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DUK Duke Energy Ohio

Filed: 20 Feb 20, 2:37pm
0001326160 duk:DukeEnergyFloridaMember duk:StormRestorationCostRecoveryMember 2019-01-29 0001326160 duk:PiedmontNaturalGasMember us-gaap:OtherCurrentLiabilitiesMember us-gaap:CommodityContractMember us-gaap:NondesignatedMember 2019-12-31



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal period ended December 31, 2019 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________to________
Commission
file number
Registrant, State of Incorporation or Organization, Address of Principal Executive Offices and Telephone Number
IRS Employer
Identification No.
 
dukeenergylogo4ca55.jpg
 
1-32853DUKE ENERGY CORPORATION20-2777218
(a Delaware corporation)
550 South Tryon Street
Charlotte, North Carolina 28202-1803
704-382-3853
1-4928DUKE ENERGY CAROLINAS, LLC56-0205520
(a North Carolina limited liability company)
526 South Church Street
Charlotte, North Carolina 28202-1803
704-382-3853
1-15929PROGRESS ENERGY, INC.56-2155481
(a North Carolina corporation)
410 South Wilmington Street
Raleigh, North Carolina 27601-1748
704-382-3853
1-3382DUKE ENERGY PROGRESS, LLC56-0165465
(a North Carolina limited liability company)
410 South Wilmington Street
Raleigh, North Carolina 27601-1748
704-382-3853
1-3274DUKE ENERGY FLORIDA, LLC59-0247770
(a Florida limited liability company)
299 First Avenue North
St. Petersburg, Florida 33701
704-382-3853
1-1232DUKE ENERGY OHIO, INC.31-0240030
(an Ohio corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
704-382-3853
1-3543DUKE ENERGY INDIANA, LLC35-0594457
(an Indiana limited liability company)
1000 East Main Street
Plainfield, Indiana 46168
704-382-3853
1-6196PIEDMONT NATURAL GAS COMPANY, INC.56-0556998
(a North Carolina corporation)
4720 Piedmont Row Drive
Charlotte, North Carolina 28210
704-364-3120
   



SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
Registrant
Title of each class     Trading symbols    which registered
Duke Energy Corporation
Common Stock, $0.001 par value     DUK    New York Stock Exchange LLC
(Duke Energy)
Duke Energy
5.125% Junior Subordinated Debentures due     DUKH    New York Stock Exchange LLC
January 15, 2073
Duke Energy
5.625% Junior Subordinated Debentures due     DUKB    New York Stock Exchange LLC
September 15, 2078
Duke Energy
Depositary Shares, each representing a 1/1,000th     DUK PR A    New York Stock Exchange LLC
interest in a share of 5.75% Series A Cumulative
Redeemable Perpetual Preferred Stock, par value
$0.001 per share

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:  None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Duke EnergyYesNo Duke Energy Florida, LLC (Duke Energy Florida)YesNo
Duke Energy Carolinas, LLC (Duke Energy Carolinas)YesNo Duke Energy Ohio, Inc. (Duke Energy Ohio)YesNo
Progress Energy, Inc. (Progress Energy)YesNo Duke Energy Indiana, LLC (Duke Energy Indiana)YesNo
Duke Energy Progress, LLC (Duke Energy Progress)YesNo Piedmont Natural Gas Company, Inc. (Piedmont)YesNo
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes No (Response applicable to all registrants.)
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No ¨
Indicate by check mark whether Duke Energy is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.: Large accelerated filer  Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨ Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether each of Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont is a large accelerated filer, accelerated filer, non-accelerated filer, smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.: Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x 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 each of the registrants is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Estimated aggregate market value of the common equity held by nonaffiliates of Duke Energy at June 30, 2019.$64,230,558,771
Number of shares of Common Stock, $0.001 par value, outstanding at January 31, 2020.733,321,965
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Duke Energy definitive proxy statement for the 2020 Annual Meeting of the Shareholders or an amendment to this Annual Report are incorporated by reference into PART III, Items 10, 11 and 13 hereof.
This combined Form 10-K is filed separately by eight registrants: Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont (collectively the Duke Energy Registrants). Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrants.
Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont meet the conditions set forth in General Instructions I(1)(a) and (b) of Form 10-K and are, therefore, filing this Form 10-K with the reduced disclosure format specified in General Instructions I(2) of Form 10-K. 





TABLE OF CONTENTS 


TABLE OF CONTENTS
FORM 10-K FOR THE YEAR ENDED December 31, 2019





FORWARD LOOKING STATEMENTS 


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on management’s beliefs and assumptions and can often be identified by terms and phrases that include “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will,” “potential,” “forecast,” “target,” “guidance,” “outlook” or other similar terminology. Various factors may cause actual results to be materially different than the suggested outcomes within forward-looking statements; accordingly, there is no assurance that such results will be realized. These factors include, but are not limited to:
State, federal and foreign legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements, including those related to climate change, as well as rulings that affect cost and investment recovery or have an impact on rate structures or market prices;
The extent and timing of costs and liabilities to comply with federal and state laws, regulations and legal requirements related to coal ash remediation, including amounts for required closure of certain ash impoundments, are uncertain and difficult to estimate;
The ability to recover eligible costs, including amounts associated with coal ash impoundment retirement obligations and costs related to significant weather events, and to earn an adequate return on investment through rate case proceedings and the regulatory process;
The costs of decommissioning nuclear facilities could prove to be more extensive than amounts estimated and all costs may not be fully recoverable through the regulatory process;
Costs and effects of legal and administrative proceedings, settlements, investigations and claims;
Industrial, commercial and residential growth or decline in service territories or customer bases resulting from sustained downturns of the economy and the economic health of our service territories or variations in customer usage patterns, including energy efficiency efforts and use of alternative energy sources, such as self-generation and distributed generation technologies;
Federal and state regulations, laws and other efforts designed to promote and expand the use of energy efficiency measures and distributed generation technologies, such as private solar and battery storage, in Duke Energy service territories could result in customers leaving the electric distribution system, excess generation resources as well as stranded costs;
Advancements in technology;
Additional competition in electric and natural gas markets and continued industry consolidation;
The influence of weather and other natural phenomena on operations, including the economic, operational and other effects of severe storms, hurricanes, droughts, earthquakes and tornadoes, including extreme weather associated with climate change;
The ability to successfully operate electric generating facilities and deliver electricity to customers including direct or indirect effects to the company resulting from an incident that affects the United States electric grid or generating resources;
The ability to obtain the necessary permits and approvals and to complete necessary or desirable pipeline expansion or infrastructure projects in our natural gas business;
Operational interruptions to our natural gas distribution and transmission activities;
The availability of adequate interstate pipeline transportation capacity and natural gas supply;
The impact on facilities and business from a terrorist attack, cybersecurity threats, data security breaches, operational accidents, information technology failures or other catastrophic events, such as fires, explosions, pandemic health events or other similar occurrences;
The inherent risks associated with the operation of nuclear facilities, including environmental, health, safety, regulatory and financial risks, including the financial stability of third-party service providers;
The timing and extent of changes in commodity prices and interest rates and the ability to recover such costs through the regulatory process, where appropriate, and their impact on liquidity positions and the value of underlying assets;
The results of financing efforts, including the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings, interest rate fluctuations, compliance with debt covenants and conditions and general market and economic conditions;
Credit ratings of the Duke Energy Registrants may be different from what is expected;
Declines in the market prices of equity and fixed-income securities and resultant cash funding requirements for defined benefit pension plans, other post-retirement benefit plans and nuclear decommissioning trust funds;
Construction and development risks associated with the completion of the Duke Energy Registrants’ capital investment projects, including risks related to financing, obtaining and complying with terms of permits, meeting construction budgets and schedules and satisfying operating and environmental performance standards, as well as the ability to recover costs from customers in a timely manner, or at all;
Changes in rules for regional transmission organizations, including changes in rate designs and new and evolving capacity markets, and risks related to obligations created by the default of other participants;
The ability to control operation and maintenance costs;
The level of creditworthiness of counterparties to transactions;
The ability to obtain adequate insurance at acceptable costs;





FORWARD LOOKING STATEMENTS 


Employee workforce factors, including the potential inability to attract and retain key personnel;
The ability of subsidiaries to pay dividends or distributions to Duke Energy Corporation holding company (the Parent);
The performance of projects undertaken by our nonregulated businesses and the success of efforts to invest in and develop new opportunities;
The effect of accounting pronouncements issued periodically by accounting standard-setting bodies;
The impact of United States tax legislation to our financial condition, results of operations or cash flows and our credit ratings;
The impacts from potential impairments of goodwill or equity method investment carrying values; and
The ability to implement our business strategy, including enhancing existing technology systems.
Additional risks and uncertainties are identified and discussed in the Duke Energy Registrants' reports filed with the SEC and available at the SEC's website at sec.gov. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than described. Forward-looking statements speak only as of the date they are made and the Duke Energy Registrants expressly disclaim an obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.




GLOSSARY OF TERMS 


Glossary of Terms 
The following terms or acronyms used in this Form 10-K are defined below:
Term or AcronymDefinition
  
2013 SettlementRevised and Restated Stipulation and Settlement Agreement approved in November 2013 among Duke Energy Florida, the Florida Office of Public Counsel and other customer advocates
  
2017 SettlementSecond Revised and Restated Settlement Agreement in 2017 among Duke Energy Florida, the Florida Office of Public Counsel and other customer advocates, which replaces and supplants the 2013 Settlement
  
ACEAffordable Clean Energy
  
ACPAtlantic Coast Pipeline, LLC, a limited liability company owned by Dominion, Duke Energy and Southern Company Gas
  
ACP pipelineThe approximately 600-mile proposed interstate natural gas pipeline
  
AFUDCAllowance for funds used during construction
  
AFSAvailable for Sale
  
ALJAdministrative Law Judge
  
AMIAdvanced Metering Infrastructure
  
AMTAlternative Minimum Tax
  
AOCIAccumulated Other Comprehensive Income (Loss)
  
AROAsset Retirement Obligation
  
ATMAt-the-market
  
Audit CommitteeAudit Committee of the Board of Directors
  
BeckjordBeckjord Generating Station
  
Belews CreekBelews Creek Steam Station
  
BisonBison Insurance Company Limited
  
Board of DirectorsDuke Energy Board of Directors
  
BrunswickBrunswick Nuclear Plant
  
CardinalCardinal Pipeline Company, LLC
  
CatawbaCatawba Nuclear Station
  
CCCombined Cycle
  
CCRCoal Combustion Residuals
  
CinergyCinergy Corp. (collectively with its subsidiaries)
  
Citrus County CCCitrus County Combined Cycle Facility
  
CO2
Carbon Dioxide
  
Coal Ash ActNorth Carolina Coal Ash Management Act of 2014
  
the CompanyDuke Energy Corporation and its subsidiaries
  
ConstitutionConstitution Pipeline Company, LLC
  
CPCNCertificate of Public Convenience and Necessity
  
CRCCinergy Receivables Company LLC
  
Crystal River Unit 3Crystal River Unit 3 Nuclear Plant
  
CWAClean Water Act
  




GLOSSARY OF TERMS 


DATCDuke-American Transmission Co.
  
D.C. Circuit CourtU.S. Court of Appeals for the District of Columbia
  
DEFRDuke Energy Florida Receivables, LLC
  
DeloitteDeloitte & Touche LLP, and the member firms of Deloitte Touche Tohmatsu and their respective affiliates
  
DEPRDuke Energy Progress Receivables, LLC
  
DERFDuke Energy Receivables Finance Company, LLC
  
DETMDuke Energy Trading and Marketing, LLC
  
DOEU.S. Department of Energy
  
DominionDominion Energy, Inc.
  
DRIPDividend Reinvestment Program
  
DthDekatherms
  
Duke EnergyDuke Energy Corporation (collectively with its subsidiaries)
  
Duke Energy CarolinasDuke Energy Carolinas, LLC
  
Duke Energy FloridaDuke Energy Florida, LLC
  
Duke Energy IndianaDuke Energy Indiana, LLC
  
Duke Energy KentuckyDuke Energy Kentucky, Inc.
  
Duke Energy OhioDuke Energy Ohio, Inc.
  
Duke Energy ProgressDuke Energy Progress, LLC
  
Duke Energy RegistrantsDuke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont
  
East BendEast Bend Generating Station
  
EEEnergy efficiency
  
EPAU.S. Environmental Protection Agency
  
EPCEngineering, Procurement and Construction agreement
  
EPSEarnings Per Share
  
ETREffective tax rate
  
Exchange ActSecurities Exchange Act of 1934
  
FASBFinancial Accounting Standards Board
  
FERCFederal Energy Regulatory Commission
  
FESFirstEnergy Solutions Corp.
  
Form S-3Registration statement
  
FPSCFlorida Public Service Commission
  
FTRFinancial transmission rights
  
FluorFluor Enterprises, Inc.
  
FV-NIFair value through net income
  
GAAPGenerally Accepted Accounting Principles in the United States
  
GAAP Reported EPSDiluted EPS Available to Duke Energy Corporation common stockholders
  
GHGGreenhouse Gas
  
GWhGigawatt-hours
  




GLOSSARY OF TERMS 


Hardy StorageHardy Storage Company, LLC
  
HarrisShearon Harris Nuclear Plant
  
HLBVHypothetical Liquidation at Book Value
  
IGCCIntegrated Gasification Combined Cycle
  
IMPAIndiana Municipal Power Agency
  
IMRIntegrity Management Rider
  
IRPIntegrated Resource Plans
  
IRSInternal Revenue Service
  
ISOIndependent System Operator
  
ITCInvestment Tax Credit
  
IURCIndiana Utility Regulatory Commission
  
Investment TrustsGrantor trusts of Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana
  
KO TransmissionKO Transmission Company
  
KPSCKentucky Public Service Commission
  
LIBORLondon Interbank Offered Rate
  
LLCLimited Liability Company
  
McGuireMcGuire Nuclear Station
  
MGPManufactured gas plant
  
MISOMidcontinent Independent System Operator, Inc.
  
MMBtuMillion British Thermal Unit
  
MTBEMethyl tertiary butyl ether
  
MTEPMISO Transmission Expansion Planning
  
MWMegawatt
  
MWhMegawatt-hour
  
NCDEQNorth Carolina Department of Environmental Quality
  
NCEMCNorth Carolina Electric Membership Corporation
  
NCEMPANorth Carolina Eastern Municipal Power Agency
  
NCUCNorth Carolina Utilities Commission
  
NDTFNuclear decommissioning trust funds
  
New Source ReviewClean Air Act program that requires industrial facilities to install modern pollution control equipment when they are built or when making a change that increases emissions significantly
  
NMCNational Methanol Company
  
NOLNet operating loss
  
NOx
Nitrogen oxide
  
NPNSNormal purchase/normal sale
  
NRCU.S. Nuclear Regulatory Commission
  
NYSENew York Stock Exchange
  
OconeeOconee Nuclear Station
  
OPEBOther Post-Retirement Benefit Obligations
  




GLOSSARY OF TERMS 


OPEB AssetsOther post-retirement plan assets are comprised of the Retirement Plan of Piedmont 401(h) Medical Plan, and the following VEBA Trusts: Duke Energy Corporation Employee Benefits Trust, Piedmont Natural Gas Company 501(c)(9) Trust for Retired Bargaining Unit Employees and the Piedmont Natural Gas Company 501(c)(9) Trust for Retired Non-Bargaining Unit Employees
  
ORSOffice of Regulatory Staff
  
OTTIOther-than-temporary impairment
  
OVECOhio Valley Electric Corporation
  
the ParentDuke Energy Corporation holding company
  
PGAPurchased Gas Adjustments
  
PHMSAPipeline and Hazardous Materials Safety Administration
  
PiedmontPiedmont Natural Gas Company, Inc.
  
Pine NeedlePine Needle LNG Company, LLC
  
PioneerPioneer Transmission, LLC
  
PJMPJM Interconnection, LLC
  
PMPAPiedmont Municipal Power Agency
  
PPAPurchase Power Agreement
  
Progress EnergyProgress Energy, Inc.
  
PSCSCPublic Service Commission of South Carolina
  
PTCProduction Tax Credits
  
PUCOPublic Utilities Commission of Ohio
  
PURPAPublic Utility Regulatory Policies Act of 1978
  
QFQualifying Facility
  
RCARevolving Credit Agreement
  
RFPRequests for Proposal
  
RECRenewable Energy Certificate
  
REC SolarREC Solar Corp.
  
Relative TSRTSR of Duke Energy stock relative to a predefined peer group
  
RobinsonRobinson Nuclear Plant
  
RSURestricted Stock Unit
  
RTORegional Transmission Organization
  
Sabal TrailSabal Trail Transmission, LLC
  
SAFSTORA method of decommissioning in which a nuclear facility is placed and maintained in a condition that allows the facility to be safely stored and subsequently decontaminated to levels that permit release for unrestricted use
  
SECSecurities and Exchange Commission
  
SELCSouthern Environmental Law Center
  
Segment IncomeIncome from continuing operations net of income attributable to noncontrolling interests and preferred stock dividends
  
SO2
Sulfur dioxide
  
Spectra CapitalSpectra Energy Capital, LLC
  
S&PStandard & Poor’s Rating Services
  
State utility commissionsNCUC, PSCSC, FPSC, PUCO, IURC, KPSC and TPUC (Collectively)




GLOSSARY OF TERMS 


  
State electric utility commissionsNCUC, PSCSC, FPSC, PUCO, IURC and KPSC (Collectively)
  
State gas utility commissionsNCUC, PSCSC, PUCO, TPUC and KPSC (Collectively)
  
Subsidiary RegistrantsDuke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont
  
SuttonL.V. Sutton Combined Cycle Plant
  
the Tax ActTax Cuts and Jobs Act
  
TPUCTennessee Public Utility Commission
  
TSRTotal shareholder return
  
U.S.United States
  
VEBAVoluntary Employees' Beneficiary Association
  
VIEVariable Interest Entity
  
WACCWeighted Average Cost of Capital
  
WNAWeather normalization adjustment
  
W.S. Lee CCWilliam States Lee Combined Cycle Facility
  
WVPAWabash Valley Power Association, Inc.





BUSINESS 


 
ITEM 1. BUSINESS
 
DUKE ENERGY
 
General
Duke Energy was incorporated on May 3, 2005, and is an energy company headquartered in Charlotte, North Carolina, subject to regulation by the FERC and other regulatory agencies listed below. Duke Energy operates in the U.S. primarily through its direct and indirect subsidiaries. Certain Duke Energy subsidiaries are also Subsidiary Registrants, including Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of its separate Subsidiary Registrants, which along with Duke Energy, are collectively referred to as the Duke Energy Registrants.
The Duke Energy Registrants electronically file reports with the SEC, including Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to such reports.
The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at sec.gov. Additionally, information about the Duke Energy Registrants, including reports filed with the SEC, is available through Duke Energy’s website at duke-energy.com. Such reports are accessible at no charge and are made available as soon as reasonably practicable after such material is filed with or furnished to the SEC.
Business Segments
Duke Energy's segment structure includes three reportable business segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables. The remainder of Duke Energy’s operations is presented as Other. Duke Energy's chief operating decision-maker routinely reviews financial information about each of these business segments in deciding how to allocate resources and evaluate the performance of the business. For additional information on each of these business segments, including financial and geographic information, see Note 3 to the Consolidated Financial Statements, “Business Segments.” The following sections describe the business and operations of each of Duke Energy’s business segments, as well as Other.
ELECTRIC UTILITIES AND INFRASTRUCTURE
Electric Utilities and Infrastructure conducts operations primarily through the regulated public utilities of Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Indiana and Duke Energy Ohio. Electric Utilities and Infrastructure provides retail electric service through the generation, transmission, distribution and sale of electricity to approximately 7.8 million customers within the Southeast and Midwest regions of the U.S. The service territory is approximately 91,000 square miles across six states with a total estimated population of 25 million people. The operations include electricity sold wholesale to municipalities, electric cooperative utilities and other load-serving entities. Electric Utilities and Infrastructure is also a joint owner in certain electric transmission projects. Electric Utilities and Infrastructure has a 50% ownership interest in DATC, a partnership with American Transmission Company, formed to design, build and operate transmission infrastructure. DATC owns 72% of the transmission service rights to Path 15, an 84-mile transmission line in central California. Electric Utilities and Infrastructure also has a 50% ownership interest in Pioneer which builds, owns and operates electric transmission facilities in North America. The following map shows the service territory for Electric Utilities and Infrastructure as of December 31, 2019.

9




BUSINESS 


euimap2018001a01.jpg
The electric operations and investments in projects are subject to the rules and regulations of the FERC, the NRC, the NCUC, the PSCSC, the FPSC, the IURC, the PUCO and the KPSC.
The following table represents the distribution of billed sales by customer class for the year ended December 31, 2019.
 Duke
 Duke
 Duke
 Duke
 Duke
 Energy
 Energy
 Energy
 Energy
 Energy
 Carolinas
 Progress
 Florida
 Ohio
 Indiana
Residential32% 27% 49% 37% 29%
General service33% 23% 37% 38% 26%
Industrial24% 15% 7% 23% 32%
Total retail sales89% 65% 93% 98% 87%
Wholesale and other sales11% 35% 7% 2% 13%
Total sales100% 100% 100% 100% 100%
The number of residential and general service customers within the Electric Utilities and Infrastructure service territory is expected to increase over time. While economic conditions within the service territory remain strong, sales growth continues to be influenced by adoption of energy efficiencies and self-generation. Residential sales for 2019 compared to 2018 declined. The continued adoption of more efficient structures and appliances is expected to continue to drive average usage per customer lower over time. However, the continued adoption of more efficient housing and appliances is expected to have a negative impact on average usage per residential customer over time.
Seasonality and the Impact of Weather
Revenues and costs are influenced by seasonal weather patterns. Peak sales of electricity occur during the summer and winter months, which results in higher revenue and cash flows during these periods. By contrast, lower sales of electricity occur during the spring and fall, allowing for scheduled plant maintenance. Residential and general service customers are more impacted by weather than industrial customers. Estimated weather impacts are based on actual current period weather compared to normal weather conditions. Normal weather conditions are defined as the long-term average of actual historical weather conditions.

10




BUSINESS 


The estimated impact of weather on earnings is based on the temperature variances from a normal condition and customers’ historic usage patterns. The methodology used to estimate the impact of weather does not consider all variables that may impact customer response to weather conditions such as humidity in the summer or wind chill in the winter. The precision of this estimate may also be impacted by applying long-term weather trends to shorter-term periods.
Heating-degree days measure the variation in weather based on the extent the average daily temperature falls below a base temperature. Cooling-degree days measure the variation in weather based on the extent the average daily temperature rises above the base temperature. Each degree of temperature below the base temperature counts as one heating-degree day and each degree of temperature above the base temperature counts as one cooling-degree day.
Competition
Retail
Electric Utilities and Infrastructure’s businesses operate as the sole supplier of electricity within their service territories, with the exception of Ohio, which has a competitive electricity supply market for generation service. Electric Utilities and Infrastructure owns and operates facilities necessary to generate, transmit, distribute and sell electricity. Services are priced by state commission approved rates designed to include the costs of providing these services and a reasonable return on invested capital. This regulatory policy is intended to provide safe and reliable electricity at fair prices.
In Ohio, Electric Utilities and Infrastructure conducts competitive auctions for electricity supply. The cost of energy purchased through these auctions is recovered from retail customers. Electric Utilities and Infrastructure earns retail margin in Ohio on the transmission and distribution of electricity, but not on the cost of the underlying energy.
Competition in the regulated electric distribution business is primarily from the development and deployment of alternative energy sources including on-site generation from industrial customers and distributed generation, such as private solar, at residential, general service and/or industrial customer sites.
Wholesale
Duke Energy competes with other utilities and merchant generators for bulk power sales, sales to municipalities and cooperatives and wholesale transactions under primarily cost-based contracts approved by FERC. The principal factors in competing for these sales are availability of capacity and power, reliability of service and price. Prices are influenced primarily by market conditions and fuel costs.
Increased competition in the wholesale electric utility industry and the availability of transmission access could affect Electric Utilities and Infrastructure’s load forecasts, plans for power supply and wholesale energy sales and related revenues. Wholesale energy sales will be impacted by the extent to which additional generation is available to sell to the wholesale market and the ability of Electric Utilities and Infrastructure to attract new customers and to retain existing customers.
Energy Capacity and Resources
Electric Utilities and Infrastructure owns approximately 51,144 MW of generation capacity. For additional information on owned generation facilities, see Item 2, “Properties.”
Energy and capacity are also supplied through contracts with other generators and purchased on the open market. Factors that could cause Electric Utilities and Infrastructure to purchase power for its customers may include, but are not limited to, generating plant outages, extreme weather conditions, generation reliability, demand growth and price. Electric Utilities and Infrastructure has interconnections and arrangements with its neighboring utilities to facilitate planning, emergency assistance, sale and purchase of capacity and energy and reliability of power supply.
Electric Utilities and Infrastructure’s generation portfolio is a balanced mix of energy resources having different operating characteristics and fuel sources designed to provide energy at the lowest possible cost to meet its obligation to serve retail customers. All options, including owned generation resources and purchased power opportunities, are continually evaluated on a real-time basis to select and dispatch the lowest-cost resources available to meet system load requirements.

11




BUSINESS 


Sources of Electricity
Electric Utilities and Infrastructure relies principally on natural gas, nuclear fuel and coal for its generation of electricity. The following table lists sources of electricity and fuel costs for the three years ended December 31, 2019.
   Cost of Delivered Fuel per Net
 Generation by Source Kilowatt-hour Generated (Cents)
 2019
 2018
 2017
 2019
 2018
 2017
Natural gas and oil(a)
29.2% 26.2% 23.6% 2.96
 3.57
 2.85
Nuclear(a)
28.6% 26.0% 27.8% 0.60
 0.50
 0.69
Coal(a)
21.6% 24.4% 27.4% 3.08
 2.82
 2.72
All fuels (cost-based on weighted average)(a)
79.4% 76.6% 78.8% 2.14
 2.29
 2.04
Hydroelectric and solar(b)
1.2% 1.3% 0.7%      
Total generation80.6% 77.9% 79.5%      
Purchased power and net interchange19.4% 22.1% 20.5%      
Total sources of energy100.0% 100.0% 100.0%      
(a)Statistics related to all fuels reflect Electric Utilities and Infrastructure's ownership interest in jointly owned generation facilities.
(b)Generating figures are net of output required to replenish pumped storage facilities during off-peak periods. 
Natural Gas and Fuel Oil
Natural gas and fuel oil supply, transportation and storage for Electric Utilities and Infrastructure’s generation fleet is purchased under standard industry agreements from various suppliers, including Piedmont. Natural gas supply agreements typically provide for a percentage of forecasted burns being procured over time, with varied expiration dates. Electric Utilities and Infrastructure believes it has access to an adequate supply of natural gas and fuel oil for the reasonably foreseeable future.
Electric Utilities and Infrastructure has certain dual-fuel generating facilities that can operate utilizing both natural gas and fuel oil. The cost of Electric Utilities and Infrastructure’s natural gas and fuel oil is fixed price or determined by published market prices as reported in certain industry publications, plus any transportation and freight costs. Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana use derivative instruments to manage a portion of their exposure to price fluctuations for natural gas. For Duke Energy Florida, there is currently an agreed to moratorium with the FPSC on future hedging of natural gas prices.
Electric Utilities and Infrastructure has firm interstate and intrastate natural gas transportation agreements and storage agreements in place to support generation needed for load requirements. Electric Utilities and Infrastructure may purchase additional shorter-term natural gas transportation and utilize natural gas interruptible transportation agreements to support generation needed for load requirements. The Electric Utilities and Infrastructure natural gas plants are served by various supply zones and multiple pipelines.
Nuclear
The industrial processes for producing nuclear generating fuel generally involve the mining and milling of uranium ore to produce uranium concentrates and services to convert, enrich and fabricate fuel assemblies.
Electric Utilities and Infrastructure has contracted for uranium materials and services to fuel its nuclear reactors. Uranium concentrates, conversion services and enrichment services are primarily met through a diversified portfolio of long-term supply contracts. The contracts are diversified by supplier, country of origin and pricing. Electric Utilities and Infrastructure staggers its contracting so that its portfolio of long-term contracts covers the majority of its fuel requirements in the near term and decreasing portions of its fuel requirements over time thereafter. Near-term requirements not met by long-term supply contracts have been and are expected to be fulfilled with spot market purchases. Due to the technical complexities of changing suppliers of fuel fabrication services, Electric Utilities and Infrastructure generally sources these services to a single domestic supplier on a plant-by-plant basis using multiyear contracts.
Electric Utilities and Infrastructure has entered into fuel contracts that cover 100% of its uranium concentrates, conversion services and enrichment services requirements through at least 2020 and cover fabrication services requirements for these plants through at least 2027. For future requirements not already covered under long-term contracts, Electric Utilities and Infrastructure believes it will be able to renew contracts as they expire or enter into similar contractual arrangements with other suppliers of nuclear fuel materials and services.

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Coal
Electric Utilities and Infrastructure meets its coal demand through a portfolio of long-term purchase contracts and short-term spot market purchase agreements. Large amounts of coal are purchased under long-term contracts with mining operators who mine both underground and at the surface. Electric Utilities and Infrastructure uses spot market purchases to meet coal requirements not met by long-term contracts. Expiration dates for its long-term contracts, which have various price adjustment provisions and market reopeners, range from 2020 to 2022 for Duke Energy Carolinas and Duke Energy Progress, 2020 to 2021 for Duke Energy Florida and Duke Energy Ohio and 2020 to 2025 for Duke Energy Indiana. Electric Utilities and Infrastructure expects to renew these contracts or enter into similar contracts with other suppliers as existing contracts expire, though prices will fluctuate over time as coal markets change. Electric Utilities and Infrastructure has an adequate supply of coal under contract to meet its hedging guidelines regarding projected future consumption. As a result of volatility in natural gas prices and the associated impacts on coal-fired dispatch within the generation fleet, coal inventories will continue to fluctuate. Electric Utilities and Infrastructure continues to actively manage its portfolio and has worked with suppliers to obtain increased flexibility in its coal contracts.
Coal purchased for the Carolinas is primarily produced from mines in Central Appalachia, Northern Appalachia and the Illinois Basin. Coal purchased for Florida is primarily produced from mines in Colorado and the Illinois Basin. Coal purchased for Kentucky is produced from mines along the Ohio River in Illinois, Ohio, West Virginia and Pennsylvania. Coal purchased for Indiana is primarily produced in Indiana and Illinois. The current average sulfur content of coal purchased by Electric Utilities and Infrastructure is between 1.5% and 2% for Duke Energy Carolinas and Duke Energy Progress, between 2% and 3% for Duke Energy Florida, between 2.5% and 3% for Duke Energy Ohio and between 1.5% and 3% for Duke Energy Indiana. Electric Utilities and Infrastructure's environmental controls, in combination with the use of SO2 emission allowances, enable Electric Utilities and Infrastructure to satisfy current SO2 emission limitations for its existing facilities.
Purchased Power
Electric Utilities and Infrastructure purchases a portion of its capacity and system requirements through purchase obligations, leases and purchase capacity contracts. Electric Utilities and Infrastructure believes it can obtain adequate purchased power capacity to meet future system load needs. However, during periods of high demand, the price and availability of purchased power may be significantly affected.
The following table summarizes purchased power for the previous three years:
 2019
 2018
 2017
Purchase obligations and leases (in millions of MWh)(a)
34.8
 21.3
 17.7
Purchase capacity under contract (in MW)(b)
4,238
 4,025
 4,028
(a)Represents approximately 14% for 2019 and 7% for 2018 and 2017 of total system requirements.
(b)For 2019, 2018 and 2017 these agreements include approximately 412 MW of firm capacity under contract by Duke Energy Florida with QFs.
Inventory
Electric Utilities and Infrastructure must maintain an adequate stock of fuel and materials and supplies in order to ensure continuous operation of generating facilities and reliable delivery to customers. As of December 31, 2019, the inventory balance for Electric Utilities and Infrastructure was approximately $3 billion. For additional information on inventory, see Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies.”
Ash Basin Management
During 2015, EPA issued regulations related to the management of CCR from power plants. These regulations classify CCR as nonhazardous waste under the Resource Conservation and Recovery Act (RCRA) and apply to electric generating sites with new and existing landfills and new and existing surface impoundments and establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring, protection and remedial procedures and other operational and reporting procedures for the disposal and management of CCR. In addition to the federal regulations, CCR landfills and surface impoundments (ash basins or impoundments) will continue to be regulated by existing state laws, regulations and permits, including the Coal Ash Act in North Carolina.
Electric Utilities and Infrastructure has and will periodically submit to applicable authorities required site-specific coal ash impoundment remediation or closure plans. These plans and all associated permits must be approved before any work can begin. Closure activities began in 2015 at the four sites specified as high priority by the Coal Ash Act and at the W.S. Lee Steam Station site in South Carolina in connection with other legal requirements. Excavation at these sites involves movement of CCR materials to off-site locations for use as structural fill, to appropriate engineered off-site or on-site lined landfills or conversion of the ash for beneficial use. Duke Energy has completed excavation of coal ash regulated by the Coal Ash Act at three of the four high-priority sites. At other sites, planning and closure methods have been studied and factored into the estimated retirement and management costs, and closure activities have commenced.
The Coal Ash Act leaves the decision on cost recovery determinations related to closure of coal ash surface impoundments to the normal ratemaking processes before utility regulatory commissions. Duke Energy Carolinas and Duke Energy Progress have included compliance costs associated with the EPA CCR rule and the Coal Ash Act in their respective rate case filings. During 2017, Duke Energy Carolinas' and Duke Energy Progress’ wholesale contracts were amended to include the recovery of expenditures related to AROs for the closure of coal ash basins. The amended contracts have retail disallowance parity or provisions limiting challenges to CCR cost recovery actions at FERC. FERC approved the amended wholesale rate schedules in 2017. For additional information on the ash basins and recovery, see Item 7, "Other Matters" and Notes 4, 5 and 10 to the Consolidated Financial Statements, "Regulatory Matters," "Commitments and Contingencies" and "Asset Retirement Obligations," respectively.

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Nuclear Matters
Duke Energy owns, wholly or partially, 11 operating nuclear reactors located at six operating stations. The Crystal River Unit 3 permanently ceased operation in February 2013. Nuclear insurance includes: nuclear liability coverage; property damage coverage; nuclear accident decontamination and premature decommissioning coverage; and accidental outage coverage for losses in the event of a major accidental outage. Joint owners reimburse Duke Energy for certain expenses associated with nuclear insurance in accordance with joint owner agreements. The Price-Anderson Act requires plant owners to provide for public nuclear liability claims resulting from nuclear incidents to the maximum total financial protection liability, which is approximately $13.9 billion. For additional information on nuclear insurance see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies.”
Duke Energy has a significant future financial commitment to dispose of spent nuclear fuel and decommission and decontaminate each plant safely. The NCUC, PSCSC and FPSC require Duke Energy to update their cost estimates for decommissioning their nuclear plants every five years.
The following table summarizes the fair value of NDTF investments and the most recent site-specific nuclear decommissioning cost studies. Decommissioning costs are stated in 2018 or 2019 dollars, depending on the year of the cost study, and include costs to decommission plant components not subject to radioactive contamination.
 
