| | Energy |
|
Issuance Date | Date | | Rate |
| | Energy |
| | (Parent) |
| | Carolinas |
| | Florida |
| | Ohio |
| | Indiana |
|
Unsecured | | | | | | | | | | | | | | | |
April 2016(a) | April 2023 | | 2.875 | % | | $ | 350 |
| | $ | 350 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
First Mortgage Bonds | | | | | | | | | | | | | | | |
March 2016(b) | March 2023 | | 2.500 | % | | 500 |
| | — |
| | 500 |
| | — |
| | — |
| | — |
|
March 2016(b) | March 2046 | | 3.875 | % | | 500 |
| | — |
| | 500 |
| | — |
| | — |
| | — |
|
May 2016(c) | May 2046 | | 3.750 | % | | 500 |
| | — |
| | — |
| | — |
| | — |
| | 500 |
|
June 2016(b) | June 2046 | | 3.700 | % | | 250 |
| | — |
| | — |
| | — |
| | 250 |
| | — |
|
Secured Debt | | | | | | | | | | | | | | | |
June 2016(d) | March 2020 | | 1.196 | % | | 183 |
| | — |
| | — |
| | 183 |
| | — |
| | — |
|
June 2016(d) | September 2022 | | 1.731 | % | | 150 |
| | — |
| | — |
| | 150 |
| | — |
| | — |
|
June 2016(d) | September 2029 | | 2.538 | % | | 436 |
| | — |
| | — |
| | 436 |
| | — |
| | — |
|
June 2016(d) | March 2033 | | 2.858 | % | | 250 |
| | — |
| | — |
| | 250 |
| | — |
| | — |
|
June 2016(d) | September 2036 | | 3.112 | % | | 275 |
| | — |
| | — |
| | 275 |
| | — |
| | — |
|
Total issuances | | | | | $ | 3,394 |
|
| $ | 350 |
| | $ | 1,000 |
|
| $ | 1,294 |
|
| $ | 250 |
|
| $ | 500 |
|
|
| | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, 2017 |
| | | | | | Duke |
| | Duke |
|
| Maturity | Interest |
| | Duke |
| | Energy |
| | Energy |
|
Issuance Date | Date | Rate |
| | Energy |
| | Florida |
| | Ohio |
|
Secured Debt | | | | | | | | |
February 2017(a) | June 2034 | 4.120 | % | | $ | 587 |
| | $ | — |
| | $ | — |
|
First Mortgage Bonds | | | | | | | |
January 2017(b) | January 2020 | 1.850 | % | | 250 |
| | 250 |
| | — |
|
January 2017(b) | January 2027 | 3.200 | % | | 650 |
| | 650 |
| | — |
|
March 2017(c) | June 2046 | 3.700 | % | | 100 |
| | — |
| | 100 |
|
Total issuances | | | | $ | 1,587 |
|
| $ | 900 |
|
| $ | 100 |
|
| |
(a) | Portfolio financing of four Texas and Oklahoma wind facilities. Secured by substantially all of the assets of these wind facilities and nonrecourse to Duke Energy. Proceeds were used to pay down outstanding commercial paperreimburse Duke Energy for a portion of previously funded construction expenditures. |
| |
(b) | Debt issued to fund capital expenditures for ongoing construction and capital maintenance, to repay at maturity a $250 million aggregate principal amount of bonds due September 2017 and for general corporate purposes. |
| |
(b)(c) | Proceeds were used to fund capital expenditures for ongoing construction, capital maintenance and for general corporate purposes. |
| |
(c) | 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. |
| |
(d) | Proceeds from the nuclear asset recovery bonds issued by Duke Energy Florida Project Finance, LLC (DEFPF), a bankruptcy remote subsidiary of Duke Energy Florida, were used 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 12 to the Condensed Consolidated Financial Statements, "Regulatory Matters" and "Variable Interest Entities," respectively, for additional information.In April 2017, Duke Energy (Parent) issued $420 million of unsecured notes with a fixed interest rate of 3.364 percent and maturity date of April 2025. The net proceeds were used to refinance $400 million of unsecured debt at maturity and to repay outstanding commercial paper. |
OTHER MATTERS
Environmental Regulations
The Duke Energy is subject to international, federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. The Subsidiary Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time and result in new obligations of the Duke Energy Registrants.