NDTF(a)
 Decommissioning
  
(in millions)December 31, 2019
 December 31, 2018
 
Costs(a)

 Year of Cost Study
Duke Energy$8,140
 $6,720
 $9,152
 2018 and 2019
Duke Energy Carolinas(b)(c)
4,359
 3,558
 4,365
 2018
Duke Energy Progress(d)
3,047
 2,503
 4,181
 2019
Duke Energy Florida(e)
734
 659
 606
 2019
(a)Amounts for Progress Energy equal the sum of Duke Energy Progress and Duke Energy Florida.
(b)Decommissioning cost for Duke Energy Carolinas reflects its ownership interest in jointly owned reactors. Other joint owners are responsible for decommissioning costs related to their interest in the reactors.
(c)Duke Energy Carolinas' site-specific nuclear decommissioning cost study completed in 2018 was filed with the NCUC and PSCSC in 2019. A new funding study was also completed and filed with the NCUC and PSCSC in 2019.
(d)Duke Energy Progress' site-specific nuclear decommissioning cost study, which was completed in 2019, is expected to be filed with the NCUC and PSCSC during the first quarter of 2020. Duke Energy Progress is expected to file an updated funding study with NCUC and PSCSC in the third quarter of 2020.
(e)During 2019, Duke Energy Florida reached an agreement to transfer decommissioning work for Crystal River Unit 3 to a third party. The agreement requires regulatory approval from the NRC and the FPSC.
The NCUC, PSCSC, FPSC and FERC have allowed Electric Utilities and Infrastructure to recover estimated decommissioning costs through retail and wholesale rates over the expected remaining service periods of their nuclear stations. Electric Utilities and Infrastructure believes the decommissioning costs being recovered through rates, when coupled with the existing fund balances and expected fund earnings, will be sufficient to provide for the cost of future decommissioning. For additional information, see Note 10 to the Consolidated Financial Statements, “Asset Retirement Obligations.”
The Nuclear Waste Policy Act of 1982 (as amended) provides the framework for development by the federal government of interim storage and permanent disposal facilities for high-level radioactive waste materials. The government has not yet developed a storage facility or disposal capacity, so Electric Utilities and Infrastructure will continue to store spent fuel on its reactor sites.
Under federal law, the DOE is responsible for the selection and construction of a facility for the permanent disposal of spent nuclear fuel and high-level radioactive waste. The DOE terminated the project to license and develop a geologic repository at Yucca Mountain, Nevada in 2010, and is currently taking no action to fulfill its responsibilities to dispose of spent fuel.
Until the DOE begins to accept the spent nuclear fuel, Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida will continue to safely manage their spent nuclear fuel. Under current regulatory guidelines, Harris has sufficient storage capacity in its spent fuel pools through the expiration of its renewed operating license. With certain modifications and approvals by the NRC to expand the on-site dry cask storage facilities, spent nuclear fuel dry storage facilities will be sufficient to provide storage space of spent fuel through the expiration of the operating licenses, including any license renewals, for Brunswick, Catawba, McGuire, Oconee and Robinson. Crystal River Unit 3 ceased operation in 2013 and was placed in a SAFSTOR condition in January 2018. As of January 2018, all spent fuel at Crystal River Unit 3 has been transferred from the spent fuel pool to dry storage at an on-site independent spent fuel storage installation.
The nuclear power industry faces uncertainties with respect to the cost and long-term availability of disposal sites for spent nuclear fuel and other radioactive waste, compliance with changing regulatory requirements, capital outlays for modifications and new plant construction.

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Electric Utilities and Infrastructure is subject to the jurisdiction of the NRC for the design, construction and operation of its nuclear generating facilities. The following table includes the current year of expiration of nuclear operating licenses for nuclear stations in operation. During 2019, Duke Energy announced its intention to seek 20-year operating license renewals for each of the reactors it operates in Duke Energy Carolinas and Duke Energy Progress.
UnitYear of Expiration
Duke Energy Carolinas 
Catawba Units 1 and 22043
McGuire Unit 12041
McGuire Unit 22043
Oconee Units 1 and 22033
Oconee Unit 32034
Duke Energy Progress 
Brunswick Unit 12036
Brunswick Unit 22034
Harris2046
Robinson2030
The NRC has acknowledged permanent cessation of operation and permanent removal of fuel from the reactor vessel at Crystal River Unit 3. Therefore, the license no longer authorizes operation of the reactor. For additional information on nuclear decommissioning activity, see Notes 4 and 10 to the Consolidated Financial Statements, "Regulatory Matters" and "Asset Retirement Obligations," respectively.
Regulation
State
The state electric utility commissions approve rates for Duke Energy's retail electric service within their respective states. The state electric utility commissions, to varying degrees, have authority over the construction and operation of Electric Utilities and Infrastructure’s generating facilities. CPCNs issued by the state electric utility commissions, as applicable, authorize Electric Utilities and Infrastructure to construct and operate its electric facilities and to sell electricity to retail and wholesale customers. Prior approval from the relevant state electric utility commission is required for the entities within Electric Utilities and Infrastructure to issue securities. The underlying concept of utility ratemaking is to set rates at a level that allows the utility to collect revenues equal to its cost of providing service plus earn a reasonable rate of return on its invested capital, including equity.
In addition to rates approved in base rate cases, each of the state electric utility commissions allow recovery of certain costs through various cost-recovery clauses to the extent the respective commission determines in periodic hearings that such costs, including any past over or under-recovered costs, are prudent.
Fuel, fuel-related costs and certain purchased power costs are eligible for recovery by Electric Utilities and Infrastructure. Electric Utilities and Infrastructure uses coal, hydroelectric, natural gas, oil, renewable generation and nuclear fuel to generate electricity, thereby maintaining a diverse fuel mix that helps mitigate the impact of cost increases in any one fuel. Due to the associated regulatory treatment and the method allowed for recovery, changes in fuel costs from year to year have no material impact on operating results of Electric Utilities and Infrastructure, unless a commission finds a portion of such costs to have been imprudent. However, delays between the expenditure for fuel costs and recovery from customers can adversely impact the timing of cash flows of Electric Utilities and Infrastructure.

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The table below reflects significant electric rate case applications approved and effective in the past three years or applications currently pending approval.
 
Regulatory
Body
Annual
Increase
(Decrease)
(in millions)
Return
on
Equity
Equity
Component of
Capital Structure
Effective
Date
Approved Rate Cases:     
Duke Energy Carolinas 2018 South Carolina Rate CasePSCSC$45
9.5%53%6/1/2019
Duke Energy Progress 2018 South Carolina Rate CasePSCSC29
9.5%53%6/1/2019
Duke Energy Ohio 2017 Ohio Electric Rate CasePUCO(19)9.84%50.75%1/2/2019
Duke Energy Carolinas 2017 North Carolina Rate CaseNCUC(73)9.9%52%8/1/2018
Duke Energy Kentucky 2017 Kentucky Electric Rate CaseKPSC8
9.725%49%5/1/2018
Duke Energy Progress 2017 North Carolina Rate CaseNCUC151
9.9%52%3/16/2018
Duke Energy Progress 2016 South Carolina Rate CasePSCSC(a)
10.1%53%1/1/2017
      
Pending Rate Cases:     
Duke Energy Carolinas 2019 North Carolina Rate CaseNCUC$291
10.3%53%8/1/2020
Duke Energy Progress 2019 North Carolina Rate CaseNCUC464
10.3%53%9/1/2020
Duke Energy Kentucky 2019 Kentucky Electric Rate CaseKPSC46
9.8%48.2%Q2 2020
Duke Energy Indiana 2019 Indiana Rate CaseIURC(b)
10.4%53%mid 2020
(a)An increase of approximately $38 million in revenues was effective January 1, 2017, and an additional increase of approximately $19 million in revenues was effective January 1, 2018.
(b)Requests an increase of annualized retail revenues of $352 million beginning in July 2020, and an additional $44 million beginning in April 2021, which include the impacts of the Utility Receipt Tax.
For more information on rate matters and other regulatory proceedings, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.”
Federal
The FERC approves Electric Utilities and Infrastructure’s cost-based rates for electric sales to certain power and transmission wholesale customers. Regulations of FERC and the state electric utility commissions govern access to regulated electric and other data by nonregulated entities and services provided between regulated and nonregulated energy affiliates. These regulations affect the activities of nonregulated affiliates with Electric Utilities and Infrastructure.
RTOs
PJM and MISO are the ISOs and FERC-approved RTOs for the regions in which Duke Energy Ohio and Duke Energy Indiana operate. PJM and MISO operate energy, capacity and other markets, and control the day-to-day operations of bulk power systems through central dispatch.
Duke Energy Ohio is a member of PJM and Duke Energy Indiana is a member of MISO. Transmission owners in these RTOs have turned over control of their transmission facilities and their transmission systems are currently under the dispatch control of the RTOs. Transmission service is provided on a regionwide, open-access basis using the transmission facilities of the RTO members at rates based on the costs of transmission service.
Environmental
Electric Utilities and Infrastructure is subject to the jurisdiction of the EPA and state and local environmental agencies. For a discussion of environmental regulation, see “Environmental Matters” in this section. See the “Other Matters” section of Management's Discussion and Analysis for a discussion about potential Global Climate Change legislation and other EPA regulations under development and the potential impacts such legislation and regulation could have on Duke Energy’s operations.

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GAS UTILITIES AND INFRASTRUCTURE
Gas Utilities and Infrastructure conducts natural gas operations primarily through the regulated public utilities of Piedmont, Duke Energy Ohio and Duke Energy Kentucky. The natural gas operations are subject to the rules and regulations of the NCUC, PSCSC, PUCO, KPSC, TPUC, PHMSA and the FERC. Gas Utilities and Infrastructure serves residential, commercial, industrial and power generation natural gas customers, including customers served by municipalities who are wholesale customers. Gas Utilities and Infrastructure has over 1.6 million customers, including 1.1 million customers located in North Carolina, South Carolina and Tennessee, and an additional 535,000 customers located within southwestern Ohio and northern Kentucky. In the Carolinas, Ohio and Kentucky, the service areas are comprised of numerous cities, towns and communities. In Tennessee, the service area is the metropolitan area of Nashville. The following map shows the service territory and investments in operating and proposed midstream properties for Gas Utilities and Infrastructure as of December 31, 2019.
servicemap2019gas001.jpg
The number of residential, commercial and industrial customers within the Gas Utilities and Infrastructure service territory is expected to increase over time. Average usage per residential customer is expected to remain flat or decline for the foreseeable future; however, decoupled rates in North Carolina and various rate design mechanisms in other jurisdictions partially mitigate the impact of the declining usage per customer on overall profitability.
Gas Utilities and Infrastructure also owns, operates and has investments in various pipeline transmission and natural gas storage facilities.

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Natural Gas for Retail Distribution
Gas Utilities and Infrastructure is responsible for the distribution of natural gas to retail customers in its North Carolina, South Carolina, Tennessee, Ohio and Kentucky service territories. Gas Utilities and Infrastructure’s natural gas procurement strategy is to contract primarily with major and independent producers and marketers for natural gas supply. It also purchases a diverse portfolio of transportation and storage service from interstate pipelines. This strategy allows Gas Utilities and Infrastructure to assure reliable natural gas supply and transportation for its firm customers during peak winter conditions. When firm pipeline services or contracted natural gas supplies are temporarily not needed due to market demand fluctuations, Gas Utilities and Infrastructure may release these services and supplies in the secondary market under FERC-approved capacity release provisions or make wholesale secondary market sales. In 2019, firm supply purchase commitment agreements provided 100% of the natural gas supply for both Piedmont and Duke Energy Ohio.
Impact of Weather
Gas Utilities and Infrastructure revenues are generally protected from the impact of weather fluctuations due to the regulatory mechanisms that are available in most service territories. In North Carolina, margin decoupling provides protection from both weather and other usage variations like conservation for residential and commercial customer classes. Margin decoupling provides a set revenue per customer independent of actual usage. In South Carolina, Tennessee and Kentucky, weather normalization adjusts revenues either up or down depending on how much warmer or colder than normal a given month has been. Weather normalization adjustments occur from November through March in South Carolina, from October through April in Tennessee and from November through April in Kentucky. Duke Energy Ohio collects most of its non-fuel revenue through a fixed monthly charge that is not impacted by usage fluctuations that result from weather changes or conservation.
Competition
Gas Utilities and Infrastructure’s businesses operate as the sole provider of natural gas service within their retail service territories. Gas Utilities and Infrastructure owns and operates facilities necessary to transport and distribute natural gas. Gas Utilities and Infrastructure earns retail margin on the transmission and distribution of natural gas and not on the cost of the underlying commodity. Services are priced by state commission approved rates designed to include the costs of providing these services and a reasonable return on invested capital. This regulatory policy is intended to provide safe and reliable natural gas service at fair prices.
In residential, commercial and industrial customer markets, natural gas distribution operations compete with other companies that supply energy, primarily electric companies, propane and fuel oil dealers, renewable energy providers and coal companies in relation to sources of energy for electric power plants, as well as nuclear energy. A significant competitive factor is price. Gas Utilities and Infrastructure's primary product competition is with electricity for heating, water heating and cooking. Increases in the price of natural gas or decreases in the price of other energy sources could negatively impact competitive position by decreasing the price benefits of natural gas to the consumer. In the case of industrial customers, such as manufacturing plants, adverse economic or market conditions, including higher natural gas costs, could cause these customers to suspend business operations or to use alternative sources of energy in favor of energy sources with lower per-unit costs.
Higher natural gas costs or decreases in the price of other energy sources may allow competition from alternative energy sources for applications that have traditionally used natural gas, encouraging some customers to move away from natural gas-fired equipment to equipment fueled by other energy sources. Competition between natural gas and other forms of energy is also based on efficiency, performance, reliability, safety and other non-price factors. Technological improvements in other energy sources and events that impair the public perception of the non-price attributes of natural gas could erode our competitive advantage. These factors in turn could decrease the demand for natural gas, impair our ability to attract new customers and cause existing customers to switch to other forms of energy or to bypass our systems in favor of alternative competitive sources. This could result in slow or no customer growth and could cause customers to reduce or cease using our product, thereby reducing our ability to make capital expenditures and otherwise grow our business, adversely affecting our earnings.
Pipeline and Storage Investments
Duke Energy, through its Gas Utilities and Infrastructure segment, is a 47% equity member of ACP, which plans to build and own the proposed ACP pipeline, an approximately 600-mile interstate natural gas pipeline, regulated by FERC. The ACP pipeline is intended to transport diverse natural gas supplies into southeastern markets. Duke Energy Carolinas, Duke Energy Progress and Piedmont, among others, will be customers of ACP. ACP expects mechanical completion of the full project in late 2021 with in-service likely in the first half of 2022. Abnormal weather, work delays (including delays due to judicial or regulatory action) and other conditions may result in cost or schedule modifications, a suspension of AFUDC for ACP and/or impairment charges potentially material to Duke Energy's cash flows, financial position and results of operations. ACP and Duke Energy will continue to consider their options with respect to the foregoing in light of their existing contractual and legal obligations.
Gas Utilities and Infrastructure also has a 7.5% equity ownership interest in Sabal Trail. Sabal Trail is a joint venture that owns the Sabal Trail Natural Gas Pipeline (Sabal Trail pipeline) to transport natural gas to Florida, regulated by FERC. The Sabal Trail phase one mainline was placed into service in July 2017 and traverses Alabama, Georgia and Florida. The remaining lateral line to the Duke Energy Florida's Citrus County CC was placed into service in March 2018. In May 2019, construction activities began as planned on Phase II of Sabal Trail. Phase II will add approximately 200,000 Dth of capacity to the Sabal Trail pipeline and is expected to achieve in-service in May 2020.
Gas Utilities and Infrastructure had a 24% equity ownership interest in Constitution, an interstate pipeline development company formed to develop, construct, own and operate a 124-mile natural gas pipeline and related facilities, regulated by FERC. Constitution was slated to transport natural gas supplies from the Marcellus supply region in northern Pennsylvania to major northeastern markets. As of February 5, 2020, the Constitution partners formally resolved to initiate the dissolution of Constitution, and to terminate the Constitution Pipeline project.
Duke Energy, through its Gas Utilities and Infrastructure segment, has a 21.49% equity ownership interest in Cardinal, an intrastate pipeline located in North Carolina regulated by the NCUC, a 45% equity ownership in Pine Needle, an interstate liquefied natural gas storage facility located in North Carolina and a 50% equity ownership interest in Hardy Storage, an underground interstate natural gas storage facility located in Hardy and Hampshire counties in West Virginia. Pine Needle and Hardy Storage are regulated by FERC.

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KO Transmission, a wholly owned subsidiary of Duke Energy Ohio, is an interstate pipeline company engaged in the business of transporting natural gas and is subject to the rules and regulations of FERC. KO Transmission's 90-mile pipeline supplies natural gas to Duke Energy Ohio and interconnects with the Columbia Gulf Transmission pipeline and Tennessee Gas Pipeline. An approximately 70-mile portion of KO Transmission's pipeline facilities is co-owned by Columbia Gas Transmission Corporation.
See Notes 4, 13 and 18 to the Consolidated Financial Statements, "Regulatory Matters," "Investments in Unconsolidated Affiliates" and "Variable Interest Entities," respectively, for further information on Duke Energy's pipeline investments.
Inventory
Gas Utilities and Infrastructure must maintain adequate natural gas inventory in order to provide reliable delivery to customers. As of December 31, 2019, the inventory balance for Gas Utilities and Infrastructure was $111 million. For more information on inventory, see Note 1 to the Consolidated Financial Statements, "Summary of Significant Accounting Policies."
Regulation
State
The state gas utility commissions approve rates for Duke Energy's retail natural gas service within their respective states. The state gas utility commissions, to varying degrees, have authority over the construction and operation of Gas Utilities and Infrastructure’s natural gas distribution facilities. CPCNs issued by the state gas utility commissions or other government agencies, as applicable, authorize Gas Utilities and Infrastructure to construct and operate its natural gas distribution facilities and to sell natural gas to retail and wholesale customers. Prior approval from the relevant state gas utility commission is required for Gas Utilities and Infrastructure to issue securities. The underlying concept of utility ratemaking is to set rates at a level that allows the utility to collect revenues equal to its cost of providing service plus a reasonable rate of return on its invested capital, including equity.
In addition to amounts collected from customers through approved base rates, each of the state gas utility commissions allow recovery of certain costs through various cost-recovery clauses to the extent the respective commission determines in periodic hearings that such costs, including any past over- or under-recovered costs, are prudent.
Natural gas costs are eligible for recovery by Gas Utilities and Infrastructure. Due to the associated regulatory treatment and the method allowed for recovery, changes in natural gas costs from year to year have no material impact on operating results of Gas Utilities and Infrastructure, unless a commission finds a portion of such costs to have not been prudent. However, delays between the expenditure for natural gas and recovery from customers can adversely impact the timing of cash flows of Gas Utilities and Infrastructure.
The following table summarizes certain components underlying recently approved and effective base rates or rate stabilization filings in the last three years.
 
Annual
Increase
(Decrease)
(in millions)
 
Return
on
Equity
 
Equity
Component of
Capital Structure
 Effective Date
Approved Rate Cases:       
Piedmont 2017 South Carolina Rate Stabilization Adjustment Filing6
 10.2% 53.0% November 2017
Piedmont 2018 South Carolina Rate Stabilization Adjustment Filing(14) 10.2% 53.0% November 2018
Piedmont 2019 South Carolina Rate Stabilization Adjustment Filing6
 9.9% 55.4% November 2019
Duke Energy Kentucky 2018 Natural Gas Base Rate Case7
 9.7% 50.8% April 2019
Piedmont 2019 North Carolina Natural Gas Base Rate Case109
 9.7% 52.0% November 2019
Gas Utilities and Infrastructure has IMR mechanisms in North Carolina and Tennessee designed to separately track and recover certain costs associated with capital investments incurred to comply with federal pipeline safety and integrity programs, as well as additional state safety and integrity requirements in Tennessee. The following table summarizes information related to recently approved or pending IMR filings.
 Cumulative
 Annual
 Effective
(in millions)Investment
 Revenues
 Date
Piedmont 2019 IMR Filing – North Carolina$109
 $11.4
 December 2019
Pending Filing:    Expected Effective Date
Piedmont 2019 IMR Filing – Tennessee296.6
 28.1
 mid 2020
For more information on rate matters and other regulatory proceedings, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.”

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Federal
Gas Utilities and Infrastructure is subject to various federal regulations, including regulations that are particular to the natural gas industry. These federal regulations include but are not limited to the following:
Regulations of the FERC affect the certification and siting of new interstate natural gas pipeline projects, the purchase and sale of, the prices paid for, and the terms and conditions of service for the interstate transportation and storage of natural gas.
Regulations of the PHMSA affect the design, construction, operation, maintenance, integrity, safety and security of natural gas distribution and transmission systems.
Regulations of the EPA relate to the environment including proposed air emissions regulations that would expand to include emissions of methane.
Regulations of the FERC and the state gas utility commissions govern access to regulated natural gas and other data by nonregulated entities and services provided between regulated and nonregulated energy affiliates. These regulations affect the activities of nonregulated affiliates with Gas Utilities and Infrastructure.
Environmental
Gas Utilities and Infrastructure is subject to the jurisdiction of the EPA and state and local environmental agencies. For a discussion of environmental regulation, see “Environmental Matters” in this section. See “Other Matters” section of Management's Discussion and Analysis for a discussion about potential Global Climate Change legislation and other EPA regulations under development and the potential impacts such legislation and regulation could have on Duke Energy’s operations.
COMMERCIAL RENEWABLES
Commercial Renewables primarily acquires, develops, builds, operates and owns wind and solar renewable generation throughout the continental U.S. The portfolio includes nonregulated renewable energy and energy storage businesses. On April 24, 2019, Duke Energy executed an agreement to sell a minority interest in a portion of certain renewable assets. The sale closed on September 6, 2019, See Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions,” for additional information.
Commercial Renewables' renewable energy includes utility-scale wind and solar generation assets, distributed solar generation assets, distributed fuel cell assets and a battery storage project, which total 2,282 MW across 19 states from 22 wind facilities, 126 solar projects, 11 fuel cell locations and one battery storage facility. Revenues are primarily generated by selling the power produced from renewable generation through long-term contracts to utilities, electric cooperatives, municipalities and corporate customers. In most instances, these customers have obligations under state-mandated renewable energy portfolio standards or similar state or local renewable energy goals. Energy and renewable energy credits generated by wind and solar projects are generally sold at contractual prices. The following map shows the locations of renewable generation facilities of which Commercial Renewables has an ownership interest as of December 31, 2019.
servicemap2019cr001.jpg

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BUSINESS 


As eligible projects are placed in service, Commercial Renewables recognizes either PTCs as power is generated by wind projects over 10 years or ITCs when the renewable solar, fuel cells or wind project achieves commercial availability. ITCs are recognized over the useful life of the asset as a reduction to depreciation expense. Benefits of the tax basis adjustment due to the ITC are recognized in income in the year of commercial availability. The ITC is being phased down from the current 2019 rate of 30% to a permanent 10% rate if construction begins after 2021. The PTC is being phased out and wind turbines will earn 10 years of PTCs at phased-out rates if construction began in 2017 through 2020.
As part of its growth strategy, Commercial Renewables has expanded its investment portfolio through the addition of distributed solar companies and projects, energy storage systems and energy management solutions specifically tailored to commercial businesses. These investments include REC Solar, a California-based provider of solar installations for retail, manufacturing, agriculture, technology, government and nonprofit customers across the U.S. and Phoenix Energy Technologies Inc., a California-based provider of enterprise energy management and information software to commercial businesses.
Commercial Renewables has entered into agreements for certain of its generating assets that are held by LLCs whose members include a noncontrolling tax equity investor. The allocation of tax attributes and cash flows to the tax equity investor are governed by the provisions of the LLC agreements. The GAAP earnings allocations to the tax equity investors can result in variability in earnings to Duke Energy. As part of its growth strategy, Commercial Renewables expects to enter into these arrangements for future generating assets.
For additional information on Commercial Renewables' generation facilities, see Item 2, “Properties.”
Market Environment and Competition
Commercial Renewables primarily competes for wholesale contracts for the generation and sale of electricity from generation assets it either develops or acquires and owns. The market price of commodities and services, along with the quality and reliability of services provided, drive competition in the wholesale energy business. The number and type of competitors may vary based on location, generation type and project size. Commercial Renewables' main competitors include other nonregulated generators and wholesale power providers.
Sources of Electricity
Commercial Renewables relies on wind, solar, fuel cells and battery resources for its generation of electric energy.
Regulation
Commercial Renewables is subject to regulation at the federal level, primarily from the FERC. Regulations of the FERC govern access to regulated market information by nonregulated entities and services provided between regulated and nonregulated utilities.
OTHER
The remainder of Duke Energy’s operations is presented as Other. While it is not a business segment, Other primarily includes interest expense on holding company debt, unallocated corporate costs including costs to achieve strategic acquisitions, amounts related to certain companywide initiatives and contributions made to the Duke Energy Foundation. Other also includes Bison and an investment in NMC.
The Duke Energy Foundation is a nonprofit organization funded by Duke Energy shareholders that makes charitable contributions to selected nonprofits and government subdivisions.
Bison, a wholly owned subsidiary of Duke Energy, is a captive insurance company with the principal activity of providing Duke Energy subsidiaries with indemnification for financial losses primarily related to property, workers’ compensation and general liability.
Duke Energy owns a 17.5% equity interest in NMC. The joint venture company has production facilities in Jubail, Saudi Arabia, where it manufactures certain petrochemicals and plastics. The company annually produces approximately 1 million metric tons each of MTBE and methanol and has the capacity to produce 50,000 metric tons of polyacetal. The main feedstocks to produce these products are natural gas and butane. Duke Energy records the investment activity of NMC using the equity method of accounting and retains 25% of NMC's board of directors' representation and voting rights.
Employees
On December 31, 2019, Duke Energy had a total of 28,793 employees on its payroll. The total includes 5,399 employees who are represented by labor unions under various collective bargaining agreements that generally cover wages, benefits, working practices, and other terms and conditions of employment.

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Information about Our Executive Officers
The following table sets forth the individuals who currently serve as executive officers. Executive officers serve until their successors are duly elected or appointed.
Name 
Age(a)
 Current and Recent Positions Held
Lynn J. Good 60
 
Chairman, President and Chief Executive Officer. Ms. Good was elected as Chairman of the Board, effective January 1, 2016, and assumed her position as President and Chief Executive Officer in July 2013. Prior to that, she served as Executive Vice President and Chief Financial Officer since 2009.
Steven K. Young 61
 
Executive Vice President and Chief Financial Officer. Mr. Young assumed his current position in August 2013. Prior to that, he served as Vice President, Chief Accounting Officer and Controller, assuming the role of Chief Accounting Officer in July 2012 and the role of Controller in December 2006.
Melissa H. Anderson 55
 
Executive Vice President and Chief Human Resources Officer. Ms. Anderson assumed her position in January 2015 and had responsibility for the Administration services organization from May 2016 until October 2019. Prior to joining Duke Energy, she served as Senior Vice President of Human Resources at Domtar Inc. since 2010.
Douglas F Esamann 62
 
Executive Vice President, Energy Solutions and President, Midwest/Florida Regions and Natural Gas Business. Mr. Esamann assumed his current position in October 2019, was Executive Vice President, Energy Solutions and President, Midwest and Florida Regions since September 2016 and was Executive Vice President and President, Midwest and Florida Regions since June 2015. Prior to that, he served as President, Duke Energy Indiana since November 2010.
Kodwo Ghartey-Tagoe 56
 
Executive Vice President and Chief Legal Officer. Mr. Ghartey-Tagoe assumed the position of Executive Vice President and Chief Legal Officer in October 2019 after serving as President, South Carolina since 2017. Mr. Ghartey-Tagoe joined Duke Energy in 2002 and has held numerous management positions in Duke Energy’s Legal Department, including Duke Energy's Senior Vice President of State and Federal Regulatory Legal Support.

Dwight L. Jacobs 54
 
Senior Vice President, Chief Accounting Officer, Tax and Controller. Mr. Jacobs has served as Senior Vice President, Chief Accounting Officer, Tax and Controller since January 1, 2019. Prior to that, he served as Senior Vice President, Chief Accounting Officer and Controller since June 1, 2018. Prior to that, he served as Senior Vice President, Financial Planning & Analysis since February 2016 and as Chief Risk Officer since July 2014. Prior to his role as Chief Risk Officer, Mr. Jacobs served as Vice President, Rates & Regulatory Strategy since May 2010.
Dhiaa M. Jamil 63
 
Executive Vice President and Chief Operating Officer. Mr. Jamil assumed the role of Chief Operating Officer in May 2016. Prior to his current position, he held the title Executive Vice President and President, Regulated Generation and Transmission since June 2015. Prior to that, he served as Executive Vice President and President, Regulated Generation since August 2014. He served as Executive Vice President and President of Duke Energy Nuclear from March 2013 to August 2014, and was Chief Nuclear Officer from February 2008 to February 2013.
Julia S. Janson 54
 
Executive Vice President, External Affairs and President, Carolinas Region. Ms. Janson has held the position of Executive Vice President, External Affairs and President, Carolinas Region since October 2019. Prior to that, she held the position of Executive Vice President, External Affairs and Chief Legal Officer since November 2018. She originally assumed the position of Executive Vice President, Chief Legal Officer and Corporate Secretary in December 2012, and then assumed the responsibilities for External Affairs in February 2016.
Brian D. Savoy 44
 
Senior Vice President, Chief Transformation and Administrative Officer. Mr. Savoy assumed his current position in October 2019. Prior to that, he served as Senior Vice President, Business Transformation and Technology since May 2016; Senior Vice President, Controller and Chief Accounting Officer from September 2013 to May 2016; Director, Forecasting and Analysis from 2009 to September 2013; and Vice President and Controller of the Commercial Power segment from 2006 to 2009.
Henry K. Sideris 49
 
Senior Vice President, Customer Experience and Services. Mr. Sideris assumed his current position in October 2019. Prior to that, he served as Senior Vice President and Chief Distribution Officer since June 2018; State President, Florida from January 2017 to June 2018; Senior Vice President of Environmental Health and Safety from August 2014 to January 2017; and Vice President of Power Generations for the Company's Fossil/Hydro Operations in the western portions of North Carolina and South Carolina from July 2012 to August 2014.
(a)    The ages of the officers provided are as of December 31, 2019.
There are no family relationships between any of the executive officers, nor any arrangement or understanding between any executive officer and any other person involved in officer selection.
Environmental Matters
The Duke Energy Registrants are subject to federal, state and local laws and regulations with regard to air and water quality, hazardous and solid waste disposal and other environmental matters. Environmental laws and regulations affecting the Duke Energy Registrants include, but are not limited to:
The Clean Air Act, as well as state laws and regulations impacting air emissions, including State Implementation Plans related to existing and new national ambient air quality standards for ozone and particulate matter. Owners and/or operators of air emission sources are responsible for obtaining permits and for annual compliance and reporting.
The CWA, which requires permits for facilities that discharge wastewaters into navigable waters.

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The Comprehensive Environmental Response, Compensation and Liability Act, which can require any individual or entity that currently owns or in the past owned or operated a disposal site, as well as transporters or generators of hazardous substances sent to a disposal site, to share in remediation costs.
The National Environmental Policy Act, which requires federal agencies to consider potential environmental impacts in their permitting and licensing decisions, including siting approvals.
Coal Ash Act, as amended, which establishes requirements regarding the use and closure of existing ash basins, the disposal of ash at active coal plants and the handling of surface water and groundwater impacts from ash basins in North Carolina.
The Solid Waste Disposal Act, as amended by the RCRA, which creates a framework for the proper management of hazardous and nonhazardous solid waste; classifies CCR as nonhazardous waste; and establishes standards for landfill and surface impoundment placement, design, operation and closure, groundwater monitoring, corrective action, and post-closure care.
The Toxic Substances Control Act , which gives EPA the authority to require reporting, recordkeeping and testing requirements, and to place restrictions relating to chemical substances and/or mixtures, including polychlorinated biphenyls.
The ACE rule, which will require states to develop CO2 reduction plans based on efficiency (heat rate) improvements at coal-fired power plants.
For more information on environmental matters, see Notes 5 and 9 to the Consolidated Financial Statements, “Commitments and Contingencies – Environmental” and "Asset Retirement Obligations," respectively, and the “Other Matters” section of Management's Discussion and Analysis. Except as otherwise described in these sections, costs to comply with current federal, state and local provisions regulating the discharge of materials into the environment or other potential costs related to protecting the environment are incorporated into the routine cost structure of our various business segments and are not expected to have a material adverse effect on the competitive position, consolidated results of operations, cash flows or financial position of the Duke Energy Registrants.
The "Other Matters" section of Management's Discussion and Analysis includes an estimate of future capital expenditures required to comply with environmental regulations and a discussion of Global Climate Change including the potential impact of current and future legislation related to GHG emissions on the Duke Energy Registrants' operations. Recently passed and potential future environmental statutes and regulations could have a significant impact on the Duke Energy Registrants’ results of operations, cash flows or financial position. However, if and when such statutes and regulations become effective, the Duke Energy Registrants will seek appropriate regulatory recovery of costs to comply within its regulated operations.
DUKE ENERGY CAROLINAS
 
Duke Energy Carolinas is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Carolinas’ service area covers approximately 24,000 square miles and supplies electric service to 2.7 million residential, commercial and industrial customers. For information about Duke Energy Carolinas’ generating facilities, see Item 2, “Properties.” Duke Energy Carolinas is subject to the regulatory provisions of the NCUC, PSCSC, NRC and FERC.
Substantially all of Duke Energy Carolinas' operations are regulated and qualify for regulatory accounting. Duke Energy Carolinas operates one reportable business segment, Electric Utilities and Infrastructure. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”
PROGRESS ENERGY
 
Progress Energy is a public utility holding company primarily engaged in the regulated electric utility business and is subject to regulation by the FERC. Progress Energy conducts operations through its wholly owned subsidiaries, Duke Energy Progress and Duke Energy Florida. When discussing Progress Energy’s financial information, it necessarily includes the results of Duke Energy Progress and Duke Energy Florida.
Substantially all of Progress Energy’s operations are regulated and qualify for regulatory accounting. Progress Energy operates one reportable business segment, Electric Utilities and Infrastructure. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”
DUKE ENERGY PROGRESS
 
Duke Energy Progress is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Progress’ service area covers approximately 29,000 square miles and supplies electric service to approximately 1.6 million residential, commercial and industrial customers. For information about Duke Energy Progress’ generating facilities, see Item 2, “Properties.” Duke Energy Progress is subject to the regulatory provisions of the NCUC, PSCSC, NRC and FERC.
Substantially all of Duke Energy Progress’ operations are regulated and qualify for regulatory accounting. Duke Energy Progress operates one reportable business segment, Electric Utilities and Infrastructure. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”

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PART I

DUKE ENERGY FLORIDA
 
Duke Energy Florida is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Florida. Duke Energy Florida’s service area covers approximately 13,000 square miles and supplies electric service to approximately 1.8 million residential, commercial and industrial customers. For information about Duke Energy Florida’s generating facilities, see Item 2, “Properties.” Duke Energy Florida is subject to the regulatory provisions of the FPSC, NRC and FERC.
Substantially all of Duke Energy Florida’s operations are regulated and qualify for regulatory accounting. Duke Energy Florida operates one reportable business segment, Electric Utilities and Infrastructure. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”
DUKE ENERGY OHIO
 
Duke Energy Ohio is a regulated public utility primarily engaged in the transmission and distribution of electricity in portions of Ohio and Kentucky, in the generation and sale of electricity in portions of Kentucky and the transportation and sale of natural gas in portions of Ohio and Kentucky. Duke Energy Ohio also conducts competitive auctions for retail electricity supply in Ohio whereby recovery of the energy price is from retail customers. Operations in Kentucky are conducted through its wholly owned subsidiary, Duke Energy Kentucky. References herein to Duke Energy Ohio include Duke Energy Ohio and its subsidiaries, unless otherwise noted. Duke Energy Ohio is subject to the regulatory provisions of the PUCO, KPSC, PHMSA and FERC.
Duke Energy Ohio’s service area covers approximately 3,000 square miles and supplies electric service to approximately 870,000 residential, commercial and industrial customers and provides transmission and distribution services for natural gas to approximately 542,000 customers. For information about Duke Energy Ohio's generating facilities, see Item 2, “Properties.”
KO Transmission, a wholly owned subsidiary of Duke Energy Ohio, is an interstate pipeline company engaged in the business of transporting natural gas and is subject to the rules and regulations of FERC. KO Transmission's 90-mile pipeline supplies natural gas to Duke Energy Ohio and interconnects with the Columbia Gulf Transmission pipeline and Tennessee Gas Pipeline. An approximately 70-mile portion of KO Transmission's pipeline facilities is co-owned by Columbia Gas Transmission Corporation.
Substantially all of Duke Energy Ohio's operations are regulated and qualify for regulatory accounting. Duke Energy Ohio has two reportable segments, Electric Utilities and Infrastructure and Gas Utilities and Infrastructure. For additional information on these business segments, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”
DUKE ENERGY INDIANA
 
Duke Energy Indiana is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Indiana. Duke Energy Indiana’s service area covers 23,000 square miles and supplies electric service to 850,000 residential, commercial and industrial customers. For information about Duke Energy Indiana's generating facilities, see Item 2, “Properties.” Duke Energy Indiana is subject to the regulatory provisions of the IURC and FERC.
Substantially all of Duke Energy Indiana’s operations are regulated and qualify for regulatory accounting. Duke Energy Indiana operates one reportable business segment, Electric Utilities and Infrastructure. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”
PIEDMONT
 
Piedmont is a regulated public utility primarily engaged in the distribution of natural gas to over 1 million residential, commercial, industrial and power generation customers in portions of North Carolina, South Carolina and Tennessee, including customers served by municipalities who are wholesale customers. For information about Piedmont's natural gas distribution facilities, see Item 2, "Properties." Piedmont is subject to the regulatory provisions of the NCUC, PSCSC, TPUC, PHMSA and FERC.
Substantially all of Piedmont’s operations are regulated and qualify for regulatory accounting. Piedmont operates one reportable business segment, Gas Utilities and Infrastructure. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”
ITEM 1A. RISK FACTORS
 
In addition to other disclosures within this Form 10-K, including "Management's Discussion and Analysis of Financial Condition and Results of Operations – Matters Impacting Future Results" for each registrant in Item 7, and other documents filed with the SEC from time to time, the following factors should be considered in evaluating Duke Energy and its subsidiaries. Such factors could affect actual results of operations and cause results to differ substantially from those currently expected or sought. Unless otherwise indicated, risk factors discussed below generally relate to risks associated with all of the Duke Energy Registrants. Risks identified at the Subsidiary Registrant level are generally applicable to Duke Energy.