The following sections outline various proposed and recently enacted regulations that may impact the Duke Energy Registrants. Refer to Note 4 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for further information regarding potential plant retirements and regulatory filings related to the Duke Energy Registrants.
Coal Combustion Residuals
OnIn April 17, 2015, the EPA published in the Federal Register a rule to regulate the disposal of CCR from electric utilities as solid waste. The federal regulation which became effective in October 2015, classifies CCR as nonhazardous waste under Subtitle D of the Resource Conservation and Recovery Act and allows for beneficial use of CCR with some restrictions. The regulation applies to all new and existing landfills, new and existing surface impoundments receiving CCR and existing surface impoundments that are no longer receiving CCR but contain liquid located at stations currently generating electricity (regardless of fuel source). The rule establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring, protection and protectionremedial procedures and other operational and reporting procedures to ensure the safe disposal and management of CCR. As a result of the EPA rule, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Ohio and Duke Energy Indiana recorded additional ARO amounts during 2015. Various industry and environmental parties have appealed the EPA's CCR rule in the D.C. CircuitU.S. Court of Appeals.Appeals for the District of Columbia (D.C. Circuit Court). On April 18, 2016, the EPA filed a motion with the federal court to settle five issues raised in litigation. On June 14, 2016, the court approved the motion with respect to all of those issues. A decision by the court on the remaining issues is expected in the third quarter of 2017. Duke Energy does not expect a material impact from the settlement or that it will result in additional asset retirement obligationARO adjustments.
In addition to the requirements of the federal CCR regulation, CCR landfills and surface impoundments will continue to be independently regulated by most states. As a result of the EPA rule, the Subsidiary Registrants recorded asset retirement obligation amounts during 2015. Cost recovery for future expenditures will be pursued through the normal ratemaking process with federal and state utility commissions and via wholesale contracts, which permit recovery of necessary and prudently incurred costs associated with Duke Energy’s regulated operations. For more information, see Note 9, "Asset“Asset Retirement Obligations,"” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015.
Beckjord, a facility retired during 2014, is not subject to the recently enacted 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. Costs incurred by Ohio Valley Electric Corporation (OVEC) related to environmental regulations could also have an adverse impact on Duke Energy Ohio's financial position, results of operations and cash flows.2016.
Coal Ash Management Act of 2014
On September 20, 2014,Asset retirement obligations recorded on the Duke Energy Carolinas and Duke Energy Progress Condensed Consolidated Balance Sheets at March 31, 2017, and December 31, 2016, include the legal obligation for closure of coal ash basins and the disposal of related ash as a result of the Coal Ash Act, became lawthe EPA CCR rule and was amended on June 24, 2015, by the North Carolina Mountain Energy Act. The Coal Ash Act, as amended, established requirements regarding the use and closure of existing ash impoundments, the disposal of ash at active coal plants and the handling of surface and groundwater impacts from ash basins in North Carolina. The Coal Ash Act, as amended, deemed eight ash impoundments at four facilities to be high priority and requires closure no later than August 1, 2019, with a potential extension for closure of the Asheville impoundment until 2022. The Coal Ash Act required state regulators to provide risk ranking classifications for the remaining 25 ash impoundments at 10 North Carolina facilities.
other agreements. In January 2016, the NCDEQ published draft proposed risk classifications for sites not specifically delineated by the Coal Ash Act as high priority. These risk rankings were generally determined based on three primary criteria: structural integrity of the impoundments and impactimpacts to both surface water and to groundwater. NCDEQThe NCDEQ's draft proposed classifications categorized 12 basins at four sites as intermediate risk and four basins at three plantssites as low risk. Basins at high priority sites (Dan River, Riverbend, Asheville and Sutton) require closure through excavation including a combination of transferring the ash to an appropriate engineered landfill or conversion of the ash for beneficial use. Closure of high priority basins is required to be completed no later than August 1, 2019, except for Asheville which is required to be completed no later than August 1, 2022. Intermediate risk basins require closure through excavation including a combination of converting the basin to a lined industrial landfill, transferring of the ash to an appropriate engineered landfill or conversion of the ash for beneficial use. Closure of intermediate risk basins is required to be completed no later than December 31, 2024. Low risk basins require closure through either the combination of the installation and maintenance of a cap system and groundwater monitoring system designed to minimize infiltration and erosion or other closure options available to intermediate-risk basins. Closure of low risk basins is required to be completed no later than December 31, 2029. NCDEQThe NCDEQ's draft proposed classifications also categorized nine basins at six plantssites as “low-to-intermediate” risk, thereby not assigning a definitive risk ranking at that time. On May 18, 2016, the NCDEQ issued new proposed risk classifications, rankingproposing to rank all originally proposed low risk and "low-intermediate""low-to-intermediate" risk sites as intermediate.
On July 14, 2016, the Governorformer governor of North Carolina signed legislation, which amendsamended the Coal Ash Act and requiresrequired 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 new legislation also ranks basins at the H.F. Lee, Cape Fear and Weatherspoon stations as intermediate risk consistent with Duke Energy's previously announced plans to excavate those basins. These specific intermediateintermediate-risk basins require closure through excavation including a combination of transferring ash to an appropriate engineered landfill or conversion of the ash for beneficial use. Closure of these specific intermediateintermediate-risk basins is required to be completed no later than August 1, 2028. Upon satisfactory completion of the dam improvement projects and installation of alternative drinking water sources by October 15, 2018, the legislation requires the NCDEQ to reclassify sites proposed as intermediate risk, excluding H.F. Lee, Cape Fear and Weatherspoon, as low risk. In January 2017, NCDEQ issued preliminary approval of Duke Energy's plans for the alternative water sources.
Additionally, the newJuly 2016 legislation requires the installation and operation of three large-scale coal ash beneficiation projects, which are expected to produce reprocessed ash for use in the concrete industry. Closure of basins at sites with these beneficiation projects are required to be completed no later than December 31, 2029. Upon satisfactory completion2029. On October 5, 2016, Duke Energy announced Buck Steam Station as a first location for one of the dam improvement projects and installation of alternate drinking water sources by October 15, 2018, the legislation requires NCDEQ to reclassify intermediate risk sites, excludingbeneficiation projects. On December 13, 2016, Duke Energy announced H.F. Lee Cape Fear and Weatherspoon, as low risk.the second location. Duke Energy intends to announce the third location by July 1, 2017.
PerProvisions of the Coal Ash Act final proposed classifications were to be subject toprohibit cost recovery in customer rates for unlawful discharge of ash impoundment waters occurring after January 1, 2014. The Coal Ash Management Commission (Coal Ash Commission) approval. In March 2016,Act leaves the Coal Ash Commission created bydecision 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, was disbandedDuke Energy has submitted comprehensive site assessments and groundwater corrective plans to NCDEQ and will submit to NCDEQ site-specific coal ash impoundment closure plans in advance of closure. These plans and all associated permits must be approved by the Governor of North Carolina based on a North Carolina Supreme Court ruling regarding the constitutionality of the body. The new legislation eliminates the Coal Ash Commission and transfers responsibility for ash basinNCDEQ before closure oversight to the NCDEQ.work can begin.
Estimated asset retirement obligations have been recognized based on the assigned risk categories based on a probability weighting of potential closure methods. Actual closure costs incurred could be materially different from current estimates that form the basis of the recorded asset retirement obligations. Costs incurred have been deferred as regulatory assets and recovery will be pursued through the normal ratemaking process with federal and state utility commissions, which permit recovery of necessary and prudently incurred costs associated withFor more information, see Note 9, “Asset Retirement Obligations,” in Duke Energy’s regulated operations.
Mercury and Air Toxics Standards
The final Mercury and Air Toxics Standards (MATS) rule was issuedAnnual Report on February 16, 2012. The rule established emission limitsForm 10-K for hazardous air pollutants from new and existing coal-fired and oil-fired steam electric generating units. The rule required sources to comply with emission limits by April 16, 2015, or by April 16, 2016, with approved extension. Strategies to achieve compliance included installation of new air emission control equipment, development of monitoring processes, fuel switching and acceleration of retirement for some coal-fired electric-generation units. All of Duke Energy's coal-fired units are in compliance with the emission limits, work practices standards and other requirements of the MATS rule. For additional information, refer to Note 4 of the Condensed Consolidated Financial Statements, “Regulatory Matters,” regarding potential plant retirements.
year ended December 31, 2016.