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RISK FACTORS 


BUSINESS STRATEGY RISKS
Duke Energy’s future results could be adversely affected if it is unable to implement its business strategy.
Duke Energy’s results of operations depend, in significant part, on the extent to which it can implement its business strategy successfully. Duke Energy's strategy, which includes transforming the customer experience, modernizing the energy grid, generating cleaner energy and working to achieve net-zero carbon emissions by 2050, expanding the natural gas infrastructure, modernizing the regulatory construct and digital transformation, is subject to business, economic and competitive uncertainties and contingencies, many of which are beyond its control. As a consequence, Duke Energy may not be able to fully implement or realize the anticipated results of its strategy.
REGULATORY, LEGISLATIVE AND LEGAL RISKS
The Duke Energy Registrants’ regulated utility revenues, earnings and results are dependent on state legislation and regulation that affect electric generation, electric and natural gas transmission, distribution and related activities, which may limit their ability to recover costs.
The Duke Energy Registrants’ regulated electric and natural gas utility businesses are regulated on a cost-of-service/rate-of-return basis subject to statutes and regulatory commission rules and procedures of North Carolina, South Carolina, Florida, Ohio, Tennessee, Indiana and Kentucky. If the Duke Energy Registrants’ regulated utility earnings exceed the returns established by the state utility commissions, retail electric and natural gas rates may be subject to review and possible reduction by the commissions, which may decrease the Duke Energy Registrants’ earnings. Additionally, if regulatory bodies do not allow recovery of costs incurred in providing service, or do not do so on a timely basis, the Duke Energy Registrants’ earnings could be negatively impacted.
If legislative and regulatory structures were to evolve in such a way that the Duke Energy Registrants’ exclusive rights to serve their regulated customers were eroded, their earnings could be negatively impacted. Federal and state regulations, laws and other efforts designed to promote and expand the use of EE measures and distributed generation technologies, such as private solar and battery storage, in Duke Energy service territories could result in customers leaving the electric distribution system and an increase in customer net energy metering, which allows customers with private solar to receive bill credits for surplus power at the full retail amount. Over time, customer adoption of these technologies and increased EE could result in excess generation resources as well as stranded costs if Duke Energy is not able to fully recover the costs and investment in generation.
State regulators have approved various mechanisms to stabilize natural gas utility margins, including margin decoupling in North Carolina and rate stabilization in South Carolina. State regulators have approved other margin stabilizing mechanisms that, for example, allow for recovery of margin losses associated with negotiated transactions designed to retain large volume customers that could use alternative fuels or that may otherwise directly access natural gas supply through their own connection to an interstate pipeline. If regulators decided to discontinue the Duke Energy Registrants' use of tariff mechanisms, it would negatively impact results of operations, financial position and cash flows. In addition, regulatory authorities also review whether natural gas costs are prudently incurred and can disallow the recovery of a portion of natural gas costs that the Duke Energy Registrants seek to recover from customers, which would adversely impact earnings.
The rates that the Duke Energy Registrants’ regulated utility businesses are allowed to charge are established by state utility commissions in rate case proceedings, which may limit their ability to recover costs and earn an appropriate return on investment.
The rates that the Duke Energy Registrants’ regulated utility business are allowed to charge significantly influences the results of operations, financial position and cash flows of the Duke Energy Registrants. The regulation of the rates that the regulated utility businesses charge customers is determined, in large part, by state utility commissions in rate case proceedings. Negative decisions made by these regulators, or by any court on appeal of a rate case proceeding, could have a material adverse effect on the Duke Energy Registrants’ results of operations, financial position or cash flows and affect the ability of the Duke Energy Registrants to recover costs and an appropriate return on the significant infrastructure investments being made.
Deregulation or restructuring in the electric industry may result in increased competition and unrecovered costs that could adversely affect the Duke Energy Registrants’ results of operations, financial position or cash flows and their utility businesses.
Increased competition resulting from deregulation or restructuring legislation could have a significant adverse impact on the Duke Energy Registrants’ results of operations, financial position or cash flows. If the retail jurisdictions served by the Duke Energy Registrants become subject to deregulation, the impairment of assets, loss of retail customers, lower profit margins or increased costs of capital, and recovery of stranded costs could have a significant adverse financial impact on the Duke Energy Registrants. Stranded costs primarily include the generation assets of the Duke Energy Registrants whose value in a competitive marketplace may be less than their current book value, as well as above-market purchased power commitments from QFs from whom the Duke Energy Registrants are legally obligated to purchase energy at an avoided cost rate under PURPA. The Duke Energy Registrants cannot predict the extent and timing of entry by additional competitors into the electric markets. The Duke Energy Registrants cannot predict if or when they will be subject to changes in legislation or regulation, nor can they predict the impact of these changes on their results of operations, financial position or cash flows.

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RISK FACTORS 


The Duke Energy Registrants’ businesses are subject to extensive federal regulation and a wide variety of laws and governmental policies, including taxes, that may change over time in ways that affect operations and costs.
The Duke Energy Registrants are subject to regulations under a wide variety of U.S. federal and state regulations and policies, including by FERC, NRC, EPA and various other federal agencies as well as the North American Electric Reliability Corporation. Regulation affects almost every aspect of the Duke Energy Registrants’ businesses, including, among other things, their ability to: take fundamental business management actions; determine the terms and rates of transmission and distribution services; make acquisitions; issue equity or debt securities; engage in transactions with other subsidiaries and affiliates; and pay dividends upstream to the Duke Energy Registrants. Changes to federal regulations are continuous and ongoing. There can be no assurance that laws, regulations and policies will not be changed in ways that result in material modifications of business models and objectives or affect returns on investment by restricting activities and products, subjecting them to escalating costs, causing delays, or prohibiting them outright.
The Duke Energy Registrants are subject to numerous environmental laws and regulations requiring significant capital expenditures that can increase the cost of operations, and which may impact or limit business plans, or cause exposure to environmental liabilities.
The Duke Energy Registrants are subject to numerous environmental laws and regulations affecting many aspects of their present and future operations, including CCRs, air emissions, water quality, wastewater discharges, solid waste and hazardous waste. These laws and regulations can result in increased capital, operating and other costs. These laws and regulations generally require the Duke Energy Registrants to obtain and comply with a wide variety of environmental licenses, permits, inspections and other approvals. Compliance with environmental laws and regulations can require significant expenditures, including expenditures for cleanup costs and damages arising from contaminated properties. Failure to comply with environmental regulations may result in the imposition of fines, penalties and injunctive measures affecting operating assets. The steps the Duke Energy Registrants could be required to take to ensure their facilities are in compliance could be prohibitively expensive. As a result, the Duke Energy Registrants may be required to shut down or alter the operation of their facilities, which may cause the Duke Energy Registrants to incur losses. Further, the Duke Energy Registrants may not be successful in recovering capital and operating costs incurred to comply with new environmental regulations through existing regulatory rate structures and their contracts with customers. Also, the Duke Energy Registrants may not be able to obtain or maintain from time to time all required environmental regulatory approvals for their operating assets or development projects. Delays in obtaining any required environmental regulatory approvals, failure to obtain and comply with them or changes in environmental laws or regulations to more stringent compliance levels could result in additional costs of operation for existing facilities or development of new facilities being prevented, delayed or subject to additional costs. Although it is not expected that the costs to comply with current environmental regulations will have a material adverse effect on the Duke Energy Registrants’ results of operations, financial position and cash flows due to regulatory cost recovery, the Duke Energy Registrants are at risk that the costs of complying with environmental regulations in the future will have such an effect.
The EPA has enacted or proposed federal regulations governing the management of cooling water intake structures, wastewater and CO2 emissions. These regulations may require the Duke Energy Registrants to make additional capital expenditures and increase operating and maintenance costs.
Duke Energy Carolinas and Duke Energy Progress are subject to the terms of probation set out in judgments of the U.S. District Court for the Eastern District of North Carolina on May 14, 2015. The judgments are based on events and activities that took place prior to 2015. The terms of probation require the companies to comply with certain environmental regulatory obligations related to coal ash and subject the two companies to oversight by a Court Appointed Monitor. If Duke Energy Carolinas or Duke Energy Progress failed to comply with certain coal ash-related environmental laws and regulations or otherwise violated the terms of probation, it could result in the imposition of additional penalties, including the revocation of probation and re-prosecution of the underlying violations. Although it is not expected that the companies will violate the terms of probation or that additional material penalties would occur, a significant violation of probation could have a material adverse effect on the Duke Energy Registrants’ reputation, results of operations, financial position and cash flows.
The Duke Energy Registrants' operations, capital expenditures and financial results may be affected by regulatory changes related to the impacts of global climate change.
There is continued concern, both nationally and internationally, about climate change. The EPA and state regulators may adopt and implement regulations to restrict emissions of GHGs to address global climate change. Increased regulation of GHG emissions could impose significant additional costs on the Duke Energy Registrants' operations, their suppliers and customers. Regulatory changes could also result in generation facilities to be retired early and result in stranded costs if Duke Energy is not able to fully recover the costs and investment in generation.
OPERATIONAL RISKS
The Duke Energy Registrants’ results of operations may be negatively affected by overall market, economic and other conditions that are beyond their control.
Sustained downturns or sluggishness in the economy generally affect the markets in which the Duke Energy Registrants operate and negatively influence operations. Declines in demand for electricity or natural gas as a result of economic downturns in the Duke Energy Registrants’ regulated service territories will reduce overall sales and lessen cash flows, especially as industrial customers reduce production and, therefore, consumption of electricity and the use of natural gas. Although the Duke Energy Registrants’ regulated electric and natural gas businesses are subject to regulated allowable rates of return and recovery of certain costs, such as fuel and purchased natural gas costs, under periodic adjustment clauses, overall declines in electricity or natural gas sold as a result of economic downturn or recession could reduce revenues and cash flows, thereby diminishing results of operations. Additionally, prolonged economic downturns that negatively impact the Duke Energy Registrants’ results of operations and cash flows could result in future material impairment charges to write-down the carrying value of certain assets, including goodwill, to their respective fair values.

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RISK FACTORS 


The Duke Energy Registrants also sell electricity into the spot market or other competitive power markets on a contractual basis. With respect to such transactions, the Duke Energy Registrants are not guaranteed any rate of return on their capital investments through mandated rates, and revenues and results of operations are likely to depend, in large part, upon prevailing market prices. These market prices may fluctuate substantially over relatively short periods of time and could reduce the Duke Energy Registrants’ revenues and margins, thereby diminishing results of operations.
Factors that could impact sales volumes, generation of electricity and market prices at which the Duke Energy Registrants are able to sell electricity and natural gas are as follows:
weather conditions, including abnormally mild winter or summer weather that cause lower energy or natural gas usage for heating or cooling purposes, as applicable, and periods of low rainfall that decrease the ability to operate facilities in an economical manner;
supply of and demand for energy commodities;
transmission or transportation constraints or inefficiencies that impact nonregulated energy operations;
availability of competitively priced alternative energy sources, which are preferred by some customers over electricity produced from coal, nuclear or natural gas plants, and customer usage of energy-efficient equipment that reduces energy demand;
natural gas, crude oil and refined products production levels and prices;
ability to procure satisfactory levels of inventory, such as coal, natural gas and uranium; and
capacity and transmission service into, or out of, the Duke Energy Registrants’ markets.
Natural disasters or operational accidents may adversely affect the Duke Energy Registrants’ operating results.
Natural disasters or other operational accidents within the company or industry (such as forest fires, earthquakes, hurricanes or natural gas transmission pipeline explosions) could have direct or indirect impacts to the Duke Energy Registrants or to key contractors and suppliers. Further, the generation of electricity and the transportation and storage of natural gas involve inherent operating risks that may result in accidents involving serious injury or loss of life, environmental damage or property damage. Such events could impact the Duke Energy Registrants through changes to policies, laws and regulations whose compliance costs have a significant impact on the Duke Energy Registrants’ results of operations, financial position and cash flows. In addition, if a serious operational accident were to occur, existing insurance policies may not cover all of the potential exposures or the actual amount of loss incurred. Any losses not covered by insurance, or any increases in the cost of applicable insurance as a result of such accident, could have a material adverse effect on the results of operations, financial position, cash flows and reputation of the Duke Energy Registrants.
The reputation and financial condition of the Duke Energy Registrants could be negatively impacted due to their obligations to comply with federal and state regulations, laws, and other legal requirements that govern the operations, assessments, storage, closure, remediation, disposal and monitoring relating to CCR, the high costs and new rate impacts associated with implementing these new CCR-related requirements and the strategies and methods necessary to implement these requirements in compliance with these legal obligations.
As a result of electricity produced for decades at coal-fired power plants, the Duke Energy Registrants manage large amounts of CCR that are primarily stored in dry storage within landfills or combined with water in other surface impoundments, all in compliance with applicable regulatory requirements. A CCR-related operational incident could have a material adverse impact on the reputation and results of operations, financial position and cash flows of the Duke Energy Registrants.
During 2015, EPA regulations were enacted related to the management of CCR from power plants. These regulations classify CCR as nonhazardous waste under the RCRA and apply to electric generating sites with new and existing landfills and, new and existing surface impoundments, and establish requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring, protection and remedial procedures and other operational and reporting procedures for the disposal and management of CCR. In addition to the federal regulations, CCR landfills and surface impoundments will continue to be regulated by existing state laws, regulations and permits, as well as additional legal requirements that may be imposed in the future, such as the settlement reached with the NCDEQ to excavate seven of the nine remaining coal ash basins in North Carolina, and partially excavate the remaining two. These federal and state laws, regulations and other legal requirements may require or result in additional expenditures, including increased operating and maintenance costs, which could affect the results of operations, financial position and cash flows of the Duke Energy Registrants. The Duke Energy Registrants will continue to seek full cost recovery for expenditures through the normal ratemaking process with state and federal utility commissions, who permit recovery in rates of necessary and prudently incurred costs associated with the Duke Energy Registrants’ regulated operations, and through other wholesale contracts with terms that contemplate recovery of such costs, although there is no guarantee of full cost recovery. In addition, the timing for and amount of recovery of such costs could have a material adverse impact on Duke Energy's cash flows.
The Duke Energy Registrants have recognized significant AROs related to these CCR-related requirements. Closure activities began in 2015 at the four sites specified as high-priority by the Coal Ash Act and at the W.S. Lee Steam Station site in South Carolina in connection with other legal requirements. Excavation at these sites involves movement of CCR materials to off-site locations for use as structural fill, to appropriate engineered off-site or on-site lined landfills or conversion of the ash for beneficial use. Duke Energy has completed excavation of coal ash regulated by the Coal Ash Act at three of the four high priority sites. At other sites, planning and closure methods have been studied and factored into the estimated retirement and management costs, and closure activities have commenced. As the closure and CCR management work progresses and final closure plans and corrective action measures are developed and approved at each site, the scope and complexity of work and the amount of CCR material could be greater than estimates and could, therefore, materially increase compliance expenditures and rate impacts.

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RISK FACTORS 


The Duke Energy Registrants’ results of operations, financial position and cash flows may be negatively affected by a lack of growth or slower growth in the number of customers, or decline in customer demand or number of customers.
Growth in customer accounts and growth of customer usage each directly influence demand for electricity and natural gas and the need for additional power generation and delivery facilities. Customer growth and customer usage are affected by several factors outside the control of the Duke Energy Registrants, such as mandated EE measures, demand-side management goals, distributed generation resources and economic and demographic conditions, such as population changes, job and income growth, housing starts, new business formation and the overall level of economic activity.
Certain regulatory and legislative bodies have introduced or are considering requirements and/or incentives to reduce energy consumption by certain dates. Additionally, technological advances driven by federal laws mandating new levels of EE in end-use electric devices or other improvements in or applications of technology could lead to declines in per capita energy consumption.
Advances in distributed generation technologies that produce power, including fuel cells, microturbines, wind turbines and solar cells, may reduce the cost of alternative methods of producing power to a level competitive with central power station electric production utilized by the Duke Energy Registrants.
Some or all of these factors could result in a lack of growth or decline in customer demand for electricity or number of customers and may cause the failure of the Duke Energy Registrants to fully realize anticipated benefits from significant capital investments and expenditures, which could have a material adverse effect on their results of operations, financial position and cash flows.
Furthermore, the Duke Energy Registrants currently have EE riders in place to recover the cost of EE programs in North Carolina, South Carolina, Florida, Indiana, Ohio and Kentucky. Should the Duke Energy Registrants be required to invest in conservation measures that result in reduced sales from effective conservation, regulatory lag in adjusting rates for the impact of these measures could have a negative financial impact.
The Duke Energy Registrants’ operating results may fluctuate on a seasonal and quarterly basis and can be negatively affected by changes in weather conditions and severe weather, including extreme weather conditions associated with climate change.
Electric power generation and natural gas distribution are generally seasonal businesses. In most parts of the U.S., the demand for power peaks during the warmer summer months, with market prices also typically peaking at that time. In other areas, demand for power peaks during the winter. Demand for natural gas peaks during the winter months. Further, extreme weather conditions such as hurricanes, droughts, heat waves, winter storms and severe weather associated with climate change could cause these seasonal fluctuations to be more pronounced. As a result, the overall operating results of the Duke Energy Registrants’ businesses may fluctuate substantially on a seasonal and quarterly basis and thus make period-to-period comparison less relevant.
Sustained severe drought conditions could impact generation by hydroelectric plants, as well as fossil and nuclear plant operations, as these facilities use water for cooling purposes and for the operation of environmental compliance equipment. Furthermore, destruction caused by severe weather events, such as hurricanes, tornadoes, severe thunderstorms, snow and ice storms, can result in lost operating revenues due to outages, property damage, including downed transmission and distribution lines, and additional and unexpected expenses to mitigate storm damage. The cost of storm restoration efforts may not be fully recoverable through the regulatory process.
The Duke Energy Registrants’ sales may decrease if they are unable to gain adequate, reliable and affordable access to transmission assets.
The Duke Energy Registrants depend on transmission and distribution facilities owned and operated by utilities and other energy companies to deliver electricity sold to the wholesale market. The FERC’s power transmission regulations require wholesale electric transmission services to be offered on an open-access, non-discriminatory basis. If transmission is disrupted, or if transmission capacity is inadequate, the Duke Energy Registrants’ ability to sell and deliver products may be hindered.
The different regional power markets have changing regulatory structures, which could affect growth and performance in these regions. In addition, the ISOs who oversee the transmission systems in regional power markets have imposed in the past, and may impose in the future, price limitations and other mechanisms to address volatility in the power markets. These types of price limitations and other mechanisms may adversely impact the profitability of the Duke Energy Registrants’ wholesale power marketing business.
Duke Energy may be unable to complete necessary or desirable pipeline expansion or infrastructure development or maintenance projects, which may prevent the Duke Energy Registrants from expanding the natural gas business.
In order to serve current or new natural gas customers or expand the service to existing customers, the Duke Energy Registrants need to maintain, expand or upgrade distribution, transmission and/or storage infrastructure, including laying new pipeline and building compressor stations. Duke Energy Registrants have made significant investments in pipeline development projects, which are being operated and constructed by third-party joint venture partners. The Duke Energy Registrants must rely on their third-party joint venture partners for proper construction management of the projects and are dependent upon contractors for the successful and timely completion of the projects. In addition, various factors, such as the inability to obtain required approval from local, state and/or federal regulatory and governmental bodies, public opposition to projects, adverse litigation rulings, inability to obtain adequate financing, competition for labor and materials, construction delays, cost overruns and the inability to negotiate acceptable agreements relating to rights of way, construction or other material development components, may prevent or delay the completion of projects or materially increase the cost of such projects, which could have a material adverse effect on the results of operations and financial position of Duke Energy.

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RISK FACTORS 


The availability of adequate interstate pipeline transportation capacity and natural gas supply may decrease.
The Duke Energy Registrants purchase almost all of their natural gas supply from interstate sources that must be transported to the applicable service territories. Interstate pipeline companies transport the natural gas to the Duke Energy Registrants' systems under firm service agreements that are designed to meet the requirements of their core markets. A significant disruption to interstate pipelines capacity or reduction in natural gas supply due to events including, but not limited to, operational failures or disruptions, hurricanes, tornadoes, floods, freeze off of natural gas wells, terrorist or cyberattacks or other acts of war or legislative or regulatory actions or requirements, including remediation related to integrity inspections, could reduce the normal interstate supply of natural gas and thereby reduce earnings. Moreover, if additional natural gas infrastructure, including, but not limited to, exploration and drilling rigs and platforms, processing and gathering systems, off-shore pipelines, interstate pipelines and storage, cannot be built at a pace that meets demand, then growth opportunities could be limited.
Fluctuations in commodity prices or availability may adversely affect various aspects of the Duke Energy Registrants’ operations as well as their results of operations, financial position and cash flows.
The Duke Energy Registrants are exposed to the effects of market fluctuations in the price of natural gas, coal, fuel oil, nuclear fuel, electricity and other energy-related commodities as a result of their ownership of energy-related assets. Fuel costs are recovered primarily through cost-recovery clauses, subject to the approval of state utility commissions.
Additionally, the Duke Energy Registrants are exposed to risk that counterparties will not be able to fulfill their obligations. Disruption in the delivery of fuel, including disruptions as a result of, among other things, transportation delays, weather, labor relations, force majeure events or environmental regulations affecting any of these fuel suppliers, could limit the Duke Energy Registrants' ability to operate their facilities. Should counterparties fail to perform, the Duke Energy Registrants might be forced to replace the underlying commitment at prevailing market prices possibly resulting in losses in addition to the amounts, if any, already paid to the counterparties.
Certain of the Duke Energy Registrants’ hedge agreements may result in the receipt of, or posting of, collateral with counterparties, depending on the daily market-based calculation of financial exposure of the derivative positions. Fluctuations in commodity prices that lead to the return of collateral received and/or the posting of collateral with counterparties could negatively impact liquidity. Downgrades in the Duke Energy Registrants’ credit ratings could lead to additional collateral posting requirements. The Duke Energy Registrants continually monitor derivative positions in relation to market price activity.
Potential terrorist activities, or military or other actions, could adversely affect the Duke Energy Registrants’ businesses.
The continued threat of terrorism and the impact of retaliatory military and other action by the U.S. and its allies may lead to increased political, economic and financial market instability and volatility in prices for natural gas and oil, which may have material adverse effects in ways the Duke Energy Registrants cannot predict at this time. In addition, future acts of terrorism and possible reprisals as a consequence of action by the U.S. and its allies could be directed against companies operating in the U.S. Information technology systems, transmission and distribution and generation facilities such as nuclear plants could be potential targets of terrorist activities or harmful activities by individuals or groups that could have a material adverse effect on Duke Energy Registrants' businesses. In particular, the Duke Energy Registrants may experience increased capital and operating costs to implement increased security for their information technology systems, transmission and distribution and generation facilities, including nuclear power plants under the NRC’s design basis threat requirements. These increased costs could include additional physical plant security and security personnel or additional capability following a terrorist incident.
The failure of Duke Energy information technology systems, or the failure to enhance existing information technology systems and implement new technology, could adversely affect the Duke Energy Registrants’ businesses.
Duke Energy’s operations are dependent upon the proper functioning of its internal systems, including the information technology systems that support our underlying business processes. Any significant failure or malfunction of such information technology systems may result in disruptions of our operations. In the ordinary course of business, we rely on information technology systems, including the internet and third-party hosted services, to support a variety of business processes and activities and to store sensitive data, including (i) intellectual property, (ii) proprietary business information, (iii) personally identifiable information of our customers, employees, retirees and shareholders and (iv) data with respect to invoicing and the collection of payments, accounting, procurement, and supply chain activities. Our information technology systems are dependent upon global communications and cloud service providers, as well as their respective vendors, many of whom have at some point experienced significant system failures and outages in the past and may experience such failures and outages in the future. These providers’ systems are susceptible to cybersecurity and data breaches, outages from fire, floods, power loss, telecommunications failures, break-ins and similar events. Failure to prevent or mitigate data loss from system failures or outages could materially affect the results of operations, financial position and cash flows of the Duke Energy Registrants.
In addition to maintaining our current information technology systems, Duke Energy believes the digital transformation of its business is key to driving internal efficiencies as well as providing additional capabilities to customers. Duke Energy’s information technology systems are critical to cost-effective, reliable daily operations and our ability to effectively serve our customers. We expect our customers to continue to demand more sophisticated technology-driven solutions and we must enhance or replace our information technology systems in response. This involves significant development and implementation costs to keep pace with changing technologies and customer demand. If we fail to successfully implement critical technology, or if it does not provide the anticipated benefits or meet customer demands, such failure could materially adversely affect our business strategy as well as impact the results of operations, financial position and cash flows of the Duke Energy Registrants.

29




RISK FACTORS 


Cyberattacks and data security breaches could adversely affect the Duke Energy Registrants' businesses.
Cybersecurity risks have increased in recent years as a result of the proliferation of new technologies and the increased sophistication, magnitude and frequency of cyberattacks and data security breaches. Duke Energy relies on the continued operation of sophisticated digital information technology systems and network infrastructure, which are part of an interconnected regional grid. Additionally, connectivity to the internet continues to increase through grid modernization and other operational excellence initiatives. Because of the critical nature of the infrastructure, increased connectivity to the internet and technology systems’ inherent vulnerability to disability or failures due to hacking, viruses, acts of war or terrorism or other types of data security breaches, the Duke Energy Registrants face a heightened risk of cyberattack from foreign or domestic sources and have been subject, and will likely continue to be subject, to attempts to gain unauthorized access to information and/or information systems or to disrupt utility operations through computer viruses and phishing attempts either directly or indirectly through its material vendors or related third parties. In the event of a significant cybersecurity breach on either the Duke Energy Registrants or with one of our material vendors or related third parties, the Duke Energy Registrants could (i) have business operations disrupted, including the disruption of the operation of our assets and the power grid, theft of confidential company, employee, retiree, shareholder, vendor or customer information, and general business systems and process interruption or compromise, including preventing the Duke Energy Registrants from servicing customers, collecting revenues or the recording, processing and/or reporting financial information correctly, (ii) experience substantial loss of revenues, repair and restoration costs, penalties and costs for lack of compliance with relevant regulations, implementation costs for additional security measures to avert future cyberattacks and other financial loss and (iii) be subject to increased regulation, litigation and reputational damage. While Duke Energy maintains insurance relating to cybersecurity events, such insurance is subject to a number of exclusions and may be insufficient to offset any losses, costs or damage experienced. Also, the market for cybersecurity insurance is relatively new and coverage available for cybersecurity events is evolving as the industry matures.
The Duke Energy Registrants are subject to standards enacted by the North American Electric Reliability Corporation and enforced by FERC regarding protection of the physical and cyber security of critical infrastructure assets required for operating North America's bulk electric system. The Duke Energy Registrants are also subject to regulations set by the Nuclear Regulatory Commission regarding the protection of digital computer and communication systems and networks required for the operation of nuclear power plants. While the Duke Energy Registrants believe they are in compliance with such standards and regulations, the Duke Energy Registrants have from time to time been, and may in the future be, found to be in violation of such standards and regulations. In addition, compliance with or changes in the applicable standards and regulations may subject the Duke Energy Registrants to higher operating costs and/or increased capital expenditures as well as substantial fines for non-compliance.
Failure to attract and retain an appropriately qualified workforce could unfavorably impact the Duke Energy Registrants’ results of operations.
Certain events, such as an aging workforce, mismatch of skill set or complement to future needs, or unavailability of contract resources may lead to operating challenges and increased costs. The challenges include lack of resources, loss of knowledge base and the lengthy time required for skill development. In this case, costs, including costs for contractors to replace employees, productivity costs and safety costs, may increase. Failure to hire and adequately train replacement employees, including the transfer of significant internal historical knowledge and expertise to new employees, or future availability and cost of contract labor may adversely affect the ability to manage and operate the business, especially considering the workforce needs associated with nuclear generation facilities and new skills required to operate a modernized, technology-enabled power grid. If the Duke Energy Registrants are unable to successfully attract and retain an appropriately qualified workforce, their results of operations, financial position and cash flows could be negatively affected.
Duke Energy Ohio’s and Duke Energy Indiana’s membership in an RTO presents risks that could have a material adverse effect on their results of operations, financial position and cash flows.
The rules governing the various regional power markets may change, which could affect Duke Energy Ohio’s and Duke Energy Indiana’s costs and/or revenues. To the degree Duke Energy Ohio and Duke Energy Indiana incur significant additional fees and increased costs to participate in an RTO, their results of operations may be impacted. Duke Energy Ohio and Duke Energy Indiana may be allocated a portion of the cost of transmission facilities built by others due to changes in RTO transmission rate design. Duke Energy Ohio and Duke Energy Indiana may be required to expand their transmission system according to decisions made by an RTO rather than their own internal planning process. In addition, RTOs have been developing rules associated with the allocation and methodology of assigning costs associated with improved transmission reliability, reduced transmission congestion and firm transmission rights that may have a financial impact on the results of operations, financial position and cash flows of Duke Energy Ohio and Duke Energy Indiana.
As members of an RTO, Duke Energy Ohio and Duke Energy Indiana are subject to certain additional risks, including those associated with the allocation among RTO members, of losses caused by unreimbursed defaults of other participants in the RTO markets and those associated with complaint cases filed against an RTO that may seek refunds of revenues previously earned by RTO members.
The Duke Energy Registrants may not recover costs incurred to begin construction on projects that are canceled.
Duke Energy’s long-term strategy requires the construction of new projects, either wholly owned or partially owned, which involve a number of risks, including construction delays, nonperformance by equipment and other third-party suppliers, and increases in equipment and labor costs. To limit the risks of these construction projects, the Duke Energy Registrants enter into equipment purchase orders and construction contracts and incur engineering and design service costs in advance of receiving necessary regulatory approvals and/or siting or environmental permits. If any of these projects are canceled for any reason, including failure to receive necessary regulatory approvals and/or siting or environmental permits, significant cancellation penalties under the equipment purchase orders and construction contracts could occur. In addition, if any construction work or investments have been recorded as an asset, an impairment may need to be recorded in the event the project is canceled.

30




RISK FACTORS 


The Duke Energy Registrants are subject to risks associated with their ability to obtain adequate insurance at acceptable costs.
The financial condition of some insurance companies, actual or threatened physical or cyber attacks, and natural disasters, among other things, could have disruptive effects on insurance markets. The availability of insurance covering risks that the Duke Energy Registrants and their respective competitors typically insure against may decrease, and the insurance that the Duke Energy Registrants are able to obtain may have higher deductibles, higher premiums, and more restrictive policy terms. Further, the insurance policies may not cover all of the potential exposures or the actual amount of loss incurred. Any losses not covered by insurance, or any increases in the cost of applicable insurance, could adversely affect the results of operations, financial position or cash flows of the affected Duke Energy Registrant.
NUCLEAR GENERATION RISKS
Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida may incur substantial costs and liabilities due to their ownership and operation of nuclear generating facilities.
Ownership interests in and operation of nuclear stations by Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida subject them to various risks. These risks include, among other things: the potential harmful effects on the environment and human health resulting from the current or past operation of nuclear facilities and the storage, handling and disposal of radioactive materials; limitations on the amounts and types of insurance commercially available to cover losses that might arise in connection with nuclear operations; and uncertainties with respect to the technological and financial aspects of decommissioning nuclear plants at the end of their licensed lives.
Ownership and operation of nuclear generation facilities requires compliance with licensing and safety-related requirements imposed by the NRC. In the event of non-compliance, the NRC may increase regulatory oversight, impose fines or shut down a unit depending upon its assessment of the severity of the situation. Revised security and safety requirements promulgated by the NRC, which could be prompted by, among other things, events within or outside of the control of Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, such as a serious nuclear incident at a facility owned by a third party, could necessitate substantial capital and other expenditures, as well as assessments to cover third-party losses. In addition, if a serious nuclear incident were to occur, it could have a material adverse effect on the results of operations, financial position, cash flows and reputation of the Duke Energy Registrants.
LIQUIDITY, CAPITAL REQUIREMENTS AND COMMON STOCK RISKS
The Duke Energy Registrants rely on access to short-term borrowings and longer-term debt and equity markets to finance their capital requirements and support their liquidity needs. Access to those markets can be adversely affected by a number of conditions, many of which are beyond the Duke Energy Registrants’ control.
The Duke Energy Registrants’ businesses are significantly financed through issuances of debt and equity. The maturity and repayment profile of debt used to finance investments often does not correlate to cash flows from their assets. Accordingly, as a source of liquidity for capital requirements not satisfied by the cash flows from their operations and to fund investments originally financed through debt instruments with disparate maturities, the Duke Energy Registrants rely on access to short-term money markets as well as longer-term capital markets. The Subsidiary Registrants also rely on access to short-term intercompany borrowings. If the Duke Energy Registrants are not able to access debt or equity at competitive rates or at all, the ability to finance their operations and implement their strategy and business plan as scheduled could be adversely affected. An inability to access debt and equity may limit the Duke Energy Registrants’ ability to pursue improvements or acquisitions that they may otherwise rely on for future growth.
Market disruptions may increase the cost of borrowing or adversely affect the ability to access one or more financial markets. Such disruptions could include: economic downturns, the bankruptcy of an unrelated energy company, unfavorable capital market conditions, market prices for electricity and natural gas, actual or threatened terrorist attacks, or the overall health of the energy industry. The availability of credit under Duke Energy’s Master Credit Facility depends upon the ability of the banks providing commitments under the facility to provide funds when their obligations to do so arise. Systematic risk of the banking system and the financial markets could prevent a bank from meeting its obligations under the facility agreement.
Duke Energy maintains a revolving credit facility to provide backup for its commercial paper program and letters of credit to support variable rate demand tax-exempt bonds that may be put to the Duke Energy Registrant issuer at the option of the holder. The facility includes borrowing sublimits for the Duke Energy Registrants, each of whom is a party to the credit facility, and financial covenants that limit the amount of debt that can be outstanding as a percentage of the total capital for the specific entity. Failure to maintain these covenants at a particular entity could preclude Duke Energy from issuing commercial paper or the Duke Energy Registrants from issuing letters of credit or borrowing under the Master Credit Facility.
The Duke Energy Registrants must meet credit quality standards and there is no assurance they will maintain investment grade credit ratings. If the Duke Energy Registrants are unable to maintain investment grade credit ratings, they would be required under credit agreements to provide collateral in the form of letters of credit or cash, which may materially adversely affect their liquidity.
Each of the Duke Energy Registrants’ senior long-term debt issuances is currently rated investment grade by various rating agencies. The Duke Energy Registrants cannot ensure their senior long-term debt will be rated investment grade in the future.
If the rating agencies were to rate the Duke Energy Registrants below investment grade, borrowing costs would increase, perhaps significantly. In addition, the potential pool of investors and funding sources would likely decrease. Further, if the short-term debt rating were to fall, access to the commercial paper market could be significantly limited.
A downgrade below investment grade could also require the posting of additional collateral in the form of letters of credit or cash under various credit, commodity and capacity agreements and trigger termination clauses in some interest rate derivative agreements, which would require cash payments. All of these events would likely reduce the Duke Energy Registrants’ liquidity and profitability and could have a material effect on their results of operations, financial position and cash flows.