Clean Water Act 316(b)
The EPA published the final 316(b) cooling water intake structure rule on August 15, 2014, with an effective date of October 14, 2014. The rule applies to 26 of the electric generating facilities the Duke Energy Registrants own and operate. The rule allows for several options to demonstrate compliance and provides flexibility to the state environmental permitting agencies to make determinations on controls, if any, that will be required for cooling water intake structures. Any required intake structure modifications and/or retrofits are expected to be installed in the 2019 to 2022 time frame. Petitions challenging the rule have been filed by several groups. It is unknown at this time when the courts will rule on the petitions. The Duke Energy Registrants cannot predict the outcome of these matters.
Steam Electric Effluent Limitations Guidelines
On January 4, 2016, the final Steam Electric Effluent Limitations Guidelines (ELG) rule became effective. The rule establishes new requirements for wastewater streams associated with steam electric power generation and includes more stringent controls for any new coal plants that may be built in the future. Affected facilities must comply between 2018 and 2023, depending on timing of new Clean Water Act (CWA) permits. Most, if not all, of the steam electric generating facilities the Duke Energy Registrants own are likely affected sources. The Duke Energy Registrants are well positionedwell-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 for wastewater associated rule focused on the limits imposed on integrated gas combined-cycle facilities. All challenges to the rule have been consolidated in the Fifth Circuit Court of Appeals. It is unknown at this time whenOn April 13, 2017, the courts willEPA administrator granted petitions from the Utility Water Act Group and U.S. Small Business Administration requesting reconsideration and an administrative stay of compliance dates in the ELG rule that have not yet passed pending judicial review, effective April 25, 2017. Briefing in the case was scheduled to conclude on July 5, 2017, however, on April 24, 2017, the Fifth Circuit Court of Appeals granted EPA's request to stay the pending litigation on the petitions.ELG rule until August 12, 2017. By the end of the stay period, EPA intends to inform the court of the portions of the rule, if any, that it will seek to have remanded to the agency for further rulemaking. The Duke Energy Registrants cannot predict the outcome of these matters.
Estimated Cost and Impacts of Rulemakings
Duke Energy will incur capital expenditures to comply with the environmental regulations and rules discussed above. The following table provides five-year estimated costs, excluding AFUDC, of new control equipment that may need to be installed on existing power plants primarily to comply with the Coal Ash Act requirements for conversion to dry disposal of bottom ash and fly ash, MATS, CWA 316(b) and ELGs through December 31, 2020.2021. The table excludes ash basin closure costs recorded asin Asset retirement obligations on the Condensed Consolidated Balance Sheets. For more information related to asset retirement obligations,AROs, see Note 9, “Asset Retirement Obligations” in Duke Energy’s Annual Report on Form 10-K10‑K for the year ended December 31, 2015.2016. | | (in millions) | Estimated Cost |
| Estimated Cost |
|
Duke Energy | $ | 1,350 |
| $ | 1,235 |
|
Duke Energy Carolinas | 625 |
| 530 |
|
Progress Energy | 350 |
| 360 |
|
Duke Energy Progress | 300 |
| 260 |
|
Duke Energy Florida | 50 |
| 100 |
|
Duke Energy Ohio | 100 |
| 125 |
|
Duke Energy Indiana | 275 |
| 220 |
|
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 August 8, 2011, the final Cross-State Air Pollution Rule (CSAPR) was published in the Federal Register. The CSAPR established state-level annual sulfur dioxide (SO2) budgets and annual and seasonal nitrogen oxide (NOx) budgets that were to take effect on January 1, 2012.
On August 21, 2012, the D.C. Circuit Court vacated the CSAPR. The court also directed the EPA to continue administering the Clean Air Interstate Rule (CAIR), which required additional reductions in SO2 and NOX emissions beginning in 2015. On April 29, 2014, the Supreme Court reversed the D.C. Circuit Court’s decision, finding that with CSAPR the EPA reasonably interpreted the good neighbor provision of the CAA. The case was remanded to the D.C. Circuit Court for further proceedings consistent with the Supreme Court’s opinion. On October 23, 2014, the D.C. Circuit Court lifted the CSAPR stay, which allowed Phase 1 of the rule to take effect on January 1, 2015, terminating the CAIR. Where the CSAPR requirements are constraining, actions to meet the requirements may include purchasing emission allowances, power purchases, curtailing generation and utilizing low sulfur fuel. The CSAPR did not result in Duke Energy Registrants adding new emission controls.