31




RISK FACTORS 


Non-compliance with debt covenants or conditions could adversely affect the Duke Energy Registrants’ ability to execute future borrowings.
The Duke Energy Registrants’ debt and credit agreements contain various financial and other covenants. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements.
Market performance and other changes may decrease the value of the NDTF investments of Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, which then could require significant additional funding.
Ownership and operation of nuclear generation facilities also requires the maintenance of funded trusts that are intended to pay for the decommissioning costs of the respective nuclear power plants. The performance of the capital markets affects the values of the assets held in trust to satisfy these future obligations. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida have significant obligations in this area and hold significant assets in these trusts. These assets are subject to market fluctuations and will yield uncertain returns, which may fall below projected rates of return. Although a number of factors impact funding requirements, a decline in the market value of the assets may increase the funding requirements of the obligations for decommissioning nuclear plants. If Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida are unable to successfully manage their NDTF assets, their results of operations, financial position and cash flows could be negatively affected.
Poor investment performance of the Duke Energy pension plan holdings and other factors impacting pension plan costs could unfavorably impact the Duke Energy Registrants’ liquidity and results of operations.
The costs of providing non-contributory defined benefit pension plans are dependent upon a number of factors, such as the rates of return on plan assets, discount rates, the level of interest rates used to measure the required minimum funding levels of the plans, future government regulation and required or voluntary contributions made to the plans. The Subsidiary Registrants are allocated their proportionate share of the cost and obligations related to these plans. Without sustained growth in the pension investments over time to increase the value of plan assets and, depending upon the other factors impacting costs as listed above, Duke Energy could be required to fund its plans with significant amounts of cash. Such cash funding obligations, and the Subsidiary Registrants’ proportionate share of such cash funding obligations, could have a material impact on the Duke Energy Registrants’ results of operations, financial position and cash flows.
Duke Energy is a holding company and depends on the cash flows from its subsidiaries to meet its financial obligations.
Because Duke Energy is a holding company with no operations or cash flows of its own, its ability to meet its financial obligations, including making interest and principal payments on outstanding indebtedness and to pay dividends on its common stock, is primarily dependent on the net income and cash flows of its subsidiaries and the ability of those subsidiaries to pay upstream dividends or to repay borrowed funds. Prior to funding Duke Energy, its subsidiaries have regulatory restrictions and financial obligations that must be satisfied. These subsidiaries are separate legal entities and have no obligation to provide Duke Energy with funds. In addition, Duke Energy may provide capital contributions or debt financing to its subsidiaries under certain circumstances, which would reduce the funds available to meet its financial obligations, including making interest and principal payments on outstanding indebtedness and to pay dividends on Duke Energy’s common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
 
None.

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PROPERTIES 


ITEM 2. PROPERTIES
 
ELECTRIC UTILITIES AND INFRASTRUCTURE
The following table provides information related to the Electric Utilities and Infrastructure's generation stations as of December 31, 2019. The MW displayed in the table below are based on summer capacity. Ownership interest in all facilities is 100% unless otherwise indicated.
    Owned MW
FacilityPlant TypePrimary FuelLocationCapacity
Duke Energy Carolinas    
OconeeNuclearUraniumSC2,554
McGuireNuclearUraniumNC2,316
Catawba(a)
NuclearUraniumSC445
Belews CreekFossilCoalNC2,220
MarshallFossilCoalNC2,058
J.E. Rogers FossilCoalNC1,388
Lincoln CTFossilGas/OilNC1,193
AllenFossilCoalNC1,098
Rockingham CTFossilGas/OilNC825
W.S. Lee CC(b)
FossilGasNC686
Buck CCFossilGasNC668
Dan River CCFossilGasNC662
Mill Creek CTFossilGas/OilSC563
W.S. LeeFossilGasSC170
W.S. Lee CTFossilGas/OilSC84
Clemson CHP Fossil Gas SC13
Bad CreekHydroWaterSC1,360
JocasseeHydroWaterSC780
Cowans FordHydroWaterNC324
KeoweeHydroWaterSC152
Other small facilities (19 plants)HydroWaterNC/SC603
Distributed generationRenewableSolarNC30
Total Duke Energy Carolinas   20,192
    Owned MW
FacilityPlant TypePrimary FuelLocationCapacity
Duke Energy Progress    
BrunswickNuclearUraniumNC1,870
HarrisNuclearUraniumNC964
RobinsonNuclearUraniumSC741
RoxboroFossilCoalNC2,439
Smith CCFossilGas/OilNC1,085
H.F. Lee CCFossilGas/OilNC888
Wayne County CTFossilGas/OilNC857
Smith CTFossilGas/OilNC772
MayoFossilCoalNC727
Darlington CTFossilGas/OilSC613
L.V. Sutton CCFossilGas/OilNC607
AshevilleFossilCoalNC344
Asheville CTFossilGas/OilNC320
Asheville CC Fossil Gas/Oil NC237
Weatherspoon CTFossilGas/OilNC124
L.V. Sutton CT (Black Start)FossilGas/OilNC78
Blewett CTFossilOilNC52
WaltersHydroWaterNC112
Other small facilities (3 plants)HydroWaterNC115
Distributed generationRenewableSolarNC49
Total Duke Energy Progress   12,994

33


PROPERTIES 


    Owned MW
FacilityPlant TypePrimary FuelLocationCapacity
Duke Energy Florida    
Hines CCFossilGas/OilFL2,054
Citrus County CCFossilGasFL1,610
Crystal RiverFossilCoalFL1,422
Bartow CCFossilGas/OilFL1,169
AncloteFossilGasFL1,013
Intercession City CTFossilGas/OilFL951
Osprey CCFossilGas/OilFL583
DeBary CTFossilGas/OilFL559
Tiger Bay CCFossilGas/OilFL200
Bayboro CTFossilOilFL171
Bartow CTFossilGas/OilFL168
Suwannee River CTFossilGasFL149
Avon Park CTFossilGas/OilFL48
University of Florida CoGen CTFossilGasFL43
Distributed generationRenewableSolarFL119
Total Duke Energy Florida   10,259
    Owned MW
FacilityPlant TypePrimary FuelLocationCapacity
Duke Energy Ohio    
East BendFossilCoalKY600
Woodsdale CTFossilGas/PropaneOH476
Total Duke Energy Ohio   1,076
    Owned MW
FacilityPlant TypePrimary FuelLocationCapacity
Duke Energy Indiana    
Gibson(c)
FossilCoalIN2,822
Cayuga(d)
FossilCoal/OilIN1,005
EdwardsportFossilCoalIN595
Madison CTFossilGasOH566
Wheatland CTFossilGasIN450
Vermillion CT(e)
FossilGasIN360
GallagherFossilCoalIN280
Noblesville CCFossilGas/OilIN264
Henry County CTFossilGas/OilIN129
Cayuga CTFossilGas/OilIN86
MarklandHydroWaterIN51
Distributed generationRenewableSolarIN11
Camp Atterbury Battery RenewableStorage IN4
Total Duke Energy Indiana   6,623
   Owned MW
Totals by Type  Capacity
Total Electric Utilities  51,144
Totals By Plant Type   
Nuclear  8,890
Fossil  38,544
Hydro  3,497
Renewable  213
Total Electric Utilities  51,144
(a)Jointly owned with North Carolina Municipal Power Agency Number 1, NCEMC and PMPA. Duke Energy Carolinas' ownership is 19.25% of the facility.
(b)Jointly owned with NCEMC. Duke Energy Carolinas' ownership is 87.27% of the facility.
(c)Duke Energy Indiana owns and operates Gibson Station Units 1 through 4 and is a joint owner of unit 5 with WVPA and IMPA. Duke Energy Indiana operates unit 5 and owns 50.05%.

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PROPERTIES 


(d)Includes Cayuga Internal Combustion.
(e)Jointly owned with WVPA. Duke Energy Indiana's ownership is 62.50% of the facility.
The following table provides information related to Electric Utilities and Infrastructure's electric transmission and distribution properties as of December 31, 2019.
  Duke
Duke
Duke
Duke
Duke
 Duke
Energy
Energy
Energy
Energy
Energy
 Energy
Carolinas
Progress
Florida
Ohio
Indiana
Electric Transmission Lines      
Miles of 500 to 525 kilovolt (kV)1,036
576
292
168


Miles of 345 kV1,135



410
725
Miles of 230 kV8,349
2,658
3,399
1,638

654
Miles of 100 to 161 kV12,441
6,846
2,563
891
724
1,417
Miles of 13 to 69 kV8,351
2,988
12
2,200
612
2,539
Total conductor miles of electric transmission lines31,312
13,068
6,266
4,897
1,746
5,335
Electric Distribution Lines      
Miles of overhead lines173,800
66,600
46,500
25,200
13,300
22,200
Miles of underground line106,300
39,500
30,700
20,900
6,100
9,100
Total conductor miles of electric distribution lines280,100
106,100
77,200
46,100
19,400
31,300
Number of electric transmission and distribution substations3,316
1,491
512
496
314
503
Substantially all of Electric Utilities and Infrastructure's electric plant in service is mortgaged under indentures relating to Duke Energy Carolinas’, Duke Energy Progress', Duke Energy Florida's, Duke Energy Ohio’s and Duke Energy Indiana’s various series of First Mortgage Bonds.
GAS UTILITIES AND INFRASTRUCTURE
Gas Utilities and Infrastructure owns transmission pipelines and distribution mains that are generally underground, located near public streets and highways, or on property owned by others for which Duke Energy Ohio and Piedmont have obtained the necessary legal rights to place and operate facilities on such property located within the Gas Utilities and Infrastructure service territories. The following table provides information related to Gas Utilities and Infrastructure's natural gas distribution.
  Duke
 
 Duke
Energy
 
 Energy
Ohio
Piedmont
Miles of natural gas distribution and transmission pipelines33,700
7,300
26,400
Miles of natural gas service lines27,200
6,300
20,900

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PROPERTIES 


COMMERCIAL RENEWABLES
The following table provides information related to Commercial Renewables' electric generation facilities as of December 31, 2019. The MW displayed in the table below are based on nameplate capacity.
    Owned MW
Ownership
FacilityPlant TypePrimary FuelLocationCapacity
Interest (%)
Commercial Renewables – Wind     
Los Vientos (five sites)RenewableWindTX465
51%
Mesteno(a)
RenewableWindTX202
100%
Sweetwater IVRenewableWindTX113
47%
FrontierRenewableWindOK103
51%
Top of the WorldRenewableWindWY102
51%
NotreesRenewableWindTX78
51%
Mesquite CreekRenewableWindTX55
26%
Campbell HillRenewableWindWY50
51%
IronwoodRenewableWindKS44
26%
Sweetwater VRenewableWindTX38
47%
North AlleghenyRenewableWindPA36
51%
Laurel HillRenewableWindPA35
51%
Cimarron IIRenewableWindKS33
26%
OcotilloRenewableWindTX30
51%
Kit CarsonRenewableWindCO26
51%
Silver SageRenewableWindWY21
51%
Happy JackRenewableWindWY15
51%
ShirleyRenewableWindWI10
51%
Total Renewables – Wind   1,456


Commercial Renewables – Solar     
North Rosamond(a)
RenewableSolarCA150
100%
Lapetus(a)
RenewableSolarTX100
100%
Conetoe IIRenewableSolarNC80
100%
Seville I & IIRenewableSolarCA34
67%
Rio Bravo I & IIRenewableSolarCA27
67%
Wildwood I & IIRenewableSolarCA23
67%
KelfordRenewableSolarNC22
100%
DogwoodRenewableSolarNC20
100%
Halifax AirportRenewableSolarNC20
100%
PasquotankRenewableSolarNC20
100%
ShawboroRenewableSolarNC20
100%
CaprockRenewableSolarNM17
67%
Creswell AlligoodRenewableSolarNC14
100%
PumpjackRenewableSolarCA13
67%
LongboatRenewableSolarCA13
67%
Shoreham(a)
RenewableSolarNY13
51%
Washington White PostRenewableSolarNC12
100%
WhitakersRenewableSolarNC12
100%
Highlander I & IIRenewableSolarCA11
51%
Other small solar(a)
RenewableSolarVarious177
Various
Total Renewables – Solar   798
 
Commercial Renewables – Fuel Cells     
2018 ESA Portfolio(a)
RenewableFuel CellVarious10
100%
Total Renewables – Fuel Cells   10
 
Commercial Renewables – Energy Storage     
Notrees Battery StorageRenewableStorageTX18
51%
Total Renewables – Energy Storage   18
 
Total Commercial Renewables   2,282
 
(a)Certain projects, including projects within Other small solar, are in tax-equity structures where investors have differing interests in the project's economic attributes. 100% of the tax-equity project's capacity is included in the table above.

36


PROPERTIES 


OTHER
Duke Energy owns approximately 8 million square feet and leases approximately 2 million square feet of corporate, regional and district office space spread throughout its service territories.
ITEM 3. LEGAL PROCEEDINGS
 
For information regarding legal proceedings, including regulatory and environmental matters, see Note 4, “Regulatory Matters,” and Note 5, “Commitments and Contingencies,” to the Consolidated Financial Statements.
MTBE Litigation
On December 15, 2017, the state of Maryland filed suit in Baltimore City Circuit Court against Duke Energy Merchants and other defendants alleging contamination of state waters by MTBE leaking from gasoline storage tanks. MTBE is a gasoline additive intended to increase the oxygen levels in gasoline and make it burn cleaner. The case was removed from Baltimore City Circuit Court to federal District Court. Initial motions to dismiss filed by the defendants were denied by the court on September 4, 2019. The defendants have filed answers and will pursue summary judgment after the completion of discovery. Duke Energy cannot predict the outcome of this matter.
ITEM 4. MINE SAFETY DISCLOSURES
 
This is not applicable for any of the Duke Energy Registrants.

37




SECURITIES INFORMATION 


 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
The common stock of Duke Energy is listed and traded on the NYSE (ticker symbol DUK). As of January 31, 2020, there were 140,942 Duke Energy common stockholders of record. For information on dividends, see the "Dividend Payments" section of Management's Discussion and Analysis.
There is no market for the common equity securities of the Subsidiary Registrants, all of which are directly or indirectly owned by Duke Energy.
Securities Authorized for Issuance Under Equity Compensation Plans
 
See Item 12 of Part III within this Annual Report for information regarding Securities Authorized for Issuance Under Equity Compensation Plans.
Issuer Purchases of Equity Securities for Fourth Quarter 2019
 
There were no repurchases of equity securities during the fourth quarter of 2019.
Stock Performance Graph
 
The following performance graph compares the cumulative TSR from Duke Energy Corporation common stock, as compared with the Standard & Poor's 500 Stock Index (S&P 500) and the Philadelphia Utility Index for the past five years. The graph assumes an initial investment of $100 on December 31, 2014, in Duke Energy common stock, in the S&P 500 and in the Philadelphia Utility Index and that all dividends were reinvested. The stockholder return shown below for the five-year historical period may not be indicative of future performance.
chart-2477a98d2f3f5bfbb7e.jpg
NYSE CEO Certification
 
Duke Energy has filed the certification of its Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to this Annual Report on Form 10-K for the year ended December 31, 2019.

38




SELECTED FINANCIAL DATA 


ITEM 6. SELECTED FINANCIAL DATA
 
The following table provides selected financial data for the years of 2015 through 2019. See also Item 7.
(in millions, except per share amounts)2019
 2018
 2017
 2016
 2015
Statements of Operations(a)
         
Total operating revenues$25,079
 $24,521
 $23,565
 $22,743
 $22,371
Operating income5,709
 4,685
 5,625
 5,202
 4,974
Income from continuing operations3,578
 2,625
 3,070
 2,578
 2,654
(Loss) Income from discontinued operations, net of tax(7) 19
 (6) (408) 177
Net income3,571
 2,644
 3,064
 2,170
 2,831
Net income available to Duke Energy Corporation common stockholders3,707
 2,666
 3,059
 2,152
 2,816
Common Stock Data         
Income from continuing operations available to Duke Energy Corporation common stockholders         
Basic and diluted$5.07
 $3.73
 $4.37
 $3.71
 $3.80
(Loss) Income from discontinued operations attributable to Duke Energy Corporation common stockholders         
Basic and diluted$(0.01) $0.03
 $(0.01) $(0.60) $0.25
Net income available to Duke Energy Corporation common stockholders         
Basic and diluted$5.06
 $3.76
 $4.36
 $3.11
 $4.05
Dividends declared per share of common stock3.75
 3.64
 3.49
 3.36
 3.24
Balance Sheets         
Total assets$158,838
 $145,392
 $137,914
 $132,761
 $121,156
Long-term debt including finance leases, less current maturities54,985
 51,123
 49,035
 45,576
 36,842
(a)Significant transactions reflected in the results above include: (i) growth in Commercial Renewables from new tax equity solar projects placed in service in 2019 (see Note 1 to the Consolidated Financial Statements, "Summary of Significant Accounting Policies"); (ii) regulatory and legislative charges related to Duke Energy Progress and Duke Energy Carolinas North Carolina rate case orders and impairment charges in 2018 (see Notes 4, 12 and 13 to the Consolidated Financial Statements, "Regulatory Matters," "Goodwill and Intangible Assets" and "Investments in Unconsolidated Affiliates"); (iii) the sale of the International Disposal Group in 2016, including a loss on sale recorded within discontinued operations; and (iv) the acquisition of Piedmont in 2016, including losses on interest rate swaps related to the acquisition financing.


39




MD&ADUKE ENERGY


ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Management’s Discussion and Analysis includes financial information prepared in accordance with GAAP in the U.S., as well as certain non-GAAP financial measures such as adjusted earnings and adjusted EPS discussed below. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP financial measures should be viewed as a supplement to, and not a substitute for, financial measures presented in accordance with GAAP. Non-GAAP measures as presented herein may not be comparable to similarly titled measures used by other companies.
The following combined Management’s Discussion and Analysis of Financial Condition and Results of Operations is separately filed by Duke Energy Corporation and its subsidiaries. Duke Energy Carolinas, LLC, Progress Energy, Inc., Duke Energy Progress, LLC, Duke Energy Florida, LLC, Duke Energy Ohio, Inc., Duke Energy Indiana, LLC and Piedmont Natural Gas Company, Inc.. 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.
Management’s Discussion and Analysis should be read in conjunction with the Consolidated Financial Statements and Notes for the years ended December 31, 2019, 2018 and 2017.
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019, for a discussion of variance drivers for the year ended December 31, 2018, as compared to December 31, 2017.
DUKE ENERGY
Duke Energy is an energy company headquartered in Charlotte, North Carolina. Duke Energy operates in the U.S. primarily through its wholly owned subsidiaries, Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of the Subsidiary Registrants, which along with Duke Energy, are collectively referred to as the Duke Energy Registrants.
Executive Overview
At Duke Energy the fundamentals of our business are strong and allow us to deliver growth in earnings and dividends in a low-risk, predictable and transparent way. In 2019, we met our near-term financial commitments and positioned the company for sustainable long-term growth. We are focused on a business portfolio that will deliver a reliable dividend with 4% to 6% EPS growth through 2024. This growth is supported by our capital plan, timely cost-recovery mechanisms in most jurisdictions and our ability to manage our cost structure. The strength of our balance sheet is of vital importance to the cost-effective financing of our growth strategy, and in 2019 we continued to strengthen it by issuing $2 billion of preferred equity and $2.5 billion of common stock through a forward sales agreement which is expected to settle on or prior to December 31, 2020.
Financial Results
chart-2051b954d7e7543ab18.jpgchart-55fced0db9ba521cbab.jpg
(a)See Results of Operations below for Duke Energy’s definition of adjusted earnings and adjusted diluted EPS as well as a reconciliation of this non-GAAP financial measure to net income available to Duke Energy and net income available to Duke Energy per diluted share.

40




MD&ADUKE ENERGY


Duke Energy's 2019 Net Income Available to Duke Energy Corporation (GAAP Reported Earnings) were impacted by: favorable rate case and rider recovery outcomes, net of regulatory lag, and ongoing cost management efforts in Electric Utilities and Infrastructure; improved margins and increased ACP investment in Gas Utilities and Infrastructure; and growth in project investments in Commercial Renewables. See “Results of Operations” below for a detailed discussion of the consolidated results of operations and a detailed discussion of financial results for each of Duke Energy’s reportable business segments, as well as Other where financing costs increased in 2019 to fund segment operations and other liquidity needs.
2019 Areas of Focus and Accomplishments
Operational Excellence, Safety and Reliability. The reliable and safe operation of our power plants, electric distribution system and natural gas infrastructure in our communities is foundational to our customers, our financial results and our credibility with stakeholders. Our regulated generation fleet performance was strong throughout the year. All of our nuclear sites have achieved the industry’s highest distinction rating. Our electric distribution system performed well throughout the year, with outage durations down when adjusted for storms. The safety of our workforce is a core value. Our employees delivered strong safety results in 2019, and we are at or near the top of our industry.
Storm Response and System Restoration. The 2019 Atlantic hurricane season was the fourth consecutive year of above-average damaging storms. Our ability to effectively handle all facets of the 2019 storm response efforts is a testament to our team’s extensive preparation and coordination, applying lessons learned from previous storms, and to on-the-ground management throughout the restoration efforts. Notably in 2019 Duke Energy earned EEI’s Emergency Recovery Award, our 22nd EEI award since 1998 and a strong affirmation of the work of our employees to support customers when they need us most.
Customer Satisfaction. Duke Energy continues to transform the customer experience through our use of customer data to better inform operational priorities and performance levels. This data-driven approach allows us to identify the investments that are the most important to the customer experience. In 2019, we instituted billing and payment-related communications and options, and we continue to enhance outage-related communications to customers.
Constructive Regulatory and Legislative Outcomes. One of our long-term strategic goals is to achieve modernized regulatory constructs in our jurisdictions. Modernized constructs provide benefits, which include improved earnings and cash flows through more timely recovery of investments, as well as stable pricing for customers. In 2019, Duke Energy, North Carolina regulators and environmentalists reached an agreement to permanently close all remaining coal ash basins in North Carolina. This agreement reduces the cost to close our coal ash basins for our Carolinas customers in comparison to the initial NCDEQ closure order. In 2019 we achieved constructive rate case outcomes driving earnings growth through rate base increases in South Carolina (electric), North Carolina (natural gas), Ohio (electric distribution) and Kentucky (natural gas). In addition, we have a multiyear rate plan in Florida and grid investment riders in the Midwest which enable more timely cost recovery and earnings growth.
Digital Transformation. Duke Energy has a demonstrated track record of driving efficiencies and productivity into the business. We continue to leverage new technology, digital tools and data analytics across the business in response to a transforming landscape. In 2019, we created a team dedicated to developing applications and other solutions to deliver productivity gains and improvements to the customer experience.
Modernizing the Power Grid. Our grid improvement programs continue to be a key component of our growth strategy. Modernization of the electric grid, including smart meters, storm hardening, self-healing and targeted undergrounding helps to ensure the system is better prepared for severe weather, improves the system's reliability and flexibility, and provides better information and services for customers. In 2019, 79% of our jurisdictions were equipped with smart meters and we remain on track to be fully deployed across all regions by 2021. We continue to expand our self-optimizing grid capabilities, and in 2019 that saved over a half million customer interruptions. 
Generating Cleaner Energy. Overall, we have lowered our carbon emissions by 39% since 2005, consistent with our new goal to reduce carbon emissions by at least 50% by 2030 and to achieve net-zero carbon emissions by 2050. Our commitment for 2030 includes retiring plants, operating our existing carbon-free resources and investing in natural gas infrastructure, renewables and our energy delivery system. As we look beyond 2030, we will need additional tools to continue our progress. We will work actively to advocate for research and development of carbon-free, dispatchable resources. That includes longer-term energy storage, advanced nuclear technologies, carbon capture and zero-carbon fuels.
Expanding the Natural Gas Platform. We continue to pursue natural gas infrastructure investments. While the judicial and administrative challenges to date have been substantial, we are committed to the construction of the ACP pipeline to bring low-cost gas supply and economic development opportunities to the Southeast U.S. Construction is underway on a liquefied natural gas facility in Robeson County, North Carolina, on property Piedmont owns. This investment will help Piedmont provide a reliable gas supply to customers during peak usage periods and protect customers from price volatility when there is a higher-than-normal demand for natural gas.
Dividend Growth. In 2019, Duke Energy continued to grow the dividend payment to shareholders. 2019 represented the 93rd consecutive year Duke Energy paid a cash dividend on its common stock.

41




MD&ADUKE ENERGY


Duke Energy Objectives – 2020 and Beyond
Duke Energy will continue to deliver exceptional value to customers, be an integral part of the communities in which we do business and provide attractive returns to investors. We have an achievable, long-term strategy in place, and it is producing tangible results, yet the industry in which we operate is becoming more and more dynamic. We are adjusting, where necessary, and accelerating our focus in key areas to ensure the company is well positioned to be successful for many decades into the future. As we look ahead to 2020, our plans include:
Continuing to place the customer at the center of all that we do which includes providing customized products and solutions
Strengthening our relationships with all our vast stakeholders in the communities in which we operate and invest
Generating cleaner energy and working to achieve net-zero carbon emissions by 2050
Maintaining the safety of our communities and employees
Modernizing and strengthening the energy grid
Expanding the natural gas infrastructure
Deploying digital tools across our business
Results of Operations
Non-GAAP Measures
Management evaluates financial performance in part based on non-GAAP financial measures, including adjusted earnings and adjusted diluted EPS. These items represent income from continuing operations available to Duke Energy common stockholders in dollar and per-share amounts, adjusted for the dollar and per-share impact of special items. As discussed below, special items include certain charges and credits, which management believes are not indicative of Duke Energy's ongoing performance. Management believes the presentation of adjusted earnings and adjusted diluted EPS provides useful information to investors, as it provides them with an additional relevant comparison of Duke Energy’s performance across periods.
Management uses these non-GAAP financial measures for planning and forecasting, and for reporting financial results to the Board of Directors, employees, stockholders, analysts and investors. Adjusted diluted EPS is also used as a basis for employee incentive bonuses. The most directly comparable GAAP measures for adjusted earnings and adjusted diluted EPS are GAAP Reported Earnings and Diluted EPS Available to Duke Energy Corporation common stockholders (GAAP Reported EPS), respectively.
Special items included in the periods presented include the following, which management believes do not reflect ongoing costs:
Impairment Charges in 2019 represents a reduction of a prior year impairment at Citrus County CC and an OTTI on the remaining investment in Constitution. For 2018, it represents an impairment at Citrus County CC, a goodwill impairment at Commercial Renewables and an OTTI of an investment in Constitution.
Costs to Achieve Mergers represents charges that result from strategic acquisitions.
Regulatory and Legislative Impacts in 2018 represents charges related to the Duke Energy Progress and Duke Energy Carolinas North Carolina rate case orders and the repeal of the South Carolina Base Load Review Act.
Sale of Retired Plant represents the loss associated with selling Beckjord, a nonregulated generating facility in Ohio.
Impacts of the Tax Act represents amounts recognized related to the Tax Act.
Severance Charges relate to companywide initiatives, excluding merger integration, to standardize processes and systems, leverage technology and workforce optimization.
Duke Energy’s adjusted earnings and adjusted diluted EPS may not be comparable to similarly titled measures of another company because other companies may not calculate the measures in the same manner.

42




MD&ADUKE ENERGY


Reconciliation of GAAP Reported Amounts to Adjusted Amounts
The following table presents a reconciliation of adjusted earnings and adjusted diluted EPS to the most directly comparable GAAP measures.
 Years Ended December 31,
 2019 2018 
(in millions, except per share amounts)Earnings EPS Earnings EPS 
GAAP Reported Earnings/EPS$3,707
 $5.06
 $2,666
 $3.76
 
Adjustments to Reported:        
Impairment Charges(a)
(8) (0.01) 179
 0.25
 
Costs to Achieve Piedmont Merger(b)

 
 65
 0.09
 
Regulatory and Legislative Impacts(c)

 
 202
 0.29
 
Sale of Retired Plant(d)

 
 82
 0.12
 
Impacts of the Tax Act(e)

 
 20
 0.03
 
Severance Charges(f)

 
 144
 0.21
 
Discontinued Operations7
 0.01
 (19) (0.03) 
Adjusted Earnings/Adjusted Diluted EPS$3,706
 $5.06
 $3,339
 $4.72
 
(a)Net of tax expense of $3 million in 2019. Net of tax benefit of $27 million and Noncontrolling Interests of $2 million in 2018.
(b)Net of tax benefit of $19 million.
(c)Net of tax benefit of $63 million.
(d)Net of $25 million tax benefit.
(e)The Tax Act reduced the corporate income tax rate from 35% to 21%, effective January 1, 2018. As the tax change was enacted in 2017, Duke Energy was required to remeasure its existing deferred tax assets and liabilities at the lower rate at December 31, 2017. For Duke Energy's regulated operations, where the reduction in the net accumulated deferred income tax liability is expected to be returned to customers in future rates, the remeasurement has been deferred as a regulatory liability. This amount represents a true up of existing regulatory liabilities related to the Tax Act. See Note 24 to the Consolidated Financial Statements, "Income Taxes" for more information.
(f)Net of tax benefit of $43 million.
Year Ended December 31, 2019, as compared to 2018
GAAP Reported EPS was $5.06 for the year ended December 31, 2019, compared to $3.76 for the year ended December 31, 2018. The increase in GAAP Reported earnings was primarily due to current year favorable rate case and rider recovery outcomes, an adjustment related to income tax recognition for equity method investments, growth in Commercial Renewables from new solar farms commencing commercial operations and prior year regulatory and legislative impacts, impairments, severance, loss on sale of a retired plant and costs to achieve merger. This favorability was partially offset by higher depreciation and higher financing costs in the current year. The equity method investment adjustment was immaterial and relates to prior years.
As discussed and shown in the table above, management also evaluates financial performance based on adjusted diluted EPS. Duke Energy’s adjusted diluted EPS was $5.06 for the year ended December 31, 2019, compared to $4.72 for the year ended December 31, 2018.
SEGMENT RESULTS
The remaining information presented in this discussion of results of operations is on a GAAP basis. Management evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests and preferred stock dividends. Segment income includes intercompany revenues and expenses that are eliminated in the Consolidated Financial Statements.
Duke Energy's segment structure includes the following segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables. The remainder of Duke Energy’s operations is presented as Other. See Note 3 to the Consolidated Financial Statements, “Business Segments,” for additional information on Duke Energy’s segment structure.

43




MD&ASEGMENT RESULTS - ELECTRIC UTILITIES AND INFRASTRUCTURE


Electric Utilities and Infrastructure
 Years Ended December 31,
(in millions)2019

2018

Variance

Operating Revenues$22,831
 $22,273
 $558
 
Operating Expenses    

 
Fuel used in electric generation and purchased power6,904
 6,917
 (13) 
Operations, maintenance and other5,497
 5,631
 (134) 
Depreciation and amortization3,951
 3,523
 428
 
Property and other taxes1,175
 1,134
 41
 
Impairment charges(8) 309
 (317) 
Total operating expenses17,519
 17,514
 5
 
Gains on Sales of Other Assets and Other, net1
 8
 (7) 
Operating Income5,313
 4,767
 546
 
Other Income and Expenses, net353
 378
 (25) 
Interest Expense1,345
 1,288
 57
 
Income Before Income Taxes4,321
 3,857
 464
 
Income Tax Expense785
 799
 (14) 
Segment Income$3,536
 $3,058
 $478
 
       
Duke Energy Carolinas GWh sales89,920
 92,280
 (2,360) 
Duke Energy Progress GWh sales68,356
 69,331
 (975) 
Duke Energy Florida GWh sales42,173
 41,559
 614
 
Duke Energy Ohio GWh sales24,729
 25,329
 (600) 
Duke Energy Indiana GWh sales31,886
 34,229
 (2,343) 
Total Electric Utilities and Infrastructure GWh sales257,064
 262,728
 (5,664) 
Net proportional MW capacity in operation50,070
 49,684
 386
 
Year Ended December 31, 2019, as compared to 2018
Electric Utilities and Infrastructure’s results were impacted by positive contributions from the Duke Energy Carolinas and Duke Energy Progress North Carolina and South Carolina rate cases and Duke Energy Florida's base rate adjustments due to the Citrus County CC being placed in service. These drivers were partially offset by higher depreciation from a growing asset base and higher interest expense. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
a $603 million increase in retail pricing primarily due to the Duke Energy Carolinas and Duke Energy Progress North Carolina and South Carolina rate cases and Duke Energy Florida's base rate adjustments related to Citrus County CC being placed in service.
Partially offset by:
a $45 million decrease in weather-normal retail sales volumes.
Operating Expenses. The variance was driven primarily by:
a $428 million increase in depreciation and amortization expense primarily due to additional plant in service and new depreciation rates associated with the Duke Energy Carolinas and Duke Energy Progress North Carolina and South Carolina rate cases and Duke Energy Florida's Citrus County CC being placed in service; and
a $41 million increase in property and other taxes primarily due to higher property taxes for additional plant in service at Duke Energy Florida and current year property tax reassessments at Duke Energy Progress and Duke Energy Ohio.
Partially offset by:
a $317 million decrease in impairment charges primarily due to the impacts associated with the Duke Energy Carolinas and Duke Energy Progress North Carolina rate cases as well as impairment impacts related to Duke Energy Florida's Citrus County CC; and
a $134 million decrease in operation, maintenance and other expense primarily due to lower payroll and benefit costs resulting from prior year workforce reductions and lower storm costs at Duke Energy Progress and Duke Energy Carolinas in the current year.
Other Income and Expenses, net. The variance was driven primarily by AFUDC equity return ending on the Citrus County CC in the fourth quarter of 2018 at Duke Energy Florida.