On December 3, 2015, the EPA proposed a rule to lower the current CSAPRCross-State Air Pollution Rule (CSAPR) Phase 2 state ozone season NOnitrogen oxide (NOX) emission budgets for 23 Easterneastern states, including North Carolina, Ohio, Kentucky and Indiana. The EPA also proposed to eliminate the CSAPR Phase 2 ozone season state NOX budgets for Florida and South Carolina. TheOn September 7, 2016, the EPA proposedfinalized the CSAPR Update Rule that reduces the CSAPR Phase 2 state ozone season NOX emission budgets for 22 eastern states, including Ohio, Kentucky and Indiana. In the final CSAPR Update Rule, the EPA removed Florida, South Carolina and North Carolina from the ozone season NOx program. Beginning in 2017, Duke Energy Registrants in these changesstates 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 taketook effect on May 1, 2017. In Kentucky and Indiana, where Duke Energy Registrants own and operate coal-fired electric generating units (EGUs) subject to the final rule requirements, potential near-term responses could include changing unit dispatch to run certain generating units less frequently and/or purchasing NOx allowances from the trading market. Longer term, upgrading the performance of existing NOx controls is an option. Numerous parties have filed petitions with the D.C. Circuit Court challenging various aspects of the CSAPR Update Rule. The EPAcourt has indicated that it plansyet to finalizeset a rule during the summer of 2016. The EPA's proposed changes would impose requirements to achieve emission reduction targets within short timelines and could result in an impact on the emission allowance trading market, increase costs for customers, and hamper the ability to demonstrate compliance.briefing schedule. Duke Energy Registrants cannot predict the outcome of these proceedings.matters.
Carbon Pollution Standards for New, Modified and Reconstructed Power Plants
On October 23, 2015, the 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 do not apply to any facility that Duke Energy currently has in operation, but would apply to plants that commenced construction after January 8, 2014. The 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 electric generating units,EGUs, and therefore the final standard effectively prevents the development of new coal-fired generation. The EPA set a final standard of 1,000 pounds of CO2 per gross MWh for new natural gas combined-cycle units. Petitions challenging
On March 28, 2017, President Trump signed an Executive Order directing EPA to review the rule have beenand 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 several groups. BriefingEPA. Subsequent to the DOJ motion, the D.C. Circuit Court canceled oral argument in the case, waswhich had been scheduled to conclude on October 21, 2016, but on June 24, 2016,for April 17, 2017. On April 28, 2017, the D.C. Circuitcourt ordered that the litigation be suspended the briefing schedulefor 60 days and set a deadline of August 4, 2016, fordirecting parties to submit motionsfile supplemental briefs by May 15, 2017, addressing whether the rule should be remanded to amendEPA rather than be suspended. The rule remains in effect pending the briefing schedule. It is unknown at this time when briefing or oral argument will occur, or when the court will rule on the petitions.outcome of litigation and EPA’s review. EPA has not announced a schedule for completing its review. The Duke Energy Registrants cannot predict the outcome of these matters, but do not expect the impacts of the current final standards will be material to Duke Energy's financial position, results of operations or cash flows.
Clean Power Plan (CPP)
On October 23, 2015, the EPA published in the Federal Register the final CPPClean Power Plan (CPP) rule that regulates CO2emissions from existing fossil fuel-fired electric generating units.EGUs. The CPP establishesestablished CO2emission rates and mass cap goals that apply to existing fossil fuel-fired electric generation units. UnderEGUs. Petitions challenging the CPP, states are required to develop and submit a final compliance plan, or an initial plan with an extension request, to the EPA by September 6, 2016. States that receive an extension must submit a final completed plan to the EPA by September 6, 2018. The EPA intends to review and approve or disapprove state plans within 12 months of receipt. The CPP does not directly impose regulatory requirements on the Duke Energy Registrants. State implementation plans will include the regulatory requirements that will apply to the Duke Energy Registrants. The EPA also published a proposed federal plan for public comment. A federal plan would be applied to states that fail to submit a plan to EPA or where a state plan is not approved by the EPA. Comments on the proposed federal plan were due by January 21, 2016.
Legal challenges to the final CPPrule have been filed by stakeholders. On January 21, 2016, the U.S. Court of Appeals for the District of Columbia denied motions from petitioners to stay the CPP pending court review. Onseveral groups and on February 9, 2016, the Supreme Court grantedissued a stay inof the matter,final CPP rule, halting implementation of the CPP until legal challenges are resolved. The statesStates in which the Duke Energy's regulated operations are locatedEnergy Registrants operate have suspended work on the CPP in response to the stay. Oral arguments before 10 of the full11 judges on D.C. Circuit court are scheduled forCourt were heard on September 27, 2016.