44




MD&ASEGMENT RESULTS - ELECTRIC UTILITIES AND INFRASTRUCTURE


Interest Expense. The variance was driven primarily by higher debt outstanding in the current year and AFUDC debt return ending in the fourth quarter of 2018 on the Citrus County CC at Duke Energy Florida.
Income Tax Expense. The decrease in tax expense was primarily due to an increase in the amortization of excess deferred taxes, mostly offset by an increase in pretax income. The ETRs for the years ended December 31, 2019, and 2018, were 18.2% and 20.7%, respectively. The decrease in the ETR was primarily due to an increase in the amortization of excess deferred taxes.
Matters Impacting Future Electric Utilities and Infrastructure Results
On December 31, 2019, Duke Energy Carolinas and Duke Energy Progress entered into a settlement agreement with NCDEQ and certain community groups under which Duke Energy Carolinas and Duke Energy Progress agreed to excavate seven of the nine remaining coal ash basins in North Carolina with ash moved to on-site lined landfills. At the two remaining basins, uncapped basin ash will be excavated and moved to lined landfills. An order from regulatory authorities disallowing recovery of costs related to closure of these ash basins could have an adverse impact on Electric Utilities and Infrastructure's results of operations, financial position and cash flows. See Notes 4 and 5 to the Consolidated Financial Statements, "Regulatory Matters" and “Commitments and Contingencies,” respectively, for additional information.
On May 21, 2019, Duke Energy Carolinas and Duke Energy Progress received orders from the PSCSC granting the companies’ requests for retail rate increases but denying recovery of certain coal ash costs. Duke Energy Carolinas and Duke Energy Progress filed notices of appeals with the South Carolina Supreme Court on November 15, 2019. Appellant briefs are due on March 2, 2020, and Appellee response briefs are due on May 15, 2020. Electric Utilities and Infrastructure's results of operations, financial position and cash flows could be adversely impacted if coal ash costs are not ultimately approved for recovery. See Note 4 to the Consolidated Financial Statements, "Regulatory Matters," for additional information.
On June 22, 2018, Duke Energy Carolinas received an order from the NCUC, which denied the Grid Rider Stipulation and deferral treatment of grid improvement costs. Duke Energy Carolinas and Duke Energy Progress have petitioned for deferral of future grid improvement costs in their 2019 rate cases. Electric Utilities and Infrastructure's results of operations, financial position and cash flows could be adversely impacted if grid improvement costs are not ultimately approved for recovery and/or deferral treatment.
During the last half of 2018, Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida’s service territories were impacted by several named storms. Hurricane Florence, Hurricane Michael and Winter Storm Diego caused flooding, extensive damage and widespread power outages to the service territories of Duke Energy Carolinas and Duke Energy Progress. Duke Energy Florida’s service territory was also impacted by Hurricane Michael, a Category 5 hurricane and the most powerful storm to hit the Florida Panhandle in recorded history. In September 2019, Hurricane Dorian impacted Duke Energy Progress and Duke Energy Florida's service territories. A significant portion of the incremental operation and maintenance expenses related to these storms has been deferred. An order from regulatory authorities disallowing the deferral and future recovery of storm restoration costs could have an adverse impact on Electric Utilities and Infrastructure's results of operations, financial position and cash flows. See Note 4 to the Consolidated Financial Statements, "Regulatory Matters," for additional information.
In 2019, Duke Energy Indiana filed a general rate case with the IURC, and Duke Energy Carolinas and Duke Energy Progress filed general rate cases with the NCUC. The outcome of these rate cases could materially impact Electric Utilities and Infrastructure's results of operations, financial position and cash flows. See Note 4 to the Consolidated Financial Statements, "Regulatory Matters," for additional information.
On April 17, 2015, the EPA published in the Federal Register a rule to regulate the disposal of CCR from electric utilities as solid waste. Duke Energy Indiana has interpreted the rule to identify the coal ash basin sites impacted and has assessed the amounts of coal ash subject to the rule and a method of compliance. Duke Energy Indiana's interpretation of the requirements of the CCR rule is subject to potential legal challenges and further regulatory approvals, which could result in additional ash basin closure requirements, higher costs of compliance and greater AROs. Additionally, Duke Energy Indiana has retired facilities that are not subject to the CCR rule. Duke Energy Indiana may incur costs at these facilities to comply with environmental regulations or to mitigate risks associated with on-site storage of coal ash. An order from regulatory authorities disallowing recovery of costs related to closure of ash basins could have an adverse impact on Duke Energy Indiana's results of operations, financial position and cash flows.
Within this Item 7, see Liquidity and Capital Resources for discussion of risks associated with the Tax Act.

45




MD&ASEGMENT RESULTS - GAS UTILITIES AND INFRASTRUCTURE


Gas Utilities and Infrastructure
 Years Ended December 31,
(in millions)2019
 2018
 Variance
 
Operating Revenues$1,866
 $1,881
 $(15) 
Operating Expenses    

 
Cost of natural gas627
 697
 (70) 
Operation, maintenance and other446
 421
 25
 
Depreciation and amortization256
 245
 11
 
Property and other taxes106
 107
 (1) 
Total operating expenses1,435

1,470
 (35) 
Operating Income431
 411
 20
 
Other Income and Expenses, net140
 47
 93
 
Interest Expense117
 106
 11
 
Income Before Income Taxes454
 352
 102
 
Income Tax Expense22
 78
 (56) 
Segment Income$432
 $274
 $158
 
       
Piedmont Local Distribution Company (LDC) throughput (Dth)511,243,774
 557,145,128
 (45,901,354) 
Duke Energy Midwest LDC throughput (MCF)89,025,972
 90,604,833
 (1,578,861) 
Year Ended December 31, 2019, as compared to 2018
Gas Utilities and Infrastructure’s results were primarily impacted by higher equity earnings at ACP, the OTTI recorded on the Constitution investment and a 2019 adjustment related to the income tax recognition for equity method investments. The equity method investment adjustment was immaterial and relates to prior years. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
a $70 million decrease due to lower natural gas costs passed through to customers; and
a $13 million decrease due to rider revenues related to MGP and Accelerated Main Replacement Program.
Partially offset by:
a $37 million increase due to North Carolina and Kentucky base rate case increases;
a $19 million increase due to North Carolina and Tennessee IMR increases; and
an $11 million increase due to NCUC approval related to tax reform accounting from fixed rate contracts.
Operating Expenses. The variance was driven primarily by:
a $70 million decrease in the cost of natural gas due to lower natural gas prices.
Partially offset by:
a $25 million increase in operation, maintenance and other expense primarily due to increased labor, benefits and information technology costs; and
an $11 million increase in depreciation and amortization expense due to additional plant in service.
Other Income and Expenses, net. The increase was primarily due to higher equity earnings at ACP as a result of higher cumulative project spending and a higher OTTI recorded on the Constitution investment in the prior year.
Interest Expense. The variance was driven by higher debt outstanding in the current year and higher interest expense due to customers as a result of tax reform deferrals, partially offset by favorable AFUDC debt interest.
Income Tax Expense. The decrease in tax expense was primarily due to an adjustment related to the income tax recognition for equity method
investments, partially offset by an increase in pretax income. The equity method investment adjustment was immaterial and relates to prior years. The ETRs for the years ended December 31, 2019, and 2018, were 4.8% and 22.2%, respectively. The decrease in the ETR was primarily due to an adjustment related to the income tax recognition for equity method investments that was recorded during the first quarter of 2019 and current year AFUDC equity. The equity method investment adjustment was immaterial and relates to prior years.

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MD&ASEGMENT RESULTS - GAS UTILITIES AND INFRASTRUCTURE


Matters Impacting Future Gas Utilities and Infrastructure Results
Gas Utilities and Infrastructure has a 47% ownership interest in ACP, which is building an approximately 600-mile interstate natural gas pipeline intended to transport diverse natural gas supplies into southeastern markets. Affected states (West Virginia, Virginia and North Carolina) have issued certain necessary permits; the project remains subject to other pending federal and state approvals, which will allow full construction activities to begin. In 2018, FERC issued a series of Notices to Proceed, which authorized the project to begin certain construction-related activities along the pipeline route. Given legal challenges and ongoing discussions with customers, ACP expects mechanical completion of the full project in late 2021 with in-service likely in the first half of 2022. The delays resulting from legal challenges have also impacted the cost for the project. Project cost is approximately $8 billion, excluding financing costs. This estimate is based on the current facts available around construction costs and timelines, and is subject to future changes as those facts develop. Abnormal weather, work delays (including delays due to judicial or regulatory action) and other conditions may result in cost or schedule modifications, a suspension of AFUDC for ACP and/or impairment charges potentially material to Duke Energy's cash flows, financial position and results of operations. ACP and Duke Energy will continue to consider their options with respect to the foregoing given their existing contractual and legal obligations. See Notes 4 and 18 to the Consolidated Financial Statements, "Regulatory Matters" and "Variable Interest Entities," respectively, for additional information.
On November 13, 2013, the PUCO issued an order authorizing recovery of MGP costs at certain sites in Ohio with a deadline to complete the MGP environmental investigation and remediation work prior to December 31, 2016. This deadline was subsequently extended to December 31, 2019. Duke Energy Ohio has filed a request for extension of the deadline. A hearing on that request has not been scheduled. Disallowance of costs incurred, failure to complete the work by the deadline or failure to obtain an extension from the PUCO could result in an adverse impact on Gas Utilities and Infrastructure’s results of operations, financial position and cash flows. See Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” for additional information.
Within this Item 7, see Liquidity and Capital Resources for discussion of risks associated with the Tax Act.
Commercial Renewables
 Years Ended December 31,
(in millions)2019
 2018
 Variance
 
Operating Revenues$487
 $477
 $10
 
Operating Expenses    

 
Operation, maintenance and other297
 304
 (7) 
Depreciation and amortization168
 155
 13
 
Property and other taxes23
 25
 (2) 
Impairment charges
 93
 (93) 
Total operating expenses488
 577
 (89) 
Losses on Sales of Other Assets and Other, net(3) (1) (2) 
Operating Loss(4) (101) 97
 
Other Income and Expenses, net5
 23
 (18) 
Interest Expense95
 88
 7
 
Loss Before Income Taxes(94) (166) 72
 
Income Tax Benefit(115) (147) 32
 
Less: Loss Attributable to Noncontrolling Interests(177) (28) (149) 
Segment Income$198
 $9
 $189
 
       
Renewable plant production, GWh 8,574
 8,522
 52
 
Net proportional MW capacity in operation(a)
3,485
 2,991
 494
 
(a)Certain projects are included in tax-equity structures where investors have differing interests in the project's economic attributes. In the table above, 100% of the tax-equity project's capacity is included.
Year Ended December 31, 2019, as compared to 2018
Commercial Renewables' results were favorable primarily due to new tax equity solar projects in the current year and a prior year goodwill impairment charge. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The increase was primarily due to new solar projects placed in service and higher irradiance.
Operating Expenses. The decrease was primarily due to a goodwill impairment charge in the prior year, partially offset by increased depreciation due to new solar projects placed in service.
Other Income and Expenses, net. The decrease was primarily due to income from the FES settlement agreement in the prior year.
Income Tax Benefit. The decrease in the tax benefit was primarily driven by taxes associated with Duke Energy's interest in tax equity solar projects recorded during 2019 and a reduction in PTCs generated.

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MD&ASEGMENT RESULTS - COMMERCIAL RENEWABLES


Loss Attributable to Noncontrolling Interests. The variance was primarily due to an increase in solar projects with tax equity investors. HLBV accounting was utilized, resulting in allocation of losses to the noncontrolling interest partners. See Note 1 to the Consolidated Financial Statements, "Summary of Significant Accounting Policies" for more information.
Matters Impacting Future Commercial Renewables Results
Commercial Renewables continues to experience growth with tax equity projects; however, the future expiration of federal tax incentives could result in adverse impacts to future results of operations, financial position and cash flows.
During 2019, Duke Energy evaluated recoverability of its renewable merchant plants principally in the Electric Reliability Council of Texas West market, due to declining market pricing and declining long-term forecasted energy prices, primarily driven by lower forecasted natural gas prices. These assets were not impaired; however, a continued decline in energy market pricing would likely result in a future impairment. Impairment of these assets could result in adverse impacts to the future results of operations, financial position and cash flows of Commercial Renewables. See Note 11 to the Consolidated Financial Statements, "Property, Plant and Equipment," for additional information.
Within this Item 7, see Liquidity and Capital Resources for discussion of risks associated with the Tax Act.
Other
 Years Ended December 31,
(in millions)2019
 2018
 Variance
 
Operating Revenues$95
 $89
 $6
 
Operating Expenses117
 380
 (263) 
Losses on Sales of Other Assets and Other, net(2) (96) 94
 
Operating Loss(24) (387) 363
 
Other Income and Expenses, net145
 73
 72
 
Interest Expense705
 657
 48
 
Loss Before Income Taxes(584) (971) 387
 
Income Tax Benefit(173) (282) 109
 
Less: Net Income Attributable to Noncontrolling Interests
 5
 (5) 
Less: Preferred Dividends41
 
 41
 
Net Loss$(452) $(694) $242
 
Year Ended December 31, 2019, as compared to 2018
The variance was driven by the prior year severance charges related to a corporate initiative, prior year loss on sale of the retired Beckjord station, and the absence in the current year of costs related to the Piedmont acquisition, offset by obligations to the Duke Energy Foundation in 2019. The following is a detailed discussion of the variance drivers by line item.
Operating Expenses. The variance was primarily due to prior year severance charges related to a corporate initiative as well as costs associated with the Piedmont acquisition, partially offset by obligations to the Duke Energy Foundation in 2019.
Losses on Sales of Other Assets and Other, net. The variance was driven by the prior year loss on sale of the retired Beckjord station, including the transfer of coal ash basins and other real property and indemnification from all potential future claims related to the property, whether arising under environmental laws or otherwise.
Other Income and Expenses, net. The variance was primarily due to higher returns on investments that fund certain employee benefit obligations and Bison investment income.
Interest Expense. The variance was primarily due to higher outstanding debt in the current year and higher short-term interest rates.
Income Tax Benefit. The decrease in the tax benefit was primarily driven by a decrease in pretax losses.
Preferred Dividends. The variance was driven by the declarations of preferred stock dividend on preferred stock issued in 2019.
Matters Impacting Future Other Results
Within this Item 7, see Liquidity and Capital Resources for discussion of risks associated with the Tax Act.

48




MD&ADUKE ENERGY CAROLINAS


SUBSIDIARY REGISTRANTS
Basis of Presentation
The results of operations and variance discussion for the Subsidiary Registrants is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K.
DUKE ENERGY CAROLINAS
Results of Operations
 Years Ended December 31,
(in millions)2019
 2018
 Variance
Operating Revenues$7,395
 $7,300
 $95
Operating Expenses    

Fuel used in electric generation and purchased power1,804
 1,821
 (17)
Operation, maintenance and other1,868
 2,130
 (262)
Depreciation and amortization1,388
 1,201
 187
Property and other taxes292
 295
 (3)
Impairment charges17
 192
 (175)
Total operating expenses5,369
 5,639
 (270)
Losses on Sales of Other Assets and Other, net
 (1) 1
Operating Income2,026
 1,660
 366
Other Income and Expenses, net151
 153
 (2)
Interest Expense463
 439
 24
Income Before Income Taxes1,714
 1,374
 340
Income Tax Expense311
 303
 8
Net Income$1,403
 $1,071
 $332
The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Carolinas. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.
Increase (Decrease) over prior year2019 2018
Residential sales(2.9)% 11.7 %
General service sales(0.1)% 4.5 %
Industrial sales(1.9)% (0.3)%
Wholesale power sales(13.6)% 12.5 %
Joint dispatch sales4.7 % 23.1 %
Total sales(2.6)% 5.7 %
Average number of customers2.1 % 1.5 %
Year Ended December 31, 2019, as compared to 2018
Operating Revenues. The variance was driven primarily by:
a $178 million increase in retail pricing due to the impacts of the prior year North Carolina rate case and the current year South Carolina rate case.
Partially offset by:
a $41 million decrease in rider revenues primarily due to excess deferred taxes, partially offset by EE programs and a decrement rider relating to nuclear decommissioning that ended in the prior year;
a $14 million decrease in weather-normal retail sales volumes; and
a $7 million decrease in retail sales, net of fuel revenues, due to unfavorable weather in the current year.
Operating Expenses. The variance was driven primarily by:
a $262 million decrease in operation, maintenance and other expense primarily due to decreased labor and storm restoration costs; and
a $175 million decrease in impairment charges primarily due to impacts of the prior year North Carolina rate order, the repeal of the South Carolina Base Load Review Act and charges related to coal ash costs in South Carolina.

49




MD&ADUKE ENERGY CAROLINAS


Partially offset by:
a $187 million increase in depreciation and amortization expense primarily due to additional plant in service, new depreciation rates associated with the prior year North Carolina rate case and the current year South Carolina rate case and higher amortization of deferred coal ash costs associated with the prior year North Carolina rate case.
Interest Expense. The variance was primarily due to higher debt outstanding in the current year.
Matters Impacting Future Results
On December 31, 2019, Duke Energy Carolinas entered into a settlement agreement with NCDEQ and certain community groups under which Duke Energy Carolinas agreed to excavate five of the six remaining coal ash basins in North Carolina with ash moved to on-site lined landfills. At the one remaining basin, uncapped basin ash will be excavated and moved to lined landfills. An order from regulatory authorities disallowing recovery of costs related to closure of these ash basins could have an adverse impact on Duke Energy Carolinas’ results of operations, financial position and cash flows. See Notes 4 and 5 to the Consolidated Financial Statements, "Regulatory Matters" and “Commitments and Contingencies,” respectively, for additional information.
Duke Energy Carolinas filed a general rate case with the NCUC on September 30, 2019. The outcome of this rate case could materially impact Duke Energy Carolina's results of operations, financial position and cash flows. See Note 4 to the Consolidated Financial Statements, "Regulatory Matters," for additional information.
On May 21, 2019, the PSCSC issued an order granting Duke Energy Carolinas request for a retail rate increase but denying recovery of certain coal ash costs. Duke Energy Carolinas filed a notice of appeal with the South Carolina Supreme Court on November 15, 2019. Appellant briefs are due on March 2, 2020, and Appellee response briefs are due on May 15, 2020. Duke Energy Carolinas' results of operations, financial position and cash flows could be adversely impacted if coal ash costs are not ultimately approved for recovery. See Note 4 to the Consolidated Financial Statements, "Regulatory Matters," for additional information.
On June 22, 2018, Duke Energy Carolinas received an order from the NCUC, which denied the Grid Rider Stipulation and deferral treatment of grid improvement costs. Duke Energy Carolinas has petitioned for deferral of future grid improvement costs in its 2019 rate case. Duke Energy Carolinas' results of operations, financial position and cash flows could be adversely impacted if grid improvement costs are not ultimately approved for recovery and/or deferral treatment.
During the last half of 2018, Duke Energy Carolinas’ service territory was impacted by several named storms. Hurricane Florence, Hurricane Michael and Winter Storm Diego caused flooding, extensive damage and widespread power outages in the service territory. A significant portion of the incremental operation and maintenance expenses related to these storms has been deferred. An order from regulatory authorities disallowing the deferral and future recovery of storm restoration costs could have an adverse impact on Duke Energy Carolinas' results of operations, financial position and cash flows. See Note 4 to the Consolidated Financial Statements, "Regulatory Matters," for additional information.
Within this Item 7, see Liquidity and Capital Resources for discussion of risks associated with the Tax Act.
PROGRESS ENERGY
Results of Operations
 Years Ended December 31,
(in millions)2019
 2018
 Variance
Operating Revenues$11,202
 $10,728
 $474
Operating Expenses     
Fuel used in electric generation and purchased power4,024
 3,976
 48
Operation, maintenance and other2,495
 2,613
 (118)
Depreciation and amortization1,845
 1,619
 226
Property and other taxes561
 529
 32
Impairment charges(24) 87
 (111)
Total operating expenses8,901
 8,824
 77
Gains on Sales of Other Assets and Other, net
 24
 (24)
Operating Income2,301
 1,928
 373
Other Income and Expenses, net141
 165
 (24)
Interest Expense862
 842
 20
Income Before Income Taxes1,580
 1,251
 329
Income Tax Expense253
 218
 35
Net Income1,327
 1,033
 294
Less: Net Income Attributable to Noncontrolling Interests
 6
 (6)
Net Income Attributable to Parent$1,327
 $1,027
 $300

50




MD&APROGRESS ENERGY


Year Ended December 31, 2019, as compared to 2018
Operating Revenues. The variance was driven primarily by:
a $366 million increase in retail pricing primarily due to the impacts of the prior year North Carolina rate case and current year South Carolina rate case at Duke Energy Progress, Duke Energy Florida's base rate adjustments related to Citrus County CC being placed in service and annual increases from the 2017 Settlement Agreement;
a $70 million increase in wholesale power revenues, net of fuel, primarily due to coal ash cost recovery in the current year at Duke Energy Progress and increased demand at Duke Energy Florida;
a $42 million increase in fuel revenues primarily related to increased fuel cost recovery due to extreme weather in the prior year at Duke Energy Progress, partially offset by a decrease in fuel and capacity rates billed to retail customers at Duke Energy Florida;
a $22 million increase in retail sales, net of fuel revenues, due to favorable weather in the current year at Duke Energy Florida; and
a $21 million increase in other revenues primarily due to increased transmission revenues and nonregulated products and services revenues at Duke Energy Florida.
Partially offset by:
a $47 million decrease in retail rider revenues primarily related to decreased revenue requirements in the current year; and
a $14 million decrease in weather-normal retail sales volumes at Duke Energy Florida.
Operating Expenses. The variance was driven primarily by:
a $226 million increase in depreciation and amortization expense primarily due to higher amortization of deferred coal ash costs, new depreciation rates associated with the prior year Duke Energy Progress North Carolina rate case and Duke Energy Florida's base rate adjustments related to Citrus County CC being placed in service;
a $48 million increase in fuel used in electric generation and purchased power primarily due to an increase in the North Carolina Renewable Energy and Energy Efficiency Portfolio Standard requirement from the prior year at Duke Energy Progress, partially offset by lower purchased power and lower fuel costs, net of deferrals, at Duke Energy Florida; and
a $32 million increase in property and other taxes primarily due to current year property tax reassessments and a favorable sales and use tax credit in the prior year at Duke Energy Progress and higher property taxes for additional plant in service at Duke Energy Florida.
Partially offset by:
a $118 million decrease in operation, maintenance and other expense primarily due to lower storm costs, reduced outage costs, and lower employee benefit costs, partially offset by increased vegetation management costs at Duke Energy Florida; and
a $111 million decrease in impairment charges primarily due to prior year impacts associated with the North Carolina rate case at Duke Energy Progress as well as the impairment of Duke Energy Florida's Citrus County CC.
Other Income and Expenses, net. The variance was driven primarily by AFUDC equity return ending on the Citrus County CC in the fourth quarter of 2018 at Duke Energy Florida, partially offset by life insurance proceeds at Duke Energy Progress.
Interest Expense. The variance was driven primarily by AFUDC debt return ending in the fourth quarter of 2018 on the Citrus County CC at Duke Energy Florida.
Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income, partially offset by an increase in the amortization of excess deferred taxes and a Tax Act adjustment in the prior year related to excess deferred taxes.
Matters Impacting Future Results
On December 31, 2019, Duke Energy Progress entered into a settlement agreement with NCDEQ and certain community groups under which Duke Energy Progress agreed to excavate two of the three remaining coal ash basins in North Carolina with ash moved to on-site lined landfills. At the one remaining basin, uncapped basin ash will be excavated and moved to lined landfills. An order from regulatory authorities disallowing recovery of costs related to closure of these ash basins could have an adverse impact on Duke Energy Progress’ results of operations, financial position and cash flows. See Notes 4 and 5 to the Consolidated Financial Statements, "Regulatory Matters" and “Commitments and Contingencies,” respectively, for additional information.
Duke Energy Progress filed a general rate case with the NCUC on October 30, 2019. The outcome of this rate case could materially impact Progress Energy's results of operations, financial position and cash flows. See Note 4 to the Consolidated Financial Statements, "Regulatory Matters," for additional information.
On May 21, 2019, the PSCSC issued an order granting Duke Energy Progress' request for a retail rate increase but denying recovery of certain coal ash costs. Duke Energy Progress filed a notice of appeal with the South Carolina Supreme Court on November 15, 2019. Appellant briefs are due on March 2, 2020, and Appellee response briefs are due on May 15, 2020. Progress Energy's results of operations, financial position and cash flows could be adversely impacted if coal ash costs are not ultimately approved for recovery. See Note 4 to the Consolidated Financial Statements, "Regulatory Matters," for additional information.

51




MD&APROGRESS ENERGY


Duke Energy Progress has petitioned for deferral of future grid improvement costs in its 2019 rate case. Progress Energy's results of operations, financial position and cash flows could be adversely impacted if grid improvement costs are not ultimately approved for recovery and/or deferral treatment.
During the last half of 2018, Duke Energy Progress and Duke Energy Florida’s service territories were impacted by several named storms. Hurricane Florence, Hurricane Michael and Winter Storm Diego caused flooding, extensive damage and widespread power outages to the service territory of Duke Energy Progress. Duke Energy Florida’s service territory was also impacted by Hurricane Michael, a Category 5 hurricane and the most powerful storm to hit the Florida Panhandle in recorded history. In September 2019, Hurricane Dorian impacted Duke Energy Progress' and Duke Energy Florida's service territories. A significant portion of the incremental operation and maintenance expenses related to these storms has been deferred. An order from regulatory authorities disallowing the deferral and future recovery of storm restoration costs could have an adverse impact on Progress Energy's results of operations, financial position and cash flows. See Note 4 to the Consolidated Financial Statements, "Regulatory Matters," for additional information.
Within this Item 7, see Liquidity and Capital Resources for discussion of risks associated with the Tax Act.
DUKE ENERGY PROGRESS
Results of Operations
 Years Ended December 31,
(in millions)2019
 2018
 Variance
Operating Revenues$5,957
 $5,699
 $258
Operating Expenses     
Fuel used in electric generation and purchased power2,012
 1,892
 120
Operation, maintenance and other1,446
 1,578
 (132)
Depreciation and amortization1,143
 991
 152
Property and other taxes176
 155
 21
Impairment charges12
 33
 (21)
Total operating expenses4,789
 4,649
 140
Gains on Sales of Other Assets and Other, net
 9
 (9)
Operating Income1,168
 1,059
 109
Other Income and Expenses, net100
 87
 13
Interest Expense306
 319
 (13)
Income Before Income Taxes962
 827
 135
Income Tax Expense157
 160
 (3)
Net Income$805
 $667
 $138
The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Progress. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.
Increase (Decrease) over prior year2019
 2018
Residential sales(4.0)% 9.9%
General service sales(1.6)% 2.3%
Industrial sales0.6 % 0.8%
Wholesale power sales(1.5)% 4.6%
Joint dispatch sales(0.8)% 2.1%
Total sales(1.4)% 3.8%
Average number of customers1.3 % 1.5%
Year Ended December 31, 2019, as compared to 2018
Operating Revenues. The variance was driven primarily by:
a $110 million increase in retail pricing due to the impacts of the prior year North Carolina rate case and the current year South Carolina rate case;
a $101 million increase in fuel revenues primarily related to increased fuel cost recovery due to extreme weather in the prior year; and
a $54 million increase in wholesale power revenues, net of fuel, primarily due to coal ash cost recovery in the current year.
Partially Offset by:
a $21 million decrease primarily due to the return of excess deferred incomes taxes created by the reduction in the corporate income tax rate, partially offset by an increase in rider revenues related to EE programs.

52




MD&ADUKE ENERGY PROGRESS


Operating Expenses. The variance was driven primarily by:
a $152 million increase in depreciation and amortization expense primarily due to higher amortization of deferred coal ash costs and new depreciation rates associated with the prior year North Carolina and current year South Carolina rate cases, partially offset by the amortization credit for the North Carolina Renewable Energy and Energy Efficiency Portfolio Standard requirement increase from prior year;
a $120 million increase in fuel used in electric generation and purchased power primarily due to a higher deferred fuel balance and an increase in the North Carolina Renewable Energy and Energy Efficiency Portfolio Standard requirement from prior year, partially offset by lower demand and changes in generation mix; and
a $21 million increase in property and other taxes primarily due to current year property tax reassessments and a favorable sales and use tax credit in the prior year.
Partially offset by:
a $132 million decrease in operation, maintenance and other expense primarily due to lower storm costs in current year, reduced outage costs and lower employee benefit costs; and
a $21 million decrease in impairment charges primarily due to prior year impacts associated with the North Carolina rate case.
Other Income and Expenses, net. The variance was driven primarily by life insurance proceeds.
Interest Expense. The variance was driven primarily by lower interest rates on outstanding debt.
Matters Impacting Future Results
On December 31, 2019, Duke Energy Progress entered into a settlement agreement with NCDEQ and certain community groups under which Duke Energy Progress agreed to excavate two of the three remaining coal ash basins in North Carolina with ash moved to on-site lined landfills. At the one remaining basin, uncapped basin ash will be excavated and moved to lined landfills. An order from regulatory authorities disallowing recovery of costs related to closure of these ash basins could have an adverse impact on Duke Energy Progress’ results of operations, financial position and cash flows. See Notes 4 and 5 to the Consolidated Financial Statements, "Regulatory Matters" and “Commitments and Contingencies,” respectively, for additional information.
Duke Energy Progress filed a general rate case with the NCUC on October 30, 2019. The outcome of this rate case could materially impact Duke Energy Progress' results of operations, financial position and cash flows. See Note 4 to the Consolidated Financial Statements, "Regulatory Matters," for additional information.
On May 21, 2019, the PSCSC issued an order granting Duke Energy Progress' request for a retail rate increase but denying recovery of certain coal ash costs. Duke Energy Progress filed a notice of appeal with the South Carolina Supreme Court on November 15, 2019. Appellant briefs are due on March 2, 2020, and Appellee response briefs are due on May 15, 2020. Duke Energy Progress' results of operations, financial position and cash flows could be adversely impacted if coal ash costs are not ultimately approved for recovery. See Note 4 to the Consolidated Financial Statements, "Regulatory Matters," for additional information.
Duke Energy Progress has petitioned for deferral of future grid improvement costs in its 2019 rate case. Duke Energy Progress' results of operations, financial position and cash flows could be adversely impacted if grid improvement costs are not ultimately approved for recovery and/or deferral treatment.
During the last half of 2018, Duke Energy Progress' service territory was impacted by several named storms. Hurricane Florence, Hurricane Michael and Winter Storm Diego caused flooding, extensive damage and widespread power outages in the service territory. In September 2019, Hurricane Dorian reached the Carolinas bringing high winds, tornadoes and heavy rain, impacting about 300,000 customers within the service territory. A significant portion of the incremental operation and maintenance expenses related to these storms has been deferred. An order from regulatory authorities disallowing the deferral and future recovery of storm restoration costs could have an adverse impact on Duke Energy Progress' results of operations, financial position and cash flows. See Note 4 to the Consolidated Financial Statements, "Regulatory Matters," for additional information.
Within this Item 7, see Liquidity and Capital Resources for discussion of risks associated with the Tax Act.

53




MD&ADUKE ENERGY FLORIDA


DUKE ENERGY FLORIDA
Results of Operations
 Years Ended December 31,
(in millions)2019
 2018
 Variance
Operating Revenues$5,231
 $5,021
 $210
Operating Expenses     
Fuel used in electric generation and purchased power2,012
 2,085
 (73)
Operation, maintenance and other1,034
 1,025
 9
Depreciation and amortization702
 628
 74
Property and other taxes392
 374
 18
Impairment charges(36) 54
 (90)
Total operating expenses4,104
 4,166
 (62)
Gains on Sales of Other Assets and Other, net
 1
 (1)
Operating Income1,127
 856
 271
Other Income and Expenses, net48
 86
 (38)
Interest Expense328
 287
 41
Income Before Income Taxes847
 655
 192
Income Tax Expense155
 101
 54
Net Income$692
 $554
 $138
The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Florida. The below percentages for retail customer classes represent billed sales only. Wholesale power sales include both billed and unbilled sales. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.
Increase (Decrease) over prior year2019
 2018
Residential sales0.7 % 4.3 %
General service sales0.3 % 1.9 %
Industrial sales(4.6)% (0.4)%
Wholesale power sales28.8 % 5.2 %
Total sales1.5 % 2.4 %
Average number of customers1.6 % 1.5 %
Year Ended December 31, 2019, as compared to 2018
Operating Revenues. The variance was driven primarily by:
a $256 million increase in retail pricing due to base rate adjustments related to Citrus County CC being placed in service, annual increases from the 2017 Settlement Agreement and the Solar Base Rate Adjustment;
a $22 million increase in retail sales, net of fuel revenues, due to favorable weather in the current year;
a $21 million increase in other revenues primarily due to increased transmission revenues and nonregulated products and services revenues; and
a $16 million increase in wholesale power revenues, net of fuel, primarily due to increased demand.
Partially offset by:
a $59 million decrease in fuel and capacity revenues primarily due to a decrease in fuel and capacity rates billed to retail customers;
a $33 million decrease in retail rider revenues primarily related to decreased revenue requirements in the current year; and
a $14 million decrease in weather-normal retail sales volumes.

54




MD&ADUKE ENERGY FLORIDA


Operating Expenses. The variance was driven primarily by:
a $90 million decrease in impairment charges primarily due to a prior year impairment at Citrus County CC and a reduction of the impairment in the current year; and
a $73 million decrease in fuel used in electric generation and purchased power primarily due to lower purchased power and lower fuel costs, net of deferrals.
Partially offset by:
a $74 million increase in depreciation and amortization expense primarily due to base rate adjustments related to Citrus County CC being placed in service, other additional plant in service and increases resulting from the 2018 Crystal River Unit 3 nuclear decommissioning cost study;
an $18 million increase in property and other taxes primarily due to higher property taxes from additional plant in service; and
a $9 million increase in operation, maintenance and other expense primarily due to increased vegetation management costs and deregulation initiative costs, partially offset by lower severance charges.
Other Income and Expenses, net. The variance was driven primarily by AFUDC equity return ending on the Citrus County CC in the fourth quarter of 2018.
Interest Expense. The variance was driven primarily by AFUDC debt return ending on the Citrus County CC in the fourth quarter of 2018 and higher debt outstanding in the current year.
Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income in the current year.
Matters Impacting Future Results
On October 10, 2018, Hurricane Michael made landfall on Florida's Panhandle as a Category 5 hurricane, the most powerful storm to hit the Florida Panhandle in recorded history. The storm caused significant damage within the service territory of Duke Energy Florida, particularly from Panama City Beach to Mexico Beach. In September 2019, Duke Energy Florida’s service territory was threatened by Hurricane Dorian with landfall as a possible Category 5 hurricane and therefore Duke Energy Florida incurred costs to secure necessary resources to be prepared for that potential impact. A significant portion of the incremental operation and maintenance expenses related to these storms has been deferred. An order from regulatory authorities disallowing the future recovery of storm restoration costs could have an adverse impact on Duke Energy Florida's financial position, results of operations and cash flows. See Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” for additional information.
Within this Item 7, see Liquidity and Capital Resources for discussion of risks associated with the Tax Act.

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MD&ADUKE ENERGY OHIO


DUKE ENERGY OHIO
Results of Operations
 Years Ended December 31,
(in millions)2019
2018
Variance
Operating Revenues  

Regulated electric$1,456
$1,450
$6
Regulated natural gas484
506
(22)
Nonregulated electric and other
1
(1)
Total operating revenues1,940
1,957
(17)
Operating Expenses   
Fuel used in electric generation and purchased power – regulated388
412
(24)
Cost of natural gas 95
113
(18)
Operation, maintenance and other520
480
40
Depreciation and amortization265
268
(3)
Property and other taxes308
290
18
Total operating expenses1,576
1,563
13
Losses on Sales of Other Assets and Other, net
(106)106
Operating Income364
288
76
Other Income and Expenses, net24
23
1
Interest Expense109
92
17
Income from Continuing Operations Before Income Taxes279
219
60
Income Tax Expense from Continuing Operations40
43
(3)
Income from Continuing Operations239
176
63
Loss from Discontinued Operations, net of tax(1)
(1)
Net Income$238
$176
$62
The following table shows the percent changes in GWh sales of electricity, MCF of natural gas delivered and average number of electric and natural gas customers for Duke Energy Ohio. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.
 Electric Natural Gas
Increase (Decrease) over prior year2019
 2018
 2019
 2018
Residential sales(3.9)% 12.2 % (3.7)% 18.0%
General service sales(1.9)% 3.3 % (1.2)% 15.4%
Industrial sales(2.1)% 1.0 % (0.4)% 8.1%
Wholesale electric power sales(4.9)% (46.6)% n/a
 n/a
Other natural gas salesn/a
 n/a
 0.7 % 0.7%
Total sales(2.4)% 2.8 % (1.7)% 11.9%
Average number of customers0.7 % 0.8 % 0.7 % 0.9%
Year Ended December 31, 2019, as compared to 2018
Operating Revenues. The variance was driven primarily by:
a $45 million decrease in fuel related revenues primarily due to a decrease in price;
a $31 million decrease in rider revenues primarily due to the cessation of the Smart Grid Rider in 2018 and the Tax Cut and Jobs Act Rider beginning in 2019, partially offset by new riders implemented in conjunction with rate cases including the Price Stabilization Rider, Electric Service Reliability Rider and the Environmental Surcharge Mechanism;
a $15 million decrease in FTR rider revenues; and
a $12 million decrease in electric and natural gas retail sales, net of fuel revenues, due to unfavorable weather in the current year.
Partially offset by:
a $71 million increase in retail pricing primarily due to rate case impacts; and
an $18 million increase in PJM point-to-point transmission revenues due to an increase in the Network Integration Transmission Service rate primarily due to additional plant in service.

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MD&ADUKE ENERGY OHIO


Operating Expenses. The variance was driven primarily by:
a $40 million increase in operations, maintenance and other expense primarily due to the FERC approved settlement refund of certain transmission costs previously billed by PJM recorded in 2018 and increased PJM transmission expansion fees; and
an $18 million increase in property and other taxes primarily due to additional plant in service, partially offset by a negotiated reassessment of property values and property tax true ups for prior periods.
Partially offset by:
a $24 million decrease in fuel used in electric generation and purchased power expense due to the prior year outage at East Bend Station and the deferral of OVEC related purchased power costs; and
an $18 million decrease in the cost of natural gas primarily due to lower costs passed through to customers, as a result of a lower natural gas prices.
Losses on Sales of Other Assets and Other, net. The increase was driven by the loss on the prior year sale of Beckjord.
Interest Expense. The variance was primarily due to higher debt outstanding in the current year.