Compliance with CPP could cause the industry to replace coal 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 The court has not issued its opinion in the retirementcase.
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 coal-fired generation plants earlierthe rule while it is reviewed by EPA. On April 28, 2017, the court issued an order to suspend the litigation for 60 days and directing parties to file supplemental briefs by May 15, 2017, addressing whether the rule should be remanded to the EPA rather than be suspended. Neither the Executive Order nor the court's order changes the current end of useful lives. If the CPP is ultimately upheld by the courts and implementation goes forward, 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 implementationstatus of the CPP, which is under a legal hold by the U.S. Supreme Court. The EPA has not announced a schedule for completing its review. The Duke Energy Registrants cannot predict the outcome of these matters.
Global Climate Change
For other information on global climate change and the potential impacts on Duke Energy, see “Other Matters” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015.2016.
Nuclear Matters
For other information on nuclear matters and the potential impacts on Duke Energy, see “Other Matters” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015.2016.
New Accounting Standards
See Note 1 to the Condensed Consolidated Financial Statements, “Organization and Basis of Presentation,” for a discussion of the impact of new accounting standards.
Off-Balance Sheet Arrangements
During the three and six months ended June 30, 2016,March 31, 2017, there were no material changes to Duke Energy’s off-balance sheet arrangements. For information on Duke Energy’s off-balance sheet arrangements, see “Off-Balance Sheet Arrangements” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015.2016.
Contractual Obligations
Duke Energy enters into contracts that require payment of cash at certain specified periods, based on certain specified minimum quantities and prices. During the three and six months ended June 30, 2016,March 31, 2017, there were no material changes in Duke Energy’s contractual obligations. For an in-depth discussion of Duke Energy’s contractual obligations, see “Contractual Obligations” and “Quantitative and Qualitative Disclosures about Market Risk” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2015.2016.
Subsequent Events
See Note 17 to the Condensed Consolidated Financial Statements, “Subsequent Events,” for a discussion of subsequent events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the three and six months ended June 30, 2016,March 31, 2017, there were no material changes to the Duke Energy’sEnergy Registrants' disclosures about market risk. For an in-depth discussion of the Duke Energy’sEnergy Registrants' market risks, see “Management’s Discussion and Analysis of Quantitative“Quantitative and Qualitative Disclosures about Market Risk” in Duke Energy’sItem 7 of the Annual Report on Form 10-K for the year ended December 31, 2015.Duke Energy Registrants.
ITEM 4. 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) isare 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 isare 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 June 30, 2016,March 31, 2017, and, based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective in providing reasonable assurance of compliance.
Changes in Internal Control over Financial Reporting
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended June 30, 2016,March 31, 2017, and have concluded no change has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information regarding material legal proceedings, including regulatory and environmental matters, that became reportable events or in which there were material developments in the second quarter of 2016, see Note 4, "Regulatory Matters," and Note 5, "Commitments and Contingencies," to the Condensed Consolidated Financial Statements.
MTBE Litigation
On June 29, 2007,19, 2014, the New Jersey DepartmentCommonwealth of Environmental Protection (NJDEP)Pennsylvania filed suit against among others, Duke Energy Merchants, (DEM),LLC, an indirect wholly owned subsidiary of Duke Energy, among others, 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 case was moved to federal court and consolidated in an existing multidistrict litigation docket of pending MTBE cases. DEM and NJDEP have reached an agreement in principle to settle the case for a payment by DEM of $1.7 million. On February 19, 2016, the court approved a Consent Decree executed by the parties which settles the case. Payment was made in February 2016. The case was dismissed byis currently in the court on April 29, 2016. DEM is also a defendant in a similar case filed by the Commonwealth of Pennsylvania on June 19, 2014. That case has been moved to the consolidated multidistrict proceeding. Discovery in this case continues.discovery phase.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, careful consideration should be given to the factors discussed in Part I, “Item 1A. Risk Factors” in the Duke Energy Registrants’Registrants' Annual Report on Form 10-K, for the year ended December 31, 2015, which could materially affect the Duke Energy Registrants’ financial condition or future results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES
There were no issuer purchases of equity securities during the secondfirst quarter of 2016.2017.
ITEM 6. EXHIBITS
Exhibits filed herein 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 |
4.1 | Sixty-EighthForty-fifth Supplemental Indenture, dated as of May 12, 2016March 27, 2017, (incorporated by reference to Exhibit 4.1 to registrant'sRegistrant's Current Report on Form 8-K filed on May 12, 2016,March 27, 2017, File No. 1-3543). | | | | | | | | | | | | | X |
4.2 | Forty-Fourth Supplemental Indenture, dated as of June 23, 2016 (incorporated by reference to Exhibit 4.1 registrant's Current Report on Form 8-K filed on June 23, 2016, File No. 1-1232)1-01232). | | | | | | | | | | | X | | | | |
*4.2 | Fifteenth Supplemental Indenture, dated as of April 11, 2017. | X | | | | | | | | | | | | | | |
10.1 | $1,500,000,000 AmendedAmendment No. 3 and Restated Term Loan AgreementConsent, dated as of March 16, 2017, among Duke Energy Corporation, as Borrower,registrants, the Lenders listed therein, Theparty thereto, the Issuing Lenders party thereto, and Wells Fargo Bank, of Tokyo-Mitsubishi UFJ, Ltd.,National Association, as Administrative Agent and The Bank of Tokyo-Mitsubishi UFJ, Ltd.,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 |
*10.2** | Performance-Based Retention Award Agreement. Santander Bank, N.A. and TD Bank, N.A., as Joint Lead Arrangers and Bookrunners, dated as of August 1, 2016.
| X | | | | | | | | | | | | | | |
*10.3** | Performance Award Agreement. | X | | | | | | | | | | | | | | |
*10.4** | Restricted Stock Unit Award Agreement. | X | | | | | | | | | | | | | | |
*12 | Computation of Ratio of Earnings to Fixed Charges – DUKE ENERGY CORPORATION. | X | | | | | | | | | | | | | | |
*31.1.1 | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | | | | | | | | | | | | | | |
*31.1.2 | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | X | | | | | | | | | | | | |
*31.1.3 | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | X | | | | | | | | | | |
*31.1.4 | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | X | | | | | | | | |
*31.1.5 | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | X | | | | | | |
*31.1.6 | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | | X | | | | |
*31.1.7 | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | | | | X | | |
*31.1.8 | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | | | | | | X |
*31.2.1 | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | | | | | | | | | | | | | | |
*31.2.2 | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | X | | | | | | | | | | | | |
*31.2.3 | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | X | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
*31.2.4 | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | X | | | | | | | | |
*31.2.5 | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | X | | | | | | |
*31.2.6 | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | | X | | | | |
*31.2.7 | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | | | | X |
| |
*31.2.8 | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | | | | | | X |
*32.1.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | X | | | | | | | | | | | | | | |
*32.1.2 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | X | | | | | | | | | | | | |
*32.1.3 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | X | | | | | | | | | | |
*32.1.4 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | | | X | | | | | | | | |
*32.1.5 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | X | | | | | | |
*32.1.6 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | | X | | | | |
*32.1.7 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | | | | X | | |
*32.1.8 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | | | | | | X |
*32.2.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | X | | | | | | | | | | | | | | |
*32.2.2 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | X | | | | | | | | | | | | |
*32.2.3 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | X | | | | | | | | | | |
*32.2.4 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | | | X | | | | | | | | |
*32.2.5 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | X | | | | | | |
*32.2.6 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | | X | | | | |
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*32.2.7 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | | | | X | | |
*32.2.8 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | | | | | | X |
*101.INS | XBRL Instance 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 |
The total amount of securities of the registrant or its subsidiaries authorized under any instrument with respect to long-term debt not filed as an exhibit does not exceed 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis. The 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 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. |
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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.
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Date: | August 4, 2016May 9, 2017 | /s/ STEVEN K. YOUNG |
| | Steven K. Young Executive Vice President and Chief Financial Officer (Principal Financial Officer)
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Date: | August 4, 2016May 9, 2017 | /s/ WILLIAM E. CURRENS JR. |
| | William E. Currens Jr. Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) |
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| | PROGRESS ENERGY, INC. |
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Date: | August 4, 2016 | /s/ STEVEN K. YOUNG |
| | Steven K. Young
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
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Date: | August 4, 2016 | /s/ WILLIAM E. CURRENS JR. |
| | William E. Currens Jr.
Chief Accounting Officer and Controller
(Principal Accounting Officer) |