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Matters Impacting Future Results
On November 13, 2013, the PUCO issued an order authorizing recovery of MGP costs at certain sites in Ohio with a deadline to complete the MGP environmental investigation and remediation work prior to December 31, 2016. This deadline was subsequently extended to December 31, 2019. Duke Energy Ohio has filed a request for extension of the deadline. A hearing on that request has not been scheduled. Disallowance of costs incurred, failure to complete the work by the deadline or failure to obtain an extension from the PUCO could result in an adverse impact on Duke Energy Ohio’s results of operations, financial position and cash flows. See Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” for additional information.
Within this Item 7, see Liquidity and Capital Resources for discussion of risks associated with the Tax Act.
DUKE ENERGY INDIANA
Results of Operations
 Years Ended December 31,
(in millions)2019
2018
Variance
Operating Revenues$3,004
$3,059
$(55)
Operating Expenses   
Fuel used in electric generation and purchased power935
1,000
(65)
Operation, maintenance and other790
788
2
Depreciation and amortization525
520
5
Property and other taxes69
78
(9)
Impairment charges
30
(30)
Total operating expenses2,319
2,416
(97)
Operating Income685
643
42
Other Income and Expenses, net41
45
(4)
Interest Expense156
167
(11)
Income Before Income Taxes570
521
49
Income Tax Expense134
128
6
Net Income $436
$393
$43
The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Indiana. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.
Increase (Decrease) over prior year2019
 2018
Residential sales(3.9)% 12.5 %
General service sales(2.2)% 2.8 %
Industrial sales(2.6)% 0.5 %
Wholesale power sales(27.7)% (0.9)%
Total sales(6.8)% 3.3 %
Average number of customers1.2 % 1.3 %
Year Ended December 31, 2019, as compared to 2018
Operating Revenues. The variance was driven primarily by:
a $21 million decrease in wholesale power revenues primarily due to the expiration of a contract with a wholesale customer;
a $16 million decrease in other transmission FTR revenues due to lower congestion; and
a $14 million decrease in weather-normal retail sales volume.
Operating Expenses. The variance was driven primarily by:
a $65 million decrease in fuel used in electric generation and purchased power expense primarily due to lower coal and natural gas costs, partially offset by higher purchase power fuel clause, higher amortization of deferred fuel costs and higher deferred MISO charges; and
a $30 million decrease in impairments primarily due to the prior year Edwardsport IGCC settlement agreement.

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Matters Impacting Future Results
On April 17, 2015, the EPA published in the Federal Register a rule to regulate the disposal of CCR from electric utilities as solid waste. Duke Energy Indiana has interpreted the rule to identify the coal ash basin sites impacted and has assessed the amounts of coal ash subject to the rule and a method of compliance. Duke Energy Indiana's interpretation of the requirements of the CCR rule is subject to potential legal challenges and further regulatory approvals, which could result in additional ash basin closure requirements, higher costs of compliance and greater AROs. Additionally, Duke Energy Indiana has retired facilities that are not subject to the CCR rule. Duke Energy Indiana may incur costs at these facilities to comply with environmental regulations or to mitigate risks associated with on-site storage of coal ash. An order from regulatory authorities disallowing recovery of costs related to closure of ash basins could have an adverse impact on Duke Energy Indiana's results of operations, financial position and cash flows.
Duke Energy Indiana filed a general rate case with the IURC on July 2, 2019, its first general rate case in Indiana in 16 years. The outcome of this rate case could materially impact Duke Energy Indiana's results of operations, financial position and cash flows. See Note 4 to the Consolidated Financial Statements, "Regulatory Matters," for additional information.
Within this Item 7, see Liquidity and Capital Resources for discussion of risks associated with the Tax Act.
PIEDMONT
Results of Operations
 Years Ended December 31,
(in millions)2019
 2018
 Variance
Operating Revenues$1,381
 $1,375
 $6
Operating Expenses     
Cost of natural gas532
 584
 (52)
Operation, maintenance and other328
 357
 (29)
Depreciation and amortization172
 159
 13
Property and other taxes45
 49
 (4)
Total operating expenses1,077
 1,149
 (72)
Operating Income304
 226
 78
Equity in earnings of unconsolidated affiliates8
 7
 1
Other income and expenses, net20
 14
 6
Total other income and expenses28
 21
 7
Interest Expense87
 81
 6
Income Before Income Taxes245
 166
 79
Income Tax Expense43
 37
 6
Net Income$202
 $129
 $73
The following table shows the percent changes in Dth 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 year2019
2018
Residential deliveries(8.0)%23.6 %
Commercial deliveries(4.6)%14.9 %
Industrial deliveries1.7 %4.2 %
Power generation deliveries(11.8)%23.6 %
For resale4.8 %17.0 %
Total throughput deliveries(8.2)%19.0 %
Secondary market volumes(0.5)%(8.1)%
Average number of customers1.4 %1.6 %
Piedmont's throughput was 511,243,774 Dth and 557,145,128 Dth for the years ended December 31, 2019, and 2018, respectively. Due to the margin decoupling mechanism in North Carolina, WNA mechanisms in South Carolina and Tennessee and fixed price contracts with most power generation customers, changes in throughput deliveries do not have a material impact on Piedmont's revenues or earnings. The margin decoupling mechanism adjusts for variations in residential and commercial use per customer, including those due to weather and conservation. The WNA mechanisms mostly offset the impact of weather on bills rendered, but do not ensure full recovery of approved margin during periods when winter weather is significantly warmer or colder than normal.
Year Ended December 31, 2019, as compared to 2018
Operating Revenues. The variance was driven primarily by:
a $24 million increase due to North Carolina base rate case increases;
a $19 million increase due to North Carolina and Tennessee IMR increases; and

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MD&APIEDMONT


an $11 million increase due to NCUC approval related to tax reform accounting from fixed rate contracts.
Partially offset by:
a $52 million decrease due to lower natural gas costs passed through to customers.
Operating Expenses. The variance was driven primarily by:
a $52 million decrease in cost of natural gas due to lower natural gas prices; and
a $29 million decrease in operation, maintenance and other expense due to lower information technology outside services and labor costs.
Partially offset by:
a $13 million increase in depreciation and amortization expense due to additional plant in service.
Matters Impacting Future Results
Within this Item 7, see Liquidity and Capital Resources for discussion of risks associated with the Tax Act.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Preparation of financial statements requires the application of accounting policies, judgments, assumptions and estimates that can significantly affect the reported results of operations, cash flows or the amounts of assets and liabilities recognized in the financial statements. Judgments made include the likelihood of success of particular projects, possible legal and regulatory challenges, earnings assumptions on pension and other benefit fund investments and anticipated recovery of costs, especially through regulated operations. 
Management discusses these policies, estimates and assumptions with senior members of management on a regular basis and provides periodic updates on management decisions to the Audit Committee. Management believes the areas described below require significant judgment in the application of accounting policy or in making estimates and assumptions that are inherently uncertain and that may change in subsequent periods.
For further information, see Note 1 to the Consolidated Financial Statements, "Summary of Significant Accounting Policies."
Regulated Operations Accounting
Substantially all of Duke Energy’s regulated operations meet the criteria for application of regulated operations accounting treatment. As a result, Duke Energy is required to record assets and liabilities that would not be recorded for nonregulated entities. Regulatory assets generally represent incurred costs that have been deferred because such costs are probable of future recovery in customer rates. Regulatory liabilities are recorded when it is probable that a regulator will require Duke Energy to make refunds to customers or reduce rates to customers for previous collections or deferred revenue for costs that have yet to be incurred.
Management continually assesses whether recorded regulatory assets are probable of future recovery by considering factors such as:
applicable regulatory environment changes;
historical regulatory treatment for similar costs in Duke Energy’s jurisdictions;
litigation of rate orders;
recent rate orders to other regulated entities;
levels of actual return on equity compared to approved rates of return on equity; and
the status of any pending or potential deregulation legislation.
If future recovery of costs ceases to be probable, asset write-offs would be recognized in operating income. Additionally, regulatory agencies can provide flexibility in the manner and timing of the depreciation of property, plant and equipment, recognition of asset retirement costs and amortization of regulatory assets, or may disallow recovery of all or a portion of certain assets.
As required by regulated operations accounting rules, significant judgment can be required to determine if an otherwise recognizable incurred cost qualifies to be deferred for future recovery as a regulatory asset. Significant judgment can also be required to determine if revenues previously recognized are for entity specific costs that are no longer expected to be incurred or have not yet been incurred and are therefore a regulatory liability.
Goodwill Impairment Assessments
Duke Energy performed its annual goodwill impairment tests for all reporting units as of August 31, 2019. Additionally, Duke Energy monitors all relevant events and circumstances during the year to determine if an interim impairment test is required. Such events and circumstances include an adverse regulatory outcome, declining financial performance and deterioration of industry or market conditions. As of August 31, 2019, all of the reporting units' estimated fair value of equity substantially exceeded the carrying value of equity. The fair values of the reporting units were calculated using a weighted combination of the income approach, which estimates fair value based on discounted cash flows, and the market approach, which estimates fair value based on market comparables within the utility and energy industries.

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Estimated future cash flows under the income approach are based on Duke Energy’s internal business plan. Significant assumptions used are growth rates, future rates of return expected to result from ongoing rate regulation and discount rates. Management determines the appropriate discount rate for each of its reporting units based on the WACC for each individual reporting unit. The WACC takes into account both the after-tax cost of debt and cost of equity. A major component of the cost of equity is the current risk-free rate on 20-year U.S. Treasury bonds. In the 2019 impairment tests, Duke Energy considered implied WACCs for certain peer companies in determining the appropriate WACC rates to use in its analysis. As each reporting unit has a different risk profile based on the nature of its operations, including factors such as regulation, the WACC for each reporting unit may differ. Accordingly, the WACCs were adjusted, as appropriate, to account for company specific risk premiums. The discount rates used for calculating the fair values as of August 31, 2019, for each of Duke Energy’s reporting units ranged from 5.2% to 5.9%. The underlying assumptions and estimates are made as of a point in time. Subsequent changes, particularly changes in the discount rates, authorized regulated rates of return or growth rates inherent in management’s estimates of future cash flows, could result in future impairment charges.
One of the most significant assumptions utilized in determining the fair value of reporting units under the market approach is implied market multiples for certain peer companies. Management selects comparable peers based on each peer’s primary business mix, operations, and market capitalization compared to the applicable reporting unit and calculates implied market multiples based on available projected earnings guidance and peer company market values as of August 31.
Duke Energy primarily operates in environments that are rate-regulated. In such environments, revenue requirements are adjusted periodically by regulators based on factors including levels of costs, sales volumes and costs of capital. Accordingly, Duke Energy’s regulated utilities operate to some degree with a buffer from the direct effects, positive or negative, of significant swings in market or economic conditions. However, significant changes in discount rates over a prolonged period may have a material impact on the fair value of equity.
For further information, see Note 12 to the Consolidated Financial Statements, "Goodwill and Intangible Assets."
Asset Retirement Obligations
AROs are recognized for legal obligations associated with the retirement of property, plant and equipment at the present value of the projected liability in the period in which it is incurred, if a reasonable estimate of fair value can be made.
The present value of the initial obligation and subsequent updates are based on discounted cash flows, which include estimates regarding timing of future cash flows, selection of discount rates and cost escalation rates, among other factors. These estimates are subject to change.
Obligations for nuclear decommissioning are based on site-specific cost studies. Duke Energy Carolinas and Duke Energy Progress assume prompt dismantlement of the nuclear facilities after operations are ceased. During 2019, Duke Energy Florida, entered into an agreement for the accelerated decommissioning of the Crystal River Unit 3 nuclear power station. Closing of this agreement is contingent upon approval of the NRC and FPSC. The retirement obligations for the decommissioning of Crystal River Unit 3 nuclear power station are measured using probability weightings of an obligation based on accelerated decommissioning from 2020 continuing through 2027 and an obligation based on the unit in SAFSTOR, with decommissioning beginning in 2067 and ending in 2074. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida also assume that spent fuel will be stored on-site until such time that it can be transferred to a yet to be built DOE facility.
Obligations for closure of ash basins are based upon discounted cash flows of estimated costs for site-specific plans. During 2019, Duke Energy reached a settlement agreement with the NCDEQ and SELC to excavate 7 and partially excavate 2 of the remaining ash basins in Duke Energy Carolinas and Duke Energy Progress service territories. In 2019, Duke Energy Carolinas and Duke Energy Progress remeasured their obligations to reflect the results of the settlement.
For further information, see Notes 4, 5 and 10 to the Consolidated Financial Statements, "Regulatory Matters," "Commitments and Contingencies" and "Asset Retirement Obligations."
Long-Lived Asset Impairment Assessments, Excluding Regulated Operations
Duke Energy evaluates property, plant and equipment for impairment when events or changes in circumstances (such as a significant change in cash flow projections or the determination that it is more likely than not that an asset or asset group will be sold) indicate the carrying value of such assets may not be recoverable. The determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows attributable to the assets, as compared with their carrying value.
Performing an impairment evaluation involves a significant degree of estimation and judgment in areas such as identifying circumstances that indicate an impairment may exist, identifying and grouping affected assets and developing the undiscounted future cash flows. If an impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value and recording a loss if the carrying value is greater than the fair value. Additionally, determining fair value requires probability weighting future cash flows to reflect expectations about possible variations in their amounts or timing and the selection of an appropriate discount rate. Although cash flow estimates are based on relevant information available at the time the estimates are made, estimates of future cash flows are, by nature, highly uncertain and may vary significantly from actual results.
When determining whether an asset or asset group has been impaired, management groups assets at the lowest level that has discrete cash flows.
During 2019, Duke Energy sold a minority interest in a portion of certain Commercial Renewable assets. Following the sale, Duke Energy evaluated recoverability of the assets included in the sale as the fair value of consideration received for the portfolio was less than the carrying value of the assets. It was determined the assets were all recoverable. Additionally, Duke Energy evaluated recoverability of certain renewable merchant plants during 2019 due to declining market pricing and declining long-term forecasted energy prices. It was determined the assets were all recoverable as the carrying value of the assets approximated the aggregate estimated future cash flows.

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For further information, see Notes 3 and 11 to the Consolidated Financial Statements, "Business Segments" and "Property, Plant and Equipment."
Equity Method Investments
Equity method investments are assessed for impairment when conditions exist that indicate that the fair value of the investment is less than book value. If the decline in value is considered to be other-than-temporary, an impairment charge is recorded and the investment is written down to its estimated fair value, which establishes a new cost basis in the investment.
Events or changes in circumstances are monitored that may indicate, in management’s judgment, the carrying value of such investments may have experienced an other-than-temporary decline in value. The fair value of equity method investments is generally estimated using an income approach where significant judgments and assumptions include expected future cash flows, the appropriate discount rate, and probability weighted-scenarios, if applicable. In certain instances, a market approach may also be used to estimate the fair value of the equity method investment.
Events or changes in circumstances that may be indicative of an other-than-temporary decline in value will vary by investment, but may include:
Significant delays in or failure to complete significant growth projects of investees;
Adverse regulatory actions expected to substantially reduce the investee’s product demand or profitability;
Expected financial performance significantly worse than anticipated when initially invested;
Prolonged period the fair value is below carrying value;
A significant or sustained decline in the market value of an investee;
Lower than expected cash distributions from investees;
Significant asset impairments or operating losses recognized by investees; and
Loss of significant customers or suppliers with no immediate prospects for replacement.
ACP
As of December 31, 2019, the carrying value of the equity method investment in ACP is $1.2 billion, and Duke Energy's maximum exposure to loss for its guarantee of the ACP revolving credit facility is $827 million. During 2018 and 2019, ACP received several adverse court rulings as described in Note 4 to the Consolidated Financial Statements, "Regulatory Matters." As a result, Duke Energy evaluated this investment for impairment and determined that fair value approximated carrying value and therefore no impairment was necessary.
Duke Energy estimated the fair value of its investment in ACP using an income approach that primarily considered probability-weighted scenarios of discounted future net cash flows based on the most recent estimate of total construction costs and revenues. These scenarios included assumptions of various court decisions and the impact those decisions may have on the timing and extent of investment, including scenarios assuming the full resolution of permitting issues in addition to a scenario where the project does not proceed. Certain scenarios within the analysis included growth expectations from additional compression or other expansion opportunities and reopeners for pricing. An after-tax discount rate of 5.9% was used in the analysis. The discount rate was derived using a market participant approach with an adjusted risk premium for the underlying investment. Higher probabilities were generally assigned to those scenarios where court approvals were received and the project moves forward reflecting interim rates at prices subject to the reopeners. A low probability was assigned to the scenario where the project does not proceed.
Judgments and assumptions are inherent in our estimates of future cash flows, discount rates, growth assumptions, and the likelihood of various scenarios. It is reasonably possible that future unfavorable developments, such as a reduced likelihood of success with court approvals, increased estimates of construction costs, material increases in the discount rate, important feedback on customer price increases or further significant delays, could result in a future impairment.
For further information on ACP, see Notes 4 and 13 to the Consolidated Financial Statements, "Regulatory Matters" and "Investments in Unconsolidated Affiliates".
Pension and Other Post-Retirement Benefits
The calculation of pension expense, other post-retirement benefit expense and net pension and other post-retirement assets or liabilities require the use of assumptions and election of permissible accounting alternatives. Changes in assumptions can result in different expense and reported asset or liability amounts and future actual experience can differ from the assumptions. Duke Energy believes the most critical assumptions for pension and other post-retirement benefits are:
the expected long-term rate of return on plan assets;
the assumed discount rate applied to future projected benefit payments; and
the heath care cost trend rate.

Duke Energy elects to amortize net actuarial gain or loss amounts that are in excess of 10% of the greater of the market-related value of plan assets or the plan's projected benefit obligation, into net pension or other post-retirement benefit expense over the average remaining service period of active participants expected to benefit under the plan. If all or almost all of a plan's participants are inactive, the average remaining life expectancy of the inactive participants is used instead of average remaining service period. Prior service cost or credit, which represents an increase or decrease in a plan's pension benefit obligation resulting from plan amendment, is amortized on a straight-line basis over the average expected remaining service period of active participants expected to benefit under the plan. If all or almost all of a plan's participants are inactive, the average remaining life expectancy of the inactive participants is used instead of average remaining service period.

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As of December 31, 2019, Duke Energy assumes pension and other post-retirement plan assets will generate a long-term rate of return of 6.85%. The expected long-term rate of return was developed using a weighted average calculation of expected returns based primarily on future expected returns across asset classes considering the use of active asset managers, where applicable. The asset allocation targets were set after considering the investment objective and the risk profile. Equity securities are held for their higher expected returns. Debt securities are primarily held to hedge the qualified pension liability. Real assets, return-seeking fixed income, hedge funds and other global securities are held for diversification. Investments within asset classes are diversified to achieve broad market participation and reduce the impact of individual managers on investments. 
Duke Energy discounted its future U.S. pension and other post-retirement obligations using a rate of 3.3% as of December 31, 2019. Discount rates used to measure benefit plan obligations for financial reporting purposes reflect rates at which pension benefits could be effectively settled. As of December 31, 2019, Duke Energy determined its discount rate for U.S. pension and other post-retirement obligations using a bond selection-settlement portfolio approach. This approach develops a discount rate by selecting a portfolio of high quality corporate bonds that generate sufficient cash flow to provide for projected benefit payments of the plan. The selected bond portfolio is derived from a universe of non-callable corporate bonds rated Aa quality or higher. After the bond portfolio is selected, a single interest rate is determined that equates the present value of the plan’s projected benefit payments discounted at this rate with the market value of the bonds selected.
Future changes in plan asset returns, assumed discount rates and various other factors related to the participants in Duke Energy’s pension and post-retirement plans will impact future pension expense and liabilities. Duke Energy cannot predict with certainty what these factors will be in the future. The following table presents the approximate effect on Duke Energy’s 2019 pretax pension expense, pretax other post-retirement expense, pension obligation and other post-retirement benefit obligation if a 0.25% change in rates were to occur.
 Qualified and Non- Other Post-Retirement
 Qualified Pension Plans Plans
(in millions)0.25% (0.25)% 0.25% (0.25)%
Effect on 2019 pretax pension and other post-retirement expense       
Expected long-term rate of return$(21) $21
 $(1) $1
Discount rate(9) 9
 
 (1)
Effect on pension and other post-retirement benefit obligation at December 31, 2019 
  
  
  
Discount rate(197) 201
 (14) 14
Duke Energy’s other post-retirement plan uses a health care cost trend rate covering both pre- and post-age 65 retired plan participants, which is comprised of a medical care cost trend rate, which reflects the near- and long-term expectation of increases in medical costs, and a prescription drug cost trend rate, which reflects the near- and long-term expectation of increases in prescription drug costs. As of December 31, 2019, the health care cost trend rate was 6.0%, trending down to 4.75% by 2026. These plans are closed to new employees.
For further information, see Note 23 to the Consolidated Financial Statements, “Employee Benefit Plans.”

LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Duke Energy relies primarily upon cash flows from operations, debt and equity issuances and its existing cash and cash equivalents to fund its liquidity and capital requirements. Duke Energy’s capital requirements arise primarily from capital and investment expenditures, repaying long-term debt and paying dividends to shareholders.
Among other provisions, the Tax Act lowered the corporate federal income tax rate from 35% to 21% and eliminated bonus depreciation for regulated utilities. For Duke Energy’s regulated operations, the reduction in federal income taxes will result in lower regulated customer rates. However, due to its existing NOL position and other tax credits, Duke Energy does not expect to be a significant federal cash tax payer through at least 2027. As a result, any reduction in customer rates could cause a material reduction in consolidated cash flows from operations in the short term. Over time, the reduction in deferred tax liabilities resulting from the Tax Act will increase Duke Energy’s regulated rate base investments and customer rates. Impacts of Tax Act to Duke Energy’s cash flows and credit metrics are subject to the regulatory actions of its state commissions, of which a substantial amount remain uncertain through ongoing rate case activity, and the FERC. See Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” for additional information.
The Subsidiary Registrants generally maintain minimal cash balances and use short-term borrowings to meet their working capital needs and other cash requirements. The Subsidiary Registrants, excluding Progress Energy, support their short-term borrowing needs through participation with Duke Energy and certain of its other subsidiaries in a money pool arrangement. The companies with short-term funds may provide short-term loans to affiliates participating under this arrangement. See Note 7 to the Consolidated Financial Statements, “Debt and Credit Facilities,” for additional discussion of the money pool arrangement.
Duke Energy and the Subsidiary Registrants, excluding Progress Energy, may also use short-term debt, including commercial paper and the money pool, as a bridge to long-term debt financings. The levels of borrowing may vary significantly over the course of the year due to the timing of long-term debt financings and the impact of fluctuations in cash flows from operations. From time to time, Duke Energy’s current liabilities exceed current assets resulting from the use of short-term debt as a funding source to meet scheduled maturities of long-term debt, as well as cash needs, which can fluctuate due to the seasonality of its businesses.

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MD&ALIQUIDITY AND CAPITAL RESOURCES


Equity Issuance
In order to strengthen its balance sheet and credit metrics and bolster cash flows, in November 2019, Duke Energy entered into forward sales agreements for $2.5 billion of common stock equity expected to be settled in late 2020. Duke Energy plans to issue $500 million of common stock equity per year through at least 2022 through the DRIP and ATM programs. Additionally, Duke Energy will utilize other instruments as needed. See Note 20 to the Consolidated Financial Statements, "Stockholders' Equity," for further information regarding Duke Energy's equity issuances in 2019.
Credit Facilities and Registration Statements
See Note 7 to the Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding credit facilities and shelf registration statements available to Duke Energy and the Duke Energy Registrants.
CAPITAL EXPENDITURES
Duke Energy continues to focus on reducing risk and positioning its business for future success and will invest principally in its strongest business sectors. Duke Energy’s projected capital and investment expenditures, including AFUDC debt and capitalized interest, for the next three fiscal years are included in the table below.
(in millions)2020
2021
2022
New generation$115
$230
$475
Regulated renewables515
450
410
Environmental975
725
750
Nuclear fuel465
410
415
Major nuclear405
285
175
Customer additions630
630
620
Grid modernization and other transmission and distribution projects3,345
3,845
4,380
Maintenance and other2,275
1,925
2,050
Total Electric Utilities and Infrastructure8,725
8,500
9,275
Gas Utilities and Infrastructure2,275
1,950
1,150
Commercial Renewables and Other825
875
725
Total projected capital and investment expenditures$11,825
$11,325
$11,150
DEBT MATURITIES
See Note 7 to the Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding significant components of Current Maturities of Long-Term Debt on the Consolidated Balance Sheets.
DIVIDEND PAYMENTS
In 2019, Duke Energy paid quarterly cash dividends for the 93rd consecutive year and expects to continue its policy of paying regular cash dividends in the future. There is no assurance as to the amount of future dividends because they depend on future earnings, capital requirements, financial condition and are subject to the discretion of the Board of Directors.
Duke Energy targets a dividend payout ratio of between 65% and 75%, based upon adjusted diluted EPS, and expects this trend to continue through 2024. In 2019 and 2018, Duke Energy increased the dividend by approximately 2% and 4%, respectively, and the company remains committed to continued growth of the dividend.
Dividend and Other Funding Restrictions of Duke Energy Subsidiaries
As discussed in Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” Duke Energy’s wholly owned public utility operating companies have restrictions on the amount of funds that can be transferred to Duke Energy through dividends, advances or loans as a result of conditions imposed by various regulators in conjunction with merger transactions. Duke Energy Progress and Duke Energy Florida also have restrictions imposed by their first mortgage bond indentures and Articles of Incorporation, which in certain circumstances, limit their ability to make cash dividends or distributions on common stock. Additionally, certain other Duke Energy subsidiaries have other restrictions, such as minimum working capital and tangible net worth requirements pursuant to debt and other agreements that limit the amount of funds that can be transferred to Duke Energy. At December 31, 2019, the amount of restricted net assets of wholly owned subsidiaries of Duke Energy that may not be distributed to Duke Energy in the form of a loan or dividend does not exceed a material amount of Duke Energy’s net assets. Duke Energy does not have any legal or other restrictions on paying common stock dividends to shareholders out of its consolidated equity accounts. Although these restrictions cap the amount of funding the various operating subsidiaries can provide to Duke Energy, management does not believe these restrictions will have a significant impact on Duke Energy’s ability to access cash to meet its payment of dividends on common stock and other future funding obligations.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows from operations of Electric Utilities and Infrastructure and Gas Utilities and Infrastructure are primarily driven by sales of electricity and natural gas, respectively, and costs of operations. These cash flows from operations are relatively stable and comprise a substantial portion of Duke Energy’s operating cash flows. Weather conditions, working capital and commodity price fluctuations and unanticipated expenses including unplanned plant outages, storms, legal costs and related settlements can affect the timing and level of cash flows from operations.

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MD&ALIQUIDITY AND CAPITAL RESOURCES


Duke Energy believes it has sufficient liquidity resources through the commercial paper markets, and ultimately, the Master Credit Facility, to support these operations. Cash flows from operations are subject to a number of other factors, including, but not limited to, regulatory constraints, economic trends and market volatility (see Item 1A, “Risk Factors,” for additional information).
At December 31, 2019, Duke Energy had cash and cash equivalents and short-term investments of $311 million.
DEBT ISSUANCES
Depending on availability based on the issuing entity, the credit rating of the issuing entity, and market conditions, the Subsidiary Registrants prefer to issue first mortgage bonds and secured debt, followed by unsecured debt. This preference is the result of generally higher credit ratings for first mortgage bonds and secured debt, which typically result in lower interest costs. Duke Energy Corporation primarily issues unsecured debt.
In 2020, Duke Energy anticipates issuing additional debt of $5.2 billion, primarily for the purpose of funding capital expenditures and debt maturities. See to Note 7 to the Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding significant debt issuances in 2019.
Duke Energy’s capitalization is balanced between debt and equity as shown in the table below.
 Projected 2020
 Actual 2019
 Actual 2018
Equity45% 44% 43%
Debt55% 56% 57%
Restrictive Debt Covenants
Duke Energy’s debt and credit agreements contain various financial and other covenants. Duke Energy's Master Credit Facility contains a covenant requiring the debt-to-total capitalization ratio to not exceed 65% for each borrower, excluding Piedmont, and 70% for Piedmont. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements or sublimits thereto. As of December 31, 2019, each of the Duke Energy Registrants was in compliance with all covenants related to their debt agreements. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the debt or credit agreements contain material adverse change clauses.

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MD&ALIQUIDITY AND CAPITAL RESOURCES


Credit Ratings
Moody’s Investors Service, Inc. and S&P provide credit ratings for various Duke Energy Registrants. In January 2020, Fitch Ratings, Inc. publicly announced plans to withdraw the ratings on Duke Energy Corporation on or about February 20, 2020. The following table includes Duke Energy and certain subsidiaries’ credit ratings and ratings outlook as of February 2020.
 Moody's S&P 
Duke Energy CorporationStable Stable 
Issuer Credit RatingBaa1 A- 
Senior Unsecured DebtBaa1 BBB+ 
Commercial PaperP-2 A-2 
Duke Energy CarolinasStable Stable 
Senior Secured DebtAa2 A 
Senior Unsecured DebtA1 A- 
Progress EnergyStable Stable 
Senior Unsecured DebtBaa1 BBB+ 
Duke Energy ProgressStable Stable 
Senior Secured DebtAa3 A 
Duke Energy FloridaStable Stable 
Senior Secured DebtA1 A 
Senior Unsecured DebtA3 A- 
Duke Energy OhioStable Stable 
Senior Secured DebtA2 A 
Senior Unsecured DebtBaa1 A- 
Duke Energy IndianaStable Stable 
Senior Secured DebtAa3 A 
Senior Unsecured DebtA2 A- 
Duke Energy KentuckyStable Stable 
Senior Unsecured DebtBaa1 A- 
Piedmont Natural GasStable Stable 
Senior UnsecuredA3 A- 
Credit ratings are intended to provide credit lenders a framework for comparing the credit quality of securities and are not a recommendation to buy, sell or hold. The Duke Energy Registrants’ credit ratings are dependent on the rating agencies’ assessments of their ability to meet their debt principal and interest obligations when they come due. If, as a result of market conditions or other factors, the Duke Energy Registrants are unable to maintain current balance sheet strength, or if earnings and cash flow outlook materially deteriorates, credit ratings could be negatively impacted.
Cash Flow Information
The following table summarizes Duke Energy’s cash flows for the two most recently completed fiscal years.
 Years Ended December 31,
(in millions)2019
 2018
Cash flows provided by (used in):   
Operating activities$8,209
 $7,186
Investing activities(11,957) (10,060)
Financing activities3,730
 2,960
Net (decrease) increase in cash, cash equivalents and restricted cash(18) 86
Cash, cash equivalents and restricted cash at beginning of period591
 505
Cash, cash equivalents and restricted cash at end of period$573
 $591

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OPERATING CASH FLOWS
The following table summarizes key components of Duke Energy’s operating cash flows for the two most recently completed fiscal years.
 Years Ended December 31,
(in millions)2019

2018
 Variance
Net income$3,571
 $2,644
 $927
Non-cash adjustments to net income5,761
 6,447
 (686)
Contributions to qualified pension plans(77) (141) 64
Payments for AROs(746) (533) (213)
Payment for disposal of other assets
 (105) 105
Refund of AMT credit carryforwards573
 
 573
Working capital(873) (1,126) 253
Net cash provided by operating activities$8,209

$7,186
 $1,023
The variance was driven primarily by:
a $241 million increase in net income after adjustment for non-cash items primarily due to increases in revenues as a result of rate increases in the current year, partially offset by decreases in current year non-cash adjustments;
a $573 million refund of AMT credit carryforwards;
a $253 million decrease in cash outflows from working capital primarily due to fluctuations in accounts receivable balances, including a prior year increase for AMT refunds, and prior year increases in regulatory assets related to fuel costs, partially offset by fluctuations in inventory levels and current year decreases in property tax and severance accruals; and
a $105 million payment in the prior year for disposal of Beckjord.
Partially offset by:
a $213 million increase in payments for AROs.
INVESTING CASH FLOWS
The following table summarizes key components of Duke Energy’s investing cash flows for the two most recently completed fiscal years.
 Years Ended December 31,
(in millions)2019

2018
 Variance
Capital, investment and acquisition expenditures, net of return of investment capital$(11,435) $(9,668) $(1,767)
Debt and equity securities, net(5) (15) 10
Other investing items(517) (377) (140)
Net cash used in investing activities$(11,957)
$(10,060) $(1,897)
The primary use of cash related to investing activities is capital, investment and acquisition expenditures, net of return of investment capital detailed by reportable business segment in the following table. The increase includes expenditures related to line improvements in the Electric Utilities and Infrastructure segment and pipeline construction and improvement in the Gas Utilities and Infrastructure segment, as well as increased investment in the Commercial Renewables segment.
 Years Ended December 31,
(in millions)2019

2018

Variance
Electric Utilities and Infrastructure$8,258
 $8,086
 $172
Gas Utilities and Infrastructure1,533
 1,133
 400
Commercial Renewables1,423
 193
 1,230
Other221
 256
 (35)
Total capital, investment and acquisition expenditures, net of return of investment capital$11,435

$9,668

$1,767

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MD&ALIQUIDITY AND CAPITAL RESOURCES


FINANCING CASH FLOWS
The following table summarizes key components of Duke Energy’s financing cash flows for the two most recently completed fiscal years.
 Years Ended December 31,
(in millions)2019
 2018
 Variance
Issuance of common stock$384
 $1,838
 $(1,454)
Issuance of preferred stock1,962
 
 1,962
Issuances of long-term debt, net3,615
 2,393
 1,222
Notes payable and commercial paper(380) 1,171
 (1,551)
Dividends paid(2,668) (2,471) (197)
Contributions from noncontrolling interests843
 41
 802
Other financing items(26) (12) (14)
Net cash provided by financing activities$3,730
 $2,960
 $770
The variance was driven primarily by:
a $1,962 million increase in proceeds from the issuance of preferred stock;
a $1,222 million net increase in proceeds from issuances of long-term debt primarily due to timing of issuances and redemptions of long-term debt; and
an $802 million increase in contributions from noncontrolling interests, including $415 million related to the sale of a noncontrolling interest in the Commercial Renewables segment.
Partially offset by:
a $1,454 million decrease in proceeds from the issuance of common stock; and
a $1,551 million decrease in net borrowings from notes payable and commercial paper primarily due to the use of proceeds from the preferred stock issuance and increased long-term debt issuances used to pay down outstanding commercial paper.
Off-Balance Sheet Arrangements
Duke Energy and certain of its subsidiaries enter into guarantee arrangements in the normal course of business to facilitate commercial transactions with third parties. These arrangements include performance guarantees, standby letters of credit, debt guarantees, surety bonds and indemnifications.
Most of the guarantee arrangements entered into by Duke Energy enhance the credit standing of certain subsidiaries, non-consolidated entities or less than wholly owned entities, enabling them to conduct business. As such, these guarantee arrangements involve elements of performance and credit risk, which are not always included on the Consolidated Balance Sheets. The possibility of Duke Energy, either on its own or on behalf of Spectra Capital through indemnification agreements entered into as part of the January 2, 2007, spin-off of Spectra Energy Corp, having to honor its contingencies is largely dependent upon the future operations of the subsidiaries, investees and other third parties, or the occurrence of certain future events.
Duke Energy performs ongoing assessments of its respective guarantee obligations to determine whether any liabilities have been incurred as a result of potential increased non-performance risk by third parties for which Duke Energy has issued guarantees. See Note 8 to the Consolidated Financial Statements, “Guarantees and Indemnifications,” for further details of the guarantee arrangements. Issuance of these guarantee arrangements is not required for the majority of Duke Energy’s operations. Thus, if Duke Energy discontinued issuing these guarantees, there would not be a material impact to the consolidated results of operations, cash flows or financial position.
In November 2019, Duke Energy executed equity forward sales agreements. Settlement of the forward sales agreements are expected to occur on or prior to December 31, 2020. See Note 20 to the Consolidated Financial Statements, “Stockholders’ Equity” for further details on the equity forward sales agreements.
Other than the guarantee arrangements discussed above, the equity forward sales agreements and off-balance sheet debt related to non-consolidated VIEs, Duke Energy does not have any material off-balance sheet financing entities or structures. For additional information, see Note 18 to the Consolidated Financial Statements, "Variable Interest Entities".

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MD&AOFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS


Contractual Obligations
Duke Energy enters into contracts that require payment of cash at certain specified periods, based on certain specified minimum quantities and prices. The following table summarizes Duke Energy’s contractual cash obligations as of December 31, 2019.
 Payments Due By Period
         More than
   Less than
 2-3 years
 4-5 years
 5 years
   1 year
 (2021 &
 (2023 &
 (2025 &
(in millions)Total
 (2020)
 2022)
 2024)
 beyond)
Long-term debt(a)
$56,174
 $3,021
 $9,135
 $4,870
 $39,148
Interest payments on long-term debt(b)
33,988
 2,163
 3,986
 3,516
 24,323
Finance leases(c)
1,659
 181
 359
 296
 823
Operating leases(c)
2,036
 268
 417
 367
 984
Purchase obligations:(d)
 
  
  
  
  
Fuel and purchased power(e)(f)
26,250
 4,124
 5,390
 3,798
 12,938
Other purchase obligations(g)
5,456
 4,836
 322
 76
 222
Nuclear decommissioning trust annual funding(h)
606
 24
 62
 62
 458
Land easements(i)
217
 9
 18
 20
 170
Total contractual cash obligations(j)(k)
$126,386
 $14,626
 $19,689
 $13,005
 $79,066
(a)See Note 7 to the Consolidated Financial Statements, “Debt and Credit Facilities.”
(b)Interest payments on variable rate debt instruments were calculated using December 31, 2019, interest rates and holding them constant for the life of the instruments.
(c)See Note 6 to the Consolidated Financial Statements, “Leases.” Amounts in the table above include the interest component of finance leases based on the interest rates stated in the lease agreements and exclude certain related executory costs. Amounts exclude contingent lease obligations.
(d)Current liabilities, except for current maturities of long-term debt, and purchase obligations reflected on the Consolidated Balance Sheets have been excluded from the above table.
(e)Includes firm capacity payments that provide Duke Energy with uninterrupted firm access to electricity transmission capacity and natural gas transportation contracts, as well as undesignated contracts and contracts that qualify as NPNS. For contracts where the price paid is based on an index, the amount is based on market prices at December 31, 2019, or the best projections of the index. For certain of these amounts, Duke Energy may settle on a net cash basis since Duke Energy has entered into payment netting arrangements with counterparties that permit Duke Energy to offset receivables and payables with such counterparties.
(f)Amounts exclude obligations under the OVEC PPA. See Note 18 to the Consolidated Financial Statements, "Variable Interest Entities," for additional information.
(g)Includes contracts for software, telephone, data and consulting or advisory services. Amount also includes contractual obligations for EPC costs for new generation plants, wind and solar facilities, plant refurbishments, maintenance and day-to-day contract work and commitments to buy certain products. Amount excludes certain open purchase orders for services that are provided on demand for which the timing of the purchase cannot be determined.
(h)Related to future annual funding obligations to NDTF through nuclear power stations' relicensing dates. See Note 10 to the Consolidated Financial Statements, "Asset Retirement Obligations."
(i)Related to Commercial Renewables wind facilities.
(j)Unrecognized tax benefits of $126 million are not reflected in this table as Duke Energy cannot predict when open income tax years will close with completed examinations. See Note 24 to the Consolidated Financial Statements, "Income Taxes."
(k)The table above excludes reserves for litigation, environmental remediation, asbestos-related injuries and damages claims and self-insurance claims (see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies”) because Duke Energy is uncertain as to the timing and amount of cash payments that will be required. Additionally, the table above excludes annual insurance premiums that are necessary to operate the business, including nuclear insurance (see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies”), funding of pension and other post-retirement benefit plans (see Note 23 to the Consolidated Financial Statements, "Employee Benefit Plans"), AROs, including ash management expenditures (see Note 10 to the Consolidated Financial Statements, "Asset Retirement Obligations") and regulatory liabilities (see Note 4 to the Consolidated Financial Statements, “Regulatory Matters”) because the amount and timing of the cash payments are uncertain. Also excluded are Deferred Income Taxes and ITCs recorded on the Consolidated Balance Sheets since cash payments for income taxes are determined based primarily on taxable income for each discrete fiscal year.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Risk Management Policies
The Enterprise Risk Management policy framework at Duke Energy includes strategy, operational, project execution and financial or transaction related risks. Enterprise Risk Management includes market risk as part of the financial and transaction related risks in its framework.

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MD&AQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Duke Energy is exposed to market risks associated with commodity prices, interest rates and equity prices. Duke Energy has established comprehensive risk management policies to monitor and manage these market risks. Duke Energy’s Chief Executive Officer and Chief Financial Officer are responsible for the overall approval of market risk management policies and the delegation of approval and authorization levels. The Finance and Risk Management Committee of the Board of Directors receives periodic updates from the Chief Risk Officer and other members of management on market risk positions, corporate exposures and overall risk management activities. The Chief Risk Officer is responsible for the overall governance of managing commodity price risk, including monitoring exposure limits.
The following disclosures about market risk contain forward-looking statements that involve estimates, projections, goals, forecasts, assumptions, risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. See Item 1A, “Risk Factors,” and “Cautionary Statement Regarding Forward-Looking Information” for a discussion of the factors that may impact any such forward-looking statements made herein.
Commodity Price Risk
Duke Energy is exposed to the impact of market fluctuations in the prices of electricity, coal, natural gas and other energy-related products marketed and purchased as a result of its ownership of energy-related assets. Duke Energy’s exposure to these fluctuations is primarily limited by the cost-based regulation of its regulated operations as these operations are typically allowed to recover substantially all of these costs through various cost-recovery clauses, including fuel clauses, formula-based contracts, or other cost-sharing mechanisms. While there may be a delay in timing between when these costs are incurred and when they are recovered through rates, changes from year to year generally do not have a material impact on operating results of these regulated operations. Within Duke Energy’s Commercial Renewables segment, the company has limited exposure to market price fluctuations in prices of energy-related products as a result of its ownership of renewable assets.
Price risk represents the potential risk of loss from adverse changes in the market price of electricity or other energy commodities. Duke Energy’s exposure to commodity price risk is influenced by a number of factors, including contract size, length, market liquidity, location and unique or specific contract terms. Duke Energy employs established policies and procedures to manage risks associated with these market fluctuations, which may include using various commodity derivatives, such as swaps, futures, forwards and options. For additional information, see Note 15 to the Consolidated Financial Statements, “Derivatives and Hedging.”
Hedging Strategies
Duke Energy closely monitors risks associated with commodity price changes on its future operations and, where appropriate, uses various commodity instruments such as electricity, coal and natural gas forward contracts and options to mitigate the effect of such fluctuations on operations. Duke Energy’s primary use of energy commodity derivatives is to hedge against exposure to the prices of power, fuel for generation and natural gas for customers. Additionally, Duke Energy’s Commercial Renewables business may enter into short-term or long-term hedge agreements to manage price risk associated with project output.
The majority of instruments used to manage Duke Energy’s commodity price exposure are either not designated as hedges or do not qualify for hedge accounting. These instruments are referred to as undesignated contracts. Mark-to-market changes for undesignated contracts entered into by regulated businesses are reflected as regulatory assets or liabilities on the Consolidated Balance Sheets. Undesignated contracts entered into by unregulated businesses are marked-to-market each period, with changes in the fair value of the derivative instruments reflected in earnings.
Duke Energy may also enter into other contracts that qualify for the NPNS exception. When a contract meets the criteria to qualify as NPNS, Duke Energy applies such exception. Income recognition and realization related to NPNS contracts generally coincide with the physical delivery of the commodity. For contracts qualifying for the NPNS exception, no recognition of the contract’s fair value in the Consolidated Financial Statements is required until settlement of the contract as long as the transaction remains probable of occurring.
Generation Portfolio Risks 
The Duke Energy Registrants optimize the value of their generation portfolios, which include generation assets, fuel and emission allowances. Modeled forecasts of future generation output and fuel requirements are based on forward power and fuel markets. The component pieces of the portfolio are bought and sold based on models and forecasts of generation in order to manage the economic value of the portfolio in accordance with the strategies of the business units.
For the Electric Utilities and Infrastructure segment, the generation portfolio not utilized to serve retail operations or committed load is subject to commodity price fluctuations. However, the impact on the Consolidated Statements of Operations is partially offset by mechanisms in these regulated jurisdictions that result in the sharing of net profits from these activities with retail customers.
Interest Rate Risk
Duke Energy is exposed to risk resulting from changes in interest rates as a result of its issuance or anticipated issuance of variable and fixed-rate debt and commercial paper. Duke Energy manages interest rate exposure by limiting variable-rate exposures to a percentage of total debt and by monitoring the effects of market changes in interest rates. Duke Energy also enters into financial derivative instruments, which may include instruments such as, but not limited to, interest rate swaps, swaptions and U.S. Treasury lock agreements to manage and mitigate interest rate risk exposure. See Notes 1, 7, 15 and 17 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies,” “Debt and Credit Facilities,” “Derivatives and Hedging,” and “Fair Value Measurements.”
Duke Energy had $8.6 billion of unhedged long- and short-term floating interest rate exposure at December 31, 2019. The impact of a 100-basis point change in interest rates on pretax income is approximately $86 million at December 31, 2019. This amount was estimated by considering the impact of the hypothetical interest rates on variable-rate securities outstanding, adjusted for interest rate hedges as of December 31, 2019.

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MD&AQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Certain Duke Energy Registrants have variable-rate debt and manage interest rate risk by entering into financial contracts including interest rate swaps. See Notes 7 and 15 to the Consolidated Financial Statements, "Debt and Credit Facilities" and "Derivatives and Hedging." Such financial arrangements generally are indexed based upon LIBOR, which is expected to be phased out by the end of 2021. The Secured Overnight Financing Rate (SOFR) has been identified by regulators and industry participants as the preferred successor rate for U.S. dollar-based LIBOR at that time. Impacted financial arrangements extending beyond 2021 may require contractual amendment or termination and renegotiation to fully adapt to a post-LIBOR environment, and there may be uncertainty regarding the effectiveness of any such alternative index methodologies. Alternative index provisions are being assessed and incorporated into new financial arrangements that extend beyond 2021. Additionally, the progress of the phaseout is being monitored, including proposed transition relief from the FASB.
Credit Risk
Credit risk represents the loss that the Duke Energy Registrants would incur if a counterparty fails to perform under its contractual obligations. Where exposed to credit risk, the Duke Energy Registrants analyze the counterparty's financial condition prior to entering into an agreement and monitor exposure on an ongoing basis. The Duke Energy Registrants establish credit limits where appropriate in the context of contractual arrangements and monitor such limits.
To reduce credit exposure, the Duke Energy Registrants seek to include netting provisions with counterparties, which permit the offset of receivables and payables with such counterparties. The Duke Energy Registrants also frequently use master agreements with credit support annexes to further mitigate certain credit exposures. The master agreements provide for a counterparty to post cash or letters of credit to the exposed party for exposure in excess of an established threshold. The threshold amount represents a negotiated unsecured credit limit for each party to the agreement, determined in accordance with the Duke Energy Registrants’ internal corporate credit practices and standards. Collateral agreements generally also provide that the failure to post collateral when required is sufficient cause to terminate transactions and liquidate all positions.
The Duke Energy Registrants also obtain cash, letters of credit, or surety bonds from certain counterparties to provide credit support outside of collateral agreements, where appropriate, based on a financial analysis of the counterparty and the regulatory or contractual terms and conditions applicable to each transaction. See Note 15 to the Consolidated Financial Statements, “Derivatives and Hedging,” for additional information regarding credit risk related to derivative instruments.
The Duke Energy Registrants’ principal counterparties for its electric and natural gas businesses are RTOs, distribution companies, municipalities, electric cooperatives and utilities located throughout the U.S. Exposure to these entities consists primarily of amounts due to Duke Energy Registrants for delivered electricity. Additionally, there may be potential risks associated with remarketing of energy and capacity in the event of default by wholesale power customers. The Duke Energy Registrants have concentrations of receivables from certain of such entities that may affect the Duke Energy Registrants’ credit risk.
The Duke Energy Registrants are also subject to credit risk from transactions with their suppliers that involve prepayments or milestone payments in conjunction with outsourcing arrangements, major construction projects and certain commodity purchases. The Duke Energy Registrants’ credit exposure to such suppliers may take the form of increased costs or project delays in the event of non-performance. The Duke Energy Registrants' frequently require guarantees or letters of credit from suppliers to mitigate this credit risk.
Credit risk associated with the Duke Energy Registrants’ service to residential, commercial and industrial customers is generally limited to outstanding accounts receivable. The Duke Energy Registrants mitigate this credit risk by requiring tariff customers to provide a cash deposit, letter of credit or surety bond until a satisfactory payment history is established, subject to the rules and regulations in effect in each retail jurisdiction at which time the deposit is typically refunded. Charge-offs for retail customers have historically been insignificant to the operations of the Duke Energy Registrants and are typically recovered through retail rates. Management continually monitors customer charge-offs and payment patterns to ensure the adequacy of bad debt reserves. Duke Energy Ohio and Duke Energy Indiana sell certain of their accounts receivable and related collections through CRC, a Duke Energy consolidated VIE. Losses on collection are first absorbed by the equity of CRC and next by the subordinated retained interests held by Duke Energy Ohio, Duke Energy Kentucky and Duke Energy Indiana. See Note 18 to the Consolidated Financial Statements, “Variable Interest Entities.” Duke Energy also provides certain non-tariff services, primarily to large commercial and industrial customers in which incurred costs are intended to be recovered from the individual customer and therefore are not subject to rate recovery in the event of customer default. Customer credit worthiness is assessed prior to entering into these transactions.
Duke Energy’s Commercial Renewables segment enters into long-term agreements with certain creditworthy buyers that may not include the right to call for collateral in the event of a credit rating downgrade. Credit concentration exists to certain counterparties on these agreements, including entities that could be subject to wildfire liability. Additionally, Commercial Renewables may invest in projects for which buyers are below investment grade, although such buyers are required to post negotiated amounts of credit support. Also, power sales agreements and/or hedges of project output are generally for an initial term that does not cover the entire life of the asset. As a result, Commercial Renewables is exposed to market price risk and credit risk related to these agreements.
Duke Energy Carolinas has third-party insurance to cover certain losses related to asbestos-related injuries and damages above an aggregate self-insured retention. See Note 5 to the Consolidated Financial Statements, "Commitments and Contingencies" for information on asbestos-related injuries and damages claims.
The Duke Energy Registrants also have credit risk exposure through issuance of performance and financial guarantees, letters of credit and surety bonds on behalf of less than wholly owned entities and third parties. Where the Duke Energy Registrants have issued these guarantees, it is possible that they could be required to perform under these guarantee obligations in the event the obligor under the guarantee fails to perform. Where the Duke Energy Registrants have issued guarantees related to assets or operations that have been disposed of via sale, they attempt to secure indemnification from the buyer against all future performance obligations under the guarantees. See Note 8 to the Consolidated Financial Statements, “Guarantees and Indemnifications,” for further information on guarantees issued by the Duke Energy Registrants.

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MD&AQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Based on the Duke Energy Registrants’ policies for managing credit risk, their exposures and their credit and other reserves, the Duke Energy Registrants do not currently anticipate a materially adverse effect on their consolidated financial position or results of operations as a result of non-performance by any counterparty.
Marketable Securities Price Risk
As described further in Note 16 to the Consolidated Financial Statements, “Investments in Debt and Equity Securities,” Duke Energy invests in debt and equity securities as part of various investment portfolios to fund certain obligations. The vast majority of investments in equity securities are within the NDTF and assets of the various pension and other post-retirement benefit plans.
Pension Plan Assets
Duke Energy maintains investments to facilitate funding the costs of providing non-contributory defined benefit retirement and other post-retirement benefit plans. These investments are exposed to price fluctuations in equity markets and changes in interest rates. The equity securities held in these pension plans are diversified to achieve broad market participation and reduce the impact of any single investment, sector or geographic region. Duke Energy has established asset allocation targets for its pension plan holdings, which take into consideration the investment objectives and the risk profile with respect to the trust in which the assets are held. See Note 23 to the Consolidated Financial Statements, “Employee Benefit Plans,” for additional information regarding investment strategy of pension plan assets.
A significant decline in the value of plan asset holdings could require Duke Energy to increase funding of its pension plans in future periods, which could adversely affect cash flows in those periods. Additionally, a decline in the fair value of plan assets, absent additional cash contributions to the plan, could increase the amount of pension cost required to be recorded in future periods, which could adversely affect Duke Energy’s results of operations in those periods.
Nuclear Decommissioning Trust Funds
As required by the NRC, NCUC, PSCSC and FPSC, subsidiaries of Duke Energy maintain trust funds to fund the costs of nuclear decommissioning. As of December 31, 2019, these funds were invested primarily in domestic and international equity securities, debt securities, cash and cash equivalents and short-term investments. Per the NRC, Internal Revenue Code, NCUC, PSCSC and FPSC requirements, these funds may be used only for activities related to nuclear decommissioning. These investments are exposed to price fluctuations in equity markets and changes in interest rates. Duke Energy actively monitors its portfolios by benchmarking the performance of its investments against certain indices and by maintaining, and periodically reviewing, target allocation percentages for various asset classes.
Accounting for nuclear decommissioning recognizes that costs are recovered through retail and wholesale rates; therefore, fluctuations in investment prices do not materially affect the Consolidated Statements of Operations, as changes in the fair value of these investments are primarily deferred as regulatory assets or regulatory liabilities pursuant to Orders by the NCUC, PSCSC, FPSC and FERC. Earnings or losses of the fund will ultimately impact the amount of costs recovered through retail and wholesale rates. See Note 10 to the Consolidated Financial Statements, “Asset Retirement Obligations,” for additional information regarding nuclear decommissioning costs. See Note 16 to the Consolidated Financial Statements, “Investments in Debt and Equity Securities,” for additional information regarding NDTF assets.
OTHER MATTERS
Environmental Regulations
The Duke Energy Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal, coal ash and other environmental matters. These regulations can be changed from time to time and result in new obligations of the Duke Energy Registrants.
The following sections outline various proposed and recently enacted legislation and regulations that may impact the Duke Energy Registrants. Refer to Note 4 to the Consolidated Financial Statements, "Regulatory Matters," for further information regarding potential plant retirements and regulatory filings related to the Duke Energy Registrants.
Coal Combustion Residuals
In April 2015, EPA published a rule to regulate the disposal of CCR from electric utilities as solid waste. The federal regulation classifies CCR as nonhazardous waste and allows for beneficial use of CCR with some restrictions. The regulation applies to all new and existing landfills, new and existing surface impoundments receiving CCR and existing surface impoundments located at stations generating electricity (regardless of fuel source), which were no longer receiving CCR but contained liquids as of the effective date of the rule. The rule establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring, protection and remedial procedures and other operational and reporting procedures to ensure the safe disposal and management of CCR. Various industry and environmental parties appealed EPA's CCR rule in the D.C. Circuit Court. On April 18, 2016, EPA filed a motion with the federal court to settle five issues raised in litigation. On June 14, 2016, the court approved the motion with respect to all of those issues. Duke Energy does not expect a material impact from the settlement or that it will result in additional ARO adjustments. On September 13, 2017, EPA responded to a petition by the Utility Solid Waste Activities Group that the agency would reconsider certain provisions of the final rule, and asked the D.C. Circuit Court to suspend the litigation. The D.C. Circuit Court denied EPA’s petition to suspend the litigation and oral argument was held on November 20, 2017. On August 21, 2018, the D.C. Circuit issued its decision in the CCR rule litigation denying relief for industry petitioners' remaining claims and ruling in favor of environmental petitioners on a number of their challenges, including the regulation of inactive CCR surface impoundments at retired plants and the continued operation of unlined impoundments.

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MD&AOTHER MATTERS


On March 15, 2018, EPA published proposed amendments to the federal CCR rule, including revisions that were required as part of the CCR litigation settlement, as well as changes that the agency considered warranted due to the passage of the Water Infrastructure Improvements for the Nation Act, which provides statutory authority for state and federal CCR permit programs. On July 17, 2018, EPA issued a rule (Phase 1, Part 1) finalizing certain, but not all, elements included in the agency's March 15, 2018, proposal. The final rule revises certain closure deadlines and groundwater protection standards in the CCR rule. It does not change the primary requirements for groundwater monitoring, corrective action, inspections and maintenance, and closure, and thus does not materially affect Duke Energy’s coal ash basin closure plans or compliance obligations under the CCR rule. On October 22, 2018, a coalition of environmental groups filed a petition for review in the D.C. Circuit Court challenging EPA's final Phase 1, Part 1 revisions to the CCR rule. On March 13, 2019, the D.C. Circuit Court issued an order in the Phase 1, Part 1 litigation granting EPA’s motion to remand the rule without vacatur. EPA is currently conducting multiple notice-and-comment rulemakings to implement the court’s decision on remand.
In addition to the requirements of the federal CCR rule, CCR landfills and surface impoundments will continue to be regulated by most states. Cost recovery for future expenditures will be pursued through the normal ratemaking process with federal and state utility commissions and via wholesale contracts, which permit recovery of necessary and prudently incurred costs associated with Duke Energy’s regulated operations. For more information, see Notes 4 and 10 to the Consolidated Financial Statements, "Regulatory Matters" and "Asset Retirement Obligations," respectively.
Coal Ash Management Act of 2014
AROs recorded on the Duke Energy Carolinas and Duke Energy Progress Consolidated Balance Sheets at December 31, 2019, and December 31, 2018, include the legal obligation for closure of coal ash basins and the disposal of related ash as a result of the Coal Ash Act, the EPA CCR rule and other agreements. The Coal Ash Act includes a variance procedure for compliance deadlines and other issues surrounding the management of CCR and CCR surface impoundments and prohibits cost recovery in customer rates for unlawful discharge of ash impoundment waters occurring after January 1, 2014. The Coal Ash Act leaves the decision on cost recovery determinations related to closure of ash impoundments to the normal ratemaking processes before utility regulatory commissions.
Consistent with the requirements of the Coal Ash Act, Duke Energy previously submitted comprehensive site assessments and groundwater corrective plans to NCDEQ. In addition, on December 31, 2019, Duke Energy submitted updated groundwater corrective action plans and site-specific coal ash impoundment closure plans to NCDEQ.
On April 1, 2019, NCDEQ issued a closure determination requiring Duke Energy Carolinas and Duke Energy Progress to excavate all remaining coal ash impoundments at the Allen, Belews Creek, Rogers, Marshall, Mayo and Roxboro facilities in North Carolina. On April 26, 2019, Duke Energy Carolinas and Duke Energy Progress filed Petitions for Contested Case Hearings in the Office of Administrative Hearings to challenge NCDEQ's April 1 Order. On December 31, 2019, Duke Energy Carolinas and Duke Energy Progress entered into a settlement agreement with NCDEQ and certain community groups under which Duke Energy Carolinas and Duke Energy Progress agreed to excavate seven of the nine remaining coal ash basins at these sites with ash moved to on-site lined landfills, including two at Allen, one at Belews Creek, one at Mayo, one at Roxboro, and two at Rogers. At the two remaining basins at Marshall and Roxboro, uncapped basin ash will be excavated and moved to lined landfills. Those portions of the basins at Marshall and Roxboro, which were previously filled with ash and on which permitted facilities were constructed, will not be disturbed and will be closed pursuant to other state regulations. For more information, see Note 5, "Commitments and Contingencies," to the Consolidated Financial Statements.
Following NCDEQ's April 1 Order, Duke Energy estimated the incremental undiscounted cost to close the nine remaining impoundments by excavation would be approximately $4 billion to $5 billion, potentially increasing the total estimated costs to permanently close all ash basins in North Carolina and South Carolina to $9.5 billion to $10.5 billion. The settlement lowers the estimated total undiscounted cost to close the nine remaining basins by excavation by approximately $1.5 billion as compared to Duke Energy’s original estimate that followed the order. As a result, the estimated total cost to permanently close all ash basins in North Carolina and South Carolina is now approximately $8 billion to $9 billion, of which approximately $2.3 billion has been spent through 2019. The majority of the remaining spend is expected to occur over the next 15-20 years. Duke Energy intends to seek recovery of all costs through the ratemaking process consistent with previous proceedings.
In 2019, Duke Energy completed excavation of all coal ash at the Riverbend and Dan River plants and coal ash regulated by the Coal Ash Act at the Sutton plant.
For further information on ash basins and recovery, see Notes 4 and 10 to the Consolidated Financial Statements, "Regulatory Matters" and “Asset Retirement Obligations,” respectively.

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MD&AOTHER 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, as of December 31, 2019, provides five-year estimated costs, excluding AFUDC, of new control equipment that may need to be installed on existing power plants primarily to comply with the Coal Ash Act requirements for conversion to dry disposal of bottom ash and fly ash, CWA 316(b) and Effluent Limitations Guidelines through December 31, 2024. The table excludes ash basin closure costs recorded in Asset retirement obligations on the Consolidated Balance Sheets. For more information related to AROs, see Note 10 to the Consolidated Financial Statements.
(in millions)Five-Year Estimated Costs
Duke Energy$280
Duke Energy Carolinas135
Progress Energy90
Duke Energy Progress60
Duke Energy Florida30
Duke Energy Ohio5
Duke Energy Indiana50
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.
Other Environmental Regulations
The Duke Energy Registrants are also subject to various federal, state and local laws regarding air and water quality, hazardous and solid waste disposal and other environmental matters, including the following:
Clean Water Act
Steam Effluent Limitation Guidelines
Cross-State Air Pollution Rule
Clean Power Plan/ACE Rule
Duke Energy continues to comply with enacted environmental statutes and regulations even as certain of these regulations are in various stages of clarification, revision or legal challenge. The Duke Energy Registrants cannot predict the outcome of these matters.
Section 126 Petitions
On November 16, 2016, the state of Maryland filed a petition with EPA under Section 126 of the Clean Air Act alleging that 19 power plants, including two plants (three units) that Duke Energy Registrants own and operate, contribute to violations of EPA’s National Ambient Air Quality Standards (NAAQS) for ozone in the state of Maryland. On March 12, 2018, the state of New York filed a petition with EPA, also under Section 126 of the Clean Air Act alleging that over 60 power plants, including six that Duke Energy Registrants own and operate, contribute to violations of EPA’s ozone NAAQS in the state of New York. Both Maryland and New York sought EPA orders requiring the states in which the named power plants operate impose more stringent NOx emission limitations on the plants. On October 5, 2018, EPA denied the Maryland petition. That same day, Maryland appealed EPA's denial, On October 18, 2019, EPA denied the New York petition, and New York appealed that decision on October 29, 2019. Both appeals are before the D.C. Circuit Court. The impact of these petitions could be more stringent requirements for the operation of NOx emission controls at these plants. The Duke Energy Registrants cannot predict the outcome of these matters.
Global Climate Change
On September 17, 2019, Duke Energy announced an updated climate strategy with a new goal of net-zero carbon emissions from electric generation by 2050. Timelines and initiatives, as well as implementation of new technologies, will vary in each state in which the company operates and will involve collaboration with regulators, customers and other stakeholders.
The Duke Energy Registrants’ GHG emissions consist primarily of CO2 and result primarily from operating a fleet of coal-fired and natural gas-fired power plants. In 2019, the Duke Energy Registrants’ power plants emitted approximately 93 million tons of CO2. Future levels of CO2 emissions will be influenced by variables that include fuel prices, market prices, compliance with new or existing regulations, economic conditions that affect electricity demand and the technologies deployed to generate the electricity necessary to meet the customer demand.

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MD&AOTHER MATTERS


The Duke Energy Registrants have taken actions that have resulted in a reduction of CO2 emissions over time. Actions have included the retirement of 47 coal-fired Electric Generating Units with a combined generating capacity of 5,425 MW. Much of that capacity has been replaced with state-of-the-art highly efficient natural gas-fired generation that produces far fewer CO2 emissions per unit of electricity generated. Duke Energy also has made investments to expand its portfolio of wind and solar projects, increase EE offerings and invest in its zero-CO2 emissions hydropower and nuclear plants. These efforts have diversified its system and significantly reduced CO2 emissions. Between 2005 and 2019, the Duke Energy Registrants have collectively lowered the CO2 emissions from their electricity generation by 39%, which potentially lowers the exposure to any future mandatory CO2 emission reduction requirements or carbon tax, whether as a result of federal legislation, EPA regulation, state regulation or other as yet unknown emission reduction requirement. Duke Energy will continue to explore the use of currently available and commercially demonstrated technology to reduce CO2 emissions, including EE, wind, solar, storage and nuclear. Duke Energy will adjust to evolving and innovative technologies in a way that balances the reliability and affordability that customers expect. Under any future scenario involving mandatory CO2 limitations, the Duke Energy Registrants would plan to seek recovery of their compliance costs through appropriate regulatory mechanisms.
The Duke Energy Registrants recognize certain groups associate severe weather events with increasing levels of GHGs in the atmosphere and forecast the possibility these weather events could have a material impact on future results of operations should they occur more frequently and with greater severity. However, the uncertain nature of potential changes in extreme weather events (such as increased frequency, duration and severity), the long period of time over which any potential changes might take place and the inability to predict potential changes with any degree of accuracy, make estimating any potential future financial risk to the Duke Energy Registrants’ operations impossible.
The Duke Energy Registrants annually, biennially or triennially prepare lengthy, forward-looking IRPs. These detailed, highly technical plans are based on the company’s thorough analysis of numerous factors that can impact the cost of producing and delivering electricity that influence long-term resource planning decisions. The IRP process helps to evaluate a range of options, taking into account forecasts of future electricity demand, fuel prices, transmission improvements, new generating capacity, integration of renewables, energy storage, EE and demand response initiatives. The IRP process also helps evaluate potential environmental and regulatory scenarios to better mitigate policy and economic risks. The IRPs we file with regulators look out 10 to 20 years depending on the jurisdiction.
For a number of years, the Duke Energy Registrants have included a price on CO2 emissions in their IRP planning process to account for the potential regulation of CO2 emissions. Incorporating a price on CO2 emissions in the IRPs allows for the evaluation of existing and future resource needs against potential climate change policy risk in the absence of policy certainty. One of the challenges with using a CO2 price, especially in the absence of a clear and certain policy, is determining the appropriate price to use. To address this uncertainty and ensure the company remains agile, the Duke Energy Registrants typically use a range of potential CO2 prices to reflect a range of potential policy outcomes.
The Duke Energy Registrants routinely take steps to reduce the potential impact of severe weather events on their electric distribution systems by modernizing the electric grid through smart meters, storm hardening, self-healing and targeted undergrounding and applying lessons learned from previous storms to restoration efforts. The Duke Energy Registrants’ electric generating facilities are designed to withstand extreme weather events without significant damage. The Duke Energy Registrants maintain an inventory of coal and oil on-site to mitigate the effects of any potential short-term disruption in fuel supply so they can continue to provide customers with an uninterrupted supply of electricity.
State Legislation
In July 2017, the North Carolina General Assembly passed House Bill 589, and it was subsequently signed into law by the governor. The law includes, among other things, overall reform of the application of PURPA for new solar projects in the state, a requirement for the utility to procure approximately 2,600 MW of renewable energy through a competitive bidding process and recovery of costs related to the competitive bidding process through the fuel clause and a competitive procurement rider.
In accordance with the provisions of HB 589, total procurement was changed based upon how much generation with no economic dispatch or curtailment occurs over the procurement period. Most of this type of generation is solar procured under PURPA. Based upon the current forecasted amount of such generation that will occur over procurement period, Duke Energy estimates the total under HB 589 competitive procurement will be approximately 1,500 to 2,000 MW.
Based on an independent evaluation process, Duke Energy will own or purchase a total of 551 MW of renewable energy from projects under the North Carolina’s CPRE program. The process used was approved by the NCUC to select projects that would deliver the lowest cost renewable energy for customers. Five Duke Energy projects, totaling about 190 MW, were selected during the competitive bidding process. Duke Energy has completed the contracting process for the winning projects. A second tranche for CPRE opened in October 2019 and bids are due by March 9, 2020; the current target date for execution of the contracts is the fourth quarter of 2020.
In various states, legislation is being considered to allow third-party sales of electricity. Deregulation or restructuring in the electric industry may result in increased competition and unrecovered costs. The Duke Energy Registrants cannot predict the outcome of these initiatives.
New Accounting Standards
See Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies,” for a discussion of the impact of new accounting standards.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
See “Management’s Discussion and Analysis of Results of Operations and Financial Condition – Quantitative and Qualitative Disclosures About Market Risk.”

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FINANCIAL STATEMENTS 


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Duke Energy 
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows 
Consolidated Statements of Changes in Equity
  
Duke Energy Carolinas 
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations and Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Equity
  
Progress Energy 
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations and Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Equity
  
Duke Energy Progress 
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations and Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Equity
  
Duke Energy Florida 
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations and Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Equity
  
Duke Energy Ohio 
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations and Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Equity
  
Duke Energy Indiana 
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations and Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Equity
  
Piedmont 
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations and Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Equity
  

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FINANCIAL STATEMENTS 


Combined Notes to Consolidated Financial Statements 
Note 1 – Summary of Significant Accounting Policies
Note 2 – Acquisitions and Dispositions
Note 3 – Business Segments
Note 4 – Regulatory Matters
Note 5 – Commitments and Contingencies
Note 6 – Leases
Note 7 – Debt and Credit Facilities
Note 8 – Guarantees and Indemnifications
Note 9 – Joint Ownership of Generating and Transmission Facilities
Note 10 – Asset Retirement Obligations
Note 11 – Property, Plant and Equipment
Note 12 – Goodwill and Intangible Assets
Note 13 – Investments in Unconsolidated Affiliates
Note 14 – Related Party Transactions
Note 15 – Derivatives and Hedging
Note 16 – Investments in Debt and Equity Securities
Note 17 – Fair Value Measurements
Note 18 – Variable Interest Entities
Note 19 – Revenue
Note 20 – Stockholders' Equity
Note 21 – Severance
Note 22 – Stock-Based Compensation
Note 23 – Employee Benefit Plans
Note 24 – Income Taxes
Note 25 – Other Income and Expenses, Net
Note 26 – Subsequent Events
Note 27 – Quarterly Financial Data (Unaudited)

77




REPORTS 


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Duke Energy Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Corporation and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Investment in Unconsolidated Affiliates - Equity Method Investments - Refer to Notes 4 and 13 to the financial statements.
Critical Audit Matter Description
Investments in affiliates that are not controlled by the Company but over which the Company has significant influence are accounted for using the equity method of accounting. Equity method investments are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. If the decline in value is considered to be other than temporary, the investment is written down to its estimated fair value, which establishes a new cost basis in the investment.
At December 31, 2019, the carrying value of the equity method investment in Atlantic Coast Pipeline, LLC (ACP) was $1.2 billion. ACP has received several adverse court rulings, and as a result, the Company evaluated this investment for impairment. The Company has determined that fair value approximates carrying value and, therefore, concluded the investment is not impaired. The Company used probability-weighted outcome scenarios of discounted future cash flows to estimate the fair value of the investment. The use of probability-weighted, discounted cash flows requires management to make significant estimates regarding the likelihood of various scenarios, the key assumptions including total construction cost and revenues, and the discount rate utilized to determine the fair value estimate. Changes in these assumptions could have a significant impact on the fair value estimate, which is used to determine the amount of any impairment.
We identified the impairment evaluation of ACP as a critical audit matter because of the significant estimates and assumptions management makes related to the probability-weighted, discounted cash flows. The audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the likelihood of various scenarios, the key assumptions including total construction cost and revenues, and the discount rate required a high degree of auditor judgement and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the discounted, probability-weighted forecasts of future cash flows and determination of the fair value of the ACP equity method investment, included the following, among others:
We tested the effectiveness of controls over the accounting for the ACP equity method investment, including those over the development of the fair value estimate.
We evaluated the likelihood of the various outcomes used by management to develop the probability-weighted scenarios of future cash flows by:

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REPORTS 


Obtaining letters and making inquiries from the ACP’s internal and external legal counsel regarding likely outcomes of future court rulings
Reading information included in the Company’s and the project manager’s press releases, regulatory filings and orders, legal briefs and orders, and analyst and industry reports
Reading internal communications to management and the Board of Directors
Comparing the various scenarios to scenarios previously developed by management
We evaluated the reasonableness of the key assumptions used to develop the scenarios of future cash flows by comparing key assumptions to:
Internal communications and schedules to management and the Board of Directors
Information included in the Company’s and the project manager’s press releases, regulatory filings and related orders
Industry reports and external transaction data
Executed contracts and invoices
With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount rate used to develop the fair value estimate by:
Determining the appropriateness of the valuation methodology by comparing management’s methodology to generally accepted valuation practice
Testing the mathematical accuracy of the fair value estimate
Testing the source information underlying the determination of the discount rate
Developing a range of independent estimates of the discount rate and comparing those to the discount rate selected by management
Regulatory Matters - Impact of Rate Regulation on the Financial Statements - Refer to Notes 1, 4, and 10 to the financial statements.
Critical Audit Matter Description
The Company is subject to regulation by federal and state utility regulatory agencies (the “Commissions”), which have jurisdiction with respect to the rates of the Company’s electric and natural gas distribution companies. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2019, the Company has $15 billion recorded as regulatory assets.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions, to support its assertions on the likelihood of future recovery for deferred costs. As such, auditing these judgments required specialized knowledge of accounting for rate regulation due to its inherent complexities, a high degree of auditor judgment, and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates of regulatory assets and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedence of the Commission’s treatment of similar costs under similar circumstances. We evaluated the external information and compared to management’s recorded regulatory asset balances for completeness.
For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
We performed audit procedures on the incurred costs requested for recovery to confirm their completeness and accuracy.
We obtained an analysis from management and letters from internal and external legal counsel, as appropriate, regarding probability of recovery for regulatory assets not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.

/s/ Deloitte & Touche LLP
Charlotte, North Carolina  
February 20, 2020 

We have served as the Company's auditor since 1947.


79




FINANCIAL STATEMENTS 


DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
 Years Ended December 31,
(in millions, except per share amounts)2019
 2018
 2017
Operating Revenues     
Regulated electric$22,615
 $22,097
 $21,177
Regulated natural gas1,759
 1,773
 1,734
Nonregulated electric and other705
 651
 654
Total operating revenues25,079
 24,521
 23,565
Operating Expenses     
Fuel used in electric generation and purchased power6,826
 6,831
 6,350
Cost of natural gas627
 697
 632
Operation, maintenance and other6,066
 6,463
 5,944
Depreciation and amortization4,548
 4,074
 3,527
Property and other taxes1,307
 1,280
 1,233
Impairment charges(8) 402
 282
Total operating expenses19,366
 19,747
 17,968
(Losses) Gains on Sales of Other Assets and Other, net(4) (89) 28
Operating Income5,709
 4,685
 5,625
Other Income and Expenses     
Equity in earnings of unconsolidated affiliates162
 83
 119
Other income and expenses, net430
 399
 508
Total other income and expenses592
 482
 627
Interest Expense2,204
 2,094
 1,986
Income From Continuing Operations Before Income Taxes4,097
 3,073
 4,266
Income Tax Expense From Continuing Operations519
 448
 1,196
Income From Continuing Operations3,578
 2,625
 3,070
(Loss) Income From Discontinued Operations, net of tax(7) 19
 (6)
Net Income3,571
 2,644
 3,064
Less: Net (Loss) Income Attributable to Noncontrolling Interests(177) (22) 5
Net Income Attributable to Duke Energy Corporation3,748
 2,666
 3,059
Less: Preferred Dividends41
 
 
Net Income Available to Duke Energy Corporation Common Stockholders$3,707
 $2,666
 $3,059
      
Earnings Per Share  Basic and Diluted
     
Income from continuing operations available to Duke Energy Corporation common stockholders     
Basic and Diluted$5.07
 $3.73
 $4.37
(Loss) Income from discontinued operations attributable to Duke Energy Corporation common stockholders
    
Basic and Diluted$(0.01) $0.03
 $(0.01)
Net income available to Duke Energy Corporation common stockholders
    
Basic and Diluted$5.06
 $3.76
 $4.36
Weighted average shares outstanding     
Basic and Diluted729
 708
 700
See Notes to Consolidated Financial Statements

80




FINANCIAL STATEMENTS 


DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 Years Ended December 31,
(in millions)  
2019
 2018
 2017
Net Income$3,571
 $2,644
 $3,064
Other Comprehensive (Loss) Income, net of tax(a)
     
Pension and OPEB adjustments9
 (6) 3
Net unrealized (losses) gains on cash flow hedges(47) (10) 2
Reclassification into earnings from cash flow hedges6
 6
 8
Unrealized gains (losses) on available-for-sale securities8
 (3) 13
Other Comprehensive (Loss) Income, net of tax  
(24) (13) 26
Comprehensive Income  
3,547
 2,631
 3,090
Less: Comprehensive (Loss) Income Attributable to Noncontrolling Interests  
(177) (22) 5
Comprehensive Income Attributable to Duke Energy Corporation3,724
 2,653
 3,085
Less: Preferred Dividends41
 
 
Comprehensive Income Available to Duke Energy Corporation Common Stockholders$3,683
 $2,653
 $3,085

(a)     Tax impacts are insignificant for all periods presented.
See Notes to Consolidated Financial Statements

81

FINANCIAL STATEMENTS 


DUKE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
 December 31,
(in millions)2019
 2018
ASSETS   
Current Assets   
Cash and cash equivalents$311
 $442
Receivables (net of allowance for doubtful accounts of $22 at 2019 and $16 at 2018)1,066
 962
Receivables of VIEs (net of allowance for doubtful accounts of $54 at 2019 and $55 at 2018)1,994
 2,172
Inventory3,232

3,084
Regulatory assets (includes $52 at 2019 and 2018 related to VIEs)1,796
 2,005
Other (includes $242 at 2019 and $162 at 2018 related to VIEs)764
 1,049
Total current assets9,163
 9,714
Property, Plant and Equipment   
Cost147,654
 134,458
Accumulated depreciation and amortization(45,773) (43,126)
Generation facilities to be retired, net246
 362
Net property, plant and equipment102,127
 91,694
Other Noncurrent Assets   
Goodwill19,303
 19,303
Regulatory assets (includes $989 at 2019 and $1,041 at 2018 related to VIEs)13,222
 13,617
Nuclear decommissioning trust funds8,140
 6,720
Operating lease right-of-use assets, net1,658
 
Investments in equity method unconsolidated affiliates1,936
 1,409
Other (includes $110 at 2019 and $261 at 2018 related to VIEs)3,289
 2,935
Total other noncurrent assets47,548
 43,984
Total Assets$158,838
 $145,392
LIABILITIES AND EQUITY   
Current Liabilities   
Accounts payable$3,487
 $3,487
Notes payable and commercial paper3,135
 3,410
Taxes accrued392
 577
Interest accrued565
 559
Current maturities of long-term debt (includes $216 at 2019 and $227 at 2018 related to VIEs)3,141
 3,406
Asset retirement obligations881
 919
Regulatory liabilities784
 598
Other2,367
 2,085
Total current liabilities14,752
 15,041
Long-Term Debt (includes $3,997 at 2019 and $3,998 at 2018 related to VIEs)54,985
 51,123
Other Noncurrent Liabilities   
Deferred income taxes8,878
 7,806
Asset retirement obligations12,437
 9,548
Regulatory liabilities15,264
 14,834
Operating lease liabilities1,432
 
Accrued pension and other post-retirement benefit costs934
 988
Investment tax credits624
 568
Other (includes $228 at 2019 and $212 at 2018 related to VIEs)1,581
 1,650
Total other noncurrent liabilities41,150
 35,394
Commitments and Contingencies


 


Equity   
Preferred stock, Series A, $0.001 par value, 40 million depositary shares authorized and outstanding at 2019973
 
Preferred stock, Series B, $0.001 par value, 1 million shares authorized and outstanding at 2019989
 
Common stock, $0.001 par value, 2 billion shares authorized; 733 million shares outstanding at 2019 and 727 million shares outstanding at 20181
 1
Additional paid-in capital40,881
 40,795
Retained earnings4,108
 3,113
Accumulated other comprehensive loss(130) (92)
Total Duke Energy Corporation stockholders' equity46,822
 43,817
Noncontrolling interests1,129
 17
Total equity47,951
 43,834
Total Liabilities and Equity$158,838
 $145,392

See Notes to Consolidated Financial Statements

82

FINANCIAL STATEMENTS 


DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,
(in millions)2019
 2018
 2017
CASH FLOWS FROM OPERATING ACTIVITIES     
Net income$3,571
 $2,644
 $3,064
Adjustments to reconcile net income to net cash provided by operating activities:     
Depreciation, amortization and accretion (including amortization of nuclear fuel)5,176
 4,696
 4,046
Equity component of AFUDC(139) (221) (237)
Losses (Gains) on sales of other assets4
 88
 (33)
Impairment charges(8) 402
 282
Deferred income taxes806
 1,079
 1,433
Equity in earnings of unconsolidated affiliates(162) (83) (119)
Accrued pension and other post-retirement benefit costs24
 61
 8
Contributions to qualified pension plans(77) (141) (19)
Payments for asset retirement obligations(746) (533) (571)
Payment for the disposal of other assets
 (105) 
Provision for rate refunds60
 425
 
Refund of AMT credit carryforwards573
 
 
(Increase) decrease in     
Net realized and unrealized mark-to-market and hedging transactions(48) 22
 18
Receivables78
 (345) (83)
Inventory(122) 156
 268
Other current assets10
 (721) (400)
Increase (decrease) in     
Accounts payable(164) 479
 (204)
Taxes accrued(224) 23
 149
Other current liabilities172
 270
 (482)
Other assets(520) (971) (436)
Other liabilities(55) (39) (60)
Net cash provided by operating activities8,209

7,186

6,624
CASH FLOWS FROM INVESTING ACTIVITIES     
Capital expenditures(11,122) (9,389) (8,052)
Contributions to equity method investments(324) (416) (414)
Return of investment capital11
 137
 281
Purchases of debt and equity securities(3,348) (3,762) (4,071)
Proceeds from sales and maturities of debt and equity securities3,343
 3,747
 4,098
Other(517) (377) (284)
Net cash used in investing activities(11,957)
(10,060)
(8,442)
CASH FLOWS FROM FINANCING ACTIVITIES     
Proceeds from the:     
Issuance of long-term debt7,091
 5,299
 6,909
Issuance of preferred stock1,962
 
 
Issuance of common stock384
 1,838
 
Payments for the redemption of long-term debt(3,476) (2,906) (2,316)
Proceeds from the issuance of short-term debt with original maturities greater than 90 days397
 472
 319
Payments for the redemption of short-term debt with original maturities greater than 90 days(479) (282) (272)
Notes payable and commercial paper(298) 981
 (409)
Contributions from noncontrolling interests843
 41
 
Dividends paid(2,668) (2,471) (2,450)
Other(26) (12) 1
Net cash provided by financing activities3,730

2,960

1,782
Net (decrease) increase in cash, cash equivalents, and restricted cash(18)
86

(36)
Cash, cash equivalents, and restricted cash at beginning of period591
 505
 541
Cash, cash equivalents, and restricted cash at end of period$573

$591

$505
Supplemental Disclosures:     
Cash paid for interest, net of amount capitalized$2,195
 $2,086
 $1,963
Cash (received from) paid for income taxes(651) (266) 4
Significant non-cash transactions:     
Accrued capital expenditures1,356
 1,112
 1,032
Non-cash dividends108
 107
 
See Notes to Consolidated Financial Statements

83

FINANCIAL STATEMENTS 


DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
         Duke Energy Corporation Stockholders'
Accumulated Other Comprehensive
Income (Loss)
      
           Net Unrealized
   Total
    
         Net
 Gains (Losses)
   Duke Energy
    
  Common
   Additional
  Losses on
 on Available-
 Pension and
 Corporation
    
 Preferred
Stock
 Common
 Paid-in
 Retained
Cash Flow
 for-Sale-
 OPEB
 Stockholders'
 Noncontrolling
 Total
(in millions)Stock
Shares
 Stock
 Capital
 Earnings
Hedges
 Securities
 Adjustments
 Equity
 Interests
 Equity
Balance at December 31, 2016
700
 $1
 $38,741
 $2,384
$(20) $(1) $(72) $41,033
 $8
 $41,041
Net income

 
 
 3,059

 
 
 3,059
 5
 3,064
Other comprehensive income

 
 
 
10
 13
 3
 26
 
 26
Common stock issuances, including dividend reinvestment and employee benefits

 
 51
 

 
 
 51
 
 51
Common stock dividends

 
 
 (2,450)
 
 
 (2,450) 
 (2,450)
Distributions to noncontrolling interest in subsidiaries

 
 
 

 
 
 
 (2) (2)
Other(a)


 
 
 20

 
 
 20
 (13) 7
Balance at December 31, 2017
700

$1

$38,792

$3,013
$(10)
$12

$(69)
$41,739

$(2)
$41,737
Net income

 
 
 2,666

 
 
 2,666
 (22) 2,644
Other comprehensive loss

 
 
 
(4) (3) (6) (13) 
 (13)
Common stock issuances, including dividend reinvestment and employee benefits
27
 
 2,003
 

 
 
 2,003
 
 2,003
Common stock dividends

 
 
 (2,578)
 
 
 (2,578) 
 (2,578)
Distributions to noncontrolling interest in subsidiaries

 
 
 

 
 
 
 (1) (1)
Other(b)


 
 
 12

 (12) 
 
 42
 42
Balance at December 31, 2018
727

$1

$40,795

$3,113
$(14)
$(3)
$(75)
$43,817

$17

$43,834
Net income

 
 
 3,707

 
 
 3,707
 (177) 3,530
Other comprehensive (loss) income

 
 
 
(41) 8
 9
 (24) 
 (24)
Preferred stock, Series A, issuances, net of issuance costs(c)
973

 
 
 

 
 
 973
 
 973
Preferred stock, Series B, issuances, net of issuance costs(d)
989

 
 
 

 
 
 989
 
 989
Common stock issuances, including dividend reinvestment and employee benefits
6
 
 552
 

 
 
 552
 
 552
Common stock dividends

 
 
 (2,735)
 
 
 (2,735) 
 (2,735)
Sale of noncontrolling interest(e)


 
 (466) 
10
 
 
 (456) 863
 407
Contribution from noncontrolling interest   
 
 
 

 
 
 
 428
 428
Distributions to noncontrolling interests in subsidiaries

 
 
 

 
 
 
 (4) (4)
Other(f)


 
 
 23
(6) (2) (16) (1) 2
 1
Balance at December 31, 20191,962
733
 $1
 $40,881
 $4,108
$(51) $3
 $(82) $46,822
 $1,129
 $47,951

(a)Retained Earnings relates to a cumulative-effect adjustment due to implementation of a new accounting standard related to stock-based compensation and the associated income taxes. See Note 1 to the Consolidated Financial Statements for additional information. Noncontrolling Interests relates to the purchase of remaining interest in REC Solar.
(b)Amounts in Retained Earnings and AOCI represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information. Amount in Noncontrolling Interests primarily relates to tax equity financing activity in the Commercial Renewables segment.
(c)Duke Energy issued 40 million depositary shares of preferred stock, series A, in the first quarter of 2019.
(d)Duke Energy issued 1 million shares of preferred stock, series B, in the third quarter of 2019.
(e)See Note 3 for additional discussion of the transaction.
(f)Amounts in Retained Earnings and AOCI primarily represent impacts to accumulated other comprehensive income due to implementation of a new accounting standard related to Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
See Notes to Consolidated Financial Statements

84




REPORTS 


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of Directors of Duke Energy Carolinas, LLC 
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Carolinas, LLC and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina  
February 20, 2020
We have served as the Company's auditor since 1947.


85




FINANCIAL STATEMENTS 


DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 Years Ended December 31,
(in millions)2019
 2018
 2017
Operating Revenues$7,395
 $7,300
 $7,302
Operating Expenses     
Fuel used in electric generation and purchased power1,804

1,821
 1,822
Operation, maintenance and other1,868

2,130
 2,021
Depreciation and amortization1,388

1,201
 1,090
Property and other taxes292

295
 281
Impairment charges17

192
 
Total operating expenses5,369
 5,639
 5,214
(Losses) Gains on Sales of Other Assets and Other, net
 (1) 1
Operating Income2,026
 1,660
 2,089
Other Income and Expenses, net151
 153
 199
Interest Expense463
 439
 422
Income Before Income Taxes1,714
 1,374
 1,866
Income Tax Expense311
 303
 652
Net Income$1,403
 $1,071
 $1,214
Other Comprehensive Income, net of tax     
Reclassification into earnings from cash flow hedges
 1
 2
Other Comprehensive Income, net of tax
 1
 2
Comprehensive Income$1,403
 $1,072
 $1,216
See Notes to Consolidated Financial Statements

86




FINANCIAL STATEMENTS 


DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED BALANCE SHEETS
  December 31,
(in millions) 2019
 2018
ASSETS    
Current Assets    
Cash and cash equivalents $18
 $33
Receivables (net of allowance for doubtful accounts of $3 at 2019 and $2 at 2018) 324
 219
Receivables of VIEs (net of allowance for doubtful accounts of $7 at 2019 and 2018) 642
 699
Receivables from affiliated companies 114
 182
Inventory 996

948
Regulatory assets 550
 520
Other 21
 72
Total current assets 2,665
 2,673
Property, Plant and Equipment    
Cost 48,922
 44,741
Accumulated depreciation and amortization (16,525) (15,496)
Net property, plant and equipment 32,397
 29,245
Other Noncurrent Assets    
Regulatory assets 3,360
 3,457
Nuclear decommissioning trust funds 4,359
 3,558
Operating lease right-of-use assets, net 123
 
Other 1,149
 1,027
Total other noncurrent assets 8,991
 8,042
Total Assets $44,053
 $39,960
LIABILITIES AND EQUITY    
Current Liabilities    
Accounts payable $954
 $988
Accounts payable to affiliated companies 210
 230
Notes payable to affiliated companies 29
 439
Taxes accrued 46
 171
Interest accrued 115
 102
Current maturities of long-term debt 458
 6
Asset retirement obligations 206
 290
Regulatory liabilities 255
 199
Other 611
 571
Total current liabilities 2,884
 2,996
Long-Term Debt 11,142
 10,633
Long-Term Debt Payable to Affiliated Companies 300
 300
Other Noncurrent Liabilities    
Deferred income taxes 3,921
 3,689
Asset retirement obligations 5,528
 3,659
Regulatory liabilities 6,423
 5,999
Operating lease liabilities 102
 
Accrued pension and other post-retirement benefit costs 84
 99
Investment tax credits 231
 231
Other 627
 671
Total other noncurrent liabilities 16,916
 14,348
Commitments and Contingencies 

 

Equity    
Member's equity 12,818
 11,689
Accumulated other comprehensive loss (7) (6)
Total equity 12,811
 11,683
Total Liabilities and Equity $44,053
 $39,960
See Notes to Consolidated Financial Statements

87




FINANCIAL STATEMENTS 


DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,
(in millions)2019
 2018
 2017
CASH FLOWS FROM OPERATING ACTIVITIES     
Net income$1,403
 $1,071
 $1,214
Adjustments to reconcile net income to net cash provided by operating activities:     
Depreciation and amortization (including amortization of nuclear fuel)1,671
 1,487
 1,409
Equity component of AFUDC(42) (73) (106)
Losses (Gains) on sales of other assets
 1
 (1)
Impairment charges17
 192
 
Deferred income taxes133
 305
 410
Accrued pension and other post-retirement benefit costs(5) 4
 (4)
Contributions to qualified pension plans(7) (46) 
Payments for asset retirement obligations(278) (230) (271)
Provision for rate refunds36
 182
 
(Increase) decrease in
    
Net realized and unrealized mark-to-market and hedging transactions(8) 2
 9
Receivables(21) (86) (9)
Receivables from affiliated companies68
 (87) 68
Inventory(48) 25
 78
Other current assets(73) (161) 7
Increase (decrease) in
    
Accounts payable(50) 168
 23
Accounts payable to affiliated companies(20) 21
 (38)
Taxes accrued(127) (65) 86
Other current liabilities127
 89
 (161)
Other assets(31) (179) (49)
Other liabilities(36) (90) (31)
Net cash provided by operating activities2,709
 2,530
 2,634
CASH FLOWS FROM INVESTING ACTIVITIES
    
Capital expenditures(2,714) (2,706) (2,524)
Purchases of debt and equity securities(1,658) (1,810) (2,124)
Proceeds from sales and maturities of debt and equity securities1,658
 1,810
 2,128
Notes receivable from affiliated companies
 
 66
Other(204) (147) (109)
Net cash used in investing activities(2,918) (2,853) (2,563)
CASH FLOWS FROM FINANCING ACTIVITIES     
Proceeds from the issuance of long-term debt886
 1,983
 569
Payments for the redemption of long-term debt(6) (1,205) (116)
Notes payable to affiliated companies(410) 335
 104
Distributions to parent(275) (750) (625)
Other(1) (23) (1)
Net cash provided by (used in) financing activities194
 340
 (69)
Net (decrease) increase in cash and cash equivalents(15) 17
 2
Cash and cash equivalents at beginning of period33
 16
 14
Cash and cash equivalents at end of period$18
 $33
 $16
Supplemental Disclosures:     
Cash paid for interest, net of amount capitalized$433
 $452
 $398
Cash paid for income taxes122
 89
 193
Significant non-cash transactions:     
Accrued capital expenditures347
 302
 315
See Notes to Consolidated Financial Statements

88




FINANCIAL STATEMENTS 


DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
   Accumulated Other  
   Comprehensive  
   Loss  
   Net Gains
  
   (Losses) on
  
 Member's
 Cash Flow
 Total
(in millions)Equity
 Hedges
 Equity
Balance at December 31, 2016$10,781
 $(9) $10,772
Net income1,214
 
 1,214
Other comprehensive income
 2
 2
Distributions to parent(625) 
 (625)
Other(2) 
 (2)
Balance at December 31, 2017$11,368
 $(7) $11,361
Net income1,071
 
 1,071
Other comprehensive income
 1
 1
Distributions to parent(750) 
 (750)
Balance at December 31, 2018$11,689
 $(6) $11,683
Net income  
1,403
 
 1,403
Distributions to parent  
(275) 
 (275)
Other1
 (1) 
Balance at December 31, 2019$12,818
 $(7) $12,811
See Notes to Consolidated Financial Statements

89




REPORTS 


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of Directors of Progress Energy, Inc. 
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Progress Energy, Inc. and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina  
February 20, 2020
We have served as the Company's auditor since 1930.


90




FINANCIAL STATEMENTS 


PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 Years Ended December 31,
(in millions)2019
 2018
 2017
Operating Revenues$11,202
 $10,728
 $9,783
Operating Expenses     
Fuel used in electric generation and purchased power4,024
 3,976
 3,417
Operation, maintenance and other2,495
 2,613
 2,301
Depreciation and amortization1,845
 1,619
 1,285
Property and other taxes561
 529
 503
Impairment charges(24) 87
 156
Total operating expenses8,901

8,824

7,662
Gains on Sales of Other Assets and Other, net
 24
 26
Operating Income2,301

1,928

2,147
Other Income and Expenses, net141
 165
 209
Interest Expense862
 842
 824
Income Before Income Taxes1,580

1,251

1,532
Income Tax Expense253
 218
 264
Net Income1,327

1,033

1,268
Less: Net Income Attributable to Noncontrolling Interests
 6
 10
Net Income Attributable to Parent$1,327

$1,027

$1,258
      
Net Income  
$1,327

$1,033

$1,268
Other Comprehensive Income, net of tax  
     
Pension and OPEB adjustments2
 5
 4
Net unrealized gain on cash flow hedges5
 6
 5
Unrealized gains (losses) on available-for-sale securities1
 (1) 4
Other Comprehensive Income, net of tax  
8

10

13
Comprehensive Income  
1,335

1,043

1,281
Less: Comprehensive Income Attributable to Noncontrolling Interests
 6
 10
Comprehensive Income Attributable to Parent$1,335

$1,037

$1,271


See Notes to Consolidated Financial Statements

91

FINANCIAL STATEMENTS 


PROGRESS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
 December 31,
(in millions)2019
 2018
ASSETS   
Current Assets   
Cash and cash equivalents$48
 $67
Receivables (net of allowance for doubtful accounts of $7 at 2019 and $5 at 2018)220
 220
Receivables of VIEs (net of allowance for doubtful accounts of $9 at 2019 and $8 at 2018)830
 909
Receivables from affiliated companies76
 168
Notes receivable from affiliated companies164
 
Inventory1,423

1,459
Regulatory assets (includes $52 at 2019 and 2018 related to VIEs)946
 1,137
Other (includes $39 at 2019 and 2018 related to VIEs)210
 125
Total current assets3,917
 4,085
Property, Plant and Equipment   
Cost55,070
 50,260
Accumulated depreciation and amortization(17,159) (16,398)
Generation facilities to be retired, net246
 362
Net property, plant and equipment38,157
 34,224
Other Noncurrent Assets   
Goodwill3,655
 3,655
Regulatory assets (includes $989 at 2019 and $1,041 at 2018 related to VIEs)6,346
 6,564
Nuclear decommissioning trust funds3,782
 3,162
Operating lease right-of-use assets, net788
 
Other1,049
 974
Total other noncurrent assets15,620
 14,355
Total Assets$57,694
 $52,664
LIABILITIES AND EQUITY   
Current Liabilities   
Accounts payable$1,104
 $1,172
Accounts payable to affiliated companies310
 360
Notes payable to affiliated companies1,821
 1,235
Taxes accrued46
 109
Interest accrued228
 246
Current maturities of long-term debt (includes $54 at 2019 and $53 at 2018 related to VIEs)1,577
 1,672
Asset retirement obligations485
 514
Regulatory liabilities330
 280
Other902
 821
Total current liabilities6,803
 6,409
Long-Term Debt (includes $1,632 at 2019 and $1,636 at 2018 related to VIEs)17,907
 17,089
Long-Term Debt Payable to Affiliated Companies150
 150
Other Noncurrent Liabilities   
Deferred income taxes4,462
 3,941
Asset retirement obligations5,986
 4,897
Regulatory liabilities5,225
 5,049
Operating lease liabilities697
 
Accrued pension and other post-retirement benefit costs488
 521
Other383
 351
Total other noncurrent liabilities17,241
 14,759
Commitments and Contingencies

 

Equity   
Common stock, $0.01 par value, 100 shares authorized and outstanding at 2019 and 2018
 
Additional paid-in capital9,143
 9,143
Retained earnings6,465
 5,131
Accumulated other comprehensive loss(18) (20)
Total Progress Energy, Inc. stockholder's equity15,590
 14,254
Noncontrolling interests3
 3
Total equity15,593
 14,257
Total Liabilities and Equity$57,694

$52,664
See Notes to Consolidated Financial Statements

92




FINANCIAL STATEMENTS 


PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,
(in millions)2019
 2018
 2017
CASH FLOWS FROM OPERATING ACTIVITIES     
Net income$1,327
 $1,033
 $1,268
Adjustments to reconcile net income to net cash provided by operating activities:     
Depreciation, amortization and accretion (including amortization of nuclear fuel)2,207
 1,987
 1,516
Equity component of AFUDC(66) (104) (92)
Gains on sales of other assets
 (24) (28)
Impairment charges(24) 87
 156
Deferred income taxes433
 358
 703
Accrued pension and other post-retirement benefit costs20
 24
 (28)
Contributions to qualified pension plans(57) (45) 
Payments for asset retirement obligations(412) (230) (248)
Provision for rate refunds15
 122
 
(Increase) decrease in     
Net realized and unrealized mark-to-market and hedging transactions(34) 18
 
Receivables47
 (207) (89)
Receivables from affiliated companies81
 (137) 71
Inventory62
 121
 125
Other current assets184
 (12) (397)
Increase (decrease) in     
Accounts payable(4) 217
 (260)
Accounts payable to affiliated companies(50) 109
 (97)
Taxes accrued(74) 8
 17
Other current liabilities25
 129
 (166)
Other assets(336) (876) (300)
Other liabilities(135) (34) (98)
Net cash provided by operating activities3,209

2,544

2,053
CASH FLOWS FROM INVESTING ACTIVITIES     
Capital expenditures(3,952) (3,854) (3,152)
Purchases of debt and equity securities(1,511) (1,753) (1,806)
Proceeds from sales and maturities of debt and equity securities1,504
 1,769
 1,824
Notes receivable from affiliated companies(164) 240
 (160)
Other(190) (162) (59)
Net cash used in investing activities(4,313) (3,760) (3,353)
CASH FLOWS FROM FINANCING ACTIVITIES     
Proceeds from the issuance of long-term debt2,187
 1,833
 2,118
Payments for the redemption of long-term debt(1,667) (771) (813)
Notes payable to affiliated companies586
 430
 100
Dividends to parent
 (250) (124)
Other12
 (1) (4)
Net cash provided by financing activities1,118

1,241

1,277
Net increase (decrease) in cash, cash equivalents, and restricted cash14

25

(23)
Cash, cash equivalents, and restricted cash at beginning of period112
 87
 110
Cash, cash equivalents, and restricted cash at end of period$126
 $112
 $87
Supplemental Disclosures:     
Cash paid for interest, net of amount capitalized$892
 $798
 $773
Cash received from income taxes(79) (348) (146)
Significant non-cash transactions:     
Accrued capital expenditures447
 478
 391
Equitization of certain notes payable to affiliates
 
 1,047
Dividend to parent related to a legal entity restructuring
 
 547
See Notes to Consolidated Financial Statements

93




FINANCIAL STATEMENTS 


PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
  
  
 Accumulated Other Comprehensive Income (Loss)  
  
  
     Net Gains
 Net Unrealized
   Total Progress
    
 Additional
   (Losses) on
 Gains (Losses)
 Pension and
 Energy, Inc.
    
 Paid-in
 Retained
 Cash Flow
 on Available-for-
 OPEB
 Stockholder's
 Noncontrolling
 Total
(in millions)Capital
 Earnings
 Hedges
 Sale Securities
 Adjustments
 Equity
 Interests
 Equity
Balance at December 31, 2016$8,094
 $3,764
 $(23) $1
 $(16) $11,820
 $(13) $11,807
Net income
 1,258
 
 
 
 1,258
 10
 1,268
Other comprehensive income
 
 5
 4
 4
 13
 
 13
Dividends to parent(a)

 (672) 
 
 
 (672) 
 (672)
Equitization of certain notes payable to affiliates1,047
 
 
 
 
 1,047
 
 1,047
Other2
 
 
 
 
 2
 
 2
Balance at December 31, 2017$9,143

$4,350

$(18)
$5

$(12)
$13,468

$(3)
$13,465
Net income
 1,027
 
 
 
 1,027
 6
 1,033
Other comprehensive income (loss)
 
 6
 (1) 5
 10
 
 10
Distributions to noncontrolling interests
 
 
 
 
 
 (1) (1)
Dividends to parent
 (250) 
 
 
 (250) 
 (250)
Other(b)

 4
 
 (5) 
 (1) 1
 
Balance at December 31, 2018$9,143

$5,131

$(12)
$(1)
$(7)
$14,254

$3

$14,257
Net income
 1,327
 
 
 
 1,327
 
 1,327
Other comprehensive income
 
 5
 1
 2
 8
 
 8
Other(c)

 7
 (3) (1) (2) 1
 
 1
Balance at December 31, 2019$9,143

$6,465

$(10)
$(1)
$(7)
$15,590

$3

$15,593

(a)Includes a $547 million non-cash dividend related to a legal entity restructuring.
(b)Amounts in Retained Earnings and AOCI represent a cumulative-effect adjustment due to implementation of a new accounting standard related to Financial Instruments Classification and Measurement. See Note 1 for more information.
(c)Amounts in Retained Earnings and AOCI primarily represent impacts to accumulated other comprehensive income due to implementation of a new accounting standard related to Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
See Notes to Consolidated Financial Statements

94




REPORTS 


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of Directors of Duke Energy Progress, LLC 
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Progress, LLC and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina  
February 20, 2020
We have served as the Company's auditor since 1930.


95




FINANCIAL STATEMENTS 


DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 Years Ended December 31,
(in millions)2019
 2018
 2017
Operating Revenues$5,957
 $5,699
 $5,129
Operating Expenses     
Fuel used in electric generation and purchased power2,012
 1,892
 1,609
Operation, maintenance and other1,446
 1,578
 1,439
Depreciation and amortization1,143
 991
 725
Property and other taxes176
 155
 156
Impairment charges12
 33
 19
Total operating expenses4,789
 4,649
 3,948
Gains on Sales of Other Assets and Other, net
 9
 4
Operating Income1,168
 1,059
 1,185
Other Income and Expenses, net100
 87
 115
Interest Expense306
 319
 293
Income Before Income Taxes962
 827
 1,007
Income Tax Expense157
 160
 292
Net Income and Comprehensive Income$805
 $667
 $715

See Notes to Consolidated Financial Statements

96

FINANCIAL STATEMENTS 


DUKE ENERGY PROGRESS, LLC
CONSOLIDATED BALANCE SHEETS
 December 31,
(in millions)2019
 2018
ASSETS   
Current Assets   
Cash and cash equivalents$22
 $23
Receivables (net of allowance for doubtful accounts of $3 at 2019 and $2 at 2018)123
 75
Receivables of VIEs (net of allowance for doubtful accounts of $5 at 2019 and 2018)489
 547
Receivables from affiliated companies52
 23
Inventory934

954
Regulatory assets526
 703
Other60
 62
Total current assets2,206
 2,387
Property, Plant and Equipment   
Cost34,603
 31,459
Accumulated depreciation and amortization(11,915) (11,423)
Generation facilities to be retired, net246
 362
Net property, plant and equipment22,934
 20,398
Other Noncurrent Assets   
Regulatory assets4,152
 4,111
Nuclear decommissioning trust funds3,047
 2,503
Operating lease right-of-use assets, net387
 
Other651
 612
Total other noncurrent assets8,237
 7,226
Total Assets$33,377
 $30,011
LIABILITIES AND EQUITY   
Current Liabilities   
Accounts payable$629
 $660
Accounts payable to affiliated companies203
 278
Notes payable to affiliated companies66
 294
Taxes accrued17
 53
Interest accrued110
 116
Current maturities of long-term debt1,006
 603
Asset retirement obligations485
 509
Regulatory liabilities236
 178
Other478
 408
Total current liabilities3,230
 3,099
Long-Term Debt7,902
 7,451
Long-Term Debt Payable to Affiliated Companies150
 150
Other Noncurrent Liabilities   
Deferred income taxes2,388
 2,119
Asset retirement obligations5,408
 4,311
Regulatory liabilities4,232
 3,955
Operating lease liabilities354
 
Accrued pension and other post-retirement benefit costs238
 237
Investment tax credits137
 142
Other92
 106
Total other noncurrent liabilities12,849
 10,870
Commitments and Contingencies

 

Equity   
Member's Equity9,246
 8,441
Total Liabilities and Equity$33,377
 $30,011
See Notes to Consolidated Financial Statements

97

FINANCIAL STATEMENTS 


DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,
(in millions)2019 2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES     
Net income$805
 $667
 $715
Adjustments to reconcile net income to net cash provided by operating activities:     
Depreciation and amortization (including amortization of nuclear fuel)1,329
 1,183
 936
Equity component of AFUDC(60) (57) (47)
Gains on sales of other assets
 (9) (5)
Impairment charges12
 33
 19
Deferred income taxes197
 236
 384
Accrued pension and other post-retirement benefit costs4
 15
 (20)
Contributions to qualified pension plans(3) (25) 
Payments for asset retirement obligations(390) (195) (192)
Provisions for rate refunds12
 122
 
(Increase) decrease in     
Net realized and unrealized mark-to-market and hedging transactions(6) 5
 (4